Republic ofthe 'PhilippinesENERGY REGULATORY COMMISSION

. San Miguel Ave., Pasig City

RESOLUTION NO. 05, Series of 2016

A RESOLUTION ADOPTING THE 2016 RULES GOVERNING. THE ISSUANCE OF LICENSES TO RETAIL ELECTRICITY

SUPPLIERS (RES) AND PRESCRIBING THEREQUIREMENTS AND CONDITIONS THEREFOR

, WHEREAS, Section 29 of Republic Act No, 9136 otherwiseknown as the Electric Power Industry Reform Act of 2001 (EPIRA)provides the requirements of the Energy Regulatory Commission(ERC) for electricity suppliers intending to supply the contestablemarket;

WHEREAS, on 13 July 2005, Resolution No. 10, Series of2005 entitled "Adopting the Guidelines for the Issuance of Licensesto Retail Electricity Suppliers (RES)" was promulgated to establishthe requirements for securing a RES license. Said Guidelines werelater amended on 1February 2006 as the "Guidelines for the Issuanceof Licenses to Retail Electricity Suppliers (RES), As Amended" andwere further revised on 17 January 2011, in an issuance entitled "AResolution Adopting the Revised Rules for the Issuance of Licenses toRetail Electricity Suppliers (RES)";

WHEREAS, on 25 November 2013, Resolution No. 22, Seriesof 2013 entitled "Resolution Adopting Amendments to Articles I, IIand III of the Revised Rules for the Issuance of Licenses to RetailElectricity Suppliers" provided, among others, restrictions andadditional requirements for RES license applicants;

WHEREAS, on 22 October 2014, Resolution No. 17, Series of2014 entitled "A Resolution Suspending the Issuance. of RetailElectricity Supplier Licenses" was promulgated to temporarily placethe evaluation of RES licenses on hold in order to provide regulatoryguidancef~Cintendingretailmac.ketPtay~

EKe: Office o/the Chairman

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Resolution No. 05, Series of 2016Page 2 of 2

WHEREAS, on 13 July 2015 and 13 November 2015, the firstand second drafts, respectively, of the amendment to the RESlicensing rules were posted on the two (2) ERC-administered websitesto solicit comments from the industry participants. A publicconsultation and Focus Group Discussion (FGD) were consequentlyconducted to discuss the comments submitted by the stakeholdersregarding the same;

WHEREAS, after a careful consideration of the various viewsand comments submitted by interested parties, the ERC deems itappropriate to adopt the attached "2016 Rules Governing theIssuance of Licenses to Retail Electricity Suppliers (RES) andPrescribing the Requirements and Conditions Therefor";

NOW THEREFORE, the ERC, after thorough and duedeliberation, hereby RESOLVES, as it is hereby RESOLVED, toAPPROVE and ADOPT the "2016 Rules Governing the Issuance ofLicenses to Retail Electricity Suppliers (RES) and Prescribing theRequirements and Conditions Therefor", hereto attached as Annex"A"and made an integral part of this Resolution.

This Resolution shall take effect immediately following itspublication in a newspaper of general circulation.

Let copies of this Resolution be furnished all parties concernedand the University of the Philippines Law Center - Office of theNational Administrative Register (UPLC-ONAR), all Retail ElectricitySuppliers, Distribution Utilities, Department of Energy and theCentral Registration Body. .

Pasig City, 8 March 2016.

,..-- ~ .. •... ....•.•.•.~JOSE VICENTE B. S~ .

Chairman and CEOJ.r P'

ALFRE OJ~ G~.~~ ~(AP-TARUCCommissioner Commis~;ner

JOSE~ATRlClAA. Gj NIM~D.~AMAG:Jf!l~IRIT { CommissionerCommissioner

~O/~tTL/NSSS

ANNEX "A"

Republic of the PhilippinesENERGY REGULATORY COMMISSION

San Miguel Avenue, Pasig City

2016 RULES GOVERNING THE ISSUANCE OF LICENSESTO RETAIL ELECTRICITY SUPPLIERS (RES) AND

PRESCRIBING THE REQUIREMENTS AND CONDmONSTHEREFOR

Pursuant to Sections 29, 31, and 45 of Republic Act No. 9136, hereinafterreferred to as the Act, its Implementing Rules and Regulations (IRR), thePhilippine Distribution Code (PDC), and the Wholesale Electricity SpotMarket (WESM) Rules, the Energy Regulatory Commission (ERC)hereby adopts the following Rules for the Issuance of Licenses to RetailElectricity Suppliers (RES) and Prescribing the Requirements andConditions Therefor, hereinafter referred to as the "2016 RES Rules".

