Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City IN THE MATTER OF THE APPLICATION FOR THE APPROVAL, OF THE MAXIMUM AVERAGE PRICE (MAP 2007) FOR THE SECOND REGULATORY YEAR OF THE FIRST REGULATORY PERIOD CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO), Applicant. x i Ge ERG CASE NO. 2006-078 RC Dates Ale 3 Ls By: DECISION Before this Commission for resolution is the application filed on December 13, 2008 by Cagayan Electric Power and Light Company, Incorporated (CEPALCO) for approval of its Maximum Average Price (MAP 2007) for the second regulatory year of the first regulatory period In the said application, CEPALCO, alleged, among others, the following: 1. Itopted to enter Performance-Based Regulation (PBR) at the first entry point, as described in Annex B of ERC Resolution No. 12-02 Series of 2004 “Adopting a Methodology for Setting Distribution Wheeling Rates’, or the Distribution Wheeling Rates Guidelines (OWRG) dated December 10, 2004, through a Letter of Intent submitted to the ERC. which entry was subsequently approved by the Commission in a letter dated April 7, 2005; 2, Per DWRG which was later amended by the Rules for Setting Distribution Wheeling Rates (RDWR), the first regulatory period for the first entrant Distribution Utilities (DUs) is composed of two regulatory years: 1) First Regulatory Year covering the period July 1, 2005 to June 30, 2008 and 2) Second Regulatory Year, covering the period July 1, 2006 to June 30, 2007;ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 2 of 37 3. ‘The opening MAP of CEPALCO which was set at PhP0.6090 for the First Regulatory Year of the first regulatory period was approved by the Commission in an Order dated June 14, 2005 in ERC Case No 2004-242, after a public consultation was held on May 23 to 25, 2005, in Cagayan de Oro City for various sectors in the community such as residential customers, local government units, business group, media and socio-civic and professional organizations; The said opening MAP was later revised by the Commission in an Order dated April 24, 2006 in ERC Case No. 2004-242 to PhP0.9474/kWh, upon a Motion for Reconsideration filed by CEPALCO on the ground that the PhPO.6090/kWh MAP covered only distribution charges but should include also Supply and Metering Charges; On May 12, 2006, pursuant to Article VI of the RDWR, CEPALCO submitted documents in written and in soft copy form (CD), containing data and information as well as its proposed maximum distribution wheeling rates that may be charged to its customers, for purposes of the annual review by the Commission. Article VI of the RDWR provides for the procedures that will be undertaken by the Commission in its evaluation or review of the proposed maximum distribution wheeling rates, including timelines; In an Order of the Commission dated October 23, 2006, CEPALCO was directed to file its application for approval of its proposed Maximum Average Price (MAP 2097), for the second regulatory year of the first regulatory period, after complying with the requirements in Rule 3 Section 4 (e) of the EPIRA IRR, and in accordance with the ERC Rules of Practice and Procedure, hence this application; CEPALCO proposes its Maximum Average Price (MAP 2007), for the second regulatory year of the first regulatory period to be PhP 1.0656/KWh; This Maximum Average Price is obtained using the following formula as provided under Section 3.2.1 of the RDWR: MAP 1 = [MAP x (1+ CWI: -X)]-Kt Where: t 2007 MAP t+ MAP for 2006 which is P0.9474 CWly Change in Weighted Index for 2007 which is 0.0722 x Efficiency Factor which is zero for first regulatory period as provided under RDWRtv ERC Case No. 2006-078 RC DECISIONJune 27, 2007 Page 3 of 37 Ke Correction Factor to adjust for over ar under recovery of revenue in regulatory year t-1 or 2006 Ky = 0.0498 Thus, MAP 297 = (0.9474 x (1 + 0.0722 — 0) + 0.0498 = PhP1.0656 /kWh 9. The CWI or the Change in Weighted Index for 2007 is computed as shown in Schedule 6 while the K, or the Correction Factor to adjust for over or under recovery is obtained as shown in Schedule 5, of the attached supporting documents; 10.CEPALCO seeks the approval of this Maximum Average Price for 2007 for the reason that being an entrant to the PBR, it is now governed under this rate-setting methodology, and to enable it to earn the annual revenue requirement sufficiently to be able to serve its customers efficiently and adequately, the said MAP for 2007 has to be adjusted following the formula set forth in the RDWR; 11.As provided for under the RDWR, this Maximum Average Price shall be converted into rates for the applicant's distribution charges such as supply charge, metering charge and distribution charge to its various customer classes, and therefore excludes generation cost, transmission cost and system loss components; 42.CEPALCO will comply with the requirements in Section 4 (e), Rule 3 of the Rules and Regulations of Republic Act 9136, in relation to Rule 6 of the ERC Rules of Practice and Procedure, prior to the filing of this application with the ERC: 13.In support of the application for the approval of MAP 2oc7, CEPALCO. has attached the following supporting documents as Schedules 1 to 10; and 14.CEPALCO most respectfully request for approval of the application to allow it to fulfil its obligations under PBR and in order to avoid irreparable losses which will ultimately result in the deterioration of its services, to the damage and prejudice of the public, in general, and its customers, in particular. Having found said application sufficient in form and in substance with the required fees having been paid, an Order and a Notice of Public Hearing, both dated February 9, 2007, were issued setting the case for initial hearing on March 29, 2007ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 4 of 37 In the same Order, CEPALCO was directed to cause the publication of the Notice of Public Hearing, twice (2x) for two (2) successive weeks in two (2) newspapers of general circulation in the Philippines, with the date of the last said publication to be made not later than ten (10) days before the scheduled date of initial hearing. The Office of the Solicitor General (OSG), the Commission on Audit (COA) and the Committees on Energy of both Houses of Congress were furnished with copies of the Order and the Notice of Public Hearing and were requested to have their respective duly authorized representatives present at the initial hearing. Likewise, the Offices of the Mayors of the Cities/Municipalities within CEPALCO’s franchise area were furnished copies of the Order and the Notice of Public Hearing for the appropriate posting thereof on their respective bulletin boards. During the March 29, 2007 initial hearing of this case, only CEPALCO appeared. No oppositors appeared nor was there any opposition registered. At the said