ERC Resolution No. 18-11

June 27, 2011

ERC RESOLUTION NO. 18-11

A RESOLUTION ADOPTING THE RULES AND PROCEDURES GOVERNING THE UTILIZATION AND DISBURSEMENTS OF THE UNIVERSAL CHARGE-ENVIRONMENTAL CHARGE

WHEREAS, Section 34 of

1. Payment for the stranded debts in excess of the amount assumed by the National Government and stranded contract costs of the National Power Corporation ("NPC") as well as qualified stranded contract costs of distribution utilities resulting from the restructuring of the industry;

2. Missionary electrification;

3. The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis- -vis imported energy fuels;

4. An environmental charge equivalent to one fourth of one centavo per kilowatt-hour (PhP0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed rehabilitation and management. Said fund shall be managed by NPC under existing arrangements; and

5. A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.

WHEREAS, Section 34 of the Act also mandates NPC to manage the Universal Charge-Environmental Charge (UC-EC) under existing arrangements;

WHEREAS, Section 34 of the Act limits the use of the UC-EC solely for watershed rehabilitation and management; CSAaDE

WHEREAS, pursuant to Section 4.b of Rule 18 of the Implementing Rules and Regulations (IRR) of the Act, NPC shall submit to the ERC any petition for availment of the UC-EC in relation to proposed watershed rehabilitation and management projects on or before March 15 of every year;

WHEREAS, Section 7 of the Guidelines and Procedures Governing Remittances and Disbursements of the Universal Charge issued by the Power Sector Assets and Liabilities Management Corporation (PSALM) provides that, to facilitate close monitoring of disbursement from the Special Trust Fund (STF) and their use for the intended purpose, each beneficiary shall promptly furnish PSALM with certified true copy of the order (or other relevant ruling) issued by the ERC setting out the Beneficiary's entitlement to the Universal Charge in respect of each year or each calendar month, as the case may be;

WHEREAS, the ERC recognizes the need to set up procedures for the utilization and disbursement of the UC-EC as well as the timely dissemination of information in relation thereto, to ensure that the objectives of the UC-EC are achieved and to enable NPC to fulfill its obligations under the Act;

NOW, THEREFORE, be it RESOLVED, as the Energy Regulatory Commission (ERC) hereby RESOLVES, to ADOPT the "Rules and Procedures Governing the Utilization and Disbursements of the Universal Charge-Environmental Charge", hereto attached as Annex "A", and made an integral part of this Resolution.

This Resolution shall take effect after fifteen (15) days following the completion of 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).

Pasig City, June 27, 2011.

(SGD.) ZENAIDA G. CRUZ-DUCUT
Chairperson
Energy Regulatory Commission

(On Official Business)
RAUF A. TAN
Commissioner
Energy Regulatory Commission

(SGD.) ALEJANDRO Z. BARIN
Commissioner
Energy Regulatory Commission

(SGD.) MARIA TERESA A. R. CASTA EDA
Commissioner
Energy Regulatory Commission

(SGD.) JOSE C. REYES
Commissioner
Energy Regulatory Commission

ANNEX A

RULES AND PROCEDURES GOVERNING THE UTILIZATION AND DISBURSEMENTS OF THE UNIVERSAL CHARGE-ENVIRONMENTAL CHARGE

ARTICLE I

General Provisions

SECTION 1. Guiding Principles. SIHCDA

In compliance with the

a) Management of the EC disbursed by PSALM to the NPC;

b) Utilization of the EC solely for watershed rehabilitation and management;

c) Disbursement of the EC corresponding to the approved petitions to specific watersheds;

d) The utilization of the Special Environmental Fund Account (SEFA), including the use of savings; and

e) Provision of information to NPC so that it may comply with its obligations for the management of the EC.

SECTION 2. Definition of Terms.

