Pursuant to the Memorandum of Agreement entered into on September 14, 1993 by and between the Department of Energy and Department of Trade and Industry, the Committee on Direct Power Connection hereby adopts and promulgates the following policy and implementing guidelines governing direct power connection applications of industries with the National Power Corporation.

I
General Statement of Policy

In line with Republic Act No. 6395, as amended, authorizing the National Power Corporation (NPC) to sell electric power in bulk to industrial enterprises and as embodied in the Memorandum of Agreement entered into on September 14, 1993 by and between the Department of Energy and the Department of Trade and Industry, the Committee on Direct Power Connection (hereinafter referred to as the Committee) shall evaluate and recommend actions on applications for direct connection of industrial enterprises with NPC. Toward this end, the Committee shall implement the policy on direct connection as a mechanism to promote investments and industrial development and generate exports and employment with due regard to the determination of the operational capability of the franchise holder or electric cooperative to service industrial power requirements.

II
Implementing Guidelines

Pursuant to the policy on direct connection, the Committee hereby adopts and promulgates the following guidelines:

A. At any given service area, priority shall be given to the authorized cooperative or franchise holder (utility) in the right to supply the power requirements of existing or prospective industrial enterprises that are located or plan to locate within the franchise area of the cooperative or utility; Provided, That the cooperative or utility is technically and financially capable to serve the load applied for as may be certified by the Committee.

B. The Committee shall recognize the right of NPC to continue selling electricity to industrial enterprises pursuant to its existing contracts.

C. The Committee shall entertain and process applications for new direct connections only for industrial enterprises/projects located outside the National Capital Region. This is in line with the policy thrust of rural agri-industrialization including the dispersal of industries to the regions outside the NCR, and the implementation of a public policy which supports the improvement and development of rural infrastructure, industrial dispersal and the integration of the economy - as contained in the Medium-Term Philippine Development Plan for 1993-1998.

D. Direct connection shall be allowed only to industrial enterprises/projects registered by the BOI after September 14, 1993; Provided, That the direct connection shall be for a maximum period of five (5) years.

E. Industrial enterprises/projects already in operation and being served by cooperatives or utilities shall not be allowed to avail of direct connection, except in cases where the concerned enterprise shown sufficient proof of failure on the part of the cooperative or utility to deliver reliable service as may be determined by the Committee.

F. In service areas where the facilities of cooperatives or utilities are not sufficient to meet the supply requirements of industrial enterprises immediately, the Committee may recommend that NPC service the power requirements of these customers directly.

G. In cases where the franchise operator will later on be deemed capable to assume the distribution function for enterprises whose contracts with NPC shall have expired which will thereby require the transfer to the utility of the physical facilities previously put up by NPC, the reimbursement of costs on such facilities shall be made after valuation based on generally accepted accounting principles.

H. In all cases, residential customers, including those in real estate subdivisions must be serviced by or through a cooperative or utility.

I. The Committee shall recognize the right of NPC to sell electric powers in bulk to government institutions pursuant to the provision of Republic Act No. 6395, as amended.

III
Criteria for Evaluation

A. In processing an application for direct power connection, the Committee shall be guided, but not limited, by the following general considerations:

1. The proposed direct connection will promote public interest in a proper and suitable manner considering the need and convenience of the power end-user.

2. The affected franchise holder/cooperative meets the prescribed financial and technical standards of performance, as set forth in Annex 'A'.

B. The Committee shall further recognize the following considerations:

1. Delivery voltage for directly connected industrial loads shall be at a minimum of 69,000 volts, and that the industrial load shall not be less than 2,000 kilowatts.

2. The direct connection will not result in duplication of service facilities on the ground that investment resources are limited.

3. The applicant industrial firm shall advance/finance facilities associated with service delivery if: (i) said facilities are not included in NPC's operational budget for the year; and (ii) said applicant fails to meet NPC's financial viability criteria even if the franchise holder waives its right to service its power requirements.

4. NPC shall reimburse cost of facilities within five (5) years to be credited against future monthly power bills of the customers (in case the industrial firm will finance the distribution system dedicated to its use).

