Republic of the Philippines \

ENERGY REGULATORY COMMISSION \

San Miguel Aienue, Pasig City "

IN THE MATTER OF THE,

PETITION FOR THE,
AVAILMENT OF THE
ENVIRONMENTAL I
CHARGE/SHARE FRO¥
THE UNIVERSAl" CHARGE
FOR THE REHABILITATION
AND MANAGEMENT OF,
~~T~~ED ~ (P~
PROVISIONAL AUTHORIT¥,

ERC CASE NO. 2012-040 RC

NATIONAl" ,POWER
CORPORATION (NPC), I
DOOKETED
Petitionet.
I Date" '~YN 121m.
"------------------------------------,, ~T: . .__
~ __

ORDER

For the Commission's consideration

, is the letter sent on 15
December 2016 by,petitioner National Power Corporation (NPC),
seeking the Commission's guid~nce on the consistency of the draft
Memorandum of Agreement (MOl'A) between NPC and the Provincial
Local Government Unit of lfugao (PLGU-lfugao) with the
Commission's Decision' dated 15 December 2014.

The Commission finds it Joper to treat the letter as a motion in

the instant case, where the inquiry can appropriately be addressed.

J Decision dated 15 December 2014 entitled, 'jIn the Matter of the Petition for the Availment of the

Environmental Charge/Share from the Univ rsal Charge for the Rehabilitation and Management
of Watershed Areas (Plan 7), with Prayer fot Provisional Authority" on ERe Case No. 2010-019
RC; "In the Matter of the Petition for the Av~i1ment of the Environmental Charge/Share from the
Universal Charge for the Rehabilitation and Management of Watershed Areas (Plan 8), with
Prayer for Provisional Authority" on ERe Ca~e No. 2011-067 Rej "Tnthe Matter of the Petition for
the Avaihnent of the Environmental CIJarge/Share from the Universal Charge fur the
Rehabilitation and Management of Water~hed Areas (Plan 9), with Prayer for Provisional
Authority" on ERC Case No. 2012-040 RC; ahd "In the Matter ofthe Petition for the Availment of
the Environmental Charge/Share from the Universal Charge for the Rehabilitation and
Management of Watershed Areas (Plan 10), with Prayer for Provisional Authority" on ERC Case
No. 2013-038 RC.
 ,,
ERC CASE NO. 2012-040 RC I
ORDER/ 30 May 2017
Page 20f13

THE FACTS

On 15 December 2016, the Commission received a letter from

petitioner NPC dated 8 December 2016. The letter seeks the
Commission's guidance on whether the draft MOA between NPC and
PLGU-Ifugao is consistent with the Commission's Decision dated 15
December 2014. I
,

The said Decision approves with modification NPC's petitions

for the availment of the Universal Charge-Environmental Charge
(UC-EC) for the rehabilitation and management of watershed areas
under Plans 7 to 10, filed from years 2010 to 2013 under ERC Case
Nos. 2010-019 RC, 2011-067 Re, 2012-040 RC, and 2013-038 RC,
respectively. The Commission deemed, it appropriate to consolidate
its resolution in the said petitions as they involved the same issues
and based substantially on the saine transactions, pursuant to Section
1, Rule 31 ofthe Rules of Court2.1

Included in the Decision was the approval of the Supplemental

Petition for PLGU-Ifugao (Magat Area) under Plan 9 in the amount of
Php24,221,940-42, as provided i,:,Annex A of the said Decision.

The draft MOA between NPC and PLGU-Ifugao is for the

management agreement and transfer of UC-EC funds from NPC to
PLGU-Ifugao covering the I Supplemental Petition for the
management of the Magat sub-watershed in the Province of Ifugao. It
was part of the proposed projects of NPC in Plan 9 docketed as ERC
Case No. 2012-040 RC, approved by the Commission in the
aforementioned Decision.

THE ISSUES

The issues to be resolved by the Commission in this instance are

the following: I
I
1. Is NPC allowed to enter into an agreement with PLGU-
Ifugao for the management of the Magat sub-watershed?

2. Who will be responsible for the accounting of the EC funds

covered by the subject MOA?

2 Section 1, Rule 31 of the Rules of Court stdtes, "When actions involving a common question of
law or fact are pending before the court, it Imay order a joint hearing or trial of any or all the
matters in issue in the actions; it may order, all the actions consolidated; and it may make such
orders concerning proceedings therein as may tend to avoid unnecessary costs or delay."
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
Page 3 Of13

3. Is the draft MOA consistent with the Commission's Decision

approving the Supplemental Petition for PLGU-Ifugao?

