Providing for the Policies and Guidelines on the Conduct of Performance Assessment and Audit for All Power Generation, Transmission and Distribution Systems and Facilities

May 3, 2017

DOE DEPARTMENT CIRCULAR NO. DC2017-05-0008

PROVIDING FOR THE POLICIES AND GUIDELINES ON THE CONDUCT OF PERFORMANCE ASSESSMENT AND AUDIT FOR ALL POWER GENERATION, TRANSMISSION AND DISTRIBUTION SYSTEMS AND FACILITIES

WHEREAS, Republic Act No. 9136, otherwise known as "The Electric Power Industry Reform Act of 2001" or "EPIRA" declares, among others, the policy of the State to "ensure the quality, reliability, security and affordability of the supply of electric power and protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power";

WHEREAS, pursuant to Section 37 of the EPIRA, the Department of Energy (DOE) is specifically mandated and authorized among others, to "ensure the reliability, quality and security of supply of electric power and to facilitate and encourage reforms in the structure and operations of distribution utilities for greater efficiency and lower costs";

WHEREAS, Sections 6 and 22 of the EPIRA expressly declare the generation sector as a business affected with public interest, and the distribution sector as a regulated industry, respectively;

WHEREAS, pursuant to Sections 9 and 21 of the EPIRA, Notional Transmission Corporation (TransCo) or its Buyer/Concessionaire is mandated to, among others, provide open and non-discriminatory access; ensure and maintain the reliability, adequacy, security, stability and integrity of the nationwide electrical grid in accordance with the Philippine Grid Code (PGC) and the Transmission Development Plan (TDP);

WHEREAS, the Energy Regulatory Commission (ERC), in compliance with its mandate under the EPIRA, promulgated the PGC and the Philippine Distribution Code (PDC), prescribing, among others, the technical and financial performance standards that govern the operations of Generation Companies, Transmission Service Provider/Operator and Distribution Utilities, respectively;

WHEREAS, the DOE promulgated Department Circular No. DC2010-03-0003, entitled "Directing All Power Generation Companies, the Transmission Service Provider, and All Distribution Utilities to Ensure Adequate and Reliable Electric Power Supply in the Country," whereby all Generation Companies are mandated to, among others:

(a) Operate based on its maximum available capacity;

(b) Submit to the DOE its monthly operational status and fuel inventory reports; and

(c) Maintain an adequate in-country stock of fuels based on the minimum inventory required by the Circular; and, strictly abide by the PGC.

WHEREAS, Department Circular No. DC2010-03-0003 mandates the TransCo or its Buyer/Concessionaire to:

(a) Ensure adequate provision and availability for access of its transmission facilities to all grid users in line with the approved TDP;

(b) Evaluate all attendant circumstances before approval of deactivation or shutdown of power plants;

(c) Monitor compliance of Generation Companies to the Grid Operating and Maintenance Program and submit to the DOE any changes thereto;

(d) Report to the DOE all power interruption incidents and threats to system security and reliability; and

(e) Institutionalize connection agreements with all grid users and impose all pertinent requirements of the PGC. CAIHTE

WHEREAS, Department Circular No. DC2010-03-0003 mandates the Distributions Utilities to regularly submit to the DOE the following:

(a) Distribution Development Plan (DDP) to monitor the existing, available, and future supply requirements; and

(b) Monthly Operations Report (MOR) for the private Distribution Utilities and Monthly Financial and Statistical Report (MFSR) for Electric Cooperatives.

WHEREAS, Department Circular No. DC2010-03-0003 further mandates the Distribution Utilities to ensure (i) full compliance at all times with all the requirements of the PDC; (ii) reporting to significant load interruptions in its franchise area or any threats that may lead to such events; and, (iii) that the power requirements within their franchise areas are adequately covered by supply contracts or purchases from the Wholesale Electricity Spot Market (WESM) at all times;

WHEREAS, the DOE noted the increasing and frequent occurrences of Forced and Unplanned Outages particularly of large baseload power plants based on the reports of the National Grid Corporation of the Philippines (NGCP) resulting to issuances at Yellow and Red Alert notices, which may lead to supply shortfall and possibly rotating brownouts;

WHEREAS, the DOE, in the exercise of its mandate under Republic Act No. 7638 and EPIRA, to ensure the security, reliability, quality and affordability of the supply of electric power, deems it necessary to institutionalize a regular compliance assessment on all issuances relative to PGC, PDC, terms and conditions on permits and licenses issued to power generation, transmission and distribution sectors;