hearing, CEPALCO presented its proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits “A” to “C’, inclusive. Thereafter, CEPALCO presented its sole witness, Mr. Richard S. Ratunil, its Economic Regulatory Compliance Officer, who testified in support of the applicationERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 5 of 37 On April 16, 2007, CEPALCO filed its “Formal Offer of Evidence” which is hereby admitted for being relevant and material to the final resolution of this case. DISCUSSION 4. CEPALCO’S APPLICATION CEPALCO sought the Commission's approval of the following * Its Maximum Average Price (MAP 2.07) of PhP1.0656/KWh, which will serve as the price cap for the provision of regulated distribution services during the Second Regulatory Year (July 1, 2006 to June 30, 2007) of the First Regulatory Period (July 1, 2005 to June 30, 2007) pursuant to the provisions of the Distribution Wheeling Rates Guidelines (DWRG) [updated and promulgated into the new Rules for Setting Distribution Wheeling Rates (RDWR) for Privately Owned Distribution Utilities Entering Performance Based Regulation at the First Entry Point}; and * The resulting charges for each of the customer segments, observing the general methodology for converting an annually adjusted MAP into effective rates as approved and written in Section 10 of the Position Paper and Article V of the Distribution Services and Open Access Rules (DSOAR) The objective of CEPALCO was to present its MAP 2007 expressed in Philippine Peso per kiloWatthour (PhP/kWh) that shall serve as the price cap for an initial regulated entity for the provision of regulated distribution services during the Second Regulatory Year of the First Regulatory Period or Regulatory Year 2007, which shall commence from July 1, 2006 and will end on June 30, 2007. 4.1. Distribution, Supply and Metering RevenuesERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 6 of 37 CEPALCO's Total Actual Distribution, Supply and Metering Revenues for Calendar Year 2005 amounted to PhP521,819,376.00 as shown in TABLE 1 below. TABLE 1: 2005 Actual Regulated Distribution Services Revenues ~T” Reguiated Distribution Services Revenues Totat Garena Distribution | Supply Metering | Revenue Rate Schedule (PhP) (PhP) (PhP) (PhP) Street Lights (Sch. 16) 7,300,268 6173 ot 7.369.440 [Residential (Sch. 26) [lifeline] | _21,674,232 | 13,242,279 | 6,348,853 | 43,265,364 | | 108,721,547 | 66,440,788 | 31,525,763 | 206,688,098 Small Co ~~ 44.285 487 | 18,295,612 | 34,724,380 [ 97,308, | Big Commercial (Sch. 46) 30,330,821 | 2,260,804 |" 4,464,675 | 37,046,390 ‘Small Industrial (Sch. 56) | ___74,823,917 470,513 | 2,203,282 | _77,497,722 | | Big industrial (Sch. 66) ~ 8.168.961 1,428 6,998 | 8.177.388. Bulk Power (Sch. 76) 44 241,387 16,899 311.220 | 44,460,485 TOTAL 339,546,590 | 100,787,588 | 67,485,198 | 521,819,376 CEPALCO also submitted its normalized revenues from July 1, 2005 to December 31, 2005 taking into consideration the approved Distribution, Supply and Metering rates as per Commission's Order dated April 24, 2006 which mandated a retroactive effectivity of the said revised charges as of July 1, 2005, The said normalized revenues added to the actual revenues earned for the period from January 1, PhP561,086,702.00, the breakdown of which is shown as follows: 2005 to June 30, 2005 amounted to TABLE 2; 2005 Normalized Regulated Distribution Services Revenues [_ Regulated Distribution Services Revenues Total eee Distribution | Supply Metering | Revenue Rate Schedule (PhP) (PhP) (PhP) (PhP) Street Lights (Sch. 16) 757,107 33,386 0] 7,586,483, Residential (Sch. 26) [lifeline] | 22,339,461 14,063,601 | 6,787,679 | 45,184,741 | ‘Residential (Sch. 26) 712,066,187 | _70,550,231 | 36,028,582 | ~ 217,648,000 | ‘Small Commercial (Sch. 36) | 45,642,636 | 19,285,989 | 36,699,933 | 101,628,558 Big Commercial (Sch. 46) 31,265,304 | 4,727 623 | 38,316,317 [Small industrial (Sch. 56) 80,270,109 2,343,772 [91,101,269 Big industrial (Sch. 68) | ___8677.347[__ ___7.433 [6,686,297 | Bulk Power (Sch. 76) —so.826 83 89,192 | 0,934,028 TOTAL (discrepancy due to rounding off) 366,633,876 | 106,774,612 | 87,678,214 | 564,086,702 Percentage to Total 65.34% 19.05% 15.83% 100,00%,ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 7 of 37 1.2, Computations/Calculations The computations below were essential in arriving at the figures for the various components of the price cap formula 1.2.1. Correction Factor, K,, for the 2"° Regulatory Year In determining the over- or under- recoveries of revenue incurred during Regulatory Year 2006, CEPALCO first determined its actual weighted average tariff which will then be compared to the approved maximum average price for regulatory year 2006 to get the differential amount which will be subjected to four conditions to compute for the correction factor. The following are the computations arrived at by CEPALCO: 1. Computation of the Actual Weighted Average Tariff, AWAT 2007 CR 2006 = 521,819,376 RBR 2000 = 0 CQ 2005 = 596,802,837 AWAT 2007 = 0.8744 The AWAT 2007 was calculated by dividing the revenue earned in Regulatory Year 2006 (GR 2005) by the number of kiloWatthours sold for the same period (CQ 2006). 1.2.1.2. Computation of Differential Amount, DA2o07, Per Section 3.4.1(b) of the RDWR DA 2007 = AWAT 2007 — [(50% x MAP wi) + (50% x MAP 2000)] AWAT 2007 = 0.8744 MAP 5; = 0.8920ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 8 of 37 1.24.3, (h/ MAP 2005 = 0.9474 DAzoor = (0.0453) The DA 2007 was computed by deducting from AWAT 2oc7 the sum of 50% of initial MAP or MAP pi and 50% of MAP 209. Both MAP : and MAP 2008 were determined prior to the commencement of Regulatory Year 2006; the latter was prescribed by the Commission as the price cap for CEPALCO for Regulatory Year 2006. Computation of K2oo7, Per Section 3.4.2 of the RDWR DAzog7 < 0 Hence, Ko07 = DAzoo7 X (1+ igoor/100) Kzoo = (0.0498) ‘The calculation of the correction factor for Regulatory Year 2007 is dependent upon four (4) conditions as prescribed under Section 3.4.2 of the RDWR, to wit: a (a) if DA 2007 then K 2007 0, DA 207 x (1 + i 2007/100); (b) if DA 2007 > O and AWAT 20o7/{(0.50 x MAP 1s) + (0.50 x MAP 2008)] < 1.07, then K 2007 = DA 2007 x (1 + | 2007/100); (©) if DA 2097 > +O and AWAT 2007/[(0.50 x MAP ») + (0.50 x MAP 200)]_ > = 1.07, then K 2907 = 0.07 x {(0.50 x MAP y)) + (0,50 x MAP aaoe)] x (11+ 2007/00) + {DA 2007 — [0.07 x ((0.50 x MAP 4i) + (0.50 x MAP 2006))]} x (1 (i 2007 + 4%) 00}; (A) if DA xoor = 0, then K 2007 = 0 CEPALCO came up with a DA 2007 of less than 0, hence K 2007 was egy computed using the formula in (a) above.ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 9 of 37 4.2.2. Computation of Change in Weighted Index (CWI 2007) (Schodule 6 of the Application) Formula for the Change in Weighted Index (CWI) Under Section 3.3.1 of the RDWR: CWlheoor = {(W1 x DeltaCPlzoo7) + (W2 x DeltaUSERz007)} Where: wi w2 = 0 was not met. DeltaCPlacor = 0.0722 DeltaUSER207 = 0.0022 CWlhaoor = 0.0722 100% “| Since trigger 1.2.2.1. Computation of DeltaCPI 2006 TABLE 3: Monthly Philippine Consumer Price Index Consumer Price index, Ail tems, Source: National Stalistis Office Website (uyow census gov ph) Month 2008 3008 | 2008 January | 116.50 726.30 734.80 February_—| 116.70 736.60. 136,20 | [March F710 wane 16:70 taro. a27-70sEsa| suaeesanae 418.30 128.30, 429.40 12150 ar 2190 SOE ETE August 422.30, 434.40 September | PSE see [eee October 123.50 43220 Novernber_| recearceeaae December | ‘Average. TABLE 4: 2006 Quarterly Philippine Consumer Price index Pte [June 2005 ‘September 2005ERC Case No. 2006-078 RC DECISIONJJune 27, 2007 Page 10 of 37 TABLE 5: 2005 Quarterly Philippine Consumer Price Index CPi Ciifer Plaun | ___12030___| June 2004 CPhoss2y 123.00 September 2004 [Chopin _|__125.40 | December 2004 Plows 127.00 March 2005 CPI. 495.70 DeltaCPloo07 = (CPlao0/CPlooas) — 1 DeltaCPl2oor = (531.50/495.70) -1 DeltaCPleoor = 0.0722 The change in CPI for Regulatory Year 2007(DeltaCPlooc7) is calculated as follows: DeltaCPlaoa7 = (CPlzo06/GPlaaos) ~ 1 Where: CPlao0s = CPliune 2005 + CP lsepiembe: 2005 + CPloecember 2005 + CPInarch 2006. CPlz005 = CPliune 2004 + CP lseptember2004 + CPloecember 2004 + CPlntarcn 2005, The CPI values (For all items in the Philippines based on 2000 level) for the pertinent Quarter will be substituted in the formula for CPlao6 and CP l2oos: CPlooos == 129.40 + 131.60 + 133.80 + 136.70 = 531.50 CPlaoos = 120.30 + 123.00 + 125.40+ 127.00 = 495.70 The resulting CPl2os and CPlzo9s will now be substituted in the DeltaCPz907 formula: DeltaCPlaoor = (531.50 / 495.70) —1 = 0.0722ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 11 of 37 1.2.2.2. Computation of DeltaUSERz005, TABLE 6: MonthlyPhilippine Peso Per United States Dollar Exchange Rates and United States All Items City Average Consumer Price Index (TP iP er US$ Exchange Rate_ “[ EPI, Ailitems, US City Average [Average Rate forthe Last § Days) | Series 1D CUUROO00SAO ‘Source — | www. bsp-qov.ch ‘www.bls.gov Details — | Table 7 Month 2004, 2005, 2008 2004 | 2008 Tanuary | 58.854 | 65.112 | S201 | 185.20 _| 190.70 February | 56.252 | sa7ir__| 51912 [18620 | 191.80_| March 56.386 ea.7es_| 51.210 | 18740 | 193.30 April 55.707 54.318 188.00 [19460 May 55.917 54.470 189.10 {— 194.40 dune | 88.142 |~"s8.707 |__| 4as.70_ | 404.50 su 56.041 | 55.886 | 189.40 | 195.40 ‘August 56.078 56.044 189.50 [196.40 ‘September | 58.983 | 6.217 |__| 188.90 | 198.80 | October. 56.334 56.202 | 190.90 | 199.20 November [66279 | _64280_| |" 191.00 197.60 [December | ~56.167 | 53.270 — | 1190.30 | 198.80 TABLE 7: Daily Philippine Peso Per United States Dollar Exchange Rates 20047 Jan | Feb | Mar | Apr | May | Jun | Jui | Aug | Sep | Oct | Nov 20_| 55.635 | 66.180 55.710 | 66.778 35.978 | 66.809 | 56.175 | 56.376 | 21_| 55.698 55.631 | 55.831 | 86303 /55.911| | 56.227 | 66.322) 22" | 55.567 66.320 | 55.704 56.262 | 65.922 156.295 | 56.295 | 56.323 | 66.42% 23 | 55.619 | 66.923 | 56.429) 55.835 |__| 56.224 | 66.019 | 66 759 | 56.322 56.275 | 56.144 | 24 56.242 | 65.412 | 35.881 | 66.261 55,762 | 66.367 56.269 25 56.367 155.915 | 58.067 55.930 6322 | 56.314 26 | 55798 | 66338 | 56.397 | BETA | 65.958 ‘BEOAT | 66.032 56.279 | 66.306 27 | 65,803 | 56.275 55.660 | 55.958 56.047 | 56.086 | 56379 | 56.326 [28 [ssa20 | ~| 55.577 | 66.915 | 66.048 | 66.085 86.422 | 56.390 "| 56.443 29 | 65.835, 356,422 | 55.695 156.155 | 56.022 56.410 | 66.351 56.267 30] 56.085! 36.388 | 55.558 86.187 | 86.009 | 56128 [56.326 | S623 4 34 86.357 wer, | seme; TT CT Last | pays | 95884 56.282] 56.296] 95.707 55.917) 56.142] 56.041 | 56.078 | 56.289 | 56.294 | 56.279 | 56.167 Ave. 2008" 20_| 55.552 54526 | 54635 | 55.450 | 65.684 56.268 | 65750 21 [55.483 | 64689 [64202 [54311 55.636 | 5,904 56.290 | 55.749 22 54.747 | 54.266 | 64.369 | 155.793 | 65,743 | 56.007 | 66.274 | 23 54.758 | 54844 | 55.630 55.895 | 66.281 24_ | 55.546 | §4.620 _|____|'84.706 |'58.750 || 55.904 S5.581 25 | 55.405 ‘$4,390 | 64.646 56.027, 85.433, 26 | 55.344 54.106 | 54.448 ‘551863 | 56.077 | 86.268 | 55.327 27_| 85.388 | — [54.249 [64.455 | 55.737 | 55.880 56.273 | 55.059 28_| 85.188 | 64.717 | 54:469 | 54.493 55.565 | 66.147 156,305 | 65.060 29 S493 | 54.384 55.878 | 56.105 56.183, 30 [passe 54484 | 55.919 | 36.062 | 56.055 ‘3 seat | 54793 54.367 56.160 Last T ] pee 84.318 | 54.470 | 55.707 | 55.886 | 56.044 | 56.217 | 55.292 | 54.280 | 53.270 Ave. iERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 12 of 37 2006 eealaeaes ses a I eee 20_| 52.823 | 61.777 |Si.066 [| ae [anaes 21 51,908 [61,042 | 22 51.959 | 51.094 [23 | 52.867 | 54.734 | 61.163 | 24_|52.867 | 54.770 | 51.154 25_| S2.747 spa esarae| 26_| 52556 27_| Saat | 62009 [6120 28 152.088 0. jf — 29 { 1.145 30__| Saas 51.238 31_| 52.396 52.501 | 51.912 | 51.210 | The change in PhP per US$ for Regulatory Year 2007 (DeltaUSER.007) is calculated as follows: DeltaUSERzo07 = {(USERz005/USERo005) x (USCPl2006/USCPl2095)} — 1 Where: USER2008 = USERuun2005 + USERsept 2005 + USERpec 2008 + USER war 2008 USER2005 = USER un 2004 + USERsept 2004 + USERbee 2004 + USERar 2005, USCPloo0s = = USCP jun 2005 + USCPlsept 2005 + USCPlpec 2005 + USCPlitar 2008 USCPlaoos = USCPljun 2004 + USCPlsept 2004 + USCPlpec 2004 + USCPhitar 2005 The average of the Philippine Peso per United States Dollar inter- bank mid-rates prevailing on each of the last 5 business days of the perfinent Quarter (see Table 9) will be substituted in the formula for USER2005. and USERz005, USERzove = 55.707 + 56.217 + 53.270 + 51.210 = 216.403 USER2005, 56.142 + 56.383 + 56.167+ 54.793 223.485 The United States CPI for all urban customers, US city average published by the US Bureau of Labor Statistics (series a) 7ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 13 of 37 ID CUURO000SA0) for the last month of the pertinent Quarter will be substituted in the formula for USCPlzo95 and USCPlz00s. USCPleoos 194.50 + 198.80 + 196.80 + 199.80 789.90 USCPleoos 189.70 + 189.90 + 190.30 + 193.30 763.20 The resulting USERz00e, USERz00s, USCPlzos and USCPloo0s will now be substituted in the DeltaUSERz0a7 formula, to wit: DeltaUSER2007 {(216.403 / 223.485) x (789.90 / 763.20)} — 1 0.0022 1.2.2.3. Alternative Value for W1 and W2 Weighted Average PhP Per US$ Exchange Rate Under the Philippine Dealing System." TABLE 8: End-of-Month Data ‘Month [2008 January 55.112 February ‘March Apri May June uly | August ‘September | 56.055 ‘October 55.060 | November | 53.999 December | 53.067 " Source: Bangko Sentral ng Pilipinas (www bsp.gov.ph)ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 14 of 37 TABLE 9: End-of-Quarter Data DeltaUSEROTIOZ DeltaUSERQZ/O3, ‘Trigger Event met? No Hence: wt wa The values of W1 and W2 are the weights to be assigned for