Act or refers to

Afforestation refers to the act of planting trees on bare or open lands which are not previously forested. It includes planting of trees on agricultural areas;

Beneficiary refers to the entity eligible or authorized by the ERC to avail of the Universal Charge, specifically the environmental charge, to be used for the rehabilitation and management of watershed areas pursuant to the

Cancelled Projects refer to projects previously approved or qualified under these Rules which implementation has been cancelled due to unfavorable conditions or circumstances such as but not limited to prolonged dry season, el ni o and la ni a effect, force majeure and unstable peace and order situation in the area, which were not considered or existing during the project identification and preparation;

Co-Managership Arrangement refers to an agreement, usually supported with a Memorandum of Agreement, between the NPC and concerned government agencies entered into for the purpose of watershed management, protection and rehabilitation;

Damaged Projects refer to projects previously approved or qualified under these Rules that were impaired or destroyed by force majeure or by any human activity;

Deferred Projects refer to projects previously approved or qualified under these Rules which implementation has been suspended due to fortuitous events or other unforeseen circumstances but which will be pursued in the future if later found feasible;

Energy Regulatory Commission or ERC refers to the regulatory agency created by Section 38 of the Act; HcTSDa

Environmental Charge (EC) refers to the environmental charge under Section 34 of the

Executive Order 224 refers to the law issued on July 16, 1987 vesting on the NPC the complete jurisdiction, control and regulation over watershed areas and reservations surrounding its power generating plants and properties;

Fascines refer to a soil erosion measure consisting of bundles of long and dense brushwood of varying lengths;

Force Majeure refers to a typhoon, storm, tropical depression, flood, drought, volcanic eruption, earthquake, tidal wave or landslide;

Fortuitous Event refers to the act of public enemy, war (declared or undeclared), sabotage, blockade, revolution, riot, insurrection, civil commotion or any violent or threatening actions;

IRR refers to the Implementing Rules and Regulations of the Act or the

National Power Corporation or NPC refers to the government corporation created under

Power Sector Assets and Liabilities Management Corporation or PSALM refers to the government owned and controlled corporation created pursuant to Section 49 of the Act or the

Reforestation refers to the act of planting trees on bare or open lands which used to be covered with forest growth. (1997 Philippine Forestry Statistics);

Rules refer to the "Rules and Procedures Governing the Utilization and Disbursements of the Universal Charge-Environmental Fund";

Savings refer to the monies generated out of bidding and completed projects and from interests on monies from SEFA;

Silvicultural Treatments refer to the maintenance of trees to attain the desired objectives of tree production which include pruning, trimming, thinning, and/or tree maintenance operations;

Special Environmental Fund Account (SEFA) refers to an interest-bearing current account opened by NPC with the Land Bank of the Philippines for purposes of transferring/remitting the UC-EF from PSALM and disbursing the same for the watershed rehabilitation and management of the EF;

Special Trust Fund or STF refers to a trust fund established by PSALM for each intended purpose of the Universal Charge and its corresponding Beneficiary or Beneficiaries;

Watershed refers to a topographically delineated area of land where rainwater collects and drains via a river system to a common outlet point which may be a dam, irrigation system, or municipal water supply take off point, or where the stream discharges into a larger river, lake or the sea; ETDSAc

Watershed Area Team (WAT) refers to an office created under the Watershed Management Department of NPC composed of a Section Chief, a Senior Watershed Management Specialist, a Senior Forest Ranger, Forest Guards and other support personnel who perform the day to day operation and implementation of the watershed management programs;

Watershed Management refers to the process of guiding and organizing land and other resource uses in a watershed to provide desired goods and services without adversely affecting the soil and water resources;

Watershed Rehabilitation refers to a process of restoration of degraded watershed areas through the application of vegetative and structural rehabilitation measures;

Watershed Protection refers to the process of safeguarding, preventing, and controlling of damage to watershed resources from poaching, fire, disease and other injurious and destructive agents;

Wattling refers to a soil erosion measure consisting of interwoven fences of brushwood of shallow trenches 25 cm deep where pegs are driven 50 to 70 cm apart between in which sprouting branches of species are woven.

ARTICLE II

Availment of the Universal Charge-Environmental Charge

SECTION 1. Coverage and Application.