ARTICLE IGENERAL PROVISIONS

Section 1. Objectives

The following are the objectives of these 2016 RES Rules:

a. To promote free, fair, and true competition and accountability,and prevent harmful monopoly and market power abuse ofElectric Power Industry Participants to achieve greateroperational and economic efficiency, thereby rationalizingelectricity prices and making them competitive and transparent;

b. To ensure consumer protection and enhance the competitiveoperation of the retail electricity market; and

c. To prescribe and clarify the requirements from, conditions for,qualifications, disqualifications and the legal obligations ofgrantees of RES licenses, to ensure compliance with existing lawsondrul".~

Section 2. Guiding Principles

a. No Person may engage in the SupplyofElectricity to End-users inthe Contestable Market unless such Person has secured a RESlicense from the ERC.

b. The RES license shall stipulate all the obligations of a RESconsistent with the qualifications and criteria required herein andsuch other laws, rules and regulations pertinent thereto. A RESlicense shall be issued upon compliance with the standards andrequirements herein set forth.

Section 3. Who may become a RES

In accordance with the Act and its IRR, any of the following maybecome a RES;

a. Generation Company or Affiliatethereof;

b. An Affiliate of a DU with respect to the latter's ContestableMarket within or outside its Franchise Area, subject torestrictions imposed by the ERCon market share limits and theconduct ofbusiness activities;

c. RetailAggregators;

d. An Independent Power Producer (IPP)Administrator; and

e. Any other Person intending to engage in the selling, brokering ormarketing of electricity to the Contestable Market, consistentwith the Act and its IRR.

The ERC shall not be precluded from imposing additional restrictionscontained in separate rules issued, or still to be issued by it. The ERC,for justifiable reasons, may likewiseexempt compliance by a RESlicenseholder to specific license conditions, taking into account the actualoperations of such RESlicense hold~ y

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Section 4. Issuance of a License

The ERCshall issue a license to a qualified RES that complies with allapplicable requirements stipulated herein such as, but not limited to,technical and financial qualifications, conditionalities of cross-ownership, market power abuse, anti-competitive behavior and all otherrequirements which are deemed necessary for the properimplementation of these 2016 RES Rules and the competitive retailelectricitymarket (CREM).

No RES shall be allowed to engage in selling, brokering, marketing oraggregating of electricity to Contestable Customers or to participate inthe WESMwithout a valid license from the ERC. A license obtained by aqualified RES from the ERC shall be valid within Philippine territorieswhere retail competition and open access exist.

Once a RES license has been granted, the RES license holder shall begiven a period of two (2) years from receipt of such grant to operate itsRES business. Failure to fully comply shall be a ground for therevocation of the RESlicense.

Section 5. Definition of Terms

Page 3 of22

Act

Affiliate

Applicant

Republic Act No. 9136, otherwiseknown as "Electric Power IndustryReformAct of 2001".

Any Person which, alone or togetherwith any other Person, directly orindirectly, through one or moreintermediaries, Controls, is Controlledby, or is under common Control withanother Person. Affiliates shallinclude a subsidiary company andparent company and subsidiaries,directly or indirectly, of a commonparent.

A Person or entity seeking to obtain alicense to become a supplier of retailelectricity to the Contestablecustomer.Nr

Code of Conduct forCompetitive RetailMarket Participants

Commercial Bank

Competition Rulesand ComplaintProcedures

Competitive RetailElectricity Market(CREM)

The set of rules promulgated by theERC to govern the conduct ofcompetitive retail marketparticipants, their stockholders,directors, officers and employees,within the boundaries of faircompetition.

Corporations which, in addition tothe general powers incident tocorporations, exercise all suchpowers as may be necessary to carryon the business of commercialbanking such as accepting drafts andissuing letters of credit; discountingand negotiating promissory notes,drafts, bills of exchange, and otherevidences of debt; accepting orcreating demand deposits;receiving other types of deposits anddeposit substitutes; buying andselling foreign exchange and gold orsilver bullion; acquiring marketablebonds and other debt securities; andextending credit, subject to suchrules as the Monetary Board maypromulgate. These rules may includethe determination of bonds and otherdebt securities eligiblefor investment,the maturities and aggregate amountof such investment.