WHEREAS, on 08 August 2016 and 25 August 2016, the DOE, separately entered into a Memorandum of Agreement with the Institute of Integrated Electrical Engineers of the Philippines, Inc. (IIEE) and the Philippine Society of Mechanical Engineer (PSME), respectively, in which both organizations agreed to provide their expertise, pro bono, to assist the DOE in the conduct of Performance Assessment and Audit of the complete generation, transmission distribution infrastructure in the country;

WHEREAS, all data and findings from the Task Force created under the Memorandum of Agreement with the IIEE and PSME, shall be included as preliminary input in the conduct of overall performance assessment and audit for all power generation, transmission and distribution sectors;

NOW, THEREFORE, premises considered, the DOE hereby adopts the following policies and guidelines on the conduct of technical and operational audit of all power generation, transmission and distribution systems and facilities in the country:

SECTION 1. Declaration of Policy and Objectives. —

The DOE hereby directs the conduct of overall performance assessment and audit for all power generation, transmission and distribution sectors, hereinafter referred to as the Performance Assessment and Audit for purposes of among others, the following:

(a) Evaluate the overall performance and efficiency of the power generation, transmission and distribution systems and facilities in the country;

(b) Conduct of post-review of compliance with the existing laws and regulations, as well as to the terms and conditions of the various permits and licenses issued to the said facilities and their respective owners and/or proponents, such as but not limited to EPIRA, WESM Rules, Retail Rules and Market Manuals, PGC, PDC and Environmental Standards;

(c) Determine and remove bottlenecks and inefficiencies in the operation of power generation, transmission and distribution systems and facilities that cause the disruptions in the supply of electricity and the volatility of electricity prices in the market;

(d) Identify effective systems of incentives, and appropriate penalties, to encourage greater efficiencies and improve the performance of generation, transmission and distribution sectors;

(e) Ensure that the power industry is abreast and responsive to technological advancements;

(f) Ensure that the power industry is able to fully respond to the requirements of the economic activities and support the economic growth targets set by the Development Budget Coordinator Council (DBCC); and,

(g) Incorporate best practice and good governance principles that enhance transparency, fairness and accountability in the operation of the various generation, transmission and distribution systems and facilities in the country.

The Performance Assessment and Audit shall serve as a DOE tool for the assessment of the overall performance of the electric power industry thereby paving the way for policy development that shall be instrumental in the attainment of the secure, reliable and affordable supply of electric power to support the economic growth of the country.

Nothing in this Circular is intended to encroach on the authority of the ERC, the Grid Management Committee (GMC), and the Distribution Management Committee (DMC).

SECTION 2. Scope of Coverage. —

This Circular shall apply to:

(a) All Generation Companies owning and/or operating Generation Facilities in the main grid and off-grid areas;

(b) All Transmission Service Provider and System Operator in the main grid and off-grid areas; and,

(c) All Distribution Utilities in the main grid and off-grid areas. DETACa

For this purpose, the aforementioned Electric Power Industry Participants are mandated to ensure compliance with the Performance Assessment and Audit requirements, including but not limited to:

(a) Provide within the prescribed period the required data, reports, records and other information that are deemed necessary for the successful implementation of the Performance Assessment and Audit activities; Provided, that all members of the Performance Assessment and Audit Teams created pursuant to this Circular shall ensure utmost confidentially of any information received for the purpose of this audit;

(b) Grant coordinated visitation privileges in the form of guided full accessibility/unrestricted access to their facilities to conduct inspection of facilities for the purpose of verifying the authenticity of reports submitted in compliance to standards;

(c) Allow the conduct of testing, consistent with industry standards and practices, of any or all parts of the facilities; and,

(d) Assist and provide security of the Performance Assessment and Audit Task Forces in the conduct of inspection.

SECTION 3. Creation of the Power Generation, Transmission and Distribution Performance Assessment and Audit Task Forces. —

To perform the Performance Assessment and Audit, it is hereby created the Performance Assessment and Audit Team on Power Generation Facilities (PAAT-PGF), Performance Assessment and Audit Team on Transmission Service Provider/Operator (PAAT-TSPO) and the Performance Assessment and Audit Team on Distribution System Facilities (PAAT-DSF) as follows:

(a) Performance Assessment and Audit Team on Power Generation Facilities (PAAT-PGF), to be composed as follows:

Chairman: DOE Undersecretary or Assistant Secretary for Power

Members:

i. National Transmission Corporation (TransCo) Representatives;

ii. Grid Management Committee (GMC) Representatives (Independent of Electric Power Industry Participants);

iii. Philippine Electricity Market Corporation (PEMC) Representatives;

iv. WESM Market Governance Committee Members from Market Surveillance Committee (MSC) and Technical Committee (TC); and

v. National Electrification Administration (NEA) Representatives.

