VISAYAS SUPPLY AUGMENTATION AUCTION (VSAA) RULES

WHEREAS, Section 2 of Republic Act No. 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), declared as a policy
of the State to ensure the quality, reliability, security and affordability of the supply of electric power, protect the public
interest as it is affected by the rates and services of electric
utilities and other providers of electric power, and encourage the
efficient use of energy and other modalities of demand side management;

WHEREAS, Republic Act No. 7638, or the “Department of Energy Act of
1992”, as amended by Section 37 of the EPIRA, authorized DOE to exercise
supervision and control over all government activities relative to
energy projects and to formulate rules and regulations necessary to
implement the objectives of these laws;

WHEREAS, Section 37 (i) of EPIRA, specifically mandates the DOE to
develop policies and procedures and, as appropriate, promote a system of
energy development incentives to enable and encourage energy
participants to provide adequate capacity to meet the demand including,
among others, the reserve requirements;

WHEREAS, the availability and adequacy of electricity is necessary
for the continuous operation of vital industries and thus it is
incumbent upon the government to take the necessary measures to ensure
that there will be no power interruptions in any part of the country;

WHEREAS, the current power situation in the Visayas Grid, as
certified by the System Operator (SO) or the National Grid Corporation
of the Philippines (NGCP), requires for additional power capacities to
meet the increasing power needs and to maintain the mandatory energy
reserve of the region;

WHEREAS, the new generating plants in the Visayas Grid as reported by
the private proponents to the DOE are expected to come on stream by
2010 and 2011;

WHEREAS, the DOE conducted the Visayas Stakeholders’ Meetings on
January 15-16, 2009 where it presented and discussed the Visayas
Supply Augmentation Auction Program (VSAAP);

WHEREAS, the DOE issued Circular No. DC2009-01-0001 on January 16,
2009, which directed DOE-attached agencies (PSALM, NPC, TransCo, and
NEA), all power industry participants, consumers and various
stakeholders to adopt and implement contingency measures to ensure
adequate and reliable electric power supply in the Visayas grid
particularly in the islands of Cebu, Negros, Panay and Bohol;

WHEREAS, under the said DOE Circular, the Philippine Electricity
Market Corporation (PEMC), in coordination with the NGCP as the system
operator, was directed to draft the rules, guidelines and procedures
for the implementation of the VSAAP, in consultation with the electric
power industry participants;

WHEREAS, on February 4-6, 2009, the VSAAP was officially endorsed by
the Visayas electric power industry participants during a series of
public consultations held in Cebu, Negros and Panay islands;

WHEREAS, the DOE posted the draft VSAA Rules in its website from
March 06, 2009 to April 02, 2009 and thereafter conducted a public
consultation on the same;

WHEREAS, the DOE conducted the Visayas public consultation in Cebu
City on April 03, 2009 wherein the industry participants gave their full
agreement to the VSAA Rules as manifested in the Joint Endorsement
signed by the Visayas electric power industry participants;

NOW, THEREFORE, pursuant to its mandate under the EPIRA, the DOE
hereby issues adopts and promulgates the attached VSAA Rules[*] which
shall take effect fifteen (15) days following its publication in two
(2) newspapers of general circulation.

Adopted: 5 May 2009

(SGD.) ANGELO T. REYES
Secretary

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^[*] Text Available at Office of the National Administrative Register, U. P. Law Complex, Diliman, Quezon City.