III
Effectivity

This policy and implementing guidelines shall take effect immediately.

Adopted: 8 Sept. 1994

(SGD.) NEPTALI S. FRANCO
Chairman 

ANNEX A
GUIDELINES TO EVALUATE THE CAPABILITY OF
COOPERATIVES/FRANCHISE HOLDER TO
SERVE INDUSTRIES

The following financial and technical standards of performance shall guide the Committee on Direct Power Connection in the determination of the electric cooperative or franchise holder's capability to serve the power requirements of industries:

I
Financial Standards

On the basis of the utility/cooperative's audited financial statements for the last three (3) years immediately preceding the date of application for the direct connection in its service area, the utility/cooperative shall be certified to be in sound financial condition if it meets the following standards:

Indices	Standard
a. Outstanding debt to NPC (ODNPC)	No outstanding debt
b. Debt service Capability Ratio (DCSR) for private utilities Amortization Payment (AP) for electric cooperatives	At least 1.25 At least 1 month
c. Operating Expense Ratio (OER)	At least 95%
d. Average Collection Period (ACP)	Not more than 45 calendar days

Weights are given to; the different financial standards since different financial indicators are not of equal importance in the determination of financial capabilities of electric utilities in taking over industries directly connected to NPC, viz;

Indices	Standards	Weights
ODNPC	No ODNPC	50%
DSCR/AP	1.25 or more/ 1 month or less	25%
OER	95% or less	10%
ACP	45 days or less	15%

In order to pass the financial standards, utilities should obtain at least a 75% passing mark. Those that do not pass one of the above standards should be within 10% of the standards.

2
Technical Capability

On the basis of the utility/cooperative's record of operations for the last three (3) years immediately preceding the date of application for the direct connection in its service area, the utility/cooperative shall be certified to have a track record of reliable service as measured by the following:

Index	Standard
System Losses	not more than 20% for cooperatives
	not more than 14% for utilities

Note: In the report on direct connection issued by the Working Group tasked to study the matter through a Presidential Directive, it was recommended to review these standards to include additional technical indicators/standards.

3
Definition of Terms

a. Outstanding Debt to NPC (ODNPC) shall refer to total outstanding or overdue accounts to NPC excluding restructured debts and receivables from government accounts.

b. Debt Service Capability Ratio (DSCR):

	Net income (before interest) plus Non-Cash Charges
DSCR =	----------------------------------------------
	Interest plus Principal Payments on All Loans

Amortization Payment (AP) shall pertain to the ability of the electric cooperative to fulfill their loan obligation to NEA in terms of payment of amortizations due.

c. Operating Expense Ratio (OER):

	Operating Expenses plus Cost of Available Power less Taxes and Non-Cash Charges
OER =	------------------------------------------
	Revenue from Sale of Electricity

d. Average Collection Period (ACP):

	Customers' Accounts Receivables less Government Accounts
ACP =	------------------------------- x 365 days
	Revenue from Sale of Electricity

e. Percentage system losses is defined as:

		Total Kwh Sales
% System Losses =	1 -	--------------------- x 100%
		Net System Input

 

where:
Net System Input -	Purchased Power plus Utility Generation less Utility's Own Use

Procedures in the Processing and Evaluation of Applications for Direct Connection.

A
Filing of Applications

1. Applicants shall file with the Chairman of the Committee on Direct Power Connection a written application containing and/or enclosing thereto the following information / documents:

1. Name and business address including a brief corporate/business profile of applicant;
   
   
2. Location of applicant's installation, plant, or factory for which direct power connection is sought, including the point(s) of delivery of electric power, as well as the power demand, delivery voltage, requested schedule for connection, load curve, and other relevant technical information; and
   
   
3. Statement of the reasons for applying for direct connection.

For entities intending to apply for renewal of their direct connection contracts, applicants shall advise the Committee and NPC in writing at least six (6) months before the expiration of the contract. The written notice to the Committee shall include the above information/documents and a copy of the existing contract.