(b) Performance Assessment and Audit Team on Transmission Service Provider/Operator (PAAT-TSPO), to be composed as follows:

Chairman: DOE Undersecretary or Assistant Secretary for Power

Members:

i. National Transmission Corporation (TransCo) Representatives;

ii. Grid Management Committee (GMC) Representatives (Independent of Electric Power or Industry Participants);

iii. Distribution Management Committee (DMC) Representatives (Independent of Electric Power Industry Participants);

iv. Philippine Electricity Market Corporation (PEMC) Representative;

v. WESM Market Governance Committee Members from Market Surveillance Committee (MSC), Technical Committee (TC), PEMC Audit Committee (PAC); and

vi. National Electrification Administration (NEA) Representatives.

(c) Performance Assessment and Audit Team on Distribution System Facilities (PAAT-DSF):

Chairman: DOE Undersecretary or Assistant Secretary for Power

Members:

i. National Electrification Administration (NEA) Representatives;

ii. Distribution Management Committee Representatives (Independent of Electric Power Industry Participants);

iii. National Transmission Corporation (TransCo) Representatives; and

iv. Philippine Electricity Market Corporation (PEMC) Representatives.

Other relevant government agencies and private sector institutions [e.g., ERC, UP-National Engineering Center, IIEE; PSME] may be invited to join the PAAT-PGF-DSF and PAAT-TSPO, as deemed necessary to address the effectiveness of the Performance Assessment and Audit.

The Undersecretary or Assistant Secretary for Power, assisted by the Electric Power Industry Management Bureau shall oversee the conduct of the Performance Assessment and Audit and provide guidance and/or direction to the PAAT-PGF, PAAT-TSPO and PAAT-DSF.

To support the operations of the PAAT-PGF, PAAT-TSPO and PAAT-DSF, a Technical Secretariat shall be also headed by the Electric Power Industry Management Bureau, duly supported by the Energy Policy and Planning Bureau, Renewable Energy Management Bureau, Energy Utilization Management Bureau, Legal Services, Administrative Services and Finance Service. For this purposes, the Technical Secretariat shall comprise the following support groups: aDSIHc

i. Database Management Support Group which shall be responsible for gathering, summarizing and maintaining the data and information needed by the PAAT-PGF, PAAT-TSPO and PAAT-DSF;

ii. Technical Inspection Support Group which shall be responsible for assisting the PAAT-PGF, PAAT-TSPO and PAAT-DSF in the formulation and implementation of the Performance Assessment and Audit Plan, conduct of site inspections and field visits, preparation of status reports and other tasks that the forces may deem necessary for effectively carrying out the Performance Assessment and Audit activities; and

iii. Administrative Support Group which shall be responsible for ensuring the provision of administrative support to include arrangements for conduct of meeting and inspections, travel arrangements and logistics and liquidation of expenses, among others.

SECTION 4. Responsibilities of the Assessment and Audit Teams. —

The PAAT-PGF, PAAT-TSPO and PAAT-DSF shall have the following responsibilities:

(a) Within thirty (30) days from issuance of this Circular, conduct meetings and workshops to define their respective approach and methodology for the conduct of Performance Assessment and Audits and to:

i. Determine the priority areas and entities to be studied;

ii. Determine the reports/documents and prepare templates needed to validate the performance;

iii. Achieve common understanding by all Performance Assessment and Audit Team Members including responsibilities, assignments and accountabilities;

iv. Establish the procedures/protocol with Auditees for the conduct of Performance Assessment and Audit and on-site testing and inspection;

v. Prepare the proposed roll out program, within 90 days upon effectively of this Circular, in a Performance Assessment and Audit Plan (PAAP) to be approved by the DOE Secretary or the Undersecretary for Power as designated by the DOE Secretary; and

vi. Inform the industry participants of the PAAP through posting in the DOE website and through appropriate mediums.

