September 2011

Vol. 01 Issue 04

in this issue...
SPOTLIGHT NGCP Board Director Mr. Wen Bo integrates Filipino and Chinese management strategies.

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TDP PROJECTS Ensuring adequate, reliable and quality power supply

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CUSTOMER BULLETIN NGCP issues the new, compressed, and easy-tounderstand power bill to its customers. page 08> ENERGY 101 Energy and Power. Whats the difference?

Paving the way for open access

The Energy Regulatory Commissions (ERC) announcement of the start of open access by December 26 sparked renewed interest on how this new regulatory regime will be implemented and how it will ultimately affect consumers and the ongoing power sector reforms. A key reform pillar under Republic Act 9136 (Electric Power Industry Reform Act of 2001), open access to transmission and distribution networks and facilities was set to start as early as 2004 three years after the passage of the law so that the benefits of competition in the generation sector could trickle down to the consumers. While open and non-discriminatory access to transmission has been in effect as mandated by EPIRA, delays in the completion of the requirements for the declaration of open access for distribution have hampered its rollout. Under the EPIRA, these five preconditions have to be met before the adoption of open access: Establishment of the Wholesale Electricity Spot Market; Unbundling of transmission and distribution charges; Initial implementation of subsidy removal scheme; Privatization of at least 70% capacity of NPCs generation assets in Luzon and Visayas; and Transfer of management control of at least 70% of the total energy output of power plants under contract with NPC to the IPP Adminsitrators. With the completion of the first three preconditions in previous years, the Power Sector Assets and Liabilities Management Corp.s (PSALM) successful privatization of additional generation assets this year has paved the way for the declaration of open access. Since the program started in 2004, PSALM has successfully bid out 26 of the 30 power plants targeted for privatization. These consist of 22 generating plants and four decommissioned or retired facilities. The 22 plants generate 3,440.23 megawatts (MW), or 79.56% of the total 4,236.18 MW generating capacity of NPC, PSALM President Emmanuel Ledesma told TransMissions in an interview. PSALM data also show that 76.85% of IPP contracts have also been privatized, addressing the fifth pre-condition to open access. Open access draws appeal from its ability to empower consumers and spur competition among power suppliers simply by giving big electricity users including industrial and commercial customers the power to choose where to source their power requirements. While envisioned to empower a larger customer base, ERCs June 6 resolution stated that open access and the right to choose electricity suppliers will initially be available to electricity end-users with an average monthly peak of one (1) MW for the twelve (12) months preceding December 26, 2011, as certified by ERC to be contestable customers. Experts also believe that the start of open
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NGCP-SGCC FRIENDSHIP DINNER NGCP hosts PNOY, key industry players and government officials in Beijing during a 5-day State Visit.
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CONVERSATIONS Emmanuel Ledesma, Jr.

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SPOTLIGHT: Wen Bo - NGCP Board Director INTEGRATING THE BEST OF THE FILIPINO AND CHINESE MANAGEMENT STRATEGIES
We share NGCPs vision of making it one of the best power utilities in Southeast Asia with a worldclass professional workforce.
When Mr. Wen Bo who currently sits as one of the National Grid Corporation of the Philippines (NGCP) Board Directors came to the Philippines in February this year, he wasnt sure what to expect. It was my first time to come here. Im still gradually getting to know Filipinos from all walks of life but I feel the friendliness and kindness of the Filipino people. And I get this strong impression that people from different walks of life share similar feelings of happiness and attitude towards life. I believe this is truly the Filipino state of mind, he adds. Working in a foreign country, Mr. Wen says he is also constantly trying to learn about the difference in the management styles employed by both Chinese and Filipino professionals at NGCP. In China, the management mechanism is highly centralized and integrated involving all levels and all departments of the corporation. In the Philippines, the management style is similar to western countries where decentralization is valued. He explains that he is now integrating the advantages of the two management styles while introducing the advantages of State Grid Corporation of Chinas (SGCC) management mechanism, especially in the technical aspect. I believe good integration and combination of the two management styles will lead to a brighter future for NGCP. Mr. Wen, who represents NGCPs Chinese partner SGCC, runs a hectic schedule. As a member of the board, he is involved in making decisions as part of the NGCP Board. Good potential To understand the countrys transmission system, one of the first things Mr. Wen did when he arrived in the Philippines was to visit the National Control Center and transmission substations and line sections. My impression was that the grid structure is relatively simple; the transmission capacity is heavy and most of the equipment are operating at full load. Nevertheless, with the attentive management of NGCP employees, the transmission network has been able to operate safely and reliably most of the time. Assessing the countrys transmission system, Mr. Wen notes that given the geological location and configuration of the Philippines, the power demand of the three main islands is met primarily within each island. With the Philippines now facing rapid social and economic development, however, he explains that the inter-island transmission capacity is relatively low and regional grid structures are not strong enough to prevent blackouts completely. Despite this, we remain hopeful because the performance indicators in terms of technical operations have the potential to be further improved in order to meet the social and economic development of the Philippines. Mr. Wen points to the close working relationship within NGCP as another factor that would allow the company to grow the business and better serve the public. The Chinese and Filipino professionals in NGCP are working closely in a very harmonious and cooperative relationship, he says. They openly communicate to discuss the concerns and solve problems together, both in management and technical matters. I believe this working relationship will pave a solid path for the success of this 25-year concession, he adds. We believe more communication and exchange will help foster the future development of the power grid and the corporation. China has a long history and rich cultural tradition while the Philippines boasts of a relatively open mindset, established legal system and great people. By combining the advantages from both parties, the company will see continuous improvement in the years to come. Challenges For now, Mr. Wen says NGCP is focusing on overcoming what he believes are the three main technical challenges facing the Philippine transmission system: power reliability; coordination among the generation, transmission and distribution sectors; and technical management. Power reliability, he says, is still a major concern since some of the transmission lines and towers are exposed and vulnerable to natural disasters while some of the equipment in substations need to be retrofitted in order to secure the availability of power. In some areas, there are severe damages to the power grid due to typhoon, flood and sabotage. He is, however, quick to point out that NGCPs reliability improvement projects are the managements top priority. In the years 2009 to 2010, NGCP rolled out Php 17 billion in CAPEX, the largest ever budgeted for transmission. Mr. Wen also points to the need to enhance the coordination among the generation, transmission and distribution sectors especially when it comes to the demand-supply balance. On the generation side, the generation units are generally low in capacity and scattered in their locations, causing limited regulating capacity to the power grid, he says. We believe that the generation side needs to contribute more to the safety and reliability of the power grid especially in primary regulating function, automatic generation control (AGC) function and ancillary ability. On the distribution side, the planning of the distribution companies or utilities should be better coordinated with the development of the power grid. It should be noted that embedded generation plants owned by distributors may also negatively affect the balance of the whole power grid. At the same time, he says there should be further improvement in technical management. He notes that while NGCP is doing relatively well, he believes that more efforts should be exerted to improve the technical capability of the countrys only transmission service provider for the realization of NGCPs vision and mission.
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NATIONAL GRID CORPORATION OF THE PHILIPPINES

