Asian Energy Advisors

Attended yesterday ERC’s Luzon Public Consultation on their revised rules for Capex approvals. Good crowd - about 90+. I understand they had about that many from Visayas and Mindanao at the Cebu PubCon the prior day. Commissioner Reyes presided and was there the whole afternoon.

All of the attendees were from the ECs, except for one private utility. Plus Meralco dropped in for about 10 minutes. None of the Luzon group had submitted comments or questions ahead of time - so we went through pages and pages of comments/questions submitted by the Visayas and Mindanao groups.

A lot of comments had to do with harmonization with NEA requirements. ERC asserted the point that the ERC has a different purpose (and therefore different filing requirements) - a purpose that is focused on validating the appropriateness of cost incurrence that will have an impact on electric rates and they further asserted that NEA seemed to have more of a planning focus.

I don’t believe NEA was there - there was no rebuttal. But it does seem a valid argument. I think we’re still in the throes of thrashing out the regulatory oversight of the ECs between NEA and ERC - a transition that began around 1993/94. ERC is actively establishing itself as the dominant regulating entity on many facets of the ECs operations, it seems to me.

When the ERB first assumed tariff authority over ECs from the NEA, they initially gave substantial weight to whether the tariff requests had been approved by NEA. Now, I’m not even sure that’s an ERC consideration at all. NEA rules and regulations are becoming less and less relevant in ERC’s eyes - just my take. ERC now is establishing firm control of capital expenditures and plans - at least if the ECs want rate recovery for those investments.

But of course, both the private DUs and the ECs are all moving toward types of performance-based ratemaking which will pre-empt most (but not all) of the capex issues. Even if (or when) the ECs move to the new Benchmarking methodology for tariffs, there will still be special circumstances where emergency or special capex expenditures will have to be made that fall outside of the PBR proceedings - and it is those cases that will continue to be covered by these new Capex Rules.

Attended the Pre-Trial and Expository Hearing on Interim Open Access yesterday afternoon.

This is going to be interesting. Room was packed (overflowing into the outer office, actually) with 40+ people there not counting ERC. Hearing was held in the Board Room - not the Hearing Room, which was being used for another Hearing. Commissioner Tan effectively presided, Commissioner Casteñeda participated, and Chairman Albano was there only for introductory remarks.

There were, initially, six intervenors, although at least three additional (consumer oriented) groups indicated throughout the day that they intend to petition for intervention.

The Intervenors are (I think I got this right):

• PSALM
• NASECORE
• AES
• NPC
• PEPOA
• [an electric consumer group I didn't catch the name of]
• Empower
• Alliance for Consumer Improvement
• [another group I didn't catch the name of

Yes - that’s right. AES is both a Petitioner (as part of the petitioning group) and an Intervenor. Go figure.Update Correction: While attending the follow-up Hearings, I realize and find that AES is not a member of PIPPA and therefore not part of the petitioning group. They are simply an Intervenor.

But let me tell you something about AES. I was impressed. They were prepared and proactively engaged. As we moved into part of the pre-trial where ERC solicits input on what issues should be set for resolution in the case, they had six issue which they felt were “crucial to the successful implementation of Early Open Access.” They were all good issues and if AES continues to participate in this pro-active manner, it will be beneficial to the sector, regardless of what you feel about the issues.

This contrasts to the petitioning group’s single issue they asked to be resolved: Whether the ERC should approve Early Open Access in accordance iwth the proposed Terms of Reference. That’s way too simplistic.

Empower immediately added that the Commission must rule on the issue of whether there is an impact on rates of the remaining captive customers. The petitioning group’s attorney fought this issue from being included, but finally consented after a mini-lecture by Tan that this is fundamental to the way we handle rate issues.

Nasecore raised the issue of legality vis-a-vis EPIRA and ERC agreed that this is an issue to be addressed.

ERC ended up ruling that the following issues will be set for resolution in this case (this is not definitive wording, my rough approximate wording, just to give you an idea).

Legal Issues:

• Whether proposed TOR is in accoudance with EPIRA
• Whether TOR can modify any approved contracts (such as the TSCs)

Administrative Issues:

• Who sahll be eligible to participate
• What grids will be effected (i.e. Luzon, Visayas, Mindanao)
• Voluntary or Compulsory
• What operative act is required to participate
• Whether participants are prepared for open access

Technical Framework:

• What technical framework (metering, etc.) are already in place or expected to be in place

Competitive Framework:

• Whether competitive framework is in place
• Is there need for mitigating measures

Effectivity:

• When will it become effective and when will it terminate

Last Issue:

• Whether this will lhave an impact on rates of captive customers

First Evidentiary Hearing will be June 23rd, 2 pm.

ERC has asked for Comments to be submitted from all of the following groups, whether Intervenor or not. Only PEZA and PEMC have already filed their Comments.

• DOE
• NPC
• PSALM
• PEZA
• NEA
• PEMC
• Transco
• PEPOA
• PhilRECA
• GN Power
• GN Marivalles
• Aboitiz Energy Services
• Cabanatuan Electric
• Freedom from Debt Coalition
• Direct Connect customers of NPC
• [a couple of others I didn't catch

I didn’t notice that Meralco was there. PEPOA was not there. Didn’t notice that any Aboitiz groups were there. Didn’t see NEA nor PhilRECA. GN Power not there. Didn’t notice DOE.