04 PES Power Outlook 20100629 Santos

8/9/2019 04 PES Power Outlook 20100629 Santos

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PHILIPPINE POWER SITUATIONER:

WILL OUR BROWNOUTS BE SHORT-LIVED OR LONG-LASTING?THE POWER OUTLOOK

A forum on the Impending Power Crisis

Victor B. Santos Jr.

June 29, 2010


2/39

ROTATING BROWNOUTS

FAST-TRACK CONSTRUCTIONUrgency + Few Players = High Price

HIGH ELECTRICITY PRICE

THE

VICIOUS

CYCLE OF

POWER

CRISIS

CONSUMER OUTRAGE

POLITICAL SUPPRESSION OF

PRICES/UNSTABLE

REGULATORY ENVIRONMENT

NOT ENOUGH POWER

PLANTS BUILT


3/39

DISCUSSION OUTLINE

1. POWER SUPPLY AND DEMAND:

WHY ARE WE HAVING BROWNOUTS?

2. POWER RATES IN THE PHILIPPINES:

ARE THE PRICES REFLECTIVE OF THEIR TRUE COST?

3. TAKE-AWAYS AND NEXT STEPS:

WHAT CAN WE DO TODAY TO PREPARE FOR TOMORROW?


4/39

LATEST DOE FORECAST EXPECTS THE POWER SHORTAGE IN LUZON

TO HAPPEN STILL IN 2011-2012

2009 2010 2011 2012 2013 2014Committed 686.00 686.00

Existing Capacity 10,030.00 10,030.00 9,425.00 9,425.00 9,425.00 9,425.00

Required Reserve Margin 8,682.00 8,971.00 9,356.00 9,790.00 10,253.00 10,748.00

Peak Demand 7,036.00 7,270.00 7,582.00 7,934.00 8,309.00 8,710.00

LUZON GRID

0

2,000

4,000

6,000

8,000

10,000

12,000

2009 2010 2011 2012 2013 2014

Luzon Power Supply-Demand Forecast

Committed Existing Capacity Required Reserve Margin Peak Demand


5/39

AVERAGE DEPENDABLE

CAPACITY IN 2009MARCH 1 CAPACITY

Wind 33.00 -

Oil Based 1,528.13 1,453.60

Hydro 1,750.61 668.00

Natural Gas 2,458.04 1,025.00

Coal 2,634.00 2,315.00

Geothermal 410.00 435.00

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

IN THE 1ST HALF OF 2010, THERE WERE NUMEROUS DAYS WHEN THE

LUZON GRID WENT ON RED ALERT AND ROTATING BROWNOUTS.

CAUSED BY A CONFLUENCE OF UNFORTUNATE EVENTS:

DEFICIENT POWERPLANT CAPACITY

MW REASON

PLANNED 1,700 MW

STA RITA 1

STA RITA 3500

75,000 EOH

SCHEDULED

MAINTENANCE

ILIJAN 1,200

MALAMPAYA

SCHEDULEDMAINTENANCE

UNPLANNED 1,973 MW

HYDRO POWER

MAGAT

SAN ROQUE

ANGAT

HEDCOR

BAKUNCASECNAN

BINGA

SUB-TOTAL

310

250

158

73

72150

50

1,063

LACK OF WATEREL NIO

MASINLOC 1 310 BOILER TUBE LEAK

SUAL 1 600 BOILER TUBE LEAK

TOTAL 3,673 MW

8,813 MW 5,897 MWTOTAL

753 MWDEFICIT

PEAK DEMAND: 6,650 MW

Source: Wholesale Electricity Spot Market Daily Market Updates

MARCH 01


6/39

-

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014

Visayas Power Supply-Demand Forecast


IN VISAYAS, LATEST DOE FORECAST NOW REFLECTS ACTUAL

SHORTAGE

2009 2010 2011 2012 2013 2014

Committed 160.00 638.00 638.00 638.00 638.00

Existing Capacity 1,505.00 1,505.00 1 ,457.00 1,457.00 1,457.00 1,457.00


Peak Demand 1,331.00 1,430.00 1,448.00 1,486.00 1,545.00 1,603.00

VISAYAS GRID


7/39

DEPENDABLE CAPACITY MARCH 1 CAPACITYOil Based 539.12 410.78

Hydro 11.51 6.90

Coal 140.23 102.75

Geothermal 906.25 684

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800 128 MW

DEFICIT

PEAK DEMAND: 1, 332MW

AVE DEP CAP 2009

WITH NO NEW CAPACITIES COMING IN, THIS SUPPLY SHORTAGE

HAS ACTUALLY PLAGUED THE VISAYAS GRID FOR THE PAST 2 YEARS

- SUPPLY DEFICIENCY OF ~128 MW

VISAYAS GRID

1,597 MWTOTAL 1,204 MW


8/39

THE ENTRY OF NEW COAL CAPACITY WILL PROVIDE SUFFICIENT BUFFER

OVER THE NEXT TWO YEARS

Dep CapAve Dep Cap

2009

Dep Cap 1H

2010

Dep Cap 2H

2010

Dep Cap 1H

2011

Biomass 0 0 0 0 18

Oil Based 539.12 410.78 410.78 410.78 410.78

Hydro 11.51 6.90 6.90 6.90 6.90

Coal 140.23 102.75 266.75 348.75 630.75

Geothermal 906.25 683.80 683.80 683.80 683.80

0

200

400

600

800

1,000

1,200

1,400

1,6001,800

2,000

1,597 MWTOTAL 1,204 MW 1,368 MW 1,450 MW 1,750 MW

3%RESERVE

MARGIN

31%RESERVE

MARGIN

9%RESERVE

MARGIN


CEDC 1

82MW

(MAR.10)

CEDC 2

82MW

(MAY10)

PEDC

82MW

(Oct10)

CEDC 3

(Dec10)

KEPCO-

SALCON

200MW

(JAN.11)

PEDC

82MW(JAN 11)

VISAYAS GRID


9/39

POWER SUPPLY SHORTAGE IN MINDANAO IS EXPECTED

TO HAPPEN IN 2011

2009 2010 2011 2012 2013 2014

Committed 42.00 42.00 50.00 50.00 50.00 100.00

Existing Capacity 1,682.00 1,682.00 1,682.00 1,682.00 1,682.00 1,682.00


Peak Demand 1,359.00 1,421.00 1,483.00 1,549.00 1,620.00 1,692.00

-

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014

DOE Power Supply-Demand Forecast - Mindanao


MINDANAO GRID


10/39

Dep Cap Actual Cap March 2010

Oil Based 517.68 436.86

Hydro 861.80 288.63

Coal 210.00 210.00

Geothermal 108.48 98.72

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

HOWEVER, 1H 2010 SHORTAGES IN MINDANAO WAS A RESULT OF

MINDANAOS DEPENDENCE ON HYDRO POWER

1,698 MWTOTAL 1034 MW

DEFICIENT

POWER PLANT

CAPACITY MW REASON

UNPLANNED

AGUS 1-7 538 LACK OF WATEREL NIO

ILIGAN DIESEL 100SHUTDOWNNEEDS SPARE

PARTS

TOTAL 638 MW

423MWDEFICIT


MINDANAO GRID


11/39

HOW MUCH RESERVE CAPACITY DOES A GRID

REALLY NEED?