Paying Back
Mandated with the task of privatizing most of the governments generation and transmission assets as well as the settlement of National Power Corp.s obligations, the Power Sector Assets and Liabilities Management Corp. (PSALM) plays a crucial role in the transformation of the power industry into a more competitive and market-driven sector. PSALM President and Chief Executive Officer Emmanuel R. Ledesma, Jr. shares his reasons for joining the power sector, highlights the companys contributions in paving the way for open access, and provides insights on what lies ahead for the company in the years to come. Below are excerpts from TransMissions interview. 1. You made a big leap from the banking sector to the power industry. What made you decide to make the move? I have been away for more than 10 years, including 2 years of business school in the U.S. I have been travelling an average of 50 times a year. When I was offered the opportunity to serve government and head PSALM, I decided it was time to come home. I knew I wanted to have the chance to serve our country. And the fact that I will be working closely with Energy Sec. Rene (Almendras) made me decide to finally grab this worthwhile opportunity since he has been known for his competence, professionalism and unquestioned integrity. 2. In your opinion, what is the single biggest issue that PSALM needs to address today? The main challenge that PSALM has to address in the next 15 years is the liquidation of its outstanding debt currently at US$16 million. In doing so, PSALM has to strike a balance between the need for reliable and reasonably priced electricity for consumers and the need to reduce, and eventually eliminate, subsidies on electricity rates to stop incurring further operational losses, which lead to additional obligations. Also, in liquidating the debt, PSALM is exerting all efforts to bring down the Universal Charge so as not to impose a very heavy burden on the consumers. This is being addressed by ensuring that assets are immediately privatized at the best possible price. 3. Are we on track in our privatization targets? Since the program started in 2004, PSALM has successfully bid out 26 of the 30 power plants targeted for privatization. These consist of 22 generating plants and four decommissioned or retired facilities. The 22 plants generate 3,440.23 megawatts (MW), or 79.56% of the total 4,236.18 MW generating capacity of NPC. Privatization of the remaining plants resumed in July 2011. PSALM will bid out the Naga Complex (IPPA) consisting of the Naga Coal Thermal Power Plants 1 and 2 (109 MW) and the Naga Diesel Power Plant (37 MW) located at Naga, Cebu. This will be followed by Casecnan (IPPA) and Power Barges 101-104 (GenCo). Bidding for these assets is set in the fourth quarter of 2011. 4. As of June, PSALM has sold off almost 80% of NPCs generation assets. How are the proceeds being managed/invested? Privatization proceeds are used to pay maturing debt obligations. Funds are also allocated for the maintenance of the remaining plants since retention of certain power plants as security assets has cost implications. 5. What is PSALMs game plan in paying up NPCs debts? PSALM operates towards effectively reducing and liquidating NPCs liabilities by increasing the share of peso-denominated loans in the debt mix to mitigate foreign exchange risks. The Board has also approved certain liability management programs to mitigate foreign exchange and/ or interest rate exposure. PSALM is also finding ways to collect deferred privatization proceeds from sold assets in order to match and cover maturing obligations. It
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CONVERSATIONS

Emmanuel R. Ledesma, Jr.