The rules promulgated by ERC topromote and ensure competition inthe electric power industry pursuantto the Act and its Implementing Rulesand Regulations.

An electricity market whereincontestable customers exercise their.ability to choose suppliers ofelectricityby virtue of open access~

Page 40f22

ContestableCustomer

Contestable Market

Control

Distribution Utility(DU)

Economic Zones(EZs)

the distribution system.

An electricityEnd-user that belongs tothe ContestableMarket.

The electricity End-users who have achoice of a supplier of electricity, asmay be determined by the ERC inaccordancewith the Act.

The power to direct or cause thedirection of the management policiesof a Person by contract, agency, orotherwise.

Any electric cooperative, privatecorporation, government-ownedutility or existing local governmentunit which has an exclusive franchiseto operate a distribution system inaccordance with its franchise and theAct, including DDs operating in theEconomicZones.

Selected areas which are highlydeveloped or have the potential to bedeveloped into agro-industrial,industrial, tourist, recreational,commercial, banking, investment andfinancial centers, including but notlimited to the following: IndustrialEstates (IEs), Export ProcessingZones (EPZs), Free Trade Zones,Information Technology Parks andTourist/Recreational Centers, the"Bases Conversion DevelopmentAuthority" or "BCDA", "CagayanEconomicZone Authority" or "CEZA","Clark Development Corporation" or"CDC", "Philippine Economic ZoneAuthority" or "PEZA", "PhividecIndustrial Authority" or "PIA", and"Zamboanga City Economic zo;r

Page 5 of22

End-user

Energy RegulatoryCommission (ERC)

Escrow Agreement

Franchise Area

GenerationCompany (GenCo)

Holdout Agreement/Restricted Account

Independent MarketOperator (IMO)

Authority"or "ZCEZA.

Any Person or entity reqUInng thesupply and delivery of electricity forits ownuse.

The independent and quasi-judicialregulatory agency created underSection38 ofthe Act.

An agreement where a fund ordeposit is held in trust by aCommercial Bank, to be turned overto the grantee onlyupon fulfillment ofa condition.

A geographical area exclusivelyassigned or granted to a DistributionUtilityfor distribution of electricity.

Any Person or entity authorized bythe ERC to operate facilities used inthe generation of electricity.

An agreement where a fund ordeposit in a Commercial Bank is heldsubject to certain bank placed and/orcustomer placed restrictions.

A Person or entity who is financiallyand technically capable, with provenexperience and expertise of not lessthan two (2) years as a leadingindependent market operator ofsimilar or larger size electricitymarkets endorsed jointly by theDepartment of Energy (DOE) andElectric Power Industry Participantsto assume the functions, assets andliabilities from the AutonomousGroup Market Operator (AGMO),punmant to Section 30 of th, ~

Page 6 of22

IPP Administrator

Market Operator

National PowerCorporation (NPC)

National GridCorporation of thePhilippines (NGCP)

NationalTransmissionCorporation(TransCo)

Person

Philippine StockExchange (PSE)

Qualified independent entitiesappointed by Power Sector Assets &Liabilities Management Corporationwhich shall administer, conserve andmanage the contracted energy outputofNPCIPP contracts.

The . "Autonomous Group MarketOperator" or "AGMO"constituted bythe DOEunder Section 30 of the Act,with equitable representation fromElectric Power Industry l.'articipants,initially under the administrativesupervision of the TRANSCO,whichshall undertake the preparatory workand initial operation of the WESMuntil the creation of an IndependentMarket Operator which shall assumethe functions, assets and liabilities oftheAGMO.

The government corporation createdunder Republic Act No. 6395, asamended.

The corporation awarded theconcession to operate thetransmission facilities of the NationalTransmission Corporation pursuantto the Act and RepublicActNo. 9511.

The corporation organized pursuantto Section 8 of the Act to acquire allthe transmission assets of the NPC.

A natural or juridical person, as thecasemaybe.

The corporate body duly organizedand existing under Philippine law,licensed to operate as a securitiesexchange by the SecurITies an~

Page 7 O~22

Quick Ratio

Retail Aggregation

Retail Competition

Retail ElectricitySupplier (RES)

Retail ElectricitySupplier's (RES)License

Retail Rate

Retail SupplyContract (RSC)

Supply of Electricity

Exchange Commission (SEC).