THE COMMI$SION'S RULING

On 21 March 2017, the Commission deliberated and resolved

the issues presented. However, due to supervening events3, the Order
I
I'
•
could no longer be promulgated, without undergoing reconfirmation
by the Commission En Bane. Thus, the Commission reconfirmed the
Order on 30 May 2017.

The Commission resolve~ to allow NPC to enter into an

agreement with PLGU-Ifugao fot! the management of the Magat sub-
watershed, pursuant to the apprdved supplemental petition in Plan 9.
NPC, however, continues to be responsible for the accounting of the
ECfunds.

1. NPC is not prohibited

from entering into a
management agreement
I:
with PLGU-Ifugao for me "
Magat sub-watershed.

Republic Act No. 91364 or the Electric Power Industry Reform

Act of 2001 (EPIRA) under Section 34 provides the imposition of a
universal charge on all electricity end-users. One of the purposes of
which is for the watershed rehabilitation and management through
the environmental charge, to wit:
':i
Sec. 34 Universal Charge - Within one (1) year from the
effectivity of this Act, a universal charge to be , :i,
determined, fixed and £pproved by the ERC, shall be II ,
imposed on all electricity end-users for the following
purposes: ;I
,

xxx

(d) An environmental charge equivalent to one-fourth of

one centavo per kilowatt-hour (Po.o02S/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; !

3 The Chairman was placed on preventive suspension as per Order of the Office of the President
(OP-DC Case No. 17-D-094) dated 2 May 2017 and received on 04 May 2017.
4 Republic Act No. 9136 or the Electric Power ,Industry Reform Act of 2001 (EPIRA). ,,
,
,,

I!
, ,
.:'
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
Page40f13

xxx

(emphasis supplied)

It is clear in the EPIRA that the environmental fund should be

used solely for watershed rehabilitation and management, and such
fund shall be managed by NPC under existing arrangements.

NPC's Charters provides for the powers and general functions of

the Corporation, one of which is "the exercise of complete jurisdiction
and control over watershed surrounding the reservoirs of plants
and/ or projects constructed or :proposed to be constructed by the
Corporation" under Section 3(n),lto wit:

Section 3. Powers and General Functions of the

Corporation

'xxx

Cn) To exercise complet~ jurisdiction and control over

watersheds surrounding the reservoirs of plants
and/or projects cdnstructed or proposed to be
constructed by I the Corporation. Upon
determination by the Corporation of the areas
required for watersheds for a specific project. the
Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith
surrender jurisdictidn to the Corporation of all areas
embraced within the watersheds, subject to existing
private rights, the needs of waterworks systems, and
the requirements of ,domestic water supply;

xxx

(emphasis supplied)
1
In line with this, Executive Order (EO) No. 2246 vests on the
NPC complete jurisdiction, control, and regulation over the following
watershed areas: (1) Upper Agno; (2) Angat; (3) Caliraya-Lumot; (4)
Makiling-Banahaw; (5) Buhi-Barit; and (6) Tiwi. Section 1 of EO No.
224 provides:
I
Section 1. The National Power Corporation shall have
complete jurisdiction, c6ntrol and rehabilitation over the
following watershed areas and reservations.

5 Republic Act No. 6395, An Act Revising the Charter of the National Power Corporation,
approved 10 September 1971.
6 EXecutive Order No. 224 entitled, "Vesting on the National Power Corporation the Complete
Jurisdiction, Control and Regulation over Wa.tershed Areas and Reservations Surrounding its
Power Generating Plants and Properties of Said Corporation", 16 July 1987.
ERC CASE NO. 2012-040 RC I
ORDER/ 30 May 2017 .
Pages of 13

1, Upper Aguo Watershed Reservation as

covered by Proclamation No. 548;
2. Angat Watershed Reservation as ,covered by
Proclamation Nos. 505 and 599:
3. Caliraya-Lumot Watershed Reservation as
covered by Proclamation No. 573;
4. Makiling-Banahaw Geothermal Reservations
as covered by P:roc1amation No. 1111;
5. Buhi-Barit Watershed as covered by
Proclamation No. 573;
6. Tiwi Geothermal Reservation as covered by
Presidential Proclamation No. 739.

