FURTHER AMENDING THE PROVISIONS OF ENERGY REGULATIONS 1-94, ENTITLE “RULES AND REGULATIONS IMPLEMENTING SECTION 5 (I) OF REPUBLIC ACT NO. 7638, OTHERWISE KNOWN AS THE DEPARTMENT…

WHEREAS, Energy Regulations (E.R.) No. 1-94, promulgated on May 24,
1994 by the Department of Energy (DOE) prescribed the provisions of
direct benefits to pertinent local government units (LGUs) hosting
energy resource development projects and/or energy generating facilities
within their territorial jurisdiction, pursuant to Section 5 (i) of
Republic Act No. 7638 (Department of Energy Act of 1992);

WHEREAS, E.R. No. 1-94 required energy resource developers and/or
power producers to provide, among others, a set of financial benefits
equivalent to one centavo per kilowatt-hour from electricity sale
proceeds of their energy projects or energy-generating facilities;

WHEREAS, under Section 6 of E.R. No. 1-94, the hose LGUs and host
regions are entitled to the following benefits from the energy resource
developer and/or power producer:

a.         25% of one-centavo (P0.0025) per kilowatt-hour for electrification fund;

b.         25% of one-centavo (P0.0025) per kilowatt-hour for development and livelihood fund; and

c.         50% of one-centavo (P0.005) per kilowatt-hour for
reforestation watershed management, health and/or environment
enhancement fund;

WHEREAS, Department Circular No. 95-11-009 and Department Circular
No. 96-08-009, issued on November 8, 1995 and August 9, 1996,
respectively, prescribed the guidelines and procedures for the granting
of the financial benefits required under E.R. No. 1-94 and established
Trust Accounts for the electrification fund, the development and
livelihood fund and reforestation, watershed management, health and/or
environment enhancement fund for the benefit of LGUs which are hosts to
energy generating facilities and/or energy resource;

WHEREAS, E.R. No. 1-94-A, issued on July 13, 1996 prescribed the
amendments to certain provisions of E.R. No. 1-94 to extend
corresponding benefits to host LGUs of energy generating facility fired
by natural gas, including liquefied natural gas (LNG);

WHEREAS, full implementation of the grant of financial benefits has
been hampered by concerns and issues requiring clarification of certain
provisions of the aforesaid E.R. and circulars;

WHEREAS, the DOE conducted consultations with the concerned parties to address the aforesaid concerns and issues;

WHEREAS, upon said consultations, it has become imperative to amend
certain provisions of the aforesaid E.R. and circulars to rationalize
the above-mentioned allocations so as to effectuate more direct and
immediate benefits to concerned LGUs hosting energy generating
facilities and/or energy resource;

WHEREFORE, premises considered, the DOE hereby adopts and
promulgates the following amendments to certain provisions of E.R. No.
1-94 and its attendant rules and guidelines:

SECTION 1.       Amendments to Section 3 of E.R. No. 1-94 on Scope of Application, to read as follows:

“These rules and regulations shall apply to energy resource
development projects and energy-generating facilities located in all
barangays, municipalities, cities, and province including those located
within the Metropolitan Manila, Metropolitan Cebu (Cebu City, Lapu-Lapu
City, and Mandaue City), Metropolitan Davao and other highly urbanized
cities as defined under Section 452 of the Local Government Code.”

SECTION 2.       Amendment to Section 5 of E.R. No. 1-94 on Beneficiaries.

Section 5.c. is hereby amended to clarify provisions of Sections
5.c(2)(b) and 5.c(2) (c) and incorporate new Sections 5.c.(3) and
5.c.(4), to read as follows:

“Section 5.c. Host LGU or region shall be understood as follows:

x                      x                     x

2)         With respect to energy resources:

x                      x                      x

b.       Geothermal. The host LGU with respect to geothermal
resources is where the producing geothermal reservoir is located as
delineated by geochemical, geophysical, and exploration surveys.
“Producing geothermal reservoir” refers to the subsurface geological
environment where the geothermal fluids accummulate and circulate,
inclusive of the production and re-injection/recharge zones.

c.       Hydro. The host LGU with respect to energy resources is
where the hydro reservoir is located as delineated by detailed
topographic, geological, and geotechnical investigation, reservour and
dam height optimization studies; and as delineated by detailed ground
surveys. “Hydro reservoir” refers to either a natural lake or an
artificial lake created by the impounding of stream flow, runoff and
subsurface water behind the dam.

x                      x                     x

3.       With respect to integrated energy generating facilities,
the host LGU or region is that where the energy-generating facilities
and energy resources are located.