SUMMARY OF EXPERIENCE More than 20 solid years of experience in banking, finance, and wealth management. Has completed Series 3, 7, and 63 certification exams. Traveled extensively for business throughout Asia, Europe, Australia and the Americas. EDUCATIONAL ATTAINMENT Master of Business Administration, J.L. Kellogg Graduate School of Management Northwestern University (Evanston, IL), June 1996 Bachelor of Science degree in economics with concentration in management, University of the Philippines (Quezon City, PH), October 1987 PROFESSIONAL BACKGROUND President and CEO POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (Manila, Philippines) Sept. 2010 - present Managing Director, Country Head Philippines, RBC Wealth Management Group ROYAL BANK OF CANADA (Hong Kong) Sept 2008. - Aug. 2010 Director/VP - Private Wealth Management Group MORGAN STANLEY & CO., INC . (New York NY, London UK, Hong Kong) 1996 - July 2008 Summer Associate Corporate Finance Group BANKERS TRUST COMPANY (Manila, Philippines) Summer 1995 Associate Investment Banking Group PCI CAPITAL CORPORATION (Manila, Philippines) 1991-1994 Corporate Banking Group PHILIPPINE COMMERCIAL INTL BANK (Manila, Philippines) 1989-1991 Management Training Program PHILIPPINE COMMERCIAL INTL BANK (Manila, Philippines) 1988-1989

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Ensuring not only adequate, but reliable and quality power supply (Last of Four parts)

With the increasing use of high-technology equipment such as computers in many businesses and homes for everyday tasks, a rising number of facilities such as hospitals and call centers running 24/7, and the growing need for continuous communications, supplying adequate electricity is no longer enough to meet consumer demands. Reliability and power quality are increasingly becoming more vital as consumers shift to digital operations, so much so that even a short power interruption, or even a fluctuation of power voltage, can result in significant losses. Reliability of power supply reflects the ability of the network to deliver electric power without interruption. This is usually measured by the frequency and duration of power interruptions, and how quickly power is restored when outages occur. On the other hand, power quality reflects the networks ability to constantly deliver power at normal voltage levels, considering that voltages higher or lower than the limits can potentially damage or shut down certain types of equipment. Imagine a doctor who can not access patient information from the hospitals database due to a power interruption; or the difficulty of retrieving lost files and the costs of replacing a personal computer damaged by a power fluctuation. Preventing these situations from happening is a real challenge for the National Grid Corporation of the Philippines (NGCP). The Philippines archipelagic nature only makes this task even more complicated. For the Third Regulatory Period covering 2011 to 2015, NGCP in its 2010 Transmission Development Plan has identified crucial projects in the three major power grids that are necessary to enhance power reliability and quality, and enable NGCP to deliver on its mandate of powering the countrys economy and lighting up Filipino homes. LUZON Dasmarias Extra-High Voltage (EHV) Substation Expansion This project involves the installation of additional capacity both in the 500 kV and 230 kV substations and

the replacement of the 230 kiloVolt (kV) circuit breakers in Dasmarias to maintain the substations provision for N-1 contingency. Eastern Albay 69 kV Line This transmission line looping project from Tabaco City to Daraga in Albay aims to provide reliable power delivery service to customers located in the three municipalities and two cities in the province, and allow direct connection of big industries such as coconut oil mills, cordage manufacturers and other customers in the ecotourism zone at Cagraray Island in Bacacay, Albay. It is also seen to encourage the development of renewable energy sources, such as small hydropower and windfarms in the area. Luzon Substation Reliability I This involves the installation of a total of 320 megavolt ampere (MVA) transformer capacity to provide for N-1 contingency at various substations. Luzon Voltage Improvement I The project will install shunt reactors in Naga substation and capacitor banks at the Doa Imelda, Cabanatuan, Marilao and Muntinlupa substations. The shunt reactors in Naga aim to address the overvoltage problem experienced in the area during off-peak load condition and the overvoltage during the switching of the filters in Naga High Voltage Direct Current (HVDC) Station. The capacitor components of this project, on the other hand, will improve voltage during normal conditions and address the potential undervoltages during N-1 conditions. Luzon Voltage Improvement II To improve voltage regulation and keep the voltages in the area within limits both during normal and N-1 conditions, this project entails the installation of a total of 600 MVAR capacitor banks at Bian, Dasmarias and Mexico substations.
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NATIONAL GRID CORPORATION OF THE PHILIPPINES

slated under the Transmission Development Plan The start of open access is a much-awaited MESSAGE FROM features Reliability and Power Quality projects that development in the power sector one that is THE PRESIDENT we are undertaking for the Third Regulatory Period envisioned by the landmark law EPIRA to improve power services by spurring competition among from 2011-2015. As part of our regular offering, the newsletter power suppliers. also wraps up industry news in the past month and With the Energy Regulatory Commissions (ERC) declaration of the start of open access on the latest bulletins and announcements. It was also our great pleasure to fete the December 26, this months issue of TransMissions discusses this new regime, how it will impact the Philippine delegation to China at the end of last month. The chance to introduce to other captains industry, and what are needed to ensure its smooth of industry the people behind NGCP was a great implementation. Now on its fourth issue, our newsletter also experience. We hope you enjoy the picture features our conversation with PSALM President gallery as the event itself was indeed a night to remember. Emmanuel Ledesma whose achievements in the We hope that this issue provides you with timely privatization of the governments generation assets and useful industry information, especially on the paved the way for the declaration of open access. HENRY T. SY, JR. Our feature on NGCPs Board Director Mr. Wen open access to help advance our appreciation Bo also touches on the technical requirements for of this important and welcome milestone in the open access while the fourth installment of NGCPs projects reformation of the Philippine power sector.