The following watershed areas were not covered by EO No. 224:

(1) Magat; (2) Pantabangan; (3) San Roque; (4) Lake Lanao-Agus;
and (5) Pulangi.

The Magat Watershed was proclaimed as a reservation under

Proclamation No. 573, s. 19697 ahd is under the administration of the
National Irrigation Administration (NIA) by virtue of Letter of
Instruction No. 1002, s. 19808• Through a memorandum of
agreement between NIA and NPC, a portion of its total area is being
managed and developed by NPC9.

NPC does not have complete jurisdiction, control and

regulation over the Magat Watershed and the Supplemental Petition
of NPC for PLGU-Ifugao under Plan 9 is for the management of the
Magat sub-watershed which is OIhside of NPC's complete jurisdiction.
,

Other arrangements, like co-management arrangement with

other government instrumentalities are allowed under ERC
Resolution No. 18, Series of 2011>0, which provides the rules and
procedures in the utilization and disbursement of the UC-EC.
Pertinent provisions of the Resol,ution provide:

I
Section 1. Guiding Principles

In compliance Lth the EPlRA, its IRR and

PSALM's Guidelines and Procedures governing
remittances and disbursement of the Universal Charge,
these rules are issued to govern the following:

1 Proclamation No. 573, s. 1969 entitled, "Reserving as Permanent Forests Certain Parcels of the Public
Domain Situated in Nueva Ecija, Nueva Vizcaya, Bontoe, Cagayan, Bulacan, Pangasinan, Quezon, Laguna,
Camarines Sur and Iloilo", 26 June 1969.
8 Letter of Instructions No. 1002, s. 1980, 20 March 1980.
9Data retrieved from http://www.napocor.gqv.ph/NPCWatershed/magat_wat.php
10 Resolution No. 18, Series of 2011 entitled "A Resolution Adopting the Rules and
Procedures Governing the Utilization an~ Disbursements of the Universal Charge-
Environmental Charge", 27 June 2011.
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017 i
Page 6 Of13

xxx

c) Disbursement of the Ee corresponding to the

approved petitions to specific watersheds;
I
xxx

Section 2. Definition of Terms

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.

xxx

The same Resolution No, 18 enumerates the coverage and

application of the UC-EC, with the order of priority as to which
watershed area the EC shall be utilized, to wit:
i,
Article II
Availment of the Universal Charge - Environmental
'Charge

Section 1. Coverage and Application

Consistent with Section ~4(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 thefollowing order of priority:

a) Existing watersheds over which NPC has I

complete jurisdiction and control as mandated by
pertinent laws ahd executive issuances prior to
EPlRA such as those covered by EO 224. f
b) Watersheds over which NPC has existing co-
management arrangements with other
government agencies.

c) Other proclaime~ watershed areas supporting

geothermal and I hydropower plants subject to
arrangements to be executed between NPC and
the agency concerned, and subject to the
approval of the ERC.

(emphasis supplied)

The law and rules governJg the utilization of the UC-EC do not
prohibit NPC in making arrangements with other government

I ,
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
Page 7 of 13

agencies concerned for the management of watershed areas. Even EO

No. 224 allows NPC to coordinate with other government agencies to
undertake forest conservation measures in watershed areas:

Section 2. The Nationa~ Power Corporation shall be

responsible for the management, protection,
I

development, and rehabilitation of the aforementioned

watershed areas, including hut not limited to the
following:

'xxx

8. Coordination with other government

agencies/instrumentalities, religious and civil groups in
undertaking forest conservation measures in watershed
areas;

xxx

Moreover, the Petition .of NPC for Plan 9 included a

Supplemental Petition for the mcinagement of the Magat watershed in
the Province of lfugao. NPC alleged that the said portion was for the
development and maintenance cifthe upstream portion of the Magat
watershed that is outside of NPC's jurisdiction.

2. The accounting of the ~C

funds subject of the MOA
will continue to be the
responsibility of NPC.

