PREFATORY STATEMENTThe Energy Regulatory Commission (ERC) proposes to amend its

Guidelines for the Determination of Installed Generating Capacity in aGrid and National Installed Generating Capacity and Enforcement of theLimits on Concentration of Ownership, Operation or Control of InstalledGenerating Capacity" (Guidelines) to conform to the pertinent provisionsof Section 45(a) of Republic Act No. 9136 which provides as follows:

"No company or related group can own, operate orcontrol more than thirty percent (30%) of the installedgenerating capacity of a grid and/or twenty-five percent(25%) of the national installed generating capacity.'Related group' includes a person's business interests,including its subsidiaries, affiliates, directors or officers orany of their relatives by consanguinity or affinity,legitimate or common law, within thefourth civil degree."

The current Guidelines issued under Resolution No. 26, Series of2015, was primarily based on the provisions of Section 4 of Rule 11of theImplementing Rules and Regulations (IRR) of RA9136 which provides forcontrol as the basis for crediting the installed generating capacity of aGeneration Facility to a Generation Company and its affiliates or relatedgroup.

The proposed amended Guidelines, on the other hand, provides thatin the determination of the Generation Companies' market shares andpotential breach of the 30% and 25% market share limitation, it shall beseparately determined based on three (3) separate tests, as follows:

a. Ownership test;b. Operation test; andc. Control test.

The generation company and its related group, if any, should complywith all the abovementioned tests. In the event that the generationcompany exceeds the limits in either of the tests required, the ERC shallconsider the same as a breach of any of the market share limitation. If ageneration company and its related group exceed the limits as periodically

determined and set by the ERC in accordance with the Guidelines, it isobligated to inform and report such breach and the reason therefor to theERCwithin the prescribed period from the occurrence thereof.

Thus, the Commission seeks the comments from the various industrystakeholders on the proposed amended Guidelines pursuant to Section4s(a) of RA 9136.

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Republic of the PhilippinesENERGY REGULATORY COMMISSION

San Miguel Avenue, Pasig City

AMENDED GUIDELINES FOR THE DETERMINATION OFINSTALLED GENERATING CAPACITY IN A GRID AND THENATIONAL INSTALLED GENERATING CAPACITY AND

ENFORCEMENT OF THE LIMITS ON CONCENTRATION OFOWNERSHIP, OPERATION OR CONTROL OF INSTALLED

GENERATING CAPACITY UNDER SECTION 45 OFREPUBLIC ACT NO. 9136

Pursuant. to Section 45 of Republic Act No. 9136, the EnergyRegulatory Commission (ERC) hereby adopts and promulgates thefollowing Amended Guidelines for the Determination of InstalledGenerating Capacity in a Grid and the National Installed GeneratingCapacity and Enforcement of the Limits on Concentration ofOwnership, Operation or Control of Installed Generating Capacity:

ARTICLE I

GENERAL PROVISIONS

Section 1. Purpose/Objectives

The following are the objectives of these Guidelines:

a. To promote free and fair competition in the generation andsupply of electricity to acl:;1ievegreater operational andeconomic efficiency; and

b. To ensure consumer protection and enhance thecompetitive operation of the markets for generation andsupply of electricity.

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Section 2. Guiding Principles

General

a. No Person, Company, or Related Group, can own, operate orcontrol more than thirty percent (30%) of the InstalledGenerating Capacity of a grid and/or twenty-five percent(25%) of the national Installed Generating Capacity.

b. Related group includes a person's business interests,including its subsidiaries, affiliates, directors or officers orany of their relatives by consanguinity or affinity, legitimateor common law, within the fourth civil degree.

c. In determining compliance with the limitations on theInstalled Generating Capacity, a Person, Company, and itsRelated Group shall comply with three (3) tests prescribedunder these rules, viz:

a. Ownership test;b. Operation test; and,c. Control test

Section 3. Scope

These Guidelines shall apply to all Persons, such as GenerationCompanies, subsidiaries and Affiliates of GenerationCompanies, stockholders and officials of GenerationCompanies, Related Group, IPP Administrators, and otherElectric Power Industry Participants.

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Section 4. Definition of Terms.