The ratio of the sum of Cash,Marketable Securities and Trade'Receivables to the Current Liabilitiesand shall be used to measure thesafety margin for the payment of thecurrent debt of the applicant if there isshrinkage in the value of cash andreceivables.

The joining of two or more End-userswithin a contiguous area into a singlepurchasing unit, wherein suchpurchasing unit shall be part of theContestable Market, as provided inSection 31 of the Act.

The provision of electricity to aContestable Customer by the RESthrough Open Access.

Any Person or entity authorized bythe ERC to sell, broker, market oraggregate electricity to the End-users.

The authority granted by the ERC toany person or entity to act as supplierof electricity to the ContestableMarket.

The total price paid by End-usersconsisting of the charges forgeneration, transmission and relatedancillary services, distribution, supplyand other related charges for electricservice.

The contract entered into by andbetween the RES and the ContestableCustomer.

The sale of electricity by a party Oth~

Page 8 of22

Universal Charge

Value-added Service

WholesaleElectricity SpotMarket (WESM)

than a generator or a distributor inthe franchise area of a distribution .utility using the wires of thedistribution utility concerned.

The charge, if any, imposed for therecovery of stranded costs and otherpurposes pursuant to Section 34 ofthe Act.

Service(s) or product offered inaddition to the Supply of Electricity toa Contestable Customer.

The wholesale electricity spot marketestablished pursuant to Section 30 ofthe Act.

ARTICLE IIQUALIFICATIONS OFA RETAIL ELECTRICITYSUPPLIER

Section 1. Who may apply. The followingmay apply as a RES:

a. A natural person of legal age, duly registered with the Departmentof Trade and Industry (DT!) as engaged in the retail electricitysupply business; or

b. A juridical person duly registered with the Department of Tradeand Industry (DT!) or Securities and Exchange Commission (SEC)as an entity authorized to engage in the retail electricity supplybusiness.

Section 2. Organizational, Technical and ManagerialStandards

The Applicant shall provide the following information in support of itstechnical and managerial capability to ensure reliable electricity supplyin accordance with its customer contractv

Page 9 of22

a. Abilityand knowledge to operate and manage the electricity supplybusiness, where the Applicant shall provide documentationdemonstrating that at least two (2) of its officers or employeesholding managerial positions have a combined related experiencein the area of electricitymarkets of at least ten (10) years; or shouldthe Applicant engage the services of a Consultant, the saidConsultant should have at least fifteen (15) years of relevantexperience in the electricity industry.

b. Abilityto set-up and operate within the customer switching systemapproved by the ERC, an automated information exchangeassociated with business to business (B2B) communications andtransactions and the capability to comply with all applicablecustomer registration, settlement policies and market rules andprotocols.

c. Abilityto maintain appropriate billing and collection system for itscustomers.

d. Ability to maintain a website which provides updated informationsuch as average electricity prices, value-added services, and anyother information from the RES to enable the ContestableCustomers to make informed choices.

e. Technical ability to enter into any necessary access orinterconnection arrangements or other required contracts with theNGCP, the Market Operator and one or more DUs, i.e. historicaltransactions with the industry participant, such as servicecontracts, agreements and/or transaction receipts as confirmation.

f. Adequate staffing and employee training to meet all service levelcommitments.

g. Other relevant information that the ERCmay require which canprovide pertinent information regarding the ability andcompetence of the RESin ensuring reliable electricity supply.

In the case of a RESwhich is an affiliate of a GenCo or DU, suchRES must be set up as an entity juridically separate from suchGenCo or DU with a separate set of Board of Directors, officers,employees and offices./I

VPage 10 of22

Section 3. Credit and Financial Standards

a. Credit Standard

An Applicant must possess any of the following creditworthiness criteriato demonstrate that it has the financial capability required to undertakethis business:

1. Investment grade credit rating by a reputable credit bureau; or

n. Unused cash resources in an amount equivalent to theApplicant's expected monthly billings, or Ten Million Pesos(PhPlO,OOO,ooo.oo), whichever is higher, with an attachedproof of creditworthiness confirmed through the certification ofcompanies (including GenCos, the NGCP and the DUs) thathave extended credit line to the Applicant; or if the Applicant isan affiliate or subsidiary and the Applicant has yet to commenceoperations as a RES, a sworn statement from the parentcompany that it shall infuse the required working capital of theApplicant for its RES business, with supporting documentsregarding the parent company's capability to support theApplicant;