The Supplemental Petition for the management of the Magat

Sub-Watershed by PLGU-lfugao provided the amount of EC funds
needed for the operational costs of the projects proposed. The
accounting of such funds sh~ll be the responsibility of NPC,
considering that the EPlRA explicitly provides that the EC funds shall
be managed by NPC, to wit: I
,

xxx

Cd)An environmental charge equivalent to one-fourth of

one centavo per kilowatt-honr (PO.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;

xxx

(emphasis supplied)
 ,
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
PageS of13

ERC Resolution No. 18, Series of 2011 mandates NPC to open a

Special Environmental Fund Account (SEFA) for the purpose of
remitting the UC-EC from the Power Sector Assets and Liabilities
Management Corporation (PSALM) and disbursing the same for the
watershed rehabilitation and management". Quoted below are the
pertinent provisions under Section 3:

Section 3. Creation and Maintenance of Special Account

for Universal Charge-Environmental Charge

a) To facilitate the tran~fer ofthe UC-EC from PSALM,

NPC shall open the SEFA with the Land Bank of the
Philippines or a1ny authorized government
depository hank. 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 ERe. ;

xxx

In the same Resolution No. 18, NPC is given the auditing and
documentation responsibilities under
,
Article IV, Section 2, as follows:
I ,

I
Section 2. Audit and Documentation

The NPC as the JenefiCiary and manager of the

SEFA shall: I
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

I
the monies and expetises;
e) Maintain records art 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, disburs~ment, and/or schedule of I
savings/accrued interest.

In the spirit of transparency, the books on the r,

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
Andit (COA) as the state auditor of public funds. All
these audits shall generate an Audit Report for
submission to the ERC.

11ResolutionNo. 18, Series of 2011 entitled "A Resolution Adopting the Rules and Procedures
Governing the Utilization and Disbursement1 of the Universal Charge-Environmental Charge"
ERCCASENO. 2012-040 RC
ORDER/ 30 May 2017
Page90f13

I xxx
(emphasis supplied)

In view of the above-quoted provisions, NPC continues to be the

responsible entity to account for the EC funds, being the manager of
the SEFA mandated by law and pertinent rules.
i
3. The agreement is
consistent with tHe
Commission's Decisidn
.
approVIng tiii e
Supplemental Petition f6r
PLGU-Ifugao.

The Decision of the clmmission contains the following

dispositive portion:

WHEREFORE, the foregoing premises

considered, the petitions
, for the availment of the
Environmental Charge/Share from the Universal Charge
(UC) for the rehabilitation and management of
watershed areas under Plans 7 to 10 filed by the National
Power Corporation (NPC) are hereby APPROVED with
Modifications.
I
I
In connection therewith, PSALM is hereby
authorized to release the amount of Seven Hundred
Seventy-Seven Million three Hundred Nine Thousand
Seven Hundred Thirty-Seven and 94/100 Pesos
(PhP777,309,737.94) tol fund the NPC's Plans 7 to 10
Watershed Management Program. The disbursement
and utilization of the said approved budget should be in
accordance with the "R:b.lesand Procedures Governing
the Utilization and Disbursement of the Universal
Charge-Environmental Charge
,
(UC-EC)".
I
Accordingly, NPC is directed to comply with the
following: i II , I

a) Submit, wit~in forty-five (45) days from

receipt hereof, a ProjJct Implementation Plan (PIP)
containing the timelinesl of the project implementation;

b) Submit, every six (6) months thereafter, a

status or progress report of the approved project based
on the PIP which shall include the actual cost and other
supporting documents; and
I
I
I
,
I
\

/
ERC CASE NO. 2012-040 RC .
ORDER/ 30 May 2017
Page 10 of13

c) Submit annually the Commission on Audit

(COA) report on the VCEC fund utilization as prescribed
under the Commission's: Resolution No. 18, Series of
2011.

SO ORDERED.

As discussed earlier, incIJded in the said Decision was the

approval of the Supplemental Petition
, for PLGU-lfugao (Magat Area)
under Plan 9 in the amount of Php24,221,940-42, provided in Annex
A of the 15 December 2014 Decisfon.

ERC Resolution No. 18, Series of 2011 provides the

requirements and procedures for:disbursing the EC funds, to wit:

kicleIII
Disbursement of VC-EC and Application of Savings

xxx

Section 2. Disbursement of Environmental Charge

A. Requirements

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; i
I,

b) Plan, terms of:reference and contracts specific

to the project; I
I
c) Compliance With the pertinent provisions of
RA 9184 or the Government Procurement
Reform Act of 2003 and other relevant
provisions specified in these rules; and

d) Compliance Lih internal accounting and

auditing rules! and regulations of NPC and the
Government Accounting and Auditing Manual
promulgated by the COA.