the Change in Consumer Price index and the Change in Peso Per United States Dollar, respectively. In assigning these weights, certain trigger event must be met as prescribed under Section 3.3.1 in relation to Sections12.5.1 and 12.6.2 subject to the provision under Section 4.20 (during the Regulatory Reset Process for the Second Regulatory Period) of the RDWR. Under Section 3.3.1, the following are the conditions for the setting of weights for W1 and W2: (a) if Section 12.5.1 applies in respect of Regulatory Year t, W1 = 0.60 and W2 = 0.40; and (b) if Section 12.5.1 does not apply in respect of Regulatory Year t, W1 = 1 and W2 = 0. Section 12.5.1 provides that if: (a) a prescribed change in the PhP/US$ exchange rate during the First Regulatory Period occurs, then this Section 12.5.1 applies: (i) where the Quarter which is denoted as Q3 for the purposes of Section 12.5.2 is a Quarter that does not end on 30 June in respect of the Regulatory Year that immediately follows the Regulatory Year in which that Quarter occurs; andERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 15 of 37 (ii) where the Quarter which is denoted as Q3 for the purposes of Section 12.5.2 is a Quarter that ends on 30 June in respect of the second Regulatory Year after the Regulatory Year in which that Quarter occurs (b) the PhP/SUS exchange rate for a Quarter within the Second Regulatory Period is less than 90%, or more than 110%, of the PhP/SUS exchange rate for that Quarter which is approved by the ERC for the purposes of the capital expenditure program that is approved by the ERC under Section 4.12.5 for a Regulated Distribution System, then this Section 12.5.1 applies in respect of the Regulatory Year in which that Quarter occurs. Section 12.5.2 states that for purposes of Section 12.5.1 (a), a prescribed change in the PhP/SUS exchange rate during the First Regulatory Period occurs where: (a) DeltaUSERowa2 > 0.07 and DeltaUSERazias > 0.07; or (b) Delta USERatae <— 0.07 and DeltaUSERoziaa < ~ 0.07. For the purpose of this Section 12.5.2: (c) DeltaUSERowa2 = [USERa2/USERo:] ~ 1; and (d) DeltaUSERoaas = [USERas/USERaz] - 1; USER has the same meaning as in Section 3.3.3 of the RDWR;, USERar is the USER for a Quarter within the First Regulatory Period; USERgz is the USER for the Quarter (if any) within the First Regulatory Period that immediately follows the Quarter which is denoted as Q1 for the purposes of this Section 12.5.2; and USERgs is the USER for the Quarter (if any) within the First Regulatory Period that immediately follows the Quarter which is denoted as Q2 for the purposes of this Section. 12.5.2.ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 16 of 37 1.3. Computation of the Maximum Average Price for Regulatory Year 2007 (MAP 2007) 1.3.1. Computation of MAP 2006 TABLE 10: Maximum Average Price 2006 (MAP 200s) “Annualized Revenue from Regulated Distibuton Service, CRy | Teaser ser] Total Amount of Energy, in kWh, Delivered to Customers, CQy | 581,443,816 [Many saisceeeeEectiscune 0.8820 Change in Weighted index 2006 (CW) 0.0620 Maximum Average Price 2006 (MAP200«) 0.9473. ‘The MAPy, and MAPzoo5 were the values that were determined and approved by the Commission for the First Regulatory Year of the First Regulatory Period or Regulatory Year 2006. 1.3.2. Computation of MAP2007 TABLE 11: Maximum Average Price 2007 (MAP 2007) Maximiim Average Price 2008 (MAP im) Change in Weighted index 2007 (CWhrocr) Efficiency Factor, X Correction Factor for Overitindsr-recovery. K Maximum Average Price 2007 (MAP. The price cap for Regulatory Year 2007 was computed using the price control formula to establish the Maximum Average Price for the said Regulatory Year, to wit: MAP2o07 = [MAPooc6 x (1. + CWleoo7 ~ X)] — Kzoor The values, as previously determined, for the various components of the above formula were substituted to the said formula to arrive at the Maximum Average Price for Regulatory Year 2007, to wit (h/ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 17 of 37 MAP 2007 MAP 2007 {0.9474 x (1 + 0.0722 ~0)] - (-0.0498) 1.0656 wu Note that for the First Regulatory Period, the value of X is equal to zero (0). 1.4, Converting the Maximum Annual Prices Into Rates 1.4.1. Total Revenue Requirement based on the MAP2007 TABLE 12: Total Revenue Requirement IMA ogg sea ELREELIE Projected kWh Consumption, FQ. Total Revenue Requirement, TR To compute for the Total Revenue Requirement for Regulatory Year 2007, the MAPz07 is multiplied by the Projected kWh Consumption, FQ. CEPALCO did not provide how it determined the Projected kWh Consumption 1.4.2. Funetionalization of Total Revenue Requirement into Distribution, Supply and Metering TABLE 13: Functionalized Revenue Requirements Functionalization | Functionalized Function Factor Revenue (See Table2) | Requirement Distribution 65.34% 75,805,882 ‘Supply 19.03% 138,568,724 | Metering 45.63% — 113,786,021 Total 100,00% 728,160,627 The Total Revenue Requirement for Regulatory Year 2007 was functionalized using the ratios of the normalized 2005 revenues per function to the total normalized 2005 revenue. (hiERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 18 of 37 1.4.3. Allocation of the Functionalized Revenue Requirement to Customer Segment TABLE 14: Allocation Factors Customer Class! Allocation Factor _ Rate Schedule [Distribution T Supply ‘Street Lights (Sch. 16) I 2.06% "0.05%. (Sch. 26) [feline] | 6.09% | 18.17% (Sch. 26) 30.57% 66.07% | Small Commercial (Sch. 36) — 12.45% | 16.06% Big Commercial (Sch. 46) 853% 2.18% ‘Small Industrial (Sch. 56) 24.08% 0.45% Big Industrial (Sch. 68). 237m 0.00% | Bulk Power (Sch. 76) 13.86% 0.02% | TOTAL 00.00% |~400.00% 00.00% ‘The allocation factors were derived from the ratios of the normalized 2005 revenues per function of each customer class to the total normalized 2005 revenues per function in TABLE 2. Note that some factors appear to be zero (0). This is a result of rounding off and is not an absolute value. There are still values beyond two (2) decimal places. TABLE 15: Functionalized and Allocated Revenue Requirements Customer Ciass? ‘Allocated Revenue Requirement Rate Schedule Distribution | Supply. Metering Street Lights (Sch.16) ___|__—*9,781,415| 69.282) Residential (Sch. 26) [lifeline] 28,991,448 | 18,251,298 | 17,306,586 Residential (Sch. 26) 145,435,964 | 91,557,865 | 45,458,980 ‘Small Commercial (Sch. 36) 159,233,574 | 25,028,748 | 47,628,016 Big Commercial (Sch. 46) 40,575,126 | 3,015,222 | 6,135,360 ‘Small Industrial (Sch. 56) | _ 114,565,961 620,720 |___ 3,041,673 11,261,188, 968 9,646 ‘65,961,203 33,621 115,754 475,905,882 | 138,568,724 | 113,786,021 The allocation factors in TABLE 14 are used to allocate the functionalized revenue requirement in TABLE 13 to arrive at the allocated revenue requirements per function in TABLE 15. > =ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 19 of 37, 1.44. illing Determinants CEPALCO used the following billing determinants in converting the functionalized and allocated revenue requirements into the proposed charges: TABLE 16: Billing Determinants Customer Class! kwh ‘Customers! Saies__|_xw_| “Meters 10,251,086 576 26,155,635 || 48,703 | 131,218,822 513,051 181.716 24.228 131,489,196 | 36,014 4,044 Big Industral (Sch. 68) 14593203 | 3514, 12| Bulk Power (Sch. 76) 242,026,760 | 44.562 444 TOTAL 683,333,922 The kWh Sales are the projected kWh consumption for calendar year 2005. The kW consumptions are the projected average kW demand for calendar year 2005. The Customers/meters are the total for each customer class for calendar year 2005. 