To further strengthen the partnership and cooperation between the Philippines and China, National Grid Corporation of the Philippines (NGCP) President and CEO Henry Sy, Jr. led an evening of friendship and camaraderie among the leading businessmen of the Philippines who visited China on August 31, 2011. The friendship dinner sponsored by NGCP and SGCC was graced by the presence of His Excellency Pres. Benigno Simeon Aquino III. The dinner provided an opportunity for all the businessmen to interact with NGCPs and SGCCs board of directors and officials in the spirit of partnership towards one goal: Stronger Transmission for a Stronger Nation. The Philippine business delegation attended the Philippines-China Economic Trade Forum earlier in the day, which was

NGCP & SGCC OFFICIALS HOST DINNER FOR PHILIPPINE BUSINESS DELEGATION TO CHINA

NGCP President Henry Sy Jr., SGCC EVP Shu Yinbiao, and NGCP Board Director Robert Coyiuto Jr. with guests

organized as part of the Philippine state visit program in China. Mr. Sy shared his insights on the publicprivate partnerships in tourism and real estate infrastructure in the Philippines. Mr.

Shu Yinbiao, Executive Vice President of the State Grid Corporation of China (SGCC) also shared a testimonial on Chinas experience on investing in the Philippines, particularly on the power transmission industry.

NGCP and SGCC officials with President Benigno Simeon Aquino III

NATIONAL GRID CORPORATION OF THE PHILIPPINES

NGCP & SGCC OFFICIALS HOST DINNER FOR PHILIPPINE BUSINESS DELEGATION TO CHINA

SGCC EVP Shu Yinbiao

Henry Sy Jr.

NGCP President Henry Sy Jr. (2nd from left), Board Director Robert Coyiuto Jr. (left), and SGCC EVP Shu Yinbiao (center) welcome President Benigno Simeon Aquino III and Foreign Affairs Secretary Alberto del Rosario (right) at the NGCP-SGCC Friendship Dinner.

President Benigno Simeon Aquino III (4th from left) meets National Grid Corporation of the Philippines (NGCP) officials lead by President & CEO Henry Sy Jr., (center) at China World Hotel. Also in photo from left are: Dr. Francis Chua, President of Philippine-China Business Council and NGCP Director; Jose Pardo, Chairman of the Philippine Stock Exchange and NGCP Director; Atty. Paul Sagayo, Jr., NGCP Director; Foreign Affairs Secretary Alberto del Rosario, Transportation and Communications Secretary Mar Roxas III, Finance Secretary Cesar Purisima, and Trade and Industry Secretary Gregory Domingo. Willy Tan, Willy Ocier, Hans Sy NGCP President Henry Sy Jr., SGCC President Liu Zhenya, NGCP Board Director Jose Pardo Filipino and Chinese guests at the NGCP-SGCC Friendship Dinner

Erramon Aboitiz

NGCP and SGCC officials at a dinner hosted by NGCP Chairman and SGCC VP Du Zhigang (seated 3rd from left)

DPWH Secretary Singson

Rogelio

DOE Secretary Jose Rene Almendras

NGCP team behind the event

Mr. Henry Sy Jr. was asked to speak on real estate and tourism infrastructure at the breakout session on Public-Private Partnership and Infrastructure.

Felicito Payumo Elizabeth Lee

and

Joseph Chua and Vivienne Tan

Robert Coyiuto Jr. Teresita Sy-Coson

and

Natalie Tan and Hans Sy

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CUSTOMER BULLETIN
CB 2011-15: NGCPS NEW POWER BILL (July 18, 2011) NGCP issues its new Power Bill effective July 2011 billing period (June 26 to July 25, 2011) to provide customers with a compressed, easy-tounderstand, and clientfriendly billing statement. The new Power Bill introduces changes in the layout of charges and other billing information to facilitate better understanding of the billing statement. It also includes

a bar code feature to assure customers of its authenticity. For any inquiries on NGCPs new power bill, please contact tel. no. 981-2507 NOTE: Full text of the customer bulletins may be downloaded from www.ngcp.ph or requested from NGCPs Revenue and Regulatory Affairs Department.

access may help hasten the privatization of the countrys remaining generation assets, as this is expected to address a major investor concern about having a guaranteed buyer for the power generated by the power facility that is up for sale. However, even ERC chair Zenaida Ducut believes that there is still much more to be done to ensure the smooth transition to this new regime. While the five pre-conditions to retail competition and open access set forth in the EPIRA have all been met, infrastructures to enhance the performance of the transmission system must be completed prior to the commencement of open access. This is to ensure that the transmission system can cope with its load to guarantee the delivery of sufficient and reliable electricity to end-users, Ducut said in an earlier interview with TransMissions. NGCP, for its part, acknowledges the impact of open access on its technical operations. In a related story in this issue, NGCP Director Mr. Wen Bo says the company supports the open access mechanism and will take action in all aspects relevant to the reliability of the power grid, accuracy of metering services, and customer services. A crucial component of retail competition and open access is the business-to-business (B2B) system, which is supported by information and communication technology. The B2B system must be in place so that the requirements of market participants in the exchange of information, for switching, billing and settlement purposes are served. The ERC recognizes that the ability to exchange information among the retail market participants is necessary for healthy competition to thrive, Ducut explained. Ducut also noted that the ERC is still in the process of finalizing the Transitory Rules for the Competitive Retail Electricity Market, which seek to ensure the smooth transition from the existing market structure to a competitive environment and promote the welfare and interests of all stakeholders in the electric power industry, especially the consumers.