Once an Applicant has been issued a RES license and hasstarted operations, the RES shall update its unused cashresources to approximate the actual monthly billings on aquarterly basis to reflect the changes in the number ofContestable Customer it serves; or

b. Financial Standard

1. A RES is required to meet a minimum annual Quick Ratio of1.5X throughout the period covered by its RES license.

n. A RES performing below the benchmark is required to submita Program to Comply within sixty (60) days of receipt of anERC directive. The Program to Comply shall identify thespecific activities to be undertaken by the RES in order to meetthe financial standard. Information on the Program to Complyshall include the following:/f

Page 11 of22

1. Concrete activities/measures to be undertaken to upgradeperformance and the estimated financial effects;

2. Expected semi-annual targets/milestones achievements;and

3. Clear and definite timetable for the activities and thetargets.

The ERC shall inform the RES of its action on the RESProgram to Complywithin sixty (60) days from receipt thereof.The RES shall be given one (1) year within which to complywith the ERC-prescribedbenchmark.

At any time after its submission of a Program to Comply, theRES shall inform the ERCin writing of any event or conditionwhich shall prevent it from meeting the ERC-prescribedfinancial standard. The notice shall be given to the ERCwithinseven (7) days of the happening of such event or condition.The ERCmay require the RES to submit a revised Program toComply to consider the new information brought to itsattention by the RES.

Unless the RES formally advises the ERC of any conditionaffecting the meeting of targets in its Program to Comply, theERCshall expect the RESto complywith the financial standardwithin the prescribed period.

Section 4. Treatment of Cash Deposits from ContestableCustomers

A RESwhich has collected cash deposits from its customers based onprojected sales, shall be required to deposit the actual cash amountcollected in an Escrow Account; or in a Restricted Account/HoldoutAgreement entered into with the customer, making the said cash depositunavailable for use in financing the said RES' working capitalrequirements. The escrow amount shall be reconciled every close of eachmonth to ensure that it is equal to the customer's cash deposit at the endof the month, and such amount shall be maintained until the nextreconciliation. The RES shall submit to the ERC a certification from aCommercialBank located in the Philippines stating that it has availe~

Page 12 of22

the said bank's Escrow facility, or Restricted Account/HoldoutAgreement facility, or a certification stating the cash amount depositedin the abovementioned bank facilities. Likewise, the RES shall berequired to pay its customers an annual interest on collected depositsequivalent to the interest earnings (net of tax) of the amount in Escrow.Such interest may also be deducted from the customer's current billing.

The above notwithstanding, the RES may draw sufficient funds from therelevant account in case the customer commits a breach of its obligationsto the RES, details of which should be agreed upon by both parties andshould be consistent with the process under Section 4.8-4.3, Article IV ofthe Distribution Services and Open Access Rules. On the other hand, ifthe RES fails in its obligation to supply the customer, as provided in theirretail supply contract, the latter may also be entitled to refund its depositand interest earned, less any outstanding obligations and other bankadministrative charges, subject to the provisions of the EscrowAgreement and the Retail Supply Contract.

ARTICLE IIILIMITATIONS AND RESTRICTIONS

ON A RETAIL ELECTRICITY SUPPLIER

Section 1. Ownership Limitations and Restrictions

a. A RES or Affiliate thereof or any stockholder, director or officer orany of their relatives within the fourth (4th) civil degree ofconsanguinity or affinity, legitimate or common law, shall not ownany interest in, or be employed directly or indirectly with, thePhilippine Electricity Market Corporation (PEMC) and the IMO.

b. Except for ex-officio government-appointed representatives, noPerson who is an officer or director of the TRANS CO or NGCP shallbe an officer or director of any RES.

c. A RES or its stockholders, directors or officers thereof, or any oftheir relatives within the fourth civil degree of consanguinity andtheir respective spouses, shall not be allowed to hold any shares ofstock in NGCP: Provided, that the cross-ownership prohibitionunder this provision shall not apply to a relative by blood ormarriage, if such relative of any stockholder, director or officer ofNGCP has no employment, consultancy, fiduciary, contractu~

Page 13oflfl

commercial or other economic relationship or interest in NGCP, orconversely, if such relative of any stockholder, director or officer ofa RES has no employment, consultancy, fiduciary, contractual,commercial or other economic relationship or interest in the RES:

.Provided, further, that this prohibition on cross-ownership shallnot apply to: (a) ownership of shares of stock in a company listedin the Philippine Stock Exchange (PSE) even if such listedcompany is a RES, if such share ownership is not more than oneper centum (1%) of the total outstanding shares of such listed RES;or (b) ownership of shares of stock which is not more than one percentum (1%) in a company listed in the PSE which owns or controlsshares of stock in NGCP: Provided, moreover, that such owner ofshares of stock in the listed corporate stockholder of the NGCPshall not own more than one per centum (1%) of the shares of stockor equity interest in any RES.

