Technical Analysis MERALCO'sExisting Distribution System

Technical Analysis

MERALCO's Existing Distribution System and EquipmentCondition

The 22-year old power transformer # 2 (NLTC - No Load TapChanger) at Mandaluyong Substation has not been delivering theregulated voltage quality to customers it serve. Also, it is not beingutilized to meet its optimal capacity to accommodate the additionalload applications in the Mandaluyong and Pasig commercial area.

At present, the transformer # 2 voltage regulation is notautomatically controlled and therefore needs human intervention bymanual operation. This entails frequent switching of the secondaryand bus tie breakers during off-peak when needed to shift the loadsnormally carried by transformer # 2 to transformer # 1. Thisoperation is only a stop gap measure to remedy the high voltageproblem and cater the customer needs. Admittedly, this is not apermanent solution or a reliable operation. At any rate, even with thisstop gap measure, there are still customer complaints of voltagequality problems.

The loads in the Pasig and Mandaluyong areas are served by feedersfrom SM-Shangrila, Rockwell and Mandaluyong substations. All thepower transformers in SM-Shangrila substation, Rockwell Substationand bank # 1 in Mandaluyong Substation are with On-Load TapChangers (OLTCs) and the voltage quality of feeders carried by thesetransformers are regulated automatically. Since Mandaluyongtransformer # 2 has no OLTC,its flexibility of tying and carrying thefeeder loads which are normally served by Mandaluyong powertransformer # 1, Shangrila and Rockwell power transformers willpose voltage regulation problem in cases of load shifting at any giventime. The contingency (N -1) function of transformer # 2 to carry theloads of transformer # 1is not utilized. There is also the constraint ofload distribution balancing in the Mandaluyong and Pasig areas,which are served by SM-Shangrila, Rockwell, and Mandaluyongsubstations.

The desired load capacity of Mandaluyong Substation in general isnot optimized.

With the current set-up at Mandaluyong Substation with powertransformer #2 functioning without OLTC, the following are theproblems:

v' Complaints of major customers on voltage qualityv' Realization of additional load applications of major customers

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Performance Assessment - Analysis of Problems

a) List of Voltage Quality Complaints ofMajor Customers

The table below shows the lists of voltage quality complaints by majorcustomers normally served by Mandaluyong power transformer #2.During every off peak period, the loads of transformer #2 are shiftedto transformer #1 - the system operator regularly monitors thevoltage and manually operates transformer #2 secondary breaker andcloses the bus tie breaker. These manual operations are correctivemeasures for voltage regulation since transformer #1 has OLTC andautomatically regulates the voltage. Transformer #1 carries all theloads of Mandaluyong substation (one bank operation) during everyoff peak period.

No. Complainant SIN TLN Circuit Nature ofComnlaint

Primex Printers310032080101 128343 54VD High Voltage1 Inc.

HTCG Premium2 Food Concepts 310073170101 378034 53VD High Voltage

Inc.JELP Real Estate

3 Development 100158320101 992271 53VD Low VoltageCorn.

4 Paragon Plaza 100043500101 093974 52VD FluctuatingVoltage

5Linkem Trading 160483401 022169 53YD Low VoltageCom.

b) Large customer Applications in Mandaluyong and Pasig Area.

The table below shows the lists of major customers at