WHEREAS, Energy Regulations (E.R.) 1-94 promulgated on May 24, 1994 prescribed the provision of direct benefits to pertinent local government units (LGUs) hosting energy resources 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. 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 sates proceeds of their energy projects or energy-generating facilities;

WHEREAS, Department Circular No. 95-11-009 issued on November 8, 1995 required the establishment of trust accounts for the funds required to be set up under E.R. 1-94;

WHEREAS, full implementation of the aforesaid energy regulations and circular has been hampered by concerns regarding the levels of contribution in cases of energy projects and facilities involving integral operations (i.e. geothermal and hydropower facilities) and such projects and facilities involving private sector generators;

WHEREAS, implementation has been further hampered by other issues requiring clarification of certain provisions of E.R. 1-94;

WHEREAS, it has become imperative to issue additional guidelines to supplement and clarify such provisions of the aforesaid energy regulations and circular;

WHEREFORE, premises considered, the DOE hereby adopts the following policies and guidelines to expedite implementation of the aforesaid energy regulations and circular:

I

Applicability of E.R. 1-94

To ensure a uniform applicability of E.R. 1-94, the DOE hereby directs the following entities to provide the benefits required under E.R. 1-94 and to establish trust accounts mandated under Department Circular No. 95-11-009;

a. For energy-generating facilities owned and operated by the National Power Corporation (NPC), the NPC shall fully shoulder the one centavo which shall constitute part of its generation cost.

b. For geothermal resource development projects and power plants, the energy resource developer and power producer shall equally contribute one-half centavo, which shall constitute part of the cost of geothermal steam.

c. For energy-generating facilities owned and/or operated by an independent power producer (IPP) under such private power schemes as Build-Operate-Transfer, Energy Conversion Agreement, Rehabilitate-Operate-Lease, etc. and involving sale of the generated electricity to the NPC, the NPC shall fully shoulder the one centavo which shall constitute part of its cost of purchased power from the concerned IPP.

Where the IPP under any such private power schemes has entered into an agreement with the NPC to shoulder the benefits required under E.R. 1-94, whether fully or partially, such agreement shall govern the obligations of the parties in complying with the said energy regulations.

d. For energy-generating facilities owned and/or operated by an IPP and involving sale of the generated electricity to an electric distribution utility or rural electric cooperative (REC), the IPP shall fully shoulder the one centavo which shall constitute part of its cost of power sold to the concerned utility or REC.

The NPC, Philippine National Oil Company, IPPs, and other concerned energy resource developers and/or power producers shall accordingly adjust their steam costs, rates of purchase or sales, and where necessary, financial accounting systems, as a result of the foregoing requirement.

Any corresponding impact on existing contractual rates of power purchase or sale shall be determined by the concerned energy resource developer and/or power producer and submitted to the Energy Regulatory Board for review and approval.

Accordingly, all concerned energy resource developers and power producers shall cause the establishment of trust accounts for the period ending July 31, 1996 within thirty (30) days after the effectivity of this Circular, in accordance with the guidelines and procedures under Department Circular No. 95-11-009.

The administration of trust accounts in the case of all energy-generating facilities classified under Part I (c) hereof shall be undertaken by the DOE, through its Financial Management Services.

II.

Granting of Benefits from Power Barges

To rationalize the granting of benefits from power barges which operations may entail transfer or dispatch to different locations over certain periods, power barges moored at any location for less than six (6) months shall be exempted from providing the benefits required under E.R. 1-94. For this purpose, the concerned power producer shall submit to the DOE copies of relevant documents to support any request for such exemption.

III

Utilization of the Electrification Fund

In cases where grid-type electrification is deemed unviable for particular host LGUs or host regions 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 host region, through the adaptation of renewable energy technologies with electricity-generating potentials like solar energy, mini-hydro, biomass and such other similar projects.

Renewable energy project proposals shall be referred by the Energy Industry Administration Bureau to the Energy Utilization Management Bureau of the DOE for evaluation. Project implementation shall proceed in accordance with Section 4 (f) (i) and Section 4 (f) (2) of Department Circular 95-11-009.

IV

Sharing of Benefits

For the proper determination of the proportion of benefits to be received by one host LGU vis-a-vis another host LGU in the event the energy-generating facility or the energy resource development project overlaps more than one host LGU, the DOE shall adopt the provision of Section 292 of the Local Government Code which prescribes that "where the natural resources are located in two (2) or more provinces, or in two (2) or more component cities or municipalities or in two (2) or more barangays, their respective shares shall be computed on the basis of: (1) Population - Seventy percent (70%) and (2) Land area -Thirty percent (30%)."

V

Determination of Highy Urbanized Cities

For the proper determination of energy resource development projects and energy-generating facilities located in highly urbanized cities and thereby exempted from providing the benefits pursuant to Section 3 of E.R. 1-94, the DOE shall adopt the list of highly urbanized cities classified by the Bureau of Local Government Supervision of the Department of Interior and Local Government.

For immediate implementation.

Adopted: 9 August 1996

(SGD.) FRANCISCO L. VIRAY
Secretary