Republic of the Philippines

ENERGY REGULATORY COMMISSION

San Miguel Avenue, Pasig City



IN THE MATTER OF THE
APPLICATION FOR APPROVAL OF
A REDUCTION IN RATES IN
COMPLIANCE WITH SECTION
60 OF REPUBLIC ACT NO. 9136
AND EXECUTIVE ORDER NO. 119,
WITH PRAYER FOR PROVISIONAL
AUTHORITY


ERC CASE NO. 2003-144


PALAWAN ELECTRIC
COOPERATIVE, INC. (PALECO ),
Applicant.
x- - - - - - - - - - - - - - - - - - - - - - - - - -x



D E C I S I O N


Before this Commission for resolution is the application filed on March 25,
2003 by Palawan Electric Cooperative, Inc. (PALECO) for approval of a reduction
in rates and loan condonation in compliance with Section 60 of Republic Act No.
9136 and Executive Order No. 119, with prayer for provisional authority.

Having found said application sufficient in form and substance with the
required fees having been paid, an Order and a Notice of Public Hearing, both
dated September 22, 2003, were issued setting the case for initial hearing on
November 20, 2003.

PALECO was directed to cause the publication of the Notice of Public
Hearing, at its own expense, twice (2x) for two (2) successive weeks in two (2)
newspapers of general circulation in the country, the last date of publication to be
made not later than two (2) weeks before the scheduled date of initial hearing.


ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 2 of 10




The Office of the Solicitor General (OSG), the Commission on Audit
(COA), the National Electrification Administration (NEA), the Power Sector
Assets and Liabilities Management Corporation (PSALM) 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 aforesaid initial hearing.

Likewise, the Offices of the City/Municipal Mayors within the franchise
area of PALECO were furnished with copies of the Order and the Notice of Public
Hearing for the appropriate posting thereof on their respective bulletin boards.

In the same Order, the Commission provisionally authorized PALECO to
reduce its rates by PhP0.0692/kWh effective on its next billing cycle after receipt
thereof, pursuant to Section 4 (e), Rule 3 of the Implementing Rules and
Regulations (IRR) of Republic Act No. 9136 and Section 8 of Executive Order
No. 172, as amended.

During the November 20, 2003 initial hearing of this case, the following
entered their appearances: Atty. Zenon Suarez for PALECO; Atty. Cecilio
Gellada, Jr., for intervenor PSALM; and Ms. Adelina Gabon for intervenor NEA.

At the said hearing, PALECO presented proofs of its compliance with the
Commissions posting and publication of notice requirements as well as other
supporting documents which were marked as Exhibits A to D-9, inclusive.
PALECO reserved its right to submit the certificates of posting issued by five (5)
Municipalities which were provisionally marked as Exhibits D-10 to D-14,




ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 3 of 10




inclusive, which reservation was duly noted by the Commission. NEA affirmed
that the certification from its office marked by PALECO as its Exhibit A-14 is the
same certification it indeed issued.

Considering the full compliance with the requirements of posting and
publication and there being no other intervenor/oppositor except PSALM and
NEA, PALECO moved for the issuance of an Order of general default. Said
motion was noted.

PALECO then presented its lone witness, Mr. Ponciano D. Payuyo, its
General Manager, who testified on the different documents submitted in support
of the application. In the course thereof, documents were presented which were
marked as Exhibits E to E-1. The direct examination having been terminated,
NEA and PSALM moved that they be allowed to ask clarificatory questions on
the same witness. Said motion was granted.

On December 16, 2003, PALECO filed its Formal Offer of Evidence.

On May 5, 2004, PSALM filed its Compliance manifesting that: a) it has
undertaken an independent audit of the outstanding loans for condonation of
PALECO as of June 26, 2001; b) such loans were incurred for purposes of
financing Rural Electrification Programs (REP); and c) the amount of TWENTY
EIGHT MILLION SEVEN HUNDRED SEVENTY FOUR THOUSAND SEVEN
HUNDRED NINETY PESOS and 28/100 (PhP28,774,790.28) applied for
condonation is true and correct, without prejudice to the final settlement and
adjustment of the deferred loans (i.e. Dendro-Thermal and Mini-Hydro Loans).





ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 4 of 10




On May 25, 2004, PSALM Board of Directors approved the condonation of
PALECOs Mini-Hydro Loans. Subsequently, PSALM submitted Additional
Compliance dated September 28, 2004 showing that PALECOs total rural
electrification loans condoned by PSALM amounted to ONE HUNDRED SIX
MILLION SEVEN HUNDRED EIGHTY ONE THOUSAND ONE HUNDRED
FORTY SIX PESOS and SIXTY EIGHT CENTAVOS (PhP106,781,146.68).

