SEC. 4. A new section denominated as Section 21-A is inserted after Section 21 of the same Act, to read as follows:
"SEC. 21-A. Transition of Operations. - To ensure the uninterrupted supply of electricity, Northern Davao Electric Cooperative (NORDECO) is, in the interim, authorized to operate the existing distribution system and implement its existing power supply agreements with generation companies that are provisionally or finally approved by the ERC until the Grantee establishes or acquires its own distribution system and fully takes over its operations. NORDECO may operate for a period of not longer than two (2) years from the approval of the expanded territory of this legislative franchise.
Upon compliance with the rules, the ERC shall grant NORDECO a provisional Certificate of Public Convenience and Necessity (CPCN) covering the transition period. The ERC shall determine the applicable generation rate.
The Grantee shall conduct a Competitive Selection Process (CSP) for the electricity requirements in its expanded franchise area: Provided, That persons or entities that are supplying electricity to NORDECO, pursuant to supply agreements approved or provisionally approved by the ERC, or those allowed to be immediately implemented pursuant to laws, rules, or regulations, on the date of the expansion of the Grantee's franchise area is enacted into law, shall have an opportunity to improve any offer made by the winning bidder in the Grantee's CSP over its expanded franchise area: Provided, further, That such offer should be proportionate to the capacity of such person's or entity's existing supply agreement with NORDECO.
The provisional authority to operate granted to NORDECO during the transition period shall not prevent the Grantee from exercising the right of eminent domain as provided under Section 9 of this Act.
Furthermore, to assist NORDECO in its economic recovery:
(a) The Grantee shall have the option to purchase the distribution system assets NORDECO owns, located in the expanded franchise area, when such sale or other disposition is (1) priced at book value, using Philippine accounting standards, which shall be considered in the setting of rates for the benefit of the consumers in accordance with Republic Act No. 9136 and its implementing rules and regulations, and (2) consented by the NEA and any other lending source which then holds a lien on any NORDECO's properties, in lieu of the requirements set under Presidential Decree No. 269, Section 36(b): Provided, That the Grantee shall place the purchase price of the distribution system assets in an escrow account of a third-party banking institution, with the purpose of servicing the outstanding debts and liabilities of NORDECO to its creditors.
(b) NORDECO shall be allowed to avail of loans prior to the Grantee's takeover of its franchise area, to settle its outstanding debts and liabilities to its legitimate creditors, in accordance with existing laws and regulations: Provided, That the same escrow account will be used to settle the loaned amount: Provided, further, That in the absence of an escrow account pursuant to the sale or disposition of properties as set in paragraph (a), one shall be made to administer the amounts loaned pursuant to this section, for the purpose of servicing the outstanding debts and liabilities of NORDECO.
In any case, if the ERC determine that no escrow account has been created pursuant to paragraph (a) or (b), or if the amount in the escrow account is insufficient to cover the outstanding debts and liabilities of NORDECO, including any outstanding loan availed pursuant to paragraph (b), the Grantee shall be allowed to collect an additional charge to be determined by the ERC within three (3) months from the determination of insufficiency, failing which, the Grantee may collect twenty (20) centavos per kilowatt-hour from the customers within the expanded franchise area, and place the same in an escrow account created for the purpose of servicing the outstanding debts and liabilities of NORDECO, including those availed under this section, until such debts and obligations are served and settled with finality: Provided, That this additional charge shall be exempt from value added tax, corporate income tax, and other local and national taxes.
To shorten the transition period, the ERC and all agencies issuing the requisite licenses shall prioritize all applications of the Grantee relevant to the establishment and operations of the distribution system under its expanded franchise area.
In the hiring of employees upon commencement of business operations in its new franchise area, the Grantee shall, as far as practicable and subject to certain qualification standards, give preference to former employees of NORDECO.
NORDECO shall ensure that affected employees neither hired by the Grantee nor retained by NORDECO shall, to the extent, receive all separation or retirement benefits in accordance with applicable laws.
An information dissemination campaign regarding public services and operations of the Grantee shall be made to all end user in the franchise area.
During the transition, the DOE shall ensure that the supply of electricity in the existing franchise area is uninterrupted.
The Grantee shall comply with the system loss cap prescribed for private distribution utilities and within the transition period as determined by the ERC: Provided, That such transition period for compliance with the system loss cap prescribed for private distribution utilities shall not exceed five (5) years from the grant of the Grantee's CPCN for the expanded franchise area: Provided, further, That within six (6) months from the issuance of the CPCN, the Grantee shall submit to the ERC, a proposed implementation strategy including the estimated rate impact on consumers to achieve the prescribed system loss cap within such transition period."