Energy and Power

When electric current flows, work is done. Light, heat or motion is produced when this current flows. ENERGY is the work done (measured in watt-hours). One (1) kilowatt-hour of electric energy is equal to 1,000 watt-hours. POWER is the rate at which energy is generated, transported or consumed (measured in watts, kilowatts, megawatts). Low power means there are fewer electrons per hour; high power means there are more electrons per hour. (Source: Power System Engineering 101, UP-National Engineering Center)

NATIONAL GRID CORPORATION OF THE PHILIPPINES

More reliable power transmission services in Zamboanga del Norte

In a move to address the low voltage problems experienced by its customers, the National Grid Corporation of the Philippines (NGCP) energized a 7.5 MVAR capacitor bank in Polanco, Zamboanga del Norte on August 6, 2011. The capacitor bank is expected to regulate voltage quality and ensure that levels are compliant to the provisions of the Philippine Grid Code. NGCP customers Zamboanga del Norte Electric Cooperative (ZANECO) and Wilmar Edible Oil Philippines are expected to benefit most from the energized capacitor bank, which is needed to ensure the efficient operations of ZANECOs transformers. NGCP will continue to work on improving power reliability and quality for the benefit of bulk power customers. Of course, the benefits will ultimately reach the ordinary household consumers through
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the distribution utility ZANECO, NGCP President and CEO Henry T. Sy, Jr. said. For this particular capacitor bank project, Sy explained that the improvement in equipment will regulate the electricity coming into homes so that lights do not flicker and appliances run more efficiently. Initiated by NGCPs Operation and Maintenance Group in District 1 to improve voltage in Zamboanga area, the activity entailed the transfer of one unit of a 7.5 MVAR capacitor bank from Tumaga (Lunzuran) Substation to ZANECOs Polanco Substation. This additional capacitor is adjacent to NGCPs existing 7.5 MVAR capacitor bank. Sy added that the operation of the Pitogo Substation early this year and the recent full energization of Sangali-Pitogo 138-kilovolt (kV) transmission lines 1 and 2 now give greater flexibility to NGCPs Costs at the least possible charge. Similar to PSALMs previous transactions, I am hoping that all undertakings and activities under my watch will be completed with transparency and integrity and can withstand the scrutiny of stakeholders, Congress, and the public.

transmission system in the Zamboanga peninsula. Other ongoing projects are the Static Var Compensator (SVC) at New Naga (Sta. Clara) Substation and the Aurora-Polanco 138 kV transmission line. The first project, which is expected to be completed in November 2011, will install the SVC -- a high voltage system that controls and maintains the normal network voltage levels in the area. The second, which is expected to be completed in March 2012, will involve the construction of a 79-kilometer highvoltage transmission line and a substation that will accommodate load growth and provide system reliability in Polanco and nearby areas. Presently, these areas draw their power requirements from Aurora Substation through a very long 69-kV single circuit woodpole transmission line that is more vulnerable to external disturbances.

also intends to recover stranded debt and stranded contract costs through the efficient collection of the Universal Charge. It will regularly update tariff to reflect the true cost of producing electricity, and raise funds to cover projected deficit. However, to lower the UC rates charged to consumers, PSALM will have to minimize further losses from the operations of plants with high operating costs; hence, PSALM intends to immediately privatize its existing plants as mandated by the EPIRA. We also intend to improve PSALMs liquidity by enhancing the collection efficiency of our receivables. PSALM management also aims to achieve a more efficient utilization of its resources by establishing risk management policies and ensuring the strict and consistent implementation of these policies.

7. There has been quite a significant increase in investments in the power sector in recent years. What do you think is the reason for this? What makes the countrys power industry a good investment choice? Investors are encouraged by the present administrations initiative to complete the restructuring of the electric power industry that aims to ensure the availability of power and to reduce electricity prices and make them more affordable. The government realizes that a stable power supply that is reasonably priced is a key factor in any investment decision to ensure that capital outlay is recouped and returns are optimized. 6. Whats the biggest reform that The government is also bent on you want to be able to achieve during implementing open access and retail your stint in PSALM? competition to enhance competition in I intend to substantially reduce the the power sector and, consequently, financial obligations of the government lower electricity prices. This will also in the power sector to a very manageable allow domestic firms and multinational level through the completion of the companies to achieve reasonable rates of privatization program and the efficient return to their investments and encourage management of NPCs outstanding new entrants to invest in the country. liabilities. Im also aiming to further The government is likewise ensuring minimize future borrowings, improve that the investment environment is operating results of our remaining favorable by implementing consistent generation plants and IPP assets, investment policies, eliminating soand collect the Universal Charge for called backroom deals, and making the Stranded Debt and Stranded Contract investment rules fairer and clearer.