1.4.5. Proposed Rates Per Customer Segment/Class 1.4.5.1. Distribution TABLE 17: Proposed Distribution Charges it ‘Customer Classi “Rate Schedule Phe/kWh | PhP/KW ‘Street Lights (Sch. 16) o.g542 Residential (Sch. 26) [lifeline] 4.1084 | Residential (Sch. 26) 11084 ‘Small Commercial (Sch, 36) 0.8503 ‘Big Commercial (Sch. 46) (0.7038 ‘Small Industrial (Sch. 56) Big industrial (Sch. 66) Bulk Power (Sch. 76)(h/ ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 20 of 37 1.4.5.2. For the rate per kWh, the allocated distribution revenues in TABLE 15 were divided by the kWh Sales in order to arrive at the rates. For the rate per kW, the combined allocated distribution revenues of the Small Industrial and the Big Industrial Customers in TABLE 15 were divided by the combined kWV demand for both customer classes in TABLE 16 multiplied by 12 months to arrive at the rates for the two customer classes. For Bulk Power, the allocated distribution revenue in TABLE 15 was divided by the KW demand in TABLE 16 multiplied by 12 months to arrive at the rate. Supply TABLE 18: Proposed Supply Charges Customer Classi PPT Rate Sehedute | PAPI | eer Street Lights (Sch. 16) 0.0067 4 Residential (Sch. 26) [lifeline] | 0.6356 _| Residential (Sch. 26) 0.6356 | Small Commercial (Sch. 36) [0.3254 | . | Big Commercial (Sch. 46) 0.0497 [ Small Industrial (Sch. 86) Bulk Power (Sch. 78) if For the rate per kWh, the allocated distribution revenues per customer class were divided by the kWh Sales of the respective customer class to arrive at the rates. For the rate per customer per month, the combined allocated supply revenues for Smail Industrial, Big Industrial and Bulk Power were divided by their combined number of customers for calendar year 2005 to arrive at their uniform supply chargefh/ ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 21 of 37 1.4.5.3, Metering TABLE 19: Proposed Metering Charges ‘Small Industrial (Sch. 56) PRET ‘Customer Class/ PhP/KWh | Customer Rate Schedule aan ‘Street Lights (Sch. 16) 7 Residential (Sch. 26) [lifeline] | 0.2949 5.00 Residential (Sch. 26) 0.2949 5,00 ‘Small Commercial (Sch. 36) 221.47 Big Commercial (Sch. 46) 221.47 | Big Industrial (Sch. 66) ‘Bulk Power (Sch. 76) 7 640.37 640.37 For Residential Customers, a fixed charge of PhPS.00 per meter per month was allotied. The rate per kWh was arrived at by dividing the residual allocated metering revenue requirement by the kWh Sales. The residual allocated metering revenue requirement was computed by deducting from the allocated metering revenue requirement the product of PhP5.00 multiplied by the number of residential customers. For the rate per meter per month, the allocated metering revenue requirements were divided by the number of customers or meters of each respective customer classes for the year 2005 to arrive at the rates. 2. Commission's Findings The Commission takes note of the following steps in coming up with the Over/Under Recoveries incurred during Regulatory Year 2006, the Maximum Average Price and the corresponding Distribution, Supply and Metering Charges for Regulatory Year 2007:(h/ ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 22 of 37 2A. 2.2. 2.3. Determine the Actual Weighted Average Tariff in PhP/kWh for Regulatory Year 2007 (AWAT?07) The Actual Weighted Average Tariff for Regulatory Year 2007 was computed as follows: AWAT 007 = [CRz008 + RBRzo0e] + CQz005 CReoos = PhP521,819,375.77 (Tho actual Distribution, Supply and Metering revenues for calendar year 2005) RBReoog = PhPO.00 (Uniess determined by the Commission, the value will be zero) CQeons = 596,802,837 kWh (The actual kWh Sales for calendar year 2005) AWAT 007 = [PHP521,819,375.77 + PhPO.00] + 596,803,837 kWh AWAT?2007 = PlP0.8744/kWh Determine the Differential Amount in PhP/kWh for Regulatory Year 2007 (DAz007). In determining the Differential Amount for Regulatory Year 2007, the AWATi007 is compared to the sum of 50% of MAP», and MAP2008, to wit: DAzoo7 = AWAT=2007 ~ [(0.50 x MAPp)) + (0.50 x MAP2006)] MAPS; 0.8920 (Both MAP, and MAPzce were determined and approved by the ‘Commission for Regulatory Year 2006.) MAP 2096 = 0.9474 DA2o7 = PhP0.8744 — {[0.50 x PhP0.8920] + [0.50 x PhP0.9474]} DAs = (PhPO.0453)/K\Nh Calculate the Correction Factor in PhP/kWh for Regulatory Year 2007 (Ko07)- The Correction Factor for Regulatory Year 2007, will be determined subject to the following conditions: (2) if DAzoor < 0 then Keoo7 = DAzoor x [1 + izoor + 100] (b) if DAzo07 > 0 & AWAT 2007 * {[0.50 x MAPp] + [0.50 x MAP2o06]} < 1.07ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 23 of 37 (d) if DAzoa7 = 0 then Kzoo = DAzoor x [1 + izoor + 100] (©) if DAgog7 > 0 & AWAT2007 * {0.50 x MAPal] + [0.50 x MAP2oo]} 2 1.07 then Keoa7 = 0.07 x {0.50 x MAPp] + {0.50 x MAP2oos]} x [1 + izoar + 100] + {DAz007 = {[[0.50 x MAP] + [0.50 x MAP2oos]I}} x {1 + [izoa + 4%] + 100}} then Kaoor = 0 The DAzoor, as computed in B above, is equal to (PhP0.0453)/kWh, therefore, Kzo07 will be computed using the formula in condition 1 above. Ka007 DAzoo7 joo K2007 Keoor = DAzoor x [1 + t2007 + 100] (PhP0.0453) 9.9667 (PhPO.0453) x [1 + 9.9867 + 100] (The simple average of the monthly 180 day weighted average ‘Manila Reference Rate in nominal percent per annum terms published by tho Bangko Sentral ng Pilipinas for the period from 1 January 2008 to 31 December 2005. [TABLE 20)) ({PhP0.0498)/kWh_ TABLE 20: Reference Rates Manila Reference Rates RP Rates RRP Rates| Interbank — Phibor Period [MRR | MRR | MRR] All Call Loan | Rates 60_| 90 | 180 | Maturities | Overnight | Term | Overnight | Term | Rates | (All Mats) 2008 [7.3 [tos | 18] 33 93 [92 | 70 [7a [73 7A vanes | 85 | 93 | 74 go | o1 | 68 | 69 | 70 74 Feb [6s | es | 93 | 76 go [st | ee | 68 [70 63 Mar | 64 | 86 | 107 | 74 go | ot | 68 | 8 | 70 63 Aor [et | 94 [442 [74 93 [93 [70 [71 [73 64 May | 62 | 8a [12 [74 nr 93 [70 [74 | 72 53 Jun [64 | 91 | 106 | 71 Nt. [ 93 | 70 | 74 | 72 64 wi {60 [93 | 96 | 66 93 [03 | 70 [71 | 73 7A Aug [55 [93 [26 | 66 a3 [es | 70 | 71 | 72 74 sep | s7 | 87 [93 | 65 a3 [94 | 71 [72 | 73 84 oct [et | so | 93 | 69 96 | 99 | 73 | 74 | 76 [at Nov | 61 | 91 | 98 | 69 nt | 99 | 75 | 76 [79 84 ¢ al