1. AGE AND CONDITION OF POWER PLANTS

2. RELATIVE SIZES OF INDIVIDUAL POWER PLANT UNITS MORE

LARGE-SIZED GENERATING UNITS REQUIRE HIGHER LEVEL OFRESERVES

3. CONDITION/RELIABILITY OF TRANSMISSION SYSTEM

4. GENERATION CAPACITY MIX HAVING MORE INTERMITTENTSOURCES (e.g. HYDRO AND WIND) REQUIRE HIGHER LEVEL OFRESERVES


12/39

GRID CODE AND ERC-APPROVED ANCILLARYSERVICE PROCUREMENT PLAN

TYPE OF RESERVE % of PEAK

DEMAND

1. Load following

and frequencyregulation

2.8%

2. Spinning

Reserve*10.4%

3. Back-Up Service

19.6%4. Reactive Support -

TOTAL 32.8%

Note: * equivalent to largest single unit

for each grid

DOE REQUIRED RESERVE MARGIN

GRID % of PEAKDEMAND

LUZON 23.4%

VISAYAS 23.3%

MINDANAO 21.1%

DOE Supply-Demand Forecasts use a required

Reserve Margin based on probabilistic method

Loss of Load Probability (LOLP) or the

expected number of days for a specified

period in which peak demand is expected to

go exceed capacity

PRESCRIBED RESERVE MARGINS


13/39

WITH NPC NO LONGER

ALLOWED TO PUT UP ANY

NEW POWER PLANTS, WHERE

WILL OUR NEEDED RESERVE

CAPACITY COME FROM?


14/39

MUCH NEEDED CAPACITIES WILL COME FROM GREENFIELD

DEVELOPMENTS AS WELL AS INCREASED AND IMPROVED CAPACITIES

OF PRIVATIZED PLANTS

LUZONPlant MW

CALACA REHAB 320

BACMAN REHAB 110

ANGAT REHAB 28

AMBUKLAO REHAB 70

REHAB SUB-TOTAL 528 MWPAGBILAO EXPANSION 400

QPPL EXPANSION 500

SAN GABRIEL 550

PANTABANGAN-MASIWAY EXPANSION 77

CBK EXPANSION 360

EXPANSION SUB-TOTAL 1,887 MW

BURGOS WIND 116

GN POWER 600

TANAWON 40

GREENFIELD SUB-TOTAL 756 MW

LUZON TOTAL 3,171 MW

MINDANAOPlant MW

CONAL COAL 200

MINDANAO III / APO 50

GREENFIELD TOTAL 250 MW

VISAYASPlant MW

KEPCOSALCON CEBU COAL 200GLOBAL PANAY COAL 100

CEBUEDC - COAL 246

NASULO 20

GLOBAL GREEN 18

ASEA ONE 35

GREENFIELD TOTAL 619 MW

TOTAL 4,040 MW


15/39

FROM NOVEMBER 2007 TO OCTOBER 2008, THE LUZON

GRIDS AVERAGE DEPENDABLE CAPACITY WAS ~7981 MW

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

5

10

15

20

25

30

35

40

45

9982

9797

9612

9427

9242

9058

8873

8688

8503

8318

8133

7948

7763

7578

7394

7209

7024

6839

6654

6469

6284

6099

Frequency

DEPENDABLE CAPACITY (MW)

LUZON GRID- Nov 2007 to Oct 2008

Frequency Cumulative %


16/39

AFTER PRIVATIZATION PICKED UP MOMENTUM, AVERAGE DEPENDABLE

CAPACITY OF THE GRID INCREASED BY ~450 MW TO 8,467 MW. THE

INCREASE HAPPENED WITHOUT ANY NEW POWER PLANTS.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

5

10

15

20

25

30

35

40

45

50

9982

9797

9612

9427

9242

9058

8873

8688

8503

8318

8133

7948

7763

7578

7394

7209

7024

6839

6654

6469

6284

6099

Frequency

DEPENDABLE CAPACITY (MW)

LUZON GRID - Nov 2008 - Oct 2009

Frequency Cumulative %


17/39

DISCUSSION OUTLINE




ARE THE PRICES REFLECTIVE OF TRUE COST?