8. From PSALMs perspective, how different is the transmission sector now that it is operated by a private company? It has always been the assumption that private companies do a better job than government in operating and maintaining any given entity or system, including the transmission sector, mainly because it has the wherewithal to fulfill the responsibilities. NGCP has so far correctly proved the assumption by adequately addressing issues in the transmission business as they arise. The Company has also poured in the necessary investments to ensure the smooth operation of the transmission network. Also, based on my dealings with NGCP management, I find them to be very professional and competent in their respective fields. Specifically, Mr. Henry Sy., Jr. has so far been very cooperative and open to negotiation on relevant issues affecting the power industry in general. I can see that his strong determination to ensure that the operation of the transmission business under his administration will be beneficial both to NGCP and to the country. His willingness to help the government in any way possible is very evident. His competence to move NGCP towards providing reliable and safe electric power services is without doubt. We expect NGCP to continue with efficiency and reliability in its operations to ensure the continuous flow of electricity to consumers.

10 INDUSTRY NEWS
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ERC approves power rate hikes for VECO, DLPC, Lueco The Energy Regulatory Commission (ERC) approved increases of power rates for three big distribution utility firms Visayan Electric Co., Inc. (VECO), Davao Light and Power Company Inc. (DLPC), and La Union Electric Co. Inc. (Lueco). In separate decisions, ERC approved a P1.30 per kilowatt-hour maximum average price (MAP) for VECO for regulatory year July 1, 2011 to June 30, 2012; a P1.27 per kWh MAP for DLPC; and P1.39 per kWh MAP for Lueco. The three utilities serve growth centers in Cebu, Davao and La Union, respectively. The increase in distribution rates was computed based on ERCs Performance-Based Regulation (PBR) which allows distribution utilities to adjust rates on a yearly basis based on their performance, efficiency, capital expenditure requirements, inflation, foreign currency exchange fluctuation, and the previous years under-recoveries. The PBR puts pressure on the utilities to incorporate operational efficiencies through the guaranteed service level and performance incentive schemes systems so that long-term consumer interests such as quality service and a stable supply of electricity are promoted, ERC chairman Zenaida Cruz-Ducut was quoted in media as saying. (Source: Manila Times,
2011-08-01)

Group urges govt to bid out RE projects Instead of passing on the burden of enticing investments into the renewable energy sector, a group of economists urged the government to put the 760-megawatt minimum installation allocation for renewable energy sources on the auction block. The Foundation for Economic Freedom said bidding out renewable energy projects that would fall under the governments minimum allocated capacity would derive the lowest possible rates for each project. The group noted that this could be an alternative to the imposition of feed-in-tariff (FIT) rates, which, once implemented, would further burden all electricity consumers through a universal levy called FIT-Allowance. Under the Department of Energys proposal submitted to the Energy Regulatory Commission (ERC), out of the 760-MW installation target 50 MW in new installations would be allowed for solar facilities, 200 MW for wind, 10 MW for ocean, 250 MW for hydro, and 250 MW for biomass energy sources. The government, however, has yet to officially decide on how it plans to allocate the installation target of 760 MW over the next three years. For his part, Energy Secretary Jose Rene D. Almendras admitted that other sectors have also suggested that renewable energy projects be auctioned off, but said the department will have to conduct consultations on that suggestion and consider the ERCs decision on the minimum installation allocation. Senators are also suggesting [the installation allocation] should be bid out. We will wait for the ERC decision and consult with the legislative branch, Almendras said in a media interview. (Source: Phil. Daily Inquirer, 2011-08-15) Furthermore, the pass through privilege enjoyed by new coal plants in the Philippines allows them to automatically pass these increasing fuel costs to Philippine power consumers, Tan said. The Department of Energy has maintained that coal will continue to play a major role in the countrys energy mix, since recent resources such as renewable energy sources are not yet ready. Redondo Peninsula Energy Inc. (RP Energy) a consortium composed of power distributor Manila Electric Co., Aboitiz Power Corp. and Taiwan Cogeneration Corp. plans to invest $1.28 billion to put up a 600-megawatt, clean coal-fired power plant at the Subic Bay freeport zone. (Source: Phil. Daily Inquirer, 2011-08-08) PSALM to re-bid Malaya plant O&M contract The Power Sector Assets and Liabilities Management Corp. (PSALM) will bid out anew the Malaya thermal power plants P716.8 million operations and maintenance (O&M) contract, following a bidding failure last year. Conrad Tolentino, chairman of PSALMs bids and awards committee, said they will be bidding out a new O&M contract for the 650-megawatt power plant within a period of one year. He further added: Korea Electric Power Corp.s (Kepco) contract will be synchronized with that. Kepcos Philippine unit currently operates the Malaya thermal power plant located in Pililla, Rizal. PSALM said deadline for the submission of bids is set on Sept. 2, following a pre-bid conference scheduled for Aug. 19. To recall, bidding for Malayas contracted capacity on June