Tl OE ET: TT TE AE 9.97ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 24 of 37 2.4. Determine the Maximum Average Price in PhP/kWh for Regulatory Year 2007 (MAP20¢7)- MAP 2097 = ~MAPeoos x [1 + CWlaoo7 ~ X] - Kzo07 Where: MAP2o¢ = the MAP as approved by the Commission for Regulatory Year 2006 (See TABLE 10) CWhoor = the change in weighted index for Regulatory Year 2007 with the following formula: CWlp97 = [W1 x ACPlzoo7] + [W2 x AUSER2007] Where: W1 and W2 = weight of the Consumer Price Index and Peso Per US Dollar Exchange Rates, respectively, subject to the conditions as, prescribed under Sections 3.3.1 in relation to Sections12.5.1 and 12.5.2 subject to the provision under Section 4.20 (during the Regulatory Reset Process for the Second Regulatory Period) of the RDWR. (For the discussions, see 2.2.3) The following are the parameters and calculations to determine the weights of the CPI and the USER as provided under Section 12.5.2 of the RDWR: It, AUSERatiaz > 0.07 and AUSERazia3 > 0.07; or AUSERariaz < — 0.07 and AUSERaziaa < — 0.07 Then, W1 = 0.60 and W2 = 0.40 Otherwise, W1 = 1 and W2 = 0 AUSERowa2 = [USERoz + USERo:] - 1 AUSERaqaz = [USERar Jun os + USERow mar 05] — 1 AUSERa woz = [55.707 + 54.455] —1 AUSERatia2 = 9.023 0.023 is neither > 0.07 nor <~0.07 AUSERazaa = [USERo3 + USERoz] ~ 1ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 25 of 37 AUSERg2ia3 = [USERaxr sept os * USERaxr mar os] — 1 AUSERozias = [58.217 + 55.707] — 1 (see TABLE 22) AUSERg2iaa = 0.009 0.009 is neither > 0.07 nor <~ 0.07 The conditions as contained under Section 12.5.2 were not met, therefore, W1 = 1 and W2 = 0. ACPlao07 = [CPl2o0 + CPlzoos] — 4 Where: CPlzo0¢ = CPlay Jun os + CPlar- sept os + CPlatr pec 05 + CPlate mar 06 CPlaoos = 129.4 + 131.6 + 133.8 + 136.7 CPlaoos = 531.5 C$Plaoos = CPlatr Jun 04 + CPlatr sept oe + CPlatr dec 04 + CPlate mar 04 CPlooos = 120.3 + 123+ 125.4 + 127 ACPleoo7 = (531.5 + 495.7) - 1 ACPleoor = 0.0722 TABLE 21: Monthly Consumer Price Index ‘Monthly Consumer Price Index for All Income Households In the Phillppines by Commodity Group (2000 = 100) ‘Commodity Group | Jan | Feb | Mar | Apr | May | Jun | Jui | Aug | Sep | Oct | Nov | Bec [eet [Atriems Allies 268 12 [3 Pas] a | Alltons Ties | 67 | 7A] ivr] ties | 1208] ate | teas [TO] ass] mas ae] Tae Tarevised Source: National Statistics Office Page fast updated: June 6, 2008 Related press release | CPVinflation Rates statistics index. AUSER2007 = [(USER2005 + USER2005) x (USCPl2005 + USCPl2005)] — 1 Where: USER2005 = USERar Jun 05+ USERat Sep 05+ USERai dec 05 + USERar Mar 06 USER2006 55.7068 + 56.2168 + 53.2698 + 51.2096 USERzo06 = 216.4030 USERo05 = USERax Jun a4 + USERaw sop o4 + USER nec 0¢ + USERatttaros USER2o0s = 56.1418 + 56.3828 + 56.1672 + 54.4550 USER20s = 223.1458ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 26 of 37 USCPlao0s = USCPlro0s, USCPlr005 = USCP 2005 = USCPloo0s USCPlaocs = AUSER2007 AUSER20or USCPlou unos + USCPlaw sep 05+ USCPlau pec os + USCPlau mar 06 94.5 + 198.8 + 196.8+ 199.8 789.9 USCPlaye sun 04+ USCPlate seo 04+ USCP lat nec 04 + USCPlat mar 04 189.7 + 189.9 + 190,3+ 193,3 763.2 {216.4030 + 223.1468] x [789.9 + 763,2]}- 1 9.0037 TABLE 22: Daily Philippine Peso Per United States Dollar Exchange Rates Exchange Rates > Philippine Peso per US Dollar Frequency: Daily Range: January 2004 to March 2006(shown boiow are tho exchange rates starting from the 20” day of each month since only the last five days are the relevant figures.) 2004 Period | Jan | Fab— ‘Apr _|~Way”|_Jun [Jul [Aug [Sep |Get | “Nov [Dee 20 | $5635 | 56.180 35.710 | 35.778 | Bs.ot6 [55.809 | 66.179 | 86,576 6.257 21 | 5.98 55031 [55831 [ssor| | $6297| 56.322| | Se.taa 22 | 35.567 36520 | 85.704 55,022 36.205 | 56.205] 56,525) 86.126 25 | “55.619 | 56593 | "56.479 | $5,635 ‘86,019 | 65,759 | 96.322 56.275 | 88.146 24 [86.342 [ 56.412 35881 ~_ [5.762] 86.367[_['s6260| 25 | 56.367 55.915 | 56.067 | 55.930, 56.322 | 56.314 26 | 85790] 56.336 [56397 | 58747) 55,958 36,087 | 86,032 | ~ 56.279 27 [$5.03 | 86.275 55.660 | 55.958 56.047 | $6,086 | 88379| 56.326 26 | 85.820 55.577 | 55.915 56.472 | 55 390 20 | 55.835 36.422 [55.695 56.410 | 56.351, 30} "56.085 56.85 | $5,658 3676 | 56.398 aT 31 58.357 Baar 56216 Last ‘days 56.142 56.383 56.167 Average sea E z 2008 Period [_Jan_| Feb | Mar [Apr { May | Jun] Jul [Aug [Sep [Get | Now | Dec 20 | 85.552, $4 576 | 54.638 | 65.430 | 55.684 156.258 | 85,759 53.33 21 [85.483] 2689 [ Same? ['sa311 55.636 | 55,904 36.200 | 58 749 | 64.477 | 53.404 2 34.747 | 64.266. | 54.369 35.793 | 85.743 | 86.007 | 66.274 54.606 | 63,520 23 54.759 55,895 | 66.2811 54.563 | 63.289 24 | 35546 [54.620 sat 35904] | 55561 | 54.338 25 | 55.405 54390 56.027 55.433 | 54239 [26 [58.961 [ 55,553 | 56.077 | 56288 | 85.327 27 | 38.368, 54.249 | 64.455 | BB.734 | 65.880 2a [55.108 | Sa7i7 54493 ‘55.555 | 56,147 29 i 54.354 58.105 | 54,260 30 t 56,052 53.999 34 5.112 | [56.160 _ 54.455 56.217 aaa Bee ie aunts | aes [cu a 2008 an_[~ Feb [Mar [Apr [May | Jun [Jul[~Aug [Sep [Ot Wov $2.23 | 61.777 [51.086 51,908 | 51,042 t [751.968 [51 094 f feasaee smn fifeciila 52.867 | “81.734 | 81.103 1 52.867 |" 51.70 | 51.154 ies t 52.747 t 52.558 i 52.431 | 52.009 | 81.214 7 fa 1ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 27 of 37 28 $2,088 | 84.170 [ 4 (ina! Bi.145 H 30 S343 1.238) L 31 | 52.336. 61.284 Tast & days, 51.210 Average TABLE 23: United States All Items City Average Consumer Price Index ‘Consumer Price Index ~ All Urban Consumers? ‘Series id: CUURO000SA0 Not Seasonally Adjusted Area: US. cily average tem: Allies Base Period: 1982-84=100 Year| Jan] Feb| Mar | Apr| May | Jun| Jul| Aug| Sep| Oct! Nov| Dec | Annual | HALF1 | HALF2 2000 | 1638 | 169.8 [i712 | 171.3] 1715 | 1724] 1728 | 1728 | 173.7 | 1740| 1741] 1740] 1722| 1708| 1736 2001 | 175.1 | 1758] 1762 | 1769 | 177.7 | 1780| 1775 | 1775 | 1783 | 17.7 | 174 | 1767 | _177.1|_1766| 177.5 2002 | 17.1 | 1778 | 1788 | 179.8 | 1798 | 1739] 180.1 | 180.7| 1810) 1813] 1813 | 1809) 1799! 