ARTICLE IVOBLIGATIONS OF RETAIL ELECTRICITY SUPPLIERS

Section 1. A RES that is also engaged in other electricity relatedbusinesses shall ensure that its supply business activities and rates arefunctionally and structurally unbundled, as provided for in Rule 10 of theIRR of the Act on the Structural and Functional Unbundling of ElectricPower Industry Participants. In the said unbundling, the RES shallensure that there is no cross subsidization between and among itsbusiness activities, in accordance with the ERC-approved BusinessSeparation and Unbundling Plan.

Such RES shall submit in a timely manner, without need of furthernotice, the annual reportorial requirements provided in Section 2.12,Article II of the Business Separation Guidelines (BSG), as amended suchas: the Accounting Separation Statements, Compliance Report, theAuditor's Report, and other documents provided in the said rules.

Section 2. A RES shall maintain its own website linked to the ERC andDOE websites. Such RES websites shall provide updated informationincluding indicative or average electricity prices under its Retail SupplyContracts and value-added services to enable the Contestable Customersto m,k, informed chOi=~

Page 14 of22

Section 3. A RES shall, at all times, adopt the business to business(B2B) interface system approved by ERC.

Section 4. A RES shall identify and segregate in its bills to End-usersthe components of the Retail Rate as follows: Supplier's Charge(composed of Generation & Others), DU's passed-on Charges,Transmission Charges, and other related charges for electric service.

Section 5. A RES shall comply with the creditworthiness criteria andsuch financial standards provided in Section 3, Article II of these Rulesand as may be determined by the ERC to protect the interest of theContestable Customers.

Section 6. A RES shall ensure that the advance deposits collected fromits customers are sufficiently covered by an Escrow Account, or aRestricted Account/Holdout Agreement with the Contestable Customer.Advance deposits may be adjusted on an annual basis based on the RES'customers' average twelve-month bills. .

Section 7. A RES, which sources power from the wholesale electricityspot market, shall comply with the WESM Rules at all times.

Section 8. A RES shall comply with the Competition Rules andComplaint Procedures as may be prescribed by the ERC concerningabuse of market power, cartelization and any other anti-competitive ordiscriminatory behavior.

Section 9. A RES is required to collect: (i) Universal Charge and (ii)FIT-All Charges, where applicable, from all of its customers on amonthly basis. The RES shall likewise comply with the Rules Governingthe Collection of Universal Charge and the Guidelines, ProceduresGoverning Remittances and Disbursements of Universal Charge, and theGuidelines on the Collection of the Feed-In Tariff Allowance (FIT-ALL)and the Disbursement ofthe FIT -ALL Fund issued by the ERC.

Section 10. A RES shall inform the ERC of any material change to theinformation supplied in its documentary requirements under Articles IIand V hereof, within three (3) days from the occurrence of such event.

Section 11. A RES shall comply with the provisions of the Act and itsImplementing Rules and Regulations, the applicable provisions of theBusiness Separation Guidelines, Philippine Distribution Code, theDistribution Services and Open Access Rules (DSOAR), As Amended~

Page 15 0[22

Code of Conduct for Competitive Retail Market Participants, and allapplicable rules and regulations prescribed by the ERC, including thereportorial requirements prescribed in these 2016 RES Rules.

Section 12. ARES shall comply with the limitations on ownership andcontrol prescribed in the Act and its IRR.

Section 13. A RES that intends to cease operations shall notify the ERCat least sixty (60) days prior to ceasing operations and shall provideproof of the refund of any monies owed to its customers, as well as asettlement plan or proof of payment of any amount owed to a DU, NGCP,WESM or a GenCo. Thereafter, the RES license is deemed cancelled.