WWF warns govt vs dependence on coal-fired power citing rising costs Amid plans to put up a 600-megawatt coal-fired power plant at the Subic Bay freeport zone, an environmentalist group warned the government against its increasing dependence on coal for the countrys power supply. The World Wide Fund for Nature-Philippines (WWF-Philippines) said coal remains one of the more expensive fuels for power generation and that an inordinate dependence on coal plants would only increase the cost of doing business in the Philippines. In particular, WWF-Philippines chief executive officer Jose Ma. Lorenzo Tan said the P7.60 per kilowatt-hour generation cost of the new Panay CBFC coal plant highlights how expensive coal power is, noting that this cost will get even more expensive over the next 20 years considering acquisition, operations and fuel costs. Tan further noted that Panay CBFCs power cost is higher than the weighted average feed-in-tariffs (FIT) for all renewable energy options of P7.44 per kWh. As coal prices increase further, the formula prescribed under the Renewable Energy Law mandates that feed-in-tariffs for renewable energy will decrease. Renewable energy technologies, therefore, will become cheaper and cheaper, and contribute more and more to improved national competitiveness, Tan said in a statement. Based on the International Energy Agencys (IEA) forecasts, the average annual coal spot price in the European Union will increase in the next 20 years from last years $90+ per ton to $130+ per ton by 2020 and $170+ per ton by 2030. Asian coal prices are generally higher than EU prices.

NATIONAL GRID CORPORATION OF THE PHILIPPINES

16, 2010 was declared a failure after the lone offer submitted by First Gen Corp. was rejected by the PSALM Board. The two other pre-qualified bidders, Pacifica Inc. and Trans-Asia Oil and Energy Development Corp., did not proceed with their offer. (Source: Phil. Star,
2011-08-13)

Consortium paves way for Malampayas next-phase development The consortium operating the Malampaya natural gas field in Palawan signed the first engineering design contract with a United States-based company, ushering in the nextphase development in the deepwater gas-to-power facility. In behalf of the consortium, Shell Philippines Exploration BV signed the contract for Malampayas next phase development with the Philippine unit of Fluor Corp. President Benigno Simeon Aquino was present during the signing and awarding ceremonies. The consortium, which also includes Chevron and PNOC Exploration Corp., is planning to invest about $250 million for Phase

II which entails the drilling and development of two additional wells to be completed by February 2014. An additional $750 million investment will be needed for Phase III which will involve the installation of a new platform by December 2015. The projects, entailing new investments, are seen to further benefit the Philippines in energy self-sufficiency and government revenues, and will continue to be a major source of power for Luzons energy requirements in the years to come, SPEX said. For his part, Energy Secretary Jose Rene D. Almendras said Phases II and III of the Malampaya development will ensure the continued operation of the gas field by at least 10 years. The gas fields five wells were earlier estimated to produce gas only until 2014. Currently, the Malampaya field fuels three natural gas-fired power plants in Batangas, including the 1,200-megawatt Ilijan, the 1,000-MW Sta. Rita, and the 500-MW San Lorenzo power facilities. Power generated by these plants comprises roughly 40 to 50 percent of the power generated in Luzon. (Source: Phil. Star, 2011-08-10)

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Since the take-over by NGCP of transmission operations in 2009, the Chinese and Filipino partners have been working closely together to implement programs that will improve operations, Mr. Wen adds. This year, we are launching the 6-S Management Philosophy: Stability of the System, Standardization, Speed up projects, Smart Grid Technology, Saving Expenditures, and Support for the Renewable Energy Development. We believe that through the implementation of 6-S, we will have a solid foundation for better technical implementation and improved equipment operations. This will also lay the groundwork for building a strong and smart grid as well as for establishing a better management mechanism for NGCP. Leaning from the Chinese Mr. Wen says some practices they do in China can also be adopted in the Philippines to improve the performance and reliability of the local transmission backbone. We can utilize the best practices of SGCC by adopting standardization here in NGCP. We can do this to unify the technical standards for project management, operation and maintenance, management indicators, technical specification, and administrative rules and regulations. Just recently, SGCC put forward two concepts of transformation. One transformation involves the power grid development pattern where the construction of a strong and smart power grid will transform the power transmission system into a primary component of the national energy transmission system. The second transformation is for the development of the corporation, which shall be carried out through the 3

Centralization which is centralization in three areas (human resources, finance and logistics) and the 5 Intensive Management which is intensive management in five areas (planning, construction, system operations, maintenance and marketing). We can also bring in the smart grid technology to improve the efficiency of grid operation and enhance the technical capability of NGCP. This year, the upgrade of control system by SO is part of this smart grid initiative, he says. The pilot projects in upgrading substations such as the one done in Dolores substation have also helped lower the default level of the power grid. In the future, this will be replicated in other substations. By the end of this year, China will achieve national interconnection in all its 9.6 million square-kilometer territory by connecting the Tibetan power grid to the national transmission system. For NGCP, we are also looking at the possibility of island interconnection among the Luzon, Visayas and Mindanao power grids to make the interconnected and integrated Philippine national power system a reality, he points out. Through interconnection, we will be able to make full use of the available power resources and deliver the power where it is needed. It will be beneficial to generators, distributors, as well as the WESM. Moving forward With open access regime seen to have a significant impact on the technical side of the business, Mr. Wen says NGCP acknowledges the impact of open access on the companys technical operations. We support and encourage this mechanism and we will take action in every aspect. We need to accumulate experience for better cooperation. As such, NGCP is working hard to prepare for three requirements: (1) reliability of power grid; (2) accuracy of metering service; and (3) timely service to customers.