2. The Committee, through the Chairman, shall notify in writing the franchise holder/electric cooperative and NPC of the application for direct connection within five (5) days from receipt of the completed information/documents from the applicant. The written notice to the affected private franchise holder/electric cooperative and NPC shall include the following:

1. Name and business address of the applicant;
   
   
2. Location of applicant's installation, plant, or factory for which direct power connection is sought including the point(s) of delivery of electric power as well as the power demand, delivery voltage, requested schedule for connection, and other relevant technical information contained in the application;
   
   
3. The written notice shall also include a request for the affected private franchise holder/electric cooperative to inform the Committee in writing of its position vis-a-vis the application for direct connection;
   
   
4. The position paper of the affected franchise holder/electric cooperative, should include a statement of the reason or reasons for objection thereto, if such be the case. The affected utility/cooperative should also submit the following information on its operations pertaining to the last three (3) years immediately preceding the application:

   1. System coverage and customer profile;

   2. NEA evaluation reports on the cooperative's systems operations and other related records;

   3. Certified true copies of audited financial statements;

   4. NPC power purchase contract and certification of power account;

   5. Power expansion plans (medium and/or long term);

   6. Other documents and records relevant to support its technical and financial capability;

Failure to respond within fifteen (15) days from receipt thereto shall be deemed as a waiver of its right to be heard on the application for direct connection.

Further, the utility/cooperative shall furnish the applicant a copy of said position paper for which the applicant is likewise directed to submit to the Committee a written response on the same within ten (10) days from receipt thereof.

3. Within ten (10) days from receipt of the written responses of both the affected private franchise holder/electric cooperative and the applicant, the Chairman, with written notice to both parties, shall set a preliminary conference between the applicant and the affected franchise holder or electric cooperative before the Committee to consider the following:

1. The simplification of the issues;
   
   
2. The possibility of obtaining stipulations or admissions of facts and of documents to avoid necessary proof; and
   
   
3. Such other matters as may aid in the prompt disposition of the application.

4. After the preliminary conference, the Committee, through the Chairman, shall issue an order reciting the action taken at the conference and agreements/stipulations made by the parties as to any of the matters considered. Such order shall limit the issues to be heard by the Committee to those not disposed of by admissions or agreements of the parties and shall control the subsequent course of the hearing.

5. Within a reasonable time but not exceeding five (5) days after the lapse of the period to submit a written response without one being submitted by the affected private franchise holder/electric cooperative pursuant to paragraph 2.d above, or failure of any of the parties to attend the scheduled preliminary conference or after termination of the conference pursuant to paragraph 3 above, the Committee shall act on the application for direct power connection on the bases of relevant policies and evaluation criteria, as well as the record of the conference, or settle application for hearings, as the proper case may be.

B
Hearing

1. The parties, within five (5) days after receipt of the Notice of Hearing, shall submit their respective position papers with respect to the issues to be heard by the Committee.

2. Unless the Committee, for special reasons, otherwise directs, the order of hearing shall be as follows:

1. The applicant shall present/submit evidence as reflected in his position paper earlier submitted to the Committee;
   
   
2. The private franchise holder/electric cooperative (Intervenor) shall present/submit evidence in support of his objection(s) as reflected in his position paper earlier submitted to the Committee;
   
   
3. When the evidence is concluded the case shall be deemed submitted without further arguments.

3. The parties to any hearing may agree, in writing, upon the facts involved in the hearing, and submit the case to the Committee for resolution upon the facts agreed, without introducing additional evidence. If the parties can agree only on some of the facts in issue, the hearing shall be held only as to the contested issue(s).

4. The proceeding shall be made of record through the stenographic notes taken during the hearings.

5. The Committee may grant a continuance as warranted by the circumstances.

6. Should anyone of the parties after due notice fail to appear in the hearing without sufficient notice or valid reason, the hearing may proceed ex-parte with the presence of the party attending such hearing.

7. The hearing prescribed herein shall not be subject to the strict rules of evidence.

C
Decision

1. The Committee shall, within fifteen (15) days from the submission of the case, render its decision and complete a Report containing the findings of facts and ground therefor.

2. The Decision of the Committee shall be final.

3. Copies of the Decision including the Report shall be furnished the parties.