On November 11, 2005, PALECO filed its Additional Compliance.


DISCUSSIONS AND CONCLUSIONS
For purposes of determining the final rate reduction to be granted to
PALECO as a result of the loan condonation, a comparison was made to
reconcile COAs certification as of June 26, 2001 vis--vis the total amount
indicated in PSALMs certification:

Particulars
Per COA
(PhP)
Per PSALM
(PhP)

Total Outstanding Loans as of June 26, 2001 106,781,148.61
Less: Loan not condoned by PSALM
Social Program Loan (Banca Gasifier) 1.93
Net Outstanding Loans to be Condoned 106,781,146.68 106,781,146.68


The Social Program Loan (Banca Gasifier) was not directly incurred for
the purpose of financing Rural Electrification Program and hence, was not
considered by PSALM for condonation. Said loan was likewise excluded in the
debt service components of PALECOs unbundled rate.

A comparison was also made between the outstanding loans condoned by
PSALM and the annual amortizations included as Debt Service in the unbundling
of rates of PALECO as illustrated below:






ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 5 of 10




Per UFR Assumed by PSALM
Type of Loan
Annual
Amortization
(PhP)
Total
Outstanding Loan
(PhP)
A 282,905.68 2,112,248.89
A HQ 121,245.32 0.00
B 1,245,264.00 12,052,662.04
C1 332,244.00 4,704,706.00
C2 999,764.00 3,717,537.35
C3 946,944.00 6,187,576.00
F 0.00 60.00
Dendro-Thermal Loans:
Tree Plantation-Aborlan 583,251.48 6,286,873.20
Tree Plantation-P. Princesa 261,440.80 2,399,491.57
Loans from Provincial Govt. 1,133,951.47 0.00
Power Plant-P. Princesa 0.00 17,705,144.75
Power Plant-P. Princesa 0.00 47,999,451.13
Mini-Hydro Cabinbin River 0.00 3,615,395.75
GRAND TOTAL 5,907,010.75 106,781,146.68


Loans A HQ and Loan from Provincial Government were not directly
incurred for the purpose of financing Rural Electrification Program, hence, COA
and PSALM did not consider said loans for condonation. On the other hand,
Loan F was fully paid in year 2000 while the Power Plant and Mini-Hydro Loans
were not included in PALECOs monthly amortizations to NEA and were
excluded in the computation of its Debt Service.

In the light of the foregoing, the total annual amortization that should be
deducted from the unbundling of rates of PALECO is computed as follows:
Total Annual Amortization of Loans per UFR PhP5,907,010.75
Less: Amortization of Loans not Condoned by PSALM
Loan A HQ 121,245.32
Loan from Provincial Government 1,133,951.47
Subtotal PhP1,255,196.79
Net Annual Amortization of Loans Condoned PhP4,651,813.96



ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 6 of 10




Of the annual amortization included in the debt service of PALECOs
rate unbundling amounting to PhP5,907,010.75, a remaining balance of
PhP1,255,196.79 will still form part thereof. Thus, the amount of
PhP4,651,813.96 will be deducted from the total revenue requirement in the
unbundling of rates as final loan condonation from which the rate reduction
charges to all consumers of PALECO will be based. This amount also translates
to an average rate reduction of PhP0.0616/kWh which is PhP0.0076/kWh lower,
in absolute terms, than the provisional rate reduction granted to PALECO at
PhP0.0692/kWh.

In computing the final rate reduction, the Commission considered the
functionalized cost allocation of debt service under the Distribution, Supply and
Metering Allocation by Class Schedule of the unbundling model of PALECO. The
Commission believes that it is more appropriate to arrive at rate reduction
charges that are patterned after the rate design used in the unbundled rates
instead of a uniform P/kWh reduction to prevent intra-class cross subsidies and
remove the possibility of the total rate reduction exceeding the fixed customer per
month charge for certain customers.

The Commission developed allocation factors based on the functionalized
and allocated debt service in the unbundling of rates. Likewise, the billing
determinants used in the unbundling of rates were used to come up with the
rates per kWh and per customer to be deducted from PALECOs unbundled
rates.







ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 7 of 10




WHEREFORE, the foregoing premises considered, the application filed by
applicant PALAWAN ELECTRIC COOPERATIVE, INC. (PALECO) for approval
of reduction in rates in compliance with Section 60 of Republic Act No. 9136 and
Executive Order No. 119 is hereby APPROVED. Accordingly, the final rate
reduction for each customer class is as follows:









In the event that the final rate reduction is higher than that provisionally
granted, the resulting additional reduction shall be refunded by PALECO to its
end-users by crediting the same in their electric bills covering future
consumptions for a period of not more than six (6) months from the
implementation of this Decision. On the other hand, if the final rate reduction is
lower than that provisionally granted, the amount corresponding to the excess
shall be collected by PALECO from its customers by debiting the same in their
electric bills covering future consumptions for the same period previously
mentioned.

Relative thereto, PALECO is hereby directed to submit to the Commission
within fifteen (15) days from receipt of this Decision, the following:
1) Calculations to determine the total amount to be
collected/refunded per customer class reckoned from the time
PALECO implemented the Provisional Authority (PA) up to the
time they last implemented the same, using the prescribed
format herein attached as Annex A, and



Customer Type TOTAL
Residential P/kWh (0.0731)
Commercial P/kWh (0.0452)
P/cust/mo (2.9116)
Industrial P/kWh (0.0432)
P/cust/mo (16.2075)
Public Buildings P/kWh (0.0498)
P/cust/mo (1.2160)
Street Lights P/kWh (0.0374)
P/cust/mo (0.2737)
ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 8 of 10




2) Simulations of the impact of the Refund on Rates Per Customer
Class and Projected Cash Flow over a refund period of six (6),
twelve (12), eighteen (18) and twenty-four (24) months.


The above schedule of rates are effective immediately upon receipt hereof
and should be implemented simultaneously with the cross-subsidy removal
scheme prescribed in the November 11, 2005 Order of the Commission in ERC
Case No. 2001-911 (In the Matter of the Application for the Approval of
Unbundled Rates Pursuant to the Provisions of Republic Act No. 9136 Palawan
Electric Cooperative, Inc. [PALECO] Applicant).

SO ORDERED.

Pasig City, Nov 11, 2005.



RODOLFO B. ALBANO, JR.
Chairman









(On Official Travel)
OLIVER B. BUTALID JESUS N. ALCORDO
Commissioner Commissioner







(On Official Travel)
RAUF A. TAN ALEJANDRO Z. BARIN
Commissioner Commissioner



mtco/DEC.14-04-2005.doc.











ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 9 of 10



Copy Furnished:

1. Atty. Zenon S. Suarez
Counsel for Petitioner
4/F Casman Bldg.
1198 Quezon City, Metro Manila

2. Palawan Electric Cooperative Inc. (PALECO)
Tiniguiban, Puerto Princesa City

3. Office of the Solicitor General
134 Amorsolo Street, Legaspi Village
Makati City, Metro Manila

4. Commission on Audit
Commonwealth Avenue
Quezon City, Metro Manila

5. Senate Committee on Energy
GSIS Bldg., Roxas Blvd., Pasay City
Metro Manila

6. House Committee on Energy
Batasan Hills, Quezon City, Metro Manila

7. Hon. Edita S. Bueno
Administrator
National Electrification Administration
NIA Road, Diliman, Quezon City

8. Power Sector Assets & Liabilities Management Corp.
2
nd
Floor, SGV II Building
Ayala Avenue, Makati City

9. Regulatory Operations Service

10. The City Mayor
Puerto Princesa City
Province of Palawan

11. The Municipal Mayor
Municipality of Aborlan
Province of Palawan

12. The Municipal Mayor
Municipality of Narra
Province of Palawan

13. The Municipal Mayor
Municipality of Sofronio Espaola
Province of Palawan

14. The Municipal Mayor
Municipality of Brookes Point
Province of Palawan





ERC CASE NO.2003-144
DECISION/11-Nov-2005
Page 10 of 10



15. The Municipal Mayor
Municipality of Bataraza
Province of Palawan

16. The Municipal Mayor
Municipality of Cuyo
Province of Palawan

17. The Municipal Mayor
Municipality of Magsaysay
Province of Palawan

18. The Municipal Mayor
Municipality of Agutaya
Province of Palawan

19. The Municipal Mayor
Municipality of San Vicente
Province of Palawan

20. The Municipal Mayor
Municipality of Roxas
Province of Palawan

21. The Municipal Mayor
Municipality of Quezon
Province of Palawan

21. The Municipal Mayor
Municipality of Araceli
Province of Palawan

22. The Municipal Mayor
Municipality of Taytay
Province of Palawan

23. The Municipal Mayor
Municipality of El Nido
Province of Palawan

24. The Municipal Mayor
Municipality of Balalac
Province of Palawan