(b) Implement the PAAP taking into consideration the deadline provided by the DOE Secretary and the resources available for the conduct of the Performance Assessment and Audit;

(c) Identify priority systems and facilities for the conduct of Performance Assessment and Audit and recommend as may be necessary, to include on-site testing and inspections;

(d) Identify and recommend generation, transmission and distribution systems and facilities that will be prioritized in the conduct of the Performance Assessment and Audit;

(e) Engage, if deemed necessary, of Independent Third Party Auditor and/or hiring of technically qualified persons on a contractual basis, to assist in the conduct of the Performance Assessment and Audit;

(f) Undertake data gathering and analysis;

(g) Coordinate with the Administrative and Finance Support Team on any support or assistance needed which shall include, but not limited to travel arrangements, conduct of meetings with concerned Generation Companies, Transmission Service Provider/Operator or Distribution Utilities and relevant entities, securing necessary permits, clearances on the conduct on-site inspections and field visits, and procurement/production of materials;

(h) Prepare monthly status report to the DOE Secretary through the Undersecretary for Power, on the progress of the Performance Assessment and Audit identifying actual accomplishments, challenges and barriers that require intervention by the DOE and the recommendations to remedy the same to ensure the success of the Performance Assessment and Audit; and

(i) Identify the gaps and weaknesses in the monitoring and enforcement, and recommend policies, programs and strategies to improve the performance and compliance of the industry participants.

SECTION 5. Logistics Support. —

The PAAT-PGF, PAAT-TSPO and PAAT-DSF shall provide an estimate of the costs to be incurred in the performance of their mandates for approval of the DOE Secretary. Upon the institutionalization of the Performance Assessment and Audit of generation, transmission and distribution systems and facilities, the funding requirements shall be included in the DOE Regular Budget as approved in the General Appropriations Act.

The Performance Assessment and Audit for each of the generation, transmission and distribution systems and facilities shall be conducted at least once every three (3) years, or as may be necessary, as directed by the DOE Secretary.

SECTION 6. Confidentiality and Ownership of Information and Findings. —

All data, information and findings relevant to the conduct of this Performance Assessment and Audit shall be owned and for the exclusive us of the DOE. The results of Performance Assessment and Audit may be provided by the DOE to the ERC, for purposes of rulemaking and establishment and enhancement of standards.

Pursuant to a non-disclosure agreement, all members of the task forces shall not use, disclose any information, data or findings other than the purposes as identified under this Circular. ETHIDa

SECTION 7. Institutionalization of Performance Assessment and Audit. —

From the effectivity of this Circular, all Generation Companies, Transmission Service Provider/System Operator and Distribution Utilities shall be subjected to a Performance Assessment and Audit once every three (3) years, or, as may be directed by the DOE.

As may be determined by the DOE, the Performance Assessment and Audit may be conducted by an independent third party and reputable Performance Assessment and Audit firms. For the purpose, the DOE shall develop procedure on the accreditation or engagement of an independent third party auditor.

SECTION 8. Incentives and Penalties. —

To ensure compliance to the provisions of this Circular, the DOE may recommend to the ERC, the imposition of penalties to non-complying Electric Power Industry Participants.

Further, the DOE shall develop an appropriate system of incentives and penalties on the performances of the Electric Power Industry Participants in line with the Performance Assessment and Audit parameters as may be determined on subsequent issuances.

SECTION 9. Regulatory Support. —

The DOE shall coordinate with the ERC on the required regulatory support for the institutionalization of Performance Assessment and Audit, which include among others, the accreditation of independent third party or testing/inspection firms for the conduct of Performance Assessment and Audit.

A separate policy and regulatory framework shall be developed by the DOE, in consultation with the ERC, for the implementation of operational improvement plan, to be included in but not limited to the Philippines Distribution and Grid Codes, arising from the conduct of the Performance Assessment and Audit to achieve provision of adequate, reliable, secured and reasonably-priced electricity services.

SECTION 10. Separability Clause. —

If for any reason, any section or provision of this Circular is declared unconstitutional or invalid, the other parts or provisions hereof which are not affected thereby shall continue to be in full force and effect.

SECTION 11. Effectivity and Publication. —

This Department Circular shall be effective immediately upon its publication in two (2) newspapers of general circulation. Copies of this Circular shall be filled with the University of the Philippines Law Center-Office of the National Administrative Register (UPLC-ONAR).

Signed this ___ day of _______ 2017 at DOE, Energy Center, Rizal Drive, Bonifacio Global City, Taguig City, Metro Manila.

 

(SGD.) ALFONSO G. CUSISecretary

Published in The Philippine Star on May 24, 2017.