18/39

POWER IS SOLD AND PURCHASED THROUGH (1) POWER SUPPLY

CONTRACTS AND (2) THE WHOLESALE ELECTRICITY SPOT MARKET

POWER RATE FORMAT

(1) BILATERAL POWER

SUPPLY CONTRACTS

FIXED FORMULA

BILATERAL SETTLEMENT

ERC-DEFINED BENCHMARK RATE (PRE OPEN ACCESS)

(2) WESM HOURLY PRICES

WESM BILLING AND SETTLEMENT

PRICES ARE DETERMINED BY SUPPLY-DEMAND SITUATION

PER HOUR


19/39

BETWEEN 2004 - 2009, NPC RATES HAVE GONE UP TO AS HIGH AS

50%, 100% AND 133%...

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

J

- r-04

-

J

l-04

- -

J

-05

r- y-0

5

J

l-

S

-05

-

J

- r-06

-

J

l-06

-v

-06

J

- r- y-0

7

J

l-

S

-07

-

J

- r - -

J

l-08

-v

-08

J

- r - -

J

l-

S

-09

-

J

-10

r-

GROWTH(20

04=0)

COMPARATIVE PRICE MOVEMENTS - NPC RATE VS. POWER INPUTS

NPC Effective Rate-VISAYAS NPC Effective Rate-LUZON NPC Effective Rate-MINDANAO


20/39

HOWEVER PRICES OF MAJOR INPUTS TO ELECTRICITY SUCH ASOIL AND COAL HAVE INCREASED BY AS HIGH AS 320% AND 349%.

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

J

-r

-04

-

Jl-0

4 - -

J

-05

r-

y-0

5

Jl-

S

-05

-

J

-r

-06

-

Jl-0

6-

v-0

6

J

-r

-y

-07

Jl-

S

-07

-

J

-r

- -

Jl-0

8-

v-0

8

J

-r

- -

Jl-

S

-09

-

J

-10

r-

GROWTH(20

04=0)

COMPARATIVE PRICE MOVEMENTS - NPC RATE VS. POWER INPUTS

NPC Effective Rate-VISAYAS NPC Effective Rate-LUZON NPC Effective Rate-MINDANAO

Diesel ($/BBL) NEX Coal ($/Ton)


21/39

LUZON VISAYAS MINDANAO NEW COAL

PENDING ICERA APPLICATION 0.64 0.07 0.04

PENDING GRAM APPLICATION 0.63 0.06 0.11

AUTOMATIC COST ADJ - FPPCA 0.37 0.32 0.11

AUTOMATIC COST ADJ - FxA 0.00 0.02 0.00

FBHC 0.02 0.02 0.03

BASIC ENERGY CHARGE 4.36 3.73 2.82 5.54

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

P/kWh

P6.01/

kWh

P4.21/

kWhP3.11/

kWh

THE BENCHMARK NPC RATES MUST REFLECT THEIR TRUE COSTS.

NPC TODAY STILL SELLING BELOW ITS COST.

P5.40/kWh

ERCS DIRECTION TO ADOPT AN AUTOMATIC COST ADJUSTMENT MECHANISM IS THE

MORE APPROPRIATE METHODOLOGY FOR POWER RATES REFLECT TRUE COST


22/39

WESM MUST HAVE CORRECT PRICE SIGNALS THAT

INVESTORS CAN TRUST

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.0012.00

14.00

16.00

18.00

Jan

-08

Fe

b-0

8

Mar-

08

Apr-

08

May

-08

Jun

-08

Jul-08

Aug

-08

Sep

-08

Oct-

08

Nov

-08

Dec

-08

Jan

-09

Fe

b-0

9

Mar-

09

Apr-

09

May

-09

Jun

-09

Jul-09

Aug

-09

Sep

-09

Oct-

09

Nov

-09

Dec

-09

Jan

-10

Fe

b-1

0

P/kWhWESM Weekly Average PricesJan. 1, 2008 Feb. 24, 2010

Sual

Outage

Summer

Months

LowerDemand due

to Typhoons

San Jose

Transformer

Outage

ERC orders

use of NPC

TOU

Cold Season

and Extended

Holidays

Warmer

TemperatureIncrease in Intervals

with Must-Run Unit

Dispatch (80% More

Compared to 2008)

Malampaya and Baseload

Plant Outages (Grid under

Critical Capacity Levels)