Act

Affiliate

Control

Electric PowerIndustryParticipant

refers to Republic Act No. 9136,otherwise known as "Electric PowerIndustry Reform Act of 2001";

refers to any person which, alone ortogether with any other person,directly or indirectly, through one ormore intermediaries, controls, iscontrolled by, or is under commoncontrol with another person.Affiliates shall include a subsidiarycompany and parent company andsubsidiaries, directly or indirectly, ofa common parent;

generally refers to the exercise of adirecting, operating, managing,superintending, restricting,regulating, governing, administering,or overseeing influence over anaffair, business, or activity; whenused in the context of the definitionof "Affiliate" and "Related Group",refers to the power to direct or causethe direction of the managementpolicies of a Person by contract, byagency, or otherwise;

refers to any person or entityengaged in the generation,transmission, distribution or supplyof electricity;

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Energy RegulatoryCommission orERC

GenerationCompany

Generation Facility

Generation ofElectricity

Grid

InstalledGeneratingCapacity in a Grid

refers to the regulatory agencycreated under the Act;

refers to any person or entityauthorized by ERC to operatefacilities used in the generation ofelectricity;

refers to a facility for the productionof electricity;

refers to the production of electricityby a generation company or co-generation facility pursuant to theprovisions of the Act;

refers to the high voltage backbonesystem of interconnectedtransmission lines, substations andrelated facilities, located in each ofLuzon, Visayas and Mindanao, or asmay otherwise be determined by theERC',

refers to the sum of the maximumcapacity of the generation facilitieswhich are connected to atransmission system or distributionsystem that forms part of a particularGrid.

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IPP Administrator

Maximum Capacity

Self-generation facilities (SGFs) shallbe excluded in the capacitycomputation until such time that theERC shall have approved anappropriate program for theirparticipation in the market;

refers to the qualified independententity appointed by the Power SectorAssets and Liabilities ManagementCorporation who shall administer,conserve and manage the contractedenergy output of the National PowerCorporation -Independent PowerProducer (NPC-IPP) contracts,including selling the contractedenergy output of these contracts andoffering ancillary services, whereapplicable;

refers to the gross capacity that aunit can sustain over a .specifiedperiod of time as established duringformal demonstration throughtesting based on manufacturers'approved procedures or anyinternationally-accepted testing suchas, but not limited to, the AmericanSociety of Mechanical Engineers

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National PowerCorporation orNPC

Ownership

Person

Power SectorAssets andLiabilitiesManagement

(ASME) and American NationalStandards Institute (ANSI):Provided, That for generationfacilities that have not conductedsuch testing during the 12 monthsimmediately prior to its initialsubmission of its maximum capacity,the initial submission thereof shallbe the highest nominated capacityover the period of twelve (12)months as provided in the capacitynomination submission for dispatchscheduling.

refers to the government corporationcreated under Republic Act No.6395, as amended;

refers to that relation in law by virtueof which a thing pertaining to oneperson is completely subjected to hiswill in everything not prohibited bylaw or the concurrence with therights of another; covers bothequitable or legal ownership;

refers to a natural or juridicalperson;

refers to the corporation createdpursuant to Section 49 of the Act;

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Corporation orPSALM Corp. orPSALM

Related Group

Retail ElectricitySupplier (RES)

refers to a person and any businessentity controlled by that person,along with the Affiliates of suchbusiness entity, and the directorsand officers of the business entity orits Affiliates, and relatives byconsanguinity or affinity, legitimateor common law, within the fourthcivil degree, of the person or any ofthe foregoing directors or officers;and

refers to any Person or entityauthorized by the ERe to sell,broker, market or aggregateelectricityto the end-users.

Unless otherwise provided, allreferences to the RES herein shallinclude the localRES;

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ARTICLE II

Determination of Ownership, Operation or Control ofInstalled Generating Capacity .

Section 1. Determination of the Installed GeneratingCapacity

To determine the Installed Generating Capacity of a Grid, forthe purpose of applying the Limits on Concentration ofOwnership, Operation or Control of Installed GeneratingCapacity:

a. the Installed Generating Capacity of a generation facility isthe sum of the maximum capacity of the generating unitsthat comprise the generation facility;

b. the generating capacity of a generating unit is the maximumcapacity ofthat generating unit, except that-

1. the generating capacity of a generating unit will bedeemed to be reduced to the extent of any permanentreduction in its maximum capacity;

11. the generating capacity of a generating unit will bedeemed to be zero when it was temporarily shut downand was not energized for connection to the Gridduring the 12 months, preceding the determination ofits generating capacity for the current year; and,

iii. a generating unit, even if it has not generatedelectricity at its maximum capacity, will be deemed tobe installed only if it has been physically andelectrically connected to the transmission system ordistribution system that forms part of the Grid and hasinjected energy into that system; and

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c. when the maximum capacity of generating plant cannot betransmitted by reason of inadequate transmission capacityand it is established that such inadequate capacity willpersist in the next 12 months from the determination of thenational Installed Generating Capacity and InstalledGenerating Capacity per Grid; and that the inability totransmit the generating plant's maximum capacity willcontinue even if other generating plants similarlyconstrained will not operate at maximum capacity, thegenerating capacity of the said generating unit shall bedecreased by a proportionate amount corresponding to thetransmission constraint.