B. Procedures I
I
The fund from the SEFA shall be disbursed and
utilized only for the specific programs and projects for
which it was allotted to ~n accordance with existing laws,
government rules and regulations. Disbursement shall
be in accordance with the internal accounting and
auditing rules and tegulations of NPC and the
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
Page n of 13

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 ,
1

duly authorized officer of the NPC.

The draft MOA presented ~yNPC covers the responsibilities of

both parties and the procedure!1for transferring or disbursing the
approved UC-EC funds from NPC to PLGU-lfugao, including
compliance with applicable accounting and auditing rules and
. I
regu IatlOns.

The agreement between NPC and PLGU-lfugao for the

management of the Magat sub-watershed area is consistent with the
Decision of the Commission approving NPC's supplemental petition
for PLGU-lfugao amounting to Php24,221,940.42.

Notably, the draft MOA requires parties to observe compliance

with the pertinent provisions of Republic Act No. 9184 or the I

Government Procurement Reform Act of 2003, the disbursement i .

process and documentary requirements under ERC Resolution No.
18, Series of 2011, as well as other relevant accounting and auditing
I
rules and regulations ofNPC and the Commission on Audit (COA).

NOW THEREFORE, primises considered, the Commission

hereby allows the National Powet Corporation (NPC) to enter into an
agreement with the Provincial I Local Government Unit of lfugao
(PLGU-lfugao) for the managebent of the Magat sub-watershed,
pursuant to the consolidated decision of the Commission in ERC
Case Nos. 2010-019 RC, 2011-067 RC, 2012-040 RC, and 2013-038 ,
RC dated 15 December 2014, where the supplemental petition of NPC
for PLGU-lfugao in Plan 9 under ERC Case No. 2012-040 RC was
approved in the amount of Twenty-Four Million Two Hundred
i I
Twenty-One Thousand Nine Hundred Forty and 42/100 Pesos
(Php24,221,940.42).
,
The accounting of the Universal Charge-Environmental Charge
(UC-EC) fund that pertains to the approved supplemental petition for
PLGU-lfugao continues to be the responsibility of NPC, pursuant to
ERC Resolution No. 18, Series of 2011. With the disbursement i
requirements and procedures laid out in Resolution No. 18, Series of
2011, transfer of the approved amount from the NPC-managed
,I
I
Special Environmental Fund Account (SEFA) to PLGU-lfugao should I ~,

I,
 ERC CASE NO. 2012-040 RC I
ORDER/ 30 May 2017
Page 12 of 13

be in accordance with the applicable accounting and auditing rules

and regulations.

SO ORDERED.

Pasig City, 30 May 2017.

JOSE VICENTE B. SALAZAR*

Chairman and CEO

ALFREDO~
Omv G~ ~~T.ct.~AP_TARUC
Commissioner Com~~ner

(on leave)
JOSEFINAPAT A. MAGPALE-ASIRIT GERONIMO D. STA. ANA
C ISSloner Commissioner

*The Chairman was placed on preventive suspension as per Order of the Office of the President
(OP-DC Case No. 17-D-094J dated 2 May 2017 and received on 04 May 2017.
I, ,

i
ERC CASE NO. 2012-040 RC
ORDER/ 30 May 2017
Page 13 of 13

Copy furnished:

1. Atty. Diwa Rafael B. Bontuyan

Counsellor Petitioner National'Fower Corporation (NPC)
NPC Office Building Complex, Quezon Avenue corner BIR Road, Diliman,
Quezon City I
2. National
.. Power Corporation ,
(NPC)
Petltioner
NPC Office Building Complex, Quezon Avenue corner BIR Road, Diliman,
Quezon City I
I
3. Atty. Francis Dino S. Antonio, Atty. Hazel Rose B. See, Atty.
Adrian Rex C. Dimalanta, and Atty. Monica M. Martin
Counsellor Intervenor Manila iElectric Company (MERALCO)
'1h Floor, Lopez Building, Ortigks Avenue, Barangay Ugong, Pasig City
• I

4. Manila Electric Company (MERALCO)

Intervenor I
7th Floor, Lopez Building, Ortig~s Avenue, Barangay Ugong, Pasig City

5. Office ofthe Local Govermhent Unit

Province of !fugao I
6. Power Sector Assets and Liabilities Management Corporation
(PSALM) I
7'h Floor, Bankmer Building, 6756 AyalaAvenue,Makati City
I

7. Regulatory Operations Se~ce (ROS)

Energy Regulatory Commission
14'h Floor, PacificCenter Building,Pasig
, City