23/39

ACROSS-THE-BOARD SUBSIDIES ON ELECTRICITY MISALLOCATE

RESOURCES AWAY FROM THE POOR AND TOWARDS THE RICH

Class A

56% of

total kWh

Class B

36% oftotal kWh

% SHARE OF NATIONWIDE

ELECTRICITY CONSUMPTION PERINCOME CLASS

Class C,D,E,F

8% of total kWh

Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006

Class A

2.3M Filipinos

Class B

10.4M Filipinos:

Class C,D,E,F

73.8M Filipinos

NO. OF FILIPINOS PER

INCOME CLASS


24/39

As A Percentage Of Their Budgets, Lower Income Families

Spend Much Less On Electricity Than Higher Income

Households


10,490,4612,213,568

Class B

Food, 45.9%Clothing, 5.1%

Furnitures, 5%

Educational Fees,

12.4%

Water, 1.1%

Taxes, 1.0%

Household

operations, 4.4%

Personal Care, 5%

Fuel, 4%

Electricity,

4.3%

Medical Care, 2.5%

Recreational, 3.3%

Transport and

Comm., 7.3%

Class A

Transport and

Comm., 10.4%

Recreational, 6.3%

Medical Care, 3.7%

Electricity,

4.9%

Fuel, 4%

Personal Care, 5%

Household

operations, 5.0%

Taxes, 2.7%

Water, 1.1%

Educational Fees,

15.2%

Furnitures, 5%

Clothing, 5.8%

Food, 31.6%


25/39



Households

Source: Family Income and Expenditures Survey (FIES), National Statistics Office 200613,845,948 14,320,288

Class D

Transport and

Comm., 3.0%

Recreational, 0.7%Medical Care, 1.6%

Electricity,

1.4%

Fuel, 4%

Personal Care, 5%

Householdoperations, 5.3%

Taxes, 0.1%

Water, 0.4%

Educational Fees,

10.0%

Furnitures, 5%

Clothing, 2.1%Food, 61.3%

Class C

Food, 56.4%Clothing, 2.5%

Furnitures, 5%

Educational Fees,

10.8%

Water, 0.6%

Taxes, 0.2%

Householdoperations, 5.4%

Personal Care, 5%

Fuel, 4%

Electricity,

2.6%

Medical Care, 1.8%

Recreational, 1.7%

Transport and

Comm., 4.5%


26/39



Households

Source: Family Income and Expenditures Survey (FIES), National Statistics Office 200622,357,84622,479,051

Class F

Transport and Comm.,

3%

Recreational, 0%

Medical Care, 3%

Electricity,

0.5%

Fuel, 2%

Personal Care, 3%

Household

operations, 4%

Taxes, 0%

Water, 0%

Educational Fees, 5%

Clothing, 0%

Food, 75%

Class E

Transport and

Comm., 2%

Recreational, 0%

Medical Care, 2%

Electricity,

1%

Fuel, 2%

Personal Care, 3%

Householdoperations, 5%

Taxes, 0%

Water, 0%

Educational Fees,

6%

Clothing, 1%Food, 72%


27/39

WHY DO WE HAVEONE OF THE HIGHEST

POWER RATES IN ASIA

WHEN WE SAY WEHAVE BEEN

SUBSIDIZED BY THE

GOVERNMENT?

Industrial Power Rates (2006)

6.3

6.3

6.0

7.0

14.0

0 2 4 6 8 10 12 14 16

Vietnam

Malaysia

Indonesia

Thailand

Philippines

US cents/kWh


28/39

Philippines ChinaMalaysiaThailand Vietnam

RATE TO INDUSTRIAL CONSUMER (as of Dec 2006)