For the long term, he says NGCP is aiming at: (1) rigid configuration of power grid; (2) fast response of control system; (3) best service to customers especially in preparing information about power forecasts and system disturbances. Mr. Wen says NGCP is aggressively working to improve its systems in order to reach its goal of becoming the best transmission grid in Asia. We share this vision of NGCP that we will make it one of the best power utilities in Southeast Asia with a world-class professional work force. However, he admits that to achieve this, great endeavor is needed from management and all employees of NGCP. So much more needs to be done in the process of becoming the best power utility in the world, but we are confident and capable. He believes that the company has a great potential to achieve its goal by carefully carrying out its development plans in two stages. The first stage will take three to five years for the enhancement of our infrastructure and management mechanism. During this period, we will improve our infrastructure and carry out standardization and benchmarking programs to identify ways to improve and be at par with power transmission corporations in developed countries. The second stage will take another three to five years and will involve catching up with the best industry practices we have identified and learned from. We also need to create the development pattern and management style with Philippine culture features and characteristics.

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Magapit Capacitor This project is the first stage of the Northeastern Transmission Development Project, which aims to improve the power quality and reliability of supply particularly in Cagayan. The area is currently being served by a very long 69-kV line that is more vulnerable to external system disturbances. San Esteban-Laoag 230 kV Transmission Line Already underway, the first stage of this project involves the construction of an additional 115kV transmission line, installation of control and protection equipment, and the expansion/reconfiguration of the existing Laoag Substation to accommodate the connection facility for the EDC and Northern Luzon UPC Asia Corp.s wind power projects. The second phase involves the construction of a double circuit from San Esteban to Laoag Substation and the construction of a new Laoag 230kV Substation to strengthen the Ilocos corridor which has high potential for wind power. San Jose-Angat 115 kV Line Upgrading To ensure the reliability of the three existing lines which were built way back in the 1960s, a new double circuit line will be constructed along the San Jose-Angat Line 3. This will pave the way for the retirement of Lines 1 and 2 which will turn 50 years old in 2017. Santiago-Tuguegarao 230 kV Line 2 This involves the installation of a second circuit directly connecting the two substations. This is a first step in the development of the transmission backbone in Cagayan, which has a strong potential for renewable energy development particularly wind power. VISAYAS Cebu-Mandaue-Lapu-lapu Transmission Line This involves the construction of a third circuit to prevent overloading of the existing lines which serve Metro Cebu a major load center in the Visayas and improve reliability of power supply particularly in Mandaue and Lapu-Lapu cities. Culasi-Sibalom 69 kV Transmission Line This project will provide alternate power sources to the Sibalom Substation and connect North and South Panay on the western side. Once completed, this will benefit customers in Capiz, Antique, Aklan and Iloilo. Ormoc-Babatngon Transmission Line This is part of the expansion of the Ormoc and Babatngon Substations. The construction of a second circuit of the existing line will address increased demand from Leyte II Electric Cooperative which is directly connected to the Babatngon Substation.

Ormoc-Maasin Transmission Line As part of efforts to improve the Leyte-Bohol corridor, this project will upgrade the 138kV Ormoc-Maasin transmission line to ensure compliance to N-1 conditions. Sta. Rita-Quinapundan 69 kV Transmission Line This project will loop the existing Paranas-TaftBorongan- Quinapundan line to the Sta. Rita Substation to resolve low voltage and high system loss, and prevent overloading in affected areas. Visayas Substation Reliability I This entails the installation of a 650 MVA substation capacity to address overloading of various substations during N-1 conditions and improve system security and reliability. Visayas Substation Reliability II This project involves the installation of additional transformers to address overloading of various substations during N-1 condition or outage of one transformer. MINDANAO Butuan-Placer 138 kV Transmission Project A part of the Reliability Compliance Project 1 Mindanao, this involves the construction of a second circuit in the Butuan-Placer corridor to provide N-1 contingency, reduce transmission loss and improve voltage level in Surigao del Norte by 2013. Maramag-Kibawe 138 kV Transmission Line (Line 3) This project will strengthen the existing transmission line and expand the capacities of Maramag and Kibawe Substations. Matanao-Gen. Santos 138 kV Transmission Line Also part of the Reliability Compliance Project 1 Mindanao, this project aims to improve the substations provision for N-1 contingency to accommodate the forecasted load of the Gen. Santos Substation by 2015. Mindanao Substation Reliability I This involves the installation of six transformers with a total 325 MVA substation capacity to provide N-1 contingency for various substations in Mindanao, including the Sultan Kudarat, Nabunturan, Jasaan, Bunawan, Aurora and Lugait Substations. Tacurong-Sultan Kudarat 138 kV Transmission Line (Sultan Kudarat Capacitor Project) This project will complete the looping of the General Santos-Tacurong-Sultan Kudarat-Kibawe link, thus providing a strong transmission backbone that will ensure reliable power delivery in these areas. To improve the low voltage that may occur in the area during the outage of the Kibawe-Sultan Kudarat 138 kV line, capacitor banks will be installed at the Sultan Kudarat Substation.

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