Consistent with Section 34 (d) of the Act, the UC-EC shall be used solely for watershed rehabilitation and management and shall be managed by NPC under existing arrangements. The EC shall be utilized solely for watershed areas supporting generating power plants based on the following order of priority:

a) Existing watersheds over which NPC has complete jurisdiction and control as mandated by pertinent laws and executive issuances prior to

b) Watersheds over which NPC has existing co-management arrangements with other government agencies.

c) Other proclaimed watershed areas supporting geothermal and hydropower plants subject to arrangements to be executed between NPC and the agency concerned, and subject to the approval of the ERC.

Projects qualified to be funded by the UC-EC are classified as follows:

a) Watershed Rehabilitation;

b) Watershed Protection;

c) Acquisition and Maintenance of tools, equipment, hardware and software relative to watershed database management;

d) Research and Development; and HESCcA

e) Technical, Legal, Administrative and Logistical Support.

Among others, the following projects are qualified subjects of petitions for the availment of the UC-EC:

a) Watershed Rehabilitation reforestation, afforestation, agro-forestry, non-timber resources management, silvicultural treatment, production forest development, vegetative means of soil erosion control (e.g., wattling, fascines, hedgerows and planting of vetiver, tiger grass, etc.) or structural means of soil erosion control (e.g., through the construction of check dams, gabions, ripraps, etc.).

b) Watershed Protection forest patrol; community-based watershed protection program; alternative livelihood project that will equip the residents with knowledge or information to venture in other income generating activities which are not dependent on the forest resources; identification, survey and mapping of production areas for rehabilitation, as well as hotspot areas that need protection; information, education and communication (IEC) campaigns; and military assistance in the apprehension of forest laws violators.

c) Watershed Database acquisition and maintenance of state-of-the-art materials, tools and equipment (e.g., Global Positioning System compass and Global Information System hardware, software and system, among others) to facilitate implementation and management of information of the watersheds projects such as geo-referencing of watershed project sites and Management Information System documentation.

d) Watershed Research continuous search for best practices for the improvement of watershed management systems, and the development of programs based on the output of the research undertakings.

e) Technical, legal, administrative, logistical support and infrastructure establishment hiring of technical and legal consultants, procurement of supplies and materials, and acquisition of motor vehicles, communication and other personal protective equipment/gears, and construction of infrastructures supporting watershed rehabilitation and protection such as seedling nursery, forest station, bunkhouse, look-out tower, among others.

SECTION 2. Procedures for Availment of the UC-EC.

a) NPC shall submit its petition for availment of the environmental charge attaching thereto an annual operations plan consisting of programs and projects specified in Section 1 of Article II and the mode of procurement as mentioned under Section 4 of Article II of these Rules on or before March 15 of every year to ERC. All proposed programs and projects contained in the said plan shall be recommended by the concerned Watershed Area Team, in close coordination with other groups and agencies subject to further review and evaluation by the Head Office-WMD.

b) Pre-filing requirements shall be submitted before ERC shall accept the petition: AcTHCE

1. Petitioner must furnish a copy of the petition to the Legislative Body of the LGU of the City or municipality where it principally operates; and

2. Publication of the petition in a newspaper of general circulation within its franchise area or area where it principally operates.

c) Prior to submission of the petition, a pre-filing conference shall be scheduled with the ERC to assess the completeness of the requirements and supporting documents of the project.

d) Public hearing to be scheduled by ERC to be attended by petitioners and the general public.

e) Interested parties who may wish to be involved on the cases to be filed and be furnished with a copy of the petition/s, may file their petitions for intervention or requests in accordance with the Commission's Rules of Practice and Procedures.

SECTION 3. Creation and Maintenance of Special Account for Universal Charge-Environmental Charge.

a) To facilitate the transfer of the UC-EC from PSALM, NPC shall open the SEFA with the Land Bank of the Philippines or any authorized government depository bank. The SEFA account shall be credited every time PSALM disburses the UC-EC fund.

b) NPC will make disbursements of the EC directly from the SEFA to the respective host watershed areas based on case resolution issuances of ERC.

c) Any interest earned on monies of the SEFA shall form part of the UC-EC and shall be used for the specified purpose mentioned in Section 1 of Article III hereof. The amount of interest earned shall be reported to PSALM and be accounted for in its disbursement to NPC. NPC shall submit an annual report to the ERC, together with the annual petition for the availment of UC-EC, on the utilization of interest earned on the SEFA for specific watershed rehabilitation and management projects.

d) Bank charges for the maintenance of the SEFA shall be debited from the SEFA.