4.       With respect to energy-generating facilities and/or
energy resource located in a special economic zone, the host LGU or
region is that where the special economic zone is located.”

SECTION 3.       Amendments to Section 6 of E.R. No. 1-94 on Nature of Benefits —

a.         In line with the thrust of the government to improve
access of electricity services to rural and non-viable areas and the
high demand for electrification projects, the DOE finds it more
beneficial to increase the fund allocation for electrification.

(i) Section 6.a.(1) of E.R. No. 1-94 is hereby amended to read as follows:

“Section 6.a.(1) Electrification

a.  The power producer and/or energy resource developer shall set
aside fifty percent of one-centavo (P0.005) per kilowatt-hour of the
total electricity sales of the energy-generating facilities as an
electrification fund to be applied in the following radiating manner:
(i) the official resettlement or relocation sites of the community and
people affected; (ii) the host barangay; and (iii) the host municipality
or city.

After electrification has reached the municipal or city level, fifty
percent (50%) of the said electrification fund or P0.0025 per
kilowatt-hour of total electricity sales shall be utilized for the
electrification of barangays within the host province and region with
priority given to areas identified in the provincial/regional
development plan or energization plan. The remaining fifty percent (50%)
of the electrification fund or P0.0025 per kilowatt-hour of total
electricity sales shall be utilized for energy-intensive development
plan or energization plan. The remaining fifty percent (50%) of the
electrification fund or P0.0025 per kilowatt-hour of total electricity
sales shall be utilized for energy-intensive development and livelihood
projects or reforestation, watershed management, health and or
environment enhancement projects of the host communities following the
proportion in Sec. 6.e and Sec. 6.f of E.R. No. 1-94 as amended by Sec.
3(a) (ii) and Sec. 3 (a) (iii) hereof.

b.         In implementing said order or radiating benefit,
priority shall be given to the more populous barangay that is nearer in
distance to the power plant and thereafter to the more populous barangay
that is nearer in distance to the energy resource. Any dispute
regarding the sequence of electrification of barangays shall be settled
through a final determination by the DOE after due consultation with the
affected parties. In settling such disputes, the DOE shall give due
weight to the relative population density and proximity of the
energy-generating facilities to the contending host LGUs, as well as
proximity to the nearest tapping point of the franchised distribution
utility.

c.         Electrification of host LGUs or region shall be
undertaken by the relevant franchised distribution utility or any of its
duly accredited contractor/s, herein referred to as the project
implementor. To accelerate, however, energization of host LGUs or
region, the power producer or energy resource developer or their
respective duly accredited contractor/s may implement such projects
subject to the condition set forth under sub-paragraph (e) of this
Section: Provided, That in the cases where such project is implemented
through a contractor other than the franchised distribution utility, all
works shall be done in conformity with the standard construction
assemblies, duly accepted by the franchised distribution utility.

d.         In order to achieve and maintain efficient, reliable
and adequate supply of electricity, the total electrification fund may
be utilized to defray the cost of necessary capital expenditures other
than distribution lines such as but not limited to power transformers,
substations and other power line equipment devices, and associated
operating expenses such as repairs and maintenance, subject to the
evaluation of the DOE.

e.         All facilities financed from the electrification fund
shall be owned, operated and maintained by the relevant franchised
distribution utility which is obligated to provide services to the
concerned LGU. The distribution utility may however, contract the
operation and maintenance of the line to the private sector provided
that the electricity rate charges to the customers shall be approved by
the Energy Regulatory Board (ERB). Notwithstanding the foregoing
provisions, for purposes of setting the power tariffs and return on rate
base, the assets financed by the electrification fund shall not form
part of the rate base. Likewise, the maintenance expenses as well as the
form part of the operating cost base of the relevant franchised
distribution utility.”

(ii) Section 6.e is hereby amended to read as follows :

“Section 6.e. Development and Livelihood.

x                     x                      x

2.      The development and livelihood fund shall be applied in an
equitable preferential manner for the exclusive benefit of the community
and people affected, the host LGU or region in the following manner:

a.         Resettlement Area	—	5%
b.         Host Barangay	—	20%
c.         Host Municipality/City	—	35%
d.         Host Province	—	30%
e.         Host Region	—	10%

Provided, that in the absence of official resettlement area, funds
allocated for the resettlements shall form part of the allocation of the
host barangay.

For funds allocated to the host province and host region,
preferential benefits shall be given to communities hosting the areas
traversed by transmission lines and sub-stations or similar facilities.”