ARTICLE VREQUIREMENTS AND PROCEDURES

Section 1. The Applicant shall secure a RES license from the ERCpriorto engaging in the Supply of Electricity to Contestable Customers.Provided all the requirements shall have been complied with, the ERCshall approve, disapprove, or reject an application within sixty (60)working days from the date of application, unless the ERC shall haverequired the submission of additional information, or ordered onreasonable grounds tlte postponement of final action on the application.

Section 2. Basic Requirements for a RES license application.The following documents and information are required to be submittedby an Applicant:

a. Duly accomplished RES Information Sheet (form available at theERCwebsite [RES Form 2]);

b. Articles of Incorporation/Partnership with Certificate ofRegistration (for juridical persons);

c. Certified true copies of audited financial statements for the twomost recent twelve-month periods, or for tlte life of the business ifit has been in existence for less than two (2) years, if applicable;

d. If an Affiliate under Section 3(b), Article I, certified true copies ofaudited financial statements for the two most recent years of~

Page 16 of 221

parent company, as submitted III its annual reports toshareholders;

e. Projected Five-year Financial Statements and Five-year BusinessPlan (outline available at the ERC website [RES Form 3]). TheBusiness Plan should adequately explain how the Applicant willlaunch and operate its business, specifically, information on itsbusiness strategies and its value-added services;

f. General Information Sheet of the Applicant and its Affiliatesengaged in the generation, distribution and retail supply ofelectricity, and their corresponding business addresses;

g. Documents referred to in Sections 2 and 3, Article II hereof(Technical and Managerial Standards, Credit and FinancialStandards), Organizational chart and identification of its Board ofDirectors and officers including the individual bio-data of each;

h. Business Permit / Mayor's Permit;

1. Proof of payment of applicable fees; and

J. Such other information or documents that the ERCmay require.

Section 3. Renewal of RESlicense. In case of renewal of its RESlicense, the RES shall submit the following requirements:

a. Letter of Intent to renew the RES license;

b. Duly accomplished RES Information Sheet (form available at theERCwebsite [RES Form 2]);

c. Updated Five-year Business Plan reflecting the business activitiesto be implemented under its new RES license term;

d. Proof of Payment of applicable fees; and

e. Suchuth" huunnatilln"' dllcumen"that ERe mayreqll,:::?

Page 17 of22

Section 4. All submissions shall be certified under oath by theApplicant or any duly authorized officer in case of a juridical person.

Section 5. Failure to submit the above requirements to the ERC shallbe a ground for denial of the application or renewal of the RES license.

Section 6. In order to avoid potential customer abuse by a RES, theERC may revoke or refuse to renew a RES license for any of the justcauses defined below:

a. Providing false or misleading information to customers and theERC',

b. Failure to maintain and/or submit credit standards in accordancewith Section 3, Article II hereof;

c. Bankruptcy, insolvency, or the inability to meet financialobligations on a reasonable and timely basis;

d.A pattern of not responding to ERC inquiries or customercomplaints in a timely fashion;

e. Conviction of the licensee, a person controlling the RES, or aprincipal employed by the RES, of any crime involving fraud, theft,or deceit related to the RES' service;

f. Failure to provide service to any customer without justifiablecause;

g. Failure to operate its RESbusiness within two (2) years from grantoflicense; and,

h. Other significant violations, including the failure or a pattern offailures to comply with applicable laws, these Rules and other retailcompetition rules and ERC issuanc~

Page 18 of 22

ARTICLE VIPAYMENT OF FEES

The Applicant shall pay the application fee of Three Thousand Pesos(PhP3,000.00) upon its filing of application or renewal of license. Uponissuance or renewal of a RES license, the Applicant shall likewise pay theRES license fee equivalent to, whichever is higher among the followingamounts:

a. Seventy five (PhP 0.75) centavos for each one hundred pesos of,whichever is applicable ofthe following:

1. The capital stock subscribed and paid up of the corporation or ifthe applicant is a Partnership or Sole Proprietorship, thecapitalization or the total capital invested into the business; or

2. In the event an Applicant has two or more businesses, thecapitalization allocated for the supply business. Should theApplicant have two or more businesses which are electricityrelated, the capitalization shall be based on the ERC-approvedBSUP; or

b. Ten Thousand Pesos (PhP 10,000.00).

ARTICLE VIITERM OF LICENSE

The RES license issued by the ERC after the promulgation of these 2016RES Rules shall have a term of five (5) years, renewable at the end ofevery term. The RES license shall be non-transferable and shall besubject to revocation by the ERC for any violation of these 2016 RESRules and other applicable laws and issuances.