SECTION 4. Mode of Implementation.

In implementing the various projects approved by the ERC, NPC may choose any or a combination of the following modes of procurement, provided however that the chosen procurement is in accordance with

a) Public Bidding IcDESA

b) Agency to Agency

c) Alternative Mode of Procurement

1. Limited Source Bidding

2. Direct Contracting

3. Shopping

4. Negotiated Procurement

d) People's Organization

e) By Administration Through Direct Hiring of Laborers

f) By Administration Through Pakyaw Labor

g) Family Contract Reforestation

h) Individual Tree Grower Contract Reforestation

i) Individual Tribal Member Cooperator Contract Reforestation

ARTICLE III

Disbursement of UC-EC and Application of Savings

SECTION 1. Savings and Its Application.

The following monies shall form part of and shall be automatically returned to the SEFA:

(a) Releases of the UC-EC fund from PSALM;

(b) Savings generated out of bidding such as proceeds from the sale of tender documents, forfeiture of performance bonds, etc.;

(d) Accrued interest on monies in SEFA.

Approved funding for deferred and cancelled projects should not form part of the savings. Implementation of deferred projects may still be continued, subject to the confirmation of the ERC. Approved funding for cancelled projects should be reported back to the ERC and PSALM for monitoring purposes and shall be applied to future petitions for availments from the UC-EC.

Savings identified above and accrued interest on monies shall be utilized for the following:

a) Restoration of damaged projects due to force majeure and fortuitous events; and

b) Additional funding for the resumption of deferred projects due to failed bidding or cost overruns.

SECTION 2. Disbursement of Environmental Charge.

A. Requirements aSDCIE

The following conditions and/or requisites must be satisfied before any disbursement can be made against the UC-EC, including savings:

a) Projects duly approved by ERC supported by resolutions;

b) Plan, terms of reference and contracts specific to the project;

c) Compliance with the pertinent provisions of

d) Compliance with internal accounting and auditing rules and regulations of NPC and the Government Accounting and Auditing Manual promulgated by the COA.

B. Procedures

The fund from the SEFA shall be disbursed and utilized only for the specific programs and projects for which it was allotted to in accordance with existing laws, government rules and regulations.

Disbursement shall be in accordance with the internal accounting and auditing rules and regulations of NPC and the Government Accounting and Auditing Manual promulgated by the Commission on Audit.

Disbursement of fund from the SEFA shall be based on accomplishments per project as specified in the Terms of Reference (TOR). All disbursement shall be accompanied by a voucher and shall be approved by the duly authorized officer of the NPC.

SECTION 3. Availment of Savings.

For the resumption of deferred projects:

NPC shall seek the ERC's confirmation for the resumption of deferred projects, supported by the following documents:

a) Certification that the project was initially deferred and strong justifications and reasons for its deferment;

b) Certification that the deferred project is included in the approved projects by the ERC;

c) Certification of failed bidding issued by the concerned Bids and Awards Committee (BAC);

d) Design and revised cost estimates/additional funding requirement if the project was deferred due to failed bidding; and

e) Copy of ERC Decision/Order.

For damaged projects:

In cases of damaged projects, the NPC shall inform and give the ERC a Force Majeure or Fortuitous Event Notice within three (3) months from its occurrence, specifying the following:

a) Details of the Force Majeure or Fortuitous Event concerned; and

b) The details of projects and expenses that NPC has actually incurred as of the date of Force Majeure or Fortuitous Event. CDHacE

The Force Majeure or Fortuitous Event Notice must be accompanied by evidence of the increase in costs referred to in paragraph (b) and justification that such costs are reasonable and resulted as a sole consequence of the Force Majeure or Fortuitous Event.