Section 2. Fixing of the Installed Capacity per Grid, NationalGrid and the Market Share Limitation per Grid and theNational Grid

In accordance with the foregoing Sections, the initial setting ofthe Installed Generating Capacity per Grid, national Grid andthe market share limitations per Grid and the national Gridshall be contained in a separate and appropriate document to beissued by the ERCto that effect.

The foregoing Installed Generating Capacity pet Grid andnational Installed Generating Capacity, and market sharelimitations will be adjusted by the ERC on or before the 15th dayof March of the succeeding years and/or as often as may benecessary based on the maximum capacity of the power plants.These are based on data submitted by the GenerationCompanies and other entities that are required to submitreports under oath with the ERC pursuant to these Guidelineson their compliance with the market share limitations set in theAct and the Guidelines on the Issuance of Certificates of

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Compliance.

Section 3. Crediting of Generating Capacity

The Generation Companies' market shares. and thedetermination of potential breach of the 25% and 30% marketshare limitation shall be separately determined on the basis ofownership, operation, and control. In crediting the generatingcapacity of a generation facility in favor of one or more personsor entities, the following rules shall be observed:

A. Ownership

1. The Installed Generating Capacity shall be credited to theentity, which owns the Generation Facility regardless ofwhether another entity controls such Installed GeneratingCapacity. For purposes of these Rules, ownership shall beattributed to the Person or entity having legal or equitabletitle to the Generation Facility. Should there be multipleshareholders, the ownership shall be credited to the personor entity which owns majority of the shares.

n. Alternatively, in cases where the Generation Facility isowned by two or more Persons or entities, the InstalledGenerating Capacity shall be credited. to all the entitiesbased on their respective interests.

Ill. In the case of Independent Power Producers (IPP) plantsunder contract with NPC, the ownership of the GenerationFacility shall be the basis of determining who will becredited with the total Installed Generating Capacityregardless of NPC's or the Independent IPP Administrators'(IPPA) control over the contracted capacity.

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B. Operation

1. An entity, other than the owner, that operates the GenerationFacility pursuant to an operating and maintenanceagreement, or any similar arrangements shall be credited theInstalled Generating Capacity.

H. In the absence of any operating agreement with any otherentity, the owner of the plants shall be deemed to be theoperator of the same.

HI. In the case of IPP plants under contract with NPC, theoperator of the plants shall be understood to be the owner,unless otherwise proven. In such case, the InstalledGenerating Capacity shall be credited to the IPP operator ofthe said plant.

C. Control

1. The entity that operates or exercises control over theGeneration Facility pursuant to a maintenance or operatingcontract, lease, assignment, joint venture agreement, or anyother similar arrangement, shall be credited the InstalledGenerating Capacity to the extent of its control. Control refersto the power to direct or cause the direction of themanagement policies of a person by contract, agency orotherwise. .

ii. In the case of IPP plants under contract with NPC, theInstalled Generating Capacity under contract shall becredited to NPC or the IPPA as it has the actual control overthe capacity (dispatch level) generated from the power plantsand the price of electricity offered to the market.

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iii. If two or more entities have control over the InstalledGenerating Capacity pursuant to a maintenance or operatingcontract, lease, assignment, joint venture agreement or anyother similar arrangement, shall be credited to the extent ofits or their control of the Installed Generating Capacity.

D. In the case of Distribution Utilities (DUs), however, they shallnot be considered in control of the capacity, which they havecontracted under bilateral supply contracts executed withgeneration companies for the purpose of serving theircustomers, provided that such contracted capacity is not in thedetermination of the ERC taking into account all relevantconsiderations such as the DU's forecasted demand,unreasonably excessive. In such cases, the DU shall, after dueproceedings, be credited with the capacity in excess of what theERC deems to be reasonable for such DU.

E. For purposes of calculating the market share limitation underthese rules, the procured capacity of a Retail Electricity Supplier(RES) from a Generation Company affiliate obtained from anon-affiliate Generation Company shall be included in thecrediting of the installed generating capacity of the GenerationCompany or group of Generation Companies of which the RESis affiliated.

Section 5. Exemption from the Market Share Limitations.?,~;:, "

Section 1hereof shall not applylo PSALM or NPC during thetime that its assets are being privatized and isolated Grids thatare not connected to the high voltage transmission system.

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Section 6. Breach of the Market Share Limitations

In the event that a Person or entities covered by the MarketShare Limitations should exceed the limits as periodicallydetermined and set by the ERC in accordance with theseGuidelines, there should be a duty on their part to report thisfact and the reason therefor to the ERC within fifteen (15) daysfrom start of occurrence.