1e9| 1809 2003 | 181.7 | 163.1 | 1842 | 183.8 | 1835 | 1837 | 1839 | 184.6 | 1852 | 195.0| teas] 1643) 1840| 1833| 1846 2004 |~1852| 106.2 | 187.4 | 186.0] 189.1 | 188.7 | 189.4 | 120.5] 189.9 | 190.9| 191.0 | 190.3) 1889| 1876] 1902 ‘2005 | 190.7] 191.8 | 193.3 | 194.6 | 194.4 | 1945] 105.4 | 195.4 | 198.6 | 199.2] 1976] 1968 | 195.3| 1932] 107.4 2006 | 198.3 | 198.7 ors; : L - The determined weights of W1 and W2 and the computed figures of the ACPlzo97 and AUSERz097 were substituted in the CWlzo97 formula to determine the change in weighted index as follows: CWh2o07 = [1 x 0.0722] + [0 x 0.0037] ‘CWhao07 = 0.0722 After all the calculations were done, the figures to substitute for the variables in the MAP2c0; formula are already complete. MAP207 is computed as follows: MAP2c07 = [PhPO.9474 x {1 + 0.0722 — 0}] - (- PhPO.0498) + 0 MAPy007 = PhP1.0656/kWh * US. Bureau of Labor Statistics Accordingly,ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 28 of 37 2.5. Converting the MAP207 into Distribution, Supply and Metering Charges (Rate Design) The resulting MAP2oo7 is converted into distribution, supply and metering rates in accordance with the Uniform Filing Requirements (UFR) and Article V of the Distribution Services and Open Access Rules (DSOAR) as follows: 2.5.1. Deter e the proportion of revenue to be recovered for each customer class or segment in accordance with the following steps: 2.5.1.1, Calculate the historical revenues per function earned from each Customer Segment i for historical year t (CRr),) (Based on the monthly MO1 submissions) TABLE 24: 2005 Actual Regulated Distribution Services Revenues Customer Calendar Year 2006 Revenues (PhP) Segment | Distribution ‘Supply Metering Total fa) (b) () (d) (e) {(b) + (¢) +(o)} seh.18 |" _7,300,26752 | _69,17282 | 000 || _7.369,44034 sch.26 | 130,395,79.00| __79,689,067.54 | _39,874,615.77 | 240,053,462.31 Sch. 36 | 44,285,487.47 | 18,295,612.30 | 34,724,308.64 | —97.305.488.41 Sch.46 | 30,330,620.86| 2,250.60448| 4.464,674.63| _37,046,38967 ‘Sch. 56 | _74,823,016,54 470,513.43 | 2.203,291.82 | _77.497,721.79 Sch.65 | 6,168,961.49 14zei2| 6,908.28 | 6,177,387.80 Sch. 76 44,241,356.96 16,899.42 211,228.98 | _ 44,469,485.36 Total | _399,546,589.64 | _100,787,589.11 | _81,485,190.12 | $21,019.375.77 2.5.1.2. Calculate the average historical rates for each customer segment over the previous 12 months (CSri1= CRi,1 + CQi,) where CQ, is the energy consumed by each customer segment i (kWh), during Historical Year t. To arrive at the average historical rates per function for each customer segment in TABLE 25, the revenues per function for eachERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 29 of 37 customer segment in TABLE 24 are divided by the actual kWh consumption per customer segment in TABLE 25 Column (b). TABLE 25: 2005 Average Historical Rates/kWh Per Function Calendar Year 2005 Historical Information Customer | Consumption ‘Average Historical Rates (PhP/KWh) Segment kWh Distribution ‘Supply ‘Metering — Total (a) ©) © @ e) 0 TABLE 24 (b) + (0)) | [TABLE 24 (0) + (0)] | [TABLE 24 (a) + es) | {fo} + (a) + (M7 Sch. 16 9,706 512 0.7521 ‘0.0071 0.0000, 07592 Sch.26 | 146,619,012 | 0.8804 0.5435 _ __02720 "1.7048: Sch. 36 65,287,707 06783 0.2602 0.5319 1.4904 Sch. 46 51,516,402 05888 0.0437 0.0867 07191 Sch. 56 | 120,828,085 0.8763 0.0036 0.0470 0.5969 ‘Sch. 66 14,106,754 0.5791 (0.0001 0.0005 0.5787 ‘Sch.76 | 179,737,568 | 02461 | 0.0001 0.0012 0247 Total 2.8.1.3. Compute the projected revenue for the next year per customer segment based on the historical rate and forecast consumption (CRi,t+1 = CSit + FQi,t). The average historical rates per function for each customer ‘segment in TABLE 25 are multiplied by the forecasted kWh consumption per customer segment in TABLE 26 to arrive at the projected revenues per function for each customer segment in TABLE 26 Columns (c), (d) and (6). 2.5.1.4. By adding the projected revenues for each customer segment, the total projected revenue for the Application Year based on historical rates, is calculated. (CR20YR = ECRi.«1).ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 30 of 37 TABLE 26; Forecasted Regulated Distribution Services Revenue ForecastediProjected information Customer | Consumption Ha __Revenues (PhP) eae Segment kwh Distribution ‘Supply Metering Total (@) © © a e) (Oiiec | irra te 25 tei to |TABLE 25 (on) x toy | TCTABLE 25 (0) x On) | _ AG) + (4) eI) Sch. 16 | 9,706,500 7,300,258.49 | 69,172.73 0.00 | 7,369,431.23 _ Sch, 26 _133,702,633.61 |__81,703,840.92 40,885 ,841.43 | 256,292,316.96 Sch. 36 | | —~ aatea.sriaa|—te247 31082 | 432,714 42| 97,088 696.77 | seh. 48 30 | ozi7.4ai7e| —_2.202,480.48| aa7.e06.36| 6.007.007. | -aa7 660.770 | 7037-068 40| _aee.goa.a7| —_2.336.187,71| 92,172.140.87 h 14,106.751 8,168,064 49 | 1428.12 6.906 28 8.177387 09 Sch. 76 179,737,572 44,241,357.94 16,899.42 211,228.98 | 44,469,486.35 (347.136,293.26 102,780,025.96 | 92,520,956.17 | 532.437,275.39 5. Determine the functionalization ratios to be used in apportioning the total revenue requirement into distribution, supply and metering revenues. (PRite1 + CR2OYR). The total projected revenues for each function are divided by the total projected revenue to arrive at the functionalization ratios. TABLE 27: Functionalization Ratios Finetionalzation Ratios a Supply Total ) @ a) + 0) (0) 4.0000 2.8.1.6. Determine the proportion of revenue to be recovered for each customer segment based on the projected revenue. (CRf,\:+1 * CR20YR). The allocation ratios per function for each customer segment are calculated by dividing the projected revenue per function for eachERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 31 of 37 customer category by their respective total projected revenue per function. TABLE 28: Allocation Ratios Banaue “Allocation Ratios Distribution ‘Supply Metering ) © @ FABLE 26 f() +Total (o}] | [TABLE 26 (a) ~Total (oy) | [TABLE 26 {(e) =Total (0) 0.0210 0.0007 0.0000 0.3852 0.7949 0.4955 0.1272 0.1775 oat97 0.0870 0218 “0.0838 0.2285 0.0049 0.0283 0.0235 0.0000 0.0001 0.1274 0.0002 0.0026 7.0000 7.0000 7.0000 2.8.2. Determine the billing determinants to be utilized in converting the functionalized and allocated revenue requirements into specific rates per function to be charged to the customers. TABLE 31: Billing Determinants Biting Determinants ‘Month Number of Poak Consumption Customers (b) 14,106,751 | The forecasted energy consumption (kWh) is the result of annualizing the Calendar Year 2005 energy consumption per customer segment. On(h ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 32 of 37 2.5.3. 2.5.4. | [Step 27Rx TABLE | [Step 27Rx TABLE | [Step 2TRx TABLE 2.5.5. the other hand, the kW billing determinants are the peak demands. experienced for the pertinent customer segments. Consistent with the UFR, the number of customers per segment to be used as billing determinants will be that as of December 2005 except when there is a drastic drop or increase in the number of customers where averages for the year are used. Compute the total revenue requirement (TR) by multiplying the maximum average price cap for Regulatory Year 2007 (MAPz007) with the total forecasted energy consumption in TABLE 31 column (b). TR = MAP 2007 x FQ TR =~ PhP1.0656/kWh x 607,987,057 kWh TR = PhP647,871,007.94 Functionalize the total revenue requirement (TR) into Distribution, Supply and Metering (TR) by multiplying the total revenue requirement by the functionalization ratios in TABLE 27. TABLE 29: Functionalized Revenue Requirement Functionalized Revenue Requirements (PhP) Distribution ‘Supply Metering Total @) (6) ©) @) 27 (ay 27 (b)) Ma) + (b) +0) Allocate the total functionalized revenue requirements (TRF) for the Application Year to each Customer Segment (TRfji,t) based on the proportion of projected functionalized revenue for each Segment to the total revenue per function.ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 33 of 37 The resulting functionalized revenue requirements are multiplied by the respective allocation ratios per customer segment to arrive at the functionalized and allocated revenue requirements below: TABLE 30: Functionalized and Allocated Revenue Requirements Functionalized and Allocal ed Revenue Requirements (PhP) _ bution ‘Supply Metering Total (a) 0) © () ©) TABLE 29 (a)x | [TABLE 29(0)x | {TABLE 29 (0) x : a TABLE 28 (b)) TABLE 28 (b)) TABLE 28 (b)} Me) + (0) 4a} Sch. 16 8,682,97279 "86,169.56, 0.00 8,967,142.35 Sch. 26 162,689,698. 99,417,437.92 | _49,749,994.07 311,857, 130.87 “Sch.36 | _53,744,428.16 | __22,203,373.55 42,141,173.49 | __ 118,088,975.20 Sch. 46 36,768,65871 | _2,728,655.85 5,412,319.70 44,908,634.26 Soh.56 | 96,597,543.31 | 607,054.71 | 2,842,679.04 99,987.277.05 Sch. 66 9.980,01277 | 173774 851852 | 9,980766.03 | 53,832,904.96 257,023.96 10,582.18 100,411,705,80 | 647,871,007.94 2.5.6. Convert the allocated functionalized revenue requirements for the Application Year into rates in accordance with the following: 2.5.6.1. For the resulting rates/kWh, the pertinent functionalized and allocated fevenue requirements are divided by the annual forecasted kWh consumption to arrive at the rates; 2.5.6.2. For the resulting rates/kW, the pertinent functionalized and allocated revenue requirements in TABLE 30 column (b) are divided by the month peak demand kVV (peak month) in TABLE 31 column (c) normalized to 1 year by multiplying it by 12 months to arrive at the rates; 2.5.6.3. For the resulting rates per customer or meter per month under TABLE 32 columns (e) and (g), the pertinent functionalized and allocated revenue requirements in TABLE 30 columns (c) and (d) are divided by the number of customers or meters per month in TABLE 31 column (d) normalized to 1 year by multiplying it by 12 months to arrive at the rates; 2.5.6.4, For the resulting residential metering charges under TABLE 32 columns () and (g), the PhPS.00 per meter per month rate is arbitrarily prescribed. The rate per kWh is determined by calculating first the allocated per kWh metering revenue requirement which is computed by deducting from the residential (Schedule 26) metering revenueERG Case No. 2006-078 RC DECISION/June 27, 2007 Page 34 of 37 requirement in TABLE 30 column (d) the amount arrived at by multiplying PhP5.00 by the residential (Schedule 26) number of meters per month in TABLE 31 column (d) normalized to 1 year by multiplying it by 12 months. The resulting net amount is then divided by the annual residential (Schedule 26) kWh consumption in TABLE 31 column (b) to arrive at the per kWh rate. TABLE 32: Distribution, Supply and Metering Charges Rates Per Function For Each Customer Segment ~ Distribution E ‘Supply Metering —pheRW | PRPAW | PRPAWn | PHP/Gust/Mo. | PhPAWh | PHP/AMeterMa, | (b) ©) (d) (e) ) (9) (TABLE 30 (b) | [TABLE 30 (b) = + TABLE 31 | {TABLE 31 (0) x oy ai) Gosecede nateeeie 0.9152 0.0087 i z 4.0822 [oss1s | «deat 0.8254 —[oat0 21.99 o7164 0.0532 241.68 Tatar ‘i i546 ‘ 709.25 [210.50 144.01 709.63 20.97 142.80” 1784.89 2.6. Estimated Impact to Customers When the average new rates per kWh (functionalized and allocated revenue requirements divided by the respective forecasted kWh consumption per customer segment) are compared fo the average historical rates (historical revenues per function for each customer segment divided by the respective actual kWh consumption per customer segment) the estimated impact to consumers will result into an average increase of between PhP0.1256 and PhP0.3698 per kWh among all the customer segments, The total of the average new rates for distribution, supply and metering functions for each customer segments will be compared with total average historical rates for the same functions for the same customer segments toERC Case No. 2008-078 RC DECISION/June 27, 2007 Page 35 of 37 arrive at the average increase or (decrease) for each customer segment as illustrated in the TABLE 33 below’ TABLE 33: Estimated Impact to Customers ‘Average New Rates (PhP/KWh) Rates (PhPIKWh) med] ‘Segment | Distribution | Supply | Metering] Total | Distribution | Supply | Metering | Total__| (Dec.) @ ©) © | @ (©) © @ | “ 0 1) +10) + 0) +c@) + cont} Keo) ~ 0} seh1s | o9ts2 | 00087 | 0.0000 | 0.9239 | 07521 | 0.0071! 0.0000 | 0.7592 _| 0.1647 {"Sen26 | 1.0822 [ose13 | 03309 | 20744 | “o8as2 | 0.5434] 0.2720 | 1.7048 | 0.3698 ["sen's6 | 08264 | 03410 | 06472 | 1.8136, oe7rs [02800 | 0.5317 | 14895 | 0.3241 Seh 4s | 07164 | 0.0532 | 0.1055 | 0.8751 0.5861 | 0.0436 | 0.0866 | 0.7163 | 0.1568 schss_| 07013 | 0.0044 | 00207 | 07264 os742_| 0.0035 | 00170 | _o5947_| 0.1317 0 sches | 704 | '* | 0.0006 | 07053 05791 | 0.0001] 0.0005 | 05797 | 0.256 0001 | Sch 76 0.2995 | 0.0001 | 0.0014 0.3010 0.2461 _| 0.0001 | 0.0012 0.2474 0.0536 | 2.7. Increase in the Price Cap Comparing the MAP for Regulatory Year 2007 with that of Regulatory Year 2006 will result in an overall average increase of PhP0.1182 per kWh computed as follows: Overall Average Increase = MAP29¢7 — MAP 005 = PhP1.0656/kWh — PhP0.9474/kWh PhP0.1182/kWh WHEREFORE, the foregoing premises considered, the application for approval of the Maximum Average Price for the Second Regulatory Year of the First Regulatory Period (MAP 7007) filed by Cagayan Electric Power and Light Company, Incorporated (CEPALCO) is hereby APPROVED. ay é !ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 36 of 37 Relative thereto, the following rates for CEPALCO is hereby authorized: CUSTOMER DISTRIBUTION SUPPLY METERING SEGMENT [Papin | Phim] PrPawn | PhP/CustiMo. | PHP | PhP/Moterhfo astse 4.0822 _ 09254 07164 0.2991 SO ORDERED. Pasig City, June 27, 2007. }. ALBANO, JR. Chairman ¢ Lg Zz. a IN Commissioner Commissioner (On Official Travel) MARIA TERESA A.R. CABTANEDA JOSE C. REYES Comfnissioner Commissioner ql}ERC Case No. 2006-078 RC DECISION/June 27, 2007 Page 37 of 37 Copy Fumished: 1 Cagayan Electric Power and Light Company, Inc. (CEPALCO) 44 Toribio Chaves Street, Cagayan de Oro City, Misamis Oriental ATTN: Atty, Jose Edgardo Y. Uy Atty. Isidro O. Baculio, Jr. Atty. Panfilo |, Paracuelles Office of the Solicitor General (OSG) 134 Amorsolo Street, Legaspi Village, Makati City, Metro Manila Commission on Audit (COA) Commonwealth Avenue, Quezon City, Metro Manila Senate Committee on Energy GSIS Bidg., Roxas Bivd., Pasay City Metro Mania House Committee on Energy Batasan Hills, Quezon City, Metro Manila Office of the City Mayor Cagayan de Oro City, Misamis Oriental Office of the Municipal Mayor Tagoloan, Misamis Oriental Office of the Municipal Mayor Villanueva, Misamis Oriental Office of the Municipal Mayor Jasaan, Misamis Oriental