COMPARATIVE GENERATION MIX OF SELECTED ASIAN COUNTRIES

$0.14 / kWh

$0.070 / kWh $0.058 / kWh $0.062 / kWh $0.063 / kWh

Indigenous

64.8%

Imported

35.1%

Imported

23.6%

Imported

27%

Imported

2.2%

Indigenous

76.4%

Indigenous

73% Indigenous

97.7%

Geothermal18.5% Coal26.9%

Oil

8.2%

Natural Gas

29.5%

Hydro

18% Natural Gas

66.1%

Oil

6.4%

Coal

17.2%

Hydro

7.4%

Hydro

10%Coal27%

Natural Gas

63%

Hydro

14.7%

Nuclear

1.9%

Natural Gas

0.3%

Oil

2.5%

Coal

80.5%

Source: DOE, Various energy sources (2006)

Imported

14.0%

Indigenous

86.0%

Oil

14.0%

Hydro

42.0%

Coal

15.0%

Natural Gas29.0%


29/39

Geothermal

Steam

3030

IRONICALLY IN THE PHILIPPINES, INDIGENOUS FUELS ARE THE

MOST HEAVILY TAXED

0.040.21

~0.30-0.70

1.79

In P/kWh

Legend:

Import/Excise tax on Imported Fuels

Royalties on Indigenous Fuels

Note: Royalties include income tax portion.Source: In-house analysis, Actual 2007 figures

0.22

PD 972, PD 1174:

30% of net proceeds

~ 3% of gross

PD 1442:

60% of net proceeds

~ 6%-42% of gross

PD 87:

60% of net proceeds

~ 48%-56% of gross

RA 9337, Tarrif and Customs Code:

Excise Tax: Coal-P10/MT, Bunker-0, LNG -

2%, Diesel-0;

Import Duty= Coal:3%, Oil:1%

Indigenous

Coal

Imported Coal Indigenous

Natural Gas

Imported

Diesel


30/39

3131

Thailand Philippines Indonesia Malaysia Vietnam

Gross Proceeds 100.00% 100.00% 100.00% 100.00% 100.00%

Less:

Royalty 10.00%

Recoverable Costs 20.00% 19.39% 19.39% 19.39% 19.39%

Net Proceeds 80.00% 80.61% 80.61% 70.61% 80.61%

Contractor Share 40.00% 32.24% 46.51% 35.31% 26.60%

Government Share 40.00% 48.37% 34.10% 35.31% 54.01%

Total Government Take

Government Share 40.00% 48.37% 34.10% 35.31% 54.01%Royalty 0.00% 0.00% 10.00% 0.00%

Income Tax 22.32% 14.12%

Total Govt Take 40% 48% 56% 59% 54%

WHILE IT APPEARS THAT THE PHILIPPINE TAX TAKE ON OIL/GAS ISAMONG THE LOWEST IN SOUTHEAST ASIA

Source: DOE


31/39

3232

... IN INDONESIA, THAILAND, VIETNAM AND MALAYSIA,

DOMESTICALLY USED NATURAL GAS IS NOT TAXED AND IN SOME

CASES EVEN SUBSIDIZED

Cost of Natural Gas

(In P/kWh)

Sources: 1. US Embassy in Indonesia. Gas sold to domestic market is typically priced 1/3 less than LNG sales.

2. Unocal Thailand Fact Sheet. Royalty paid from 1981-2003 is $1.4 Billion for 5.561 Tcf of natural gas.

3. Price of gas sold by government owned PVN to government owned EVN is $3.22/MMBtu.

4. Petronas. Government subsidy on domestically used natural gas ~$1.72Billion per year.

Gas rate to TNB is RM6.4/MMBtu (~$1.78/MMBtu)

1.76

0.540.08 - -

1.44

1.03

1.271.08

0.66

Philippines Indonesia (1) Thailand (2) Vietnam (3) Malaysia (4)

P/kWh

Level of Royalties

Philippine Government Collects 37 Billion Pesos

From Natural Gas Royalties Yearly


32/39

ACROSS-THE-BOARD REDUCTION ON ELECTRICITY RATES WILL FAVORTHE HIGHER INCOME HOUSEHOLDS

Class A

56% of

total kWh

Class B

36% oftotal kWh

% SHARE OF NATIONWIDE

ELECTRICITY CONSUMPTION PERINCOME CLASS

Class C,D,E,F

8% of total kWh


Class A

2.3M Filipinos

Class B

10.4M Filipinos:

Class C,D,E,F

73.8M Filipinos

NO. OF FILIPINOS PER

INCOME CLASS


33/39

HIGHEST BANG-FOR-BUCK FOR GOVERNMENT FROM ROYALTYREMOVAL WILL BE ACHIEVED BY REDUCING POWER RATES FOR

HIGH LOAD FACTOR INDUSTRIAL USERS

Source: Com etitive Landsca e Stud , Deloitte Consultin , 2003

STUDY OF UP PROF. DANTE CANLAS: GOVT ROYALTIES LOST VIA TARGETED REDUCTION

OF POWER RATES TO THESE CUSTOMERS WILL BE REGAINED IN 2 YEARS TIME VIA

INCREASED ECONOMIC ACTIVITY AND EMPLOYMENT

Texas Instruments Intel

Salaries45%

Services

5%

Transportation

14%

Taxes

6% Telecom

1%

Training

1%

Water

1%Construction

2%

Electricity

25%

Salaries

37%

Electricity41%

Waste Water

1%

Construction

17%

Taxes2%

Transportation

2%


34/39

IF IMPLEMENTED, GENERATION RATES TO HIGH LOAD-FACTOR

POWER USERS (TODAY, ROUGHLY ~600MW) COULD BE AS LOW AS

2.57 P/KWH

3.52

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

NPC Ecozone Rate

P/kWh

4.45

2.57

MERALCOGENERATION CHARGE

Generation ChargeFrom Natural Gas

Fired Power Plants

(2700MW)

4.36*

Generation Charge From NaturalGas Fired Power Plants After

Removal of Royalties

(2700MW)

* May 2008

INITIALLY, ONLY PHP5 BILLION FOREGONE ROYALTY TO GOVERNMENT


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DISCUSSION OUTLINE




ARE THE PRICES REFLECTIVE OF TRUE COST?




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TAKE-AWAYS AND NEXT STEPS

1. OUR GRIDS NEED SUFFICIENT AND APPROPRIATE GENERATIONCAPACITY RESERVES TO ENSURE THAT OUR LIGHTS STAY ON

There is significant value in securing reserves, we actually use powerwe pay for but do not use

Amount of reserve capacity for each grid should consider theidentified various factors (age, relative sizes, condition oftransmission system and generation mix)

2. NEEDED CAPACITY CAN BE PROVIDED BY PRIVATE SECTORPLAYERS

Expansion and capacity improvements by the private sector onprivatized plants provide fastest solution to immediate need

Greenfield power projects exist and can provide long-term capacityrequirements


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TAKE-AWAYS AND NEXT STEPS (CONT)

3. ERC TO FOLLOW THROUGH WITH BENCHMARK RATES WHICH

ARE REFLECTIVE OF TRUE COST AND PRESENT MARKET

CONDITIONS

4. CORRECT TAXATION POLICY ON INDIGENOUS ENERGY SOURCES,SPECIFICALLY NATURAL GAS

5. IMPROVED COORDINATION AMONG THE PLAYERS DOE, NGCP,

PEMC, ERC, GENCOs, DUs/ECs

6. STABILITY AND CONTINUITY OF ENERGY POLICIES


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ROTATING BROWNOUTS

FAST-TRACK CONSTRUCTIONUrgency + Few Players = High Price

HIGH ELECTRICITY PRICE

THE

VICIOUS

CYCLE OFPOWER

CRISIS

CONSUMER OUTRAGE

POLITICAL SUPPRESSION OF

PRICES/UNSTABLE

REGULATORY ENVIRONMENT

NOT ENOUGH POWER

PLANTS BUILT

EVERYBODY SHOULD PLAY THEIR ROLE TOBREAK THE COUNTRY OUT OF THIS CYCLE


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END OF PRESENTATION

04 PES Power Outlook 20100629 Santos

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