NPC shall formally file the above projects as part of its annual petition for availments from the UC-EC. The petition shall be supported by documents indicating the following:

a) Certification that the project was damaged;

b) Certification that the damaged project is included in the approved projects by ERC;

c) Incident and investigation reports of damages duly certified by a third party in the locality where the project is located, like the LGUs;

d) Cost estimates of damages duly certified by the agency auditor;

e) Cost estimates for the rehabilitation of damaged project; and

f) Copy of ERC Decision/Order.

SECTION 4. Flexibility in the Use of Funds Under the UC-EC.

Flexibility in the use of funds under the UC-EC shall be allowed provided that:

1. The change of site/location for projects are within the same budget and same watershed area, under watershed rehabilitation (reforestation, agroforestry, other vegetative rehabilitation projects, structural such as gabions, rubble masonry, ripraps, check-dams, etc.) and the construction of checkpoints, nursery houses, bunkhouses, etc.

2. There is a change in the strategy in the implementation of the following UC-EC projects:

2.1 Vegetative Rehabilitation from one type of vegetative rehabilitation project to another e.g., reforestation to agroforestry or vice-versa;

2.2 Structural Rehabilitation from one type of structural vegetative rehabilitation project to another e.g., riprap to gabion, or bunkhouse to lookout tower, etc. or vice-versa;

2.3 Community Development change of livelihood projects or trainings to be conducted; and

2.4 Information, Education and Communication (IEC) change in the mode or manner of its implementation, e.g., from radio to television and vice-versa; from billboards to pamphlets and other forms and vice-versa.

3. There is a change in the design and/or specification for structural measures, that is, the standards or existing prescribed design will no longer be applied but a modified or a different design will be adopted. CSIDTc

4. There is a reclassification of activities of a particular project e.g., from seedling production to purchase of seedlings.

All requests for modification in the utilization of the UC-EC shall be accompanied by sufficient justification and shall be limited to such types of projects which were included in the Plan previously approved by the ERC.

Approval of the requests for flexibility shall be in accordance with the existing NPC Manual of Approval pertaining to the nature and the amount of project to be implemented.

The programs and projects undertaken under these Rules shall be subject to monitoring and audit by the ERC and PSALM.

ARTICLE IV

Documentary Requirements

SECTION 1. Provision of Information.

Mid-year and Annual Status Reports shall be submitted to PSALM and ERC. Annual Status report should contain narrative report on the impacts and benefits of the programs and projects on the watersheds.

In addition, an annual audited financial statement/report on the status of utilization and disbursement of the environmental fund shall be submitted to the ERC within ninety (90) days from the end of the calendar year.

SECTION 2. Audit and Documentation.

The NPC as the beneficiary and manager of the SEFA shall:

a) Maintain financial records on the utilization and disbursements of the fund;

b) Maintain project close-out records at the watershed area teams levels;

c) Reconcile SEFA availments due and paid with the statement of accounts sent by the depository bank;

d) Maintain records on the generated accrued interest of the monies and expenses;

e) Maintain records on the generated savings derived due to deferred projects or due to bidding; and

f) Provide report to ERC and PSALM on the status of utilization, disbursement, and/or schedule of savings/accrued interest.

In the spirit of transparency, the books on the uses and disbursements of the fund shall be opened for audit as may be required by the ERC. The books shall be audited by a third party and/or the Commission on Audit (COA) as the state auditor of public funds. All these audits shall generate an Audit Report for submission to the ERC. aECTcA

ARTICLE V

Exception Clause

Where good cause appears, the ERC may allow an exception from any provisions of these Rules, if such exception is found to be in the public interest and is not contrary to law or any other related Rules and Regulations.

ARTICLE VI

Amendments

Any amendment to or revision of these Rules may be proposed by NPC, subject to the approval of the ERC.

ARTICLE VII

Separability Clause

Should any provision or section of these Rules be declared unconstitutional or contrary to law, the parts not so declared shall remain in full force and effect.

ARTICLE VII ^*

Effectivity