The RES shall apply for the renewal of its license not later than sixty (60)days before the expiration of its current licenx

f

. Page 19 of 22

ARTICLE VIIIREPORTORIAL REQUIREMENTS

Section 1. Each RES shall submit a quarterly report (form available atthe ERC website [RES Form 4]) every 15th day of the subsequent monthafter the quarter, providing the following information:

a. Average electricity prices (Total revenue [excluding pass-oncharges] divided by total kWh sales to Contestable Customers);

b. Revenues. Total revenues from kilowatt-hour sales to ContestableCustomers;

c. Customers. List of customers served and amount of securitydeposits that have been collected from each customer, ifapplicable;

d. Bank certification from a Commercial Bank, if any, stating theamount deposited in escrow under the RES' account. Suchescrow amount shall be reconciled every close of each month toensure that it is equal to the customer's cash deposit at the end ofthe month, and shall be maintained until the next reconciliation;

e. Complete contract information, under oath, summarizing theexisting Retail Supply Contracts, particularly indicating thefollowing:

1. List of customers, actual demand and energy consumption ofeach customer;

2. Contract duration;

3. RES actual monthly demand purchased from a GenCo or othersource of power; and

4. Other additional charges (if any).

f. A Statement, under oath, of the Disclosure of Capacity and Energyprescribed in Resolution NO.5, Series of 2013, "A Resolution onDisclosures of Capacity and Energy Allocations by DistributionUtilities in the Luzon and Visayas Grids and Retail ElectricitySuppliers"; and/

(Page 20 of22

g. Other information that the ERC deems necessary or useful IIIcarrying out its duties and obligations.

Section 2. All licensed RES shall submit the following documents on anannual basis, without need of further notice:

a. Within thirty (30) days from the filing of its Income Tax Returnwith the Bureau of Internal Revenue (BIR), the RES shall submit acomplete set of its Audited Financial Statements (i.e. balancesheet, income statement, statement of cash flows, notes), includingthe audit opinion, the statement of management's responsibility onthe financial statements.

b. Mayor's permit for the current year, to be submitted every 31st ofJanuary of each year.

Section 3. Confidentiality. The ERC shall accord certain informationdisclosed by the Applicant or identified by the RES such level of strictconfidentiality by subjecting the same to appropriate protectivemeasures, if applicable.

ARTICLE IXSANCTIONS

Any Person acting as a RES without a valid license issued by ERC, exceptthose exempt from this requirement, shall be subjected to theappropriate sanctions provided under existing laws, rules andregulations.

The ERC shall impose the appropriate fines and penalties, including therevocation or suspension of license, for any violation or non-compliancewith these 2016 RES Rules, pursuant to the "Guidelines to Govern theImposition of Administrative Sanctions in the Form of Fines andPenalties Pursuant to Section 46 of RA. 9136".

ARTICLE XMONITORING

The ERC shall monitor the compliance of RES with the terms andconditions of their license and the provisions of these 2016 RES Rule~

Page21 ott

ARTICLE XISEPARABILITY

If for any reason, any section of these 2016 RES Rules is declaredunconstitutional or invalid, other parts or sections hereof not affectedthereby shall continue to be in full force and effect.

ARTICLE XIIREPEALING CLAUSE

Resolution No. 22, Series of 2013 entitled "Resolution AdoptingAmendments to Article I, II and III ofthe RevisedRules for the Issuanceof Licenses to Retail Electricity Suppliers" shall continue to have fullforce and effect except insofar as it is inconsistent with these 2016 RESRules. Resolution No. 17, Series of 2014 entitled "A ResolutionSuspending the Issuance of Retail Electricity Suppliers Licenses", ishereby repealed.

ARTICLE XIIIEFFECTIVITY

These 2016 RES Rules shall take effect immediately following itspublication in a newspaper of general circulation in the country.

PasigCity,8 March 2016.

GE'WNIMO D. frr~I CommissionerIAA. MAGPALE-T

- '-JOSE viCENTEB. ~

~

Chairmany

.~ fG ORIA'VICT~f( C. YAP-TARUC

Com~oner

JOSEFINA PA'

lalo/lnm/DTL/NSSS

Page 22 002

.EK.~ ---~----, Office o/the Chairman

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