Upon determination by the ERC that a Person or entitiescovered by Market Share Limitations have breached theprescribed limits, the ERC shall issue an order for theimposition of price controls, issuance of injunctions,requirement of divestment or disgorgement of excess profits orother market power mitigating measures which are reasonablyknown and generally accepted within the electric powerindustry that the ERC may implement. Such person or entitiesshall comply with such limits within a reasonable period,without prejudice to the imposition of the fines and penalties asprovided under Article III of the "Guidelines to Govern theImposition of Administrative Sanctions in the Form of Finesand Penalties Pursuant to Section 46 of the Act" and institutionof administrative cases against the erring parties for violation ofthe Competition Rules and the imposition of the penaltiesthereunder.

If the reason for exceeding the limits is the increase orimprovement in the technical capacity of the existing generationfacilities of such Person or entities due to plant rehabilitationand other improvements or for any other factors beyond thecontrol of such Person or entities and there is no unfaircompetition that is created thereby, the ERC may. excuse thesame until its next determination of the Installed GeneratingCapacity in a grid and the national Installed Generating

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Capacity and only after then will the ERC issue an order forappropriate market power mitigating measures or divestment,if still warranted, to such extent as would make such Person orentities compliant with the market share limitations based onthe updated Installed Generating Capacity in a grid and thenational Installed Generating Capacity. If such breachconstitutes a benefit to the public, the ERC may likewise grantauthorization under the Competition Rules, after due notice andhearing and subject to such conditions it may impose, for thebreach of the market share limitations.

ARTICLE III

Reportorial Requirements

Section 1. Information

a. To enable the ERC to monitor compliance with the marketshare limitations, each generation company must file with theERC, on or before 30 January of each year, a statement underoath containing the following information:

1. a list, current as of the preceding 31 December, of all ofthe generating units of the generation company which arecommissioned and connected, and their maximumcapacity, fuel type, and location;

11. a list, current as of the preceding 31 December, of all ofthe generating units of the generation company which willbe commissioned and connected during the filing year,and their proposed maximum capacity, fuel type, andlocation;

lll. for each of the generating units referred to in paragraph (i)Page14of18

or (ii), if ownership and control is vested in or shared withanother or some other entities other than the generationcompany, the persons or entities which have equitable or legaltitle thereto and those which exercise control over the capacitythereof, pursuant to whatever arrangement, specificallyShareholders Agreement, Joint Venture Agreement, if any,Operating Contract, if any, Market Trading Agreement, if any;and other contracts involving the management of theGeneration Company, entered into by and between them;

IV. for each of the entities referred to in paragraph (iii):

1. the names and addresses of the stockholders and theirrespective shareholdings, the current directors andofficers;

2. the name and registered office of any holdingcompany, and the name and registered or principaloffice of any parent undertaking; and

3. a list of all the affiliates and their addresses and of thenames and addresses of their current directors andofficers.

b. The statement under oath referred to in the preceding paragraphshall be jointly filed by the entities owning the generation facilityand those exercising control over the capacity thereof. The latestAudited Financial Statements and General Information Sheetsshall likewise be submitted to validate the information referredto in paragraph a(iv) above.

c. To enable the ERC to monitor the actual generating capacity inthe system, it shall be the obligation of all generation companiesand/or entities which exercise control over the capacity of such

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generation companies to inform the ERC through electronic mailof any changes in their maximum capacity on a per unit basis,within five (5) days from the occurrence thereof.

Section 2. Power of ERC to Require Information.

The ERC may, upon written notice, require any Person coveredby these Guidelines including the Market Operator, to provide itwith any information or documents under oath relating to theenforcement and monitoring of compliance with theseGuidelines.

ARTICLE IV

SANCTIONS

Any Person covered by these Guidelines that fails to comply with anyof the above Sections, after due notice and hearing, shall be liable forsuch appropriate fines and penalties as provided under Article III ofthe "Guidelines to Govern the Imposition of Administrative Sanctionsin the Form of Fines and Penalties Pursuant to Section 46 of the Act."Failure to comply with any of the above Sections or to any orderissued by the ERC pursuant thereto shall also be a ground forrevocation of Certificate of Compliance issued to the erringgeneration company.

ARTICLE V

SEPARABILITY

If for any reason any provision of these Guidelines is declaredunconstitutional or invalid by final judgment of a competent court,the other parts or provisions hereof which were not affected therebyshall continue to be in full force and effect. .

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ARTICLE VIEFFECTIVITY

These Guidelines shall take effect on the fifteenth (15th) day followingits publication in a newspaper of general circulation.

Pasig City, , 2015.

JOSE VICENTE B. SALAZARChairman

ALFREDO J. NONCommissioner

GLORIA VICTORIAC. YAP-TARDCCommissioner

JOSEFINA PATRICIA MAGPALE A. ASIRIT GERONIMO D. STA. ANACommissioner Commissioner

macb/datl/fscj

/File name: msLguidelines_finaL101315

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