(iii)    Section 6.f is hereby amended to read as follows:

“Section 6.f.  Reforestation, Watershed Management, Health and/or Environment Enhancement Fund

One-fourth of one centavo (P0.0025) per kilowatt-hour of the total
electricity sales of the energy-generating facilities shall be set aside
by the power producer and/or energy resource developer to be used for
reforestation watershed management, health and/or environment
enhancement which shall be allocated as follows:

a.         Resettlement Area	—	5%
b.         Host Barangay	—	20%
c.         Host Municipality/City	—	35%
d.         Host Province	—	30%
e.         Host Region	—	10%

Provided , that in the absence of official any resettlement
area, funds allocated for the resettlement shall form part of the
allocation of the host barangay.

Reforestation and watershed management projects shall be prioritized by the following:

a.      Concerned DOE attached agencies for energy reservations; and

b.      DENR Regional Office for non-energy reservation areas.”

b.         The following additional paragraphs are hereby
incorporated after section 6.f. of E.R. No. 1-94, to read as follows:

“The foregoing paragraph notwithstanding, financial benefits
required from power producer and/or energy resource under Sec. 6.e and
Sec. 6.f of E.R. No. 1-94 as amended in Sec. 3(a)/(ii) hereof, with
respect to energy-generating facilities located within the Metropolitan
Manila, Metropolitan Cebu (Cebu City, Lapu-lapu City, and Mandaue City),
Metropolitan Davao and other highly urbanized cities shall be set aside
into one account to finance electrification projects and thereafter,
any development, livelihood, reforestation, watershed management, health
and/or environment enhancement projects deemed beneficial to any host
barangay, host municipality/city and host province.

Electrification of host LGUs shall be based on the following priority areas:

a.       resettlement area, host barangay and host city of the energy generating facilities and/or energy resource;

b.       host communities of other facilities and/or energy resource with insufficient accrued electrification fund;

c.       areas traversed by transmission lines and sub-stations or similar facilities;

d.       areas not directly connected to the grid or national
transmission system which include isolated or remote communities.

In the case of an integrated energy generating facility where the
generating facility is located within a highly urbanized city and the
corresponding resource is located outside the said highly urbanized
city, the financial benefits shall be utilized in accordance with Sec.
6.e. and Sec. 6.f E.R. No. 1-94 as amended in Sec. 3 (a) (ii) and Sec. 3
(a) (iii) hereof.

c.         The last two paragraph of Section 6 on Advanced Financial Assistance is amended to read as follows:

“After commencement of the commercial operation of a power
generating facility, the benefits and/or financial assistance advanced
by the energy resource developer or the power producer during
pre-operation stage or before the start of commercial operation for the
purpose of securing favorable endorsement from the community and people
affected or the host LGUs, after Republic Act No. 7638 has became
effective or pursuant to these rules and regulations, shall be credited
by the energy resource developer, power producer or
successor-in-interest assignees against the benefits required under
these rules and regulations.

The total advanced financial assistance shall be amortized at a rate
of twenty percent (20%) of the total accrued yearly financial benefits,
irrespective of the type of projects and programs implemented, until
such time that the expenses have been fully paid.”

SECTION 4.       Consistent with Section 3 hereof, Section 7.d
of E.R. No. 1-94, as amended by E.R. No. 1-94 A, is hereby amended to
read as follows :

“Section 7.d. Oil/Petroleum/Natural Gas.

(1)          Indigenous Petroleum and/or Natural Gas Resources Development Projects

x                      x                     x

(3)          Natural Gas- and LNG-fired Power Plants

a.       Electrification benefits equivalent to twenty-five
percent of one- centavo (P0.0025) per kilowatt-hour to be applied in the
radiating manner: (i) the official resettlement or relocation sites of
the community and people affected; (ii) the host barangay; (iii) the
host municipality or city, (iv) host province; (v) host region;

b.       Skills development under Section 6 (b);

c.       Preference in employment under Section 6 (c);

d.       Procurement of local supplies and services under Section 6 (d);

e.       Development and livelihood fund equivalent to fifty
percent of one centavo (P0.005) per kilowatt-hour, which among shall be
applied in an equitable preferential manner in accordance with the
proportion prescribed under Section 6(e) of E.R. 1-94, as amended in
Sec. 3(a) (ii).”

SECTION 5.       Amendments to Department Circular No. 95-11-009

a.      Amendments to Section 1.e, to read as follows:

“Section 1.e. Administration of the funds shall be undertaken by any of the following:

1.      The National Power Corporation (NPC), for its energy-generating facilities/projects, with respect to DLF and RWMHEEF.

2.  The DOE, through its Financial Management Services, for and on
behalf of energy-generating facilities and/or energy resource
development projects owned and/or operated by the following entities:

a.      For NPC with respect to EF;

b.      For NPC-Philippine National Oil Company (PNOC) integrated energy projects with respect to EF, DLF, and RWMHEEF;

c.       For independent power producers (IPPs) under such private
power schemes as Build-Operate-Transfer (BOT), Energy Conversion
Agreement (ECA), Rehabilitate-Operate-Lease (ROL), etc. and involving
sale of the generated electricity to the NPC with respect to EF, DLF,
and RWMHEEF; and

d.      For IPPs involving sale of the generated electricity to
the franchised electric distribution utilities with respect to EF, DLF,
and RWMHEEF.

3.  In the event that the energy generating facilities/projects of
the NPC have been privatized, all funds shall be transferred to DOE for
administration. Accordingly, Memorandum of Agreements (MOAs) entered
into by NPC and DOE shall be amended to reflect new owner of the
facility and assignment of responsibilities to the new owner for the
settlement of fund to DOE.”

b.         Amendment to Section 4 of Department Circular 95-11-009 on Project Implementation, to read as follows:

“Section 4.          Project Implementation

a.       The power producer and/or energy resource developer shall
assist the host LGUs in the preparation of annual work program/project
proposals consistent with Annex “A”, to be implemented in any given
year. The amount of financial benefit accruing to the pertinent funds in
the immediate preceding year shall be used as basis in the preparation
of annual work program/project proposals. The said annual work
program/project proposal shall be submitted by the power producer and/or
energy resource developer not later than 15 March of every year.

b.       All work programs/project proposals for DLF and RWMHEEF
shall be implemented within one year upon receipt of funds. Said work
programs/project proposals shall be implemented, supervised and
administered by the concerned LGU.

c.       The power producer and/or energy resource developer shall
review work programs/projects proposals on development and livelihood,
and reforestation, watershed management, health and/or environment
enhancement duly endorsed by the host LGUs/region through a resolution
passed by its sanggunian/Regional Development Council. In the case of
the official resettlement area, work program/project proposals may be
endorsed by the resettlement organization, association or cooperative
duly certified by the power producer and/or energy resource developer
and registered under the concerned government agencies. The power
producer and/or energy resource developer shall make the appropriate
endorsement of annual work program/project proposals to DOE for further
review and approval. The review and approval of said work
program/project project proposals shall be completed by DOE within
twenty (20) days upon receipt of complete documentation. Thereafter,
project implementation shall proceed as prescribed under Sub-section f
(1) hereof.

d.       For reforestation and watershed management projects, work
program/project proposals should be coordinated and endorsed by the
DENR Regional Office or the watershed management administrator in the
area.

e.       For electrification program, the power producer and/or
energy resource developer shall coordinate with the concerned relevant
franchised distribution utility in the development of said program for
the communities/barangays energization/prioritization in any given year.
The annual electrification programs shall be directly transmitted to
the DOE in the review and evaluation of said electrification programs.
Thereafter, project implementation shall proceed as prescribed under
Sub-section f(2) hereof.

f.        Upon submission of complete documentation of the work
program/project proposals, project implementation shall proceed in any
of the following manner:

1.      For development and livelihood, and reforestation, watershed
management, health and/or environment enhancement projects a Memorandum
of Agreement (MOA) shall be forged among the DOE, power producer and/or
energy resource developer, and the concerned LGU to effect project
implementation and funds commitment. the DOE/NPC for their respective
administered fund shall then make the necessary fund allocation and
shall forthwith release the project funds directly to the concerned host
LGU or relevant project implementor within fifteen (15) days upon
submission of complete supporting documents pursuant to the provisions
in the MOA.

2.      For electrification projects, a Memorandum of Agreement
(MOA), shall be forged among the DOE, relevant franchised distribution
utility/project implementor, power producer and/or energy resource
developer, and the concerned host LGU to effect funds commitment and
project implementation. The DOE shall then make the necessary fund
allocation and shall forthwith release the funds to the franchised
distribution utility/project implementor within fifteen (15) days upon
submissions of complete supporting documents pursuant to the provisions
in the MOA.

g.      Implementation of electrification projects utilizing funds
accrued since the establishment of the trust accounts shall follow
Sub-section (e) and Sub-section (f) (2) hereof.

h.       All fund disbursement shall follow government accounting and auditing rules and regulations.

i.        In the event of unjustified disbursement of fund and
non-completion or delay in the implementation of the work program by the
LGU concerned, the DOE shall defer releases of fund for the succeeding
year/s or take appropriate and reasonable measures to impose necessary
sanctions in accordance with any existing and future government rules
and regulations until such time that the LGU would be able to justify
said disbursement to the satisfaction of the DOE.”

c.         Consistent with Section 5.b hereof, the Annexes of A, B
and C of Department Circular No. 95-11-009 are hereby repealed.”

SECTION 6.       Amendment to Section 1(f) of Department
Circular No. 95-11-009, as amended by Department Circular no. 98-11-010,
to read as follows:

“f.      All interest earnings from the funds shall be set aside
into one trust account to be utilized in the order of the following
priority:

a.       Electrification of the direct host barangay and host
municipality/city with insufficient accrued electrification fund;

b.       Electrification of areas traversed by transmission lines and sub-stations or similar facilities;

c.       Electrification of areas not directly connected to the
grid or national transmission system which include isolated or remote
communities; and

d.       Any project that will protect the host LGUs and sustain
the operation of the energy resource/energy generating facilities.

SECTION 7.       Amendments to Department Circular No. 96-08-009

a.      Amendments to Section III on Utilization of the Electrification Fund, to read as follows:

“III.            Utilization of the Electrification Fund

In cases where the grid-type is deemed unviable for particular host
LGU or host region as determined by the DOE, the funds intended for the
purpose may be ordered redirected by the DOE for appropriate energy
projects that can provide immediate electrification to such host LGU or
region, through the use of new and renewable energy (NRE) technologies
with electricity-generating potentials like solar energy, mini-hydro,
biomas and such other similar projects.

New and renewable energy project proposals for host LGU or region
shall be referred by the Energy Industry Administration Bureau (EIAB) to
Energy Utilization Management Bureau (EUMB) of the DOE for evaluation.
The NRE technology recommended by EUMB to be adapted may be contracted
out by the DOE.”

For the purpose of this subsection, a rural energy service provider
having expertise and good track record in the field of indigenous or
renewable energy development, may be tapped to implement the
electrification of the host LGUs.

b.         Amendments to Section IV on Sharing of Benefits, to read as follows:

“IV.           Sharing of Benefits

i.        In the event that the generating facilities and/or the
energy resource overlaps more than one host LGU, the development and
livelihood fund and the reforestation, watershed management, health
and/or environment fund shall be equally allocated among host LGUs:
Provided, however that, in cases where the political boundaries of the
energy generating facilities and/or energy resource are clearly
delineated by land surveys duly approved by the DENR-Land Management
Bureau, sharing shall be allocated based on the percentage of the land
area occupied by the said generating facilities and/or energy resource.

ii.       For integrated energy resource and energy generating
facilities where the facilities are located in a highly urbanized city
and the corresponding energy resource is located outside said city,
sharing shall be as follows:

a.         50% for the host communities of energy generating facilities; and
b.         50% for the host communities of energy resource.”

SECTION 8.       Community Relations Officer (COMREL)

The power producer and/or energy resource developer is hereby
required to designated one Community Relations Officer (COMREL) for each
power plant, tasked to:

a.      Coordinate with the LGU on the preparation of its annual work program/project proposals;

b.      Assist in the preparation of all work program/project proposals prior to release of funds;

c.       Monitor the implementation of all DOE approved work programs/project proposals; and

d.      Act as liaison officer to all concerned government agencies
relative to the implementation of E.R. No. 1-94, as amended.

SECTION 9.       Qualified Development and Livelihood (D &
L) and reforestation, watershed management, health and/or environment
enhancement (RWMHEE) projects.

All work program/project proposals should be able to demonstrate the
potential for enhancing progress, the provision of a decent source of
livelihood, or the upliftment of the community’s general condition of
living. In this regard, the DOE deemed it appropriate to qualify
projects on D & L and RWMHEE as listed under Annex A hereof.

SECTION 10.    Other Provisions —

a.         All Department Circulars, Orders, Memoranda or other
issuances or portions thereof which are inconsistent with this Circular
are hereby superseded, modified or amended accordingly.

b.         All exemptions previously granted by the DOE to power
producer and/or energy resource developer in respect to the required
financial benefits, unless otherwise provided for in this Circular,
shall continue to be enforced.

c.         All provisions of this Circular shall applied to the
financial benefits accrued from the period 26 December 1998 and the
succeeding quarters thereafter. Provisions for interest earnings shall
be applied since the establishments of trust accounts and the succeeding
quarters thereafter.

d.         This Department Circular shall take effect fifteen (15)
days after its complete publication in a newspaper of general
circulation.

Adopted: 17 March 2000

(SGD.) MARIO V. TIAOQUI Secretary
Witnessed by:
(SGD.) NAZARIO C. VASQUEZ President, PNOC-EDC	(SGD.) EDGARDO BAUTISTA  President, SEP