A RESOLUTION ADOPTING POLICIES TO GOVERN THE TRANSITION SUPPLY CONTRACTS WHICH HAVE BEEN ASSIGNED AND TRANSFERRED TO NATIONAL POWER CORPORATION SUCCESSOR GENERATING COMPANIES

WHEREAS, Section 67 of Republic Act No. 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), requires the
National Power Corporation (NPC) to file for the approval of the
Commission Transition Supply Contracts (TSCs) duly negotiated with the
Distribution Utilities (DUs);

WHEREAS, under the said provision, the term of the TSCs shall not
extend beyond one (1) year from the introduction of actual open access
and retail competition and that said contracts shall be assignable to
the NPC successor genera ting companies;

WHEREAS, on separate dates, NPC filed applications for the approval
of these TSCs, which were correspondingly approved by the Commission on
19 October 2006 for TSCs covering the Visayas and Mindanao grids and 06
February 2007 for TSCs covering the Luzon grid;

WHEREAS, subsequent approvals were likewise made by the Commission for extended terms of several TSCs on 22 September 2008;

WHEREAS, as a result of the privatization process envisioned under
Section 47of the EPIRA, several NPC generation assets have been
successfully privatized as a consequence of which several TSCs were
assigned and transferred to the NPC successor generating companies;

WHEREAS, the Commission is cognizant that there are several TSCs
whose terms are to expire even before one (1) year from introduction of
open access and retail competition and that the NPC successor generating
companies and the concerned DUs or other customers may require
sufficient time to negotiate for the execution of new bilateral power
supply contracts;

WHEREAS, the Assignability Clause of the TSCs states that any
assignment shall not affect or impair the DUs’ rights and obligations
with respect to quantity and price of electricity, contract effectivity, incentives, discounts and other terms and conditions of the
contract where the assumption of the rights and obligations shall be
made through a written instrument;

WHEREAS, issues have been raised with the Commission on the rates to
be imposed by the DUs as a consequence of such transfer and assignment
of TSCs particularly on (1) the TSC rate that should govern the
transactions; (2) the Deferred Accounting Adjustment that the
NPC-Successor Generating Companies may be authorized to implement; (3)
the entitlement of the residential end-users of the affected DU to the
Mandatory Rate Reduction under Section 72 of the EPIRA; and (4)
corresponding Value Added Tax ( VAT) that should be applied;

NOW THEREFORE, the Commission, after thorough and due deliberation,
RESOLVED, as it hereby RESOLVES to ADOPT the following policies that
would govern these TSCs which have been assigned and transferred to the
NPC successor generating companies:

1. TSCs assigned and transferred to NPC successor generating
companies shall retain their nature as such until the expiration of the
term originally agreed upon in the contract or the extension granted by
the Commission, provided that these contracts shall not extend beyond
one (1) year from actual access and retail competition.

2. Prior to the expiration of the TSC which has been assigned and
transferred, the NPC successor generating companies and the DUs are not
precluded from negotiating for and entering into new bilateral power
supply contracts that should govern the transactions between the
parties.

3. In no case shall the TSC contract period be extended from the
expiration of the original term of the TSC which has been assigned and
transferred, unless expressly allowed by the Commission by virtue of the
pendency of the approval of a new bilateral power supply contract
between the parties. The negotiations leading to and filing for the
approval of the new bilateral power supply contract shall be consistent
with provisions of the Commission-approved “Guidelines for the Recovery of Cost of the Generation Component of the Distribution Utilities’ Rates (The “Guidelines”).

4. However, for TSCs which are set to expire within six (6) months
from the effectivity of this Resolution, and without a new bilateral
power supply contract being filed with and approved by the Commission,
the terms and conditions of the contract shall be allowed to be
extended, subject to mutual agreement by the parties and notice made to
the Commission. Any extension under this provision shall not run beyond
six (6) months from the effectivity of this Resolution.

5. For TSCs, the contract period of which have expired prior to effectivity of this Resolution, and without a new bilateral power supply
contract filed with the Commission, the parties are given a period sixty
(60) days from effectivity of this Resolution, within which to file
for the approval of the new bilateral power supply contract with the
Commission.

6. Meanwhile, the DUs which are covered by assigned TSCs which are
set to expire prior to one year from open access shall be allowed to
revert and renew their TSCs with NPC; Provided that, the
concerned DU shall provide sufficient proof that reasonable and diligent
efforts were exerted to negotiate with other generating companies
other than NPC but the same failed; Provided further that, the said TSC is filed for approval by the Commission; Provided finally that, there
is sufficient NPC dependable capacity to serve the requirements of the
concerned DU for the duration of the TSC. Accordingly, NPC and the
National Transmission Corporation (TransCo) are hereby enjoined to
strictly comply with Section 1, Article IV of the Guidelines on the
filing by the NPC of the Record of Available TSCs by Region. Said
provision in part provides that;

“xxx. Such filing shall be certified by the Department of Energy
(DOE). Within six (6) months of the filing of the initial Regional TSC
Availability Record, and every six (6) months thereafter during the term
of the TSCs, NPC and TRANSCO shall file an updated Regional TSC Availability Record duly certified by the DOE.”

7. In all cases, the application for the approval of a new
bilateral supply contract between the original parties to the TSC should
be made and filed with the Commission at least sixty (60) days prior to
the expiration of the term of the TSC or extension allowed under
Section 4 hereof. At least three (3) months prior to the expiration of
the TSC or any extension allowed thereof, the concerned DU shall inform
the Commission of any negotiations made, identifying the particular
generating company/ies intended to be the counterparty/ies to the new
bilateral power supply contract.

8. For the duration of the assigned and transferred TSC, the
applicable TSC rate shall be the Commission-approved NPC-Time-of-Use
(TOU) rate including the Franchise Benefits to Host Communities and any
adjustments made on the Generation Rate Adjustment Mechanism (GRAM) and
the Incremental Currency Exchange Rate Adjustment (ICERA) or the
Deferred Accounting Adjustments (DAA). However, NPC shall be responsible
for or benefit from, any refund or recovery of the DAA covering the
test periods prior to the Closing Date in accordance with the
privatization sale process issued by the Power Sector Assets and
Liabilities Management Corporation (PSALM).

9. The foregoing notwithstanding, and should there be unreasonable
delay in the implementation of actual open access and retail
competition, the Commission, subject to the due process requirements,
shall not be precluded from subsequently adopting alternative benchmark
TSC rates that should reflect just and reasonable costs for the ordinary
end-users.

10. Section 72 of the EPIRA on the Mandatory Rate Reduction (MRR)
shall continue to be implemented. The NPC successor generating companies
shall shoulder the MRR from the time of their respective Closing Dates,
unless the parties agree otherwise. Any MRR accruing after the Notice
of Award and prior to the Closing Date shall be for the account of NPC.
Thus, residential end-users of the affected DUs shall continue to enjoy
the rate reduction of thirty centavos per kilowatthour (PhP0.30/kwh)
and the implementation of the same shall terminate upon the expiration
of the original term of the assigned and transferred TSCs.

11. While the provisions of the TSC state that any assignment
thereof shall not affect or impair DU’s rights and obligations with
respect to, among others, quantity and price of electricity, the
provisions of Republic Act No. 9337 are specific as to the applicability
of the Value Added Tax (VAT) upon gross receipts derived from sales of
electricity by generating companies. Thus, in the case of power generated from renewable and non-renewable sources, the said VAT rates shall
apply to the power generated by the NPC successor generating companies
depending on the nature and characteristics of the plant acquired from
NPC, which VAT rate shall be imposed on or passed on to the DUs under
the assigned TSCs.

12. Violation of any of the foregoing shall be subject to the
administrative sanctions that the Commission may impose pursuant to the “Guidelines
to Govern the Imposition of Administrative Sanctions in the Form of
Fines and Penalties Pursuant to Section 46 of R.A. No. 9136”.

This Resolution shall take effect fifteen (15) days following its
publication in a newspaper of general circulation in the Philippines.

Let copies of this Resolution be furnished the University of the
Philippines Law Center-Office of the National Administrative Register
(UPLC-ONAR) and all entities engaged in the generation, distribution and
supply of electricity.

Adopted: 15 Dec. 2008

(SGD.) ZENAIDA G. CRUZ-DUCUT Chairperson
(SGD) RAUFA A. TAN Commissioner	(SGD) ALEJANDRO Z. BARIN Commissioner
(SGD) MARIA TERESA A.R. CASTANEDA Commissioner	(SGD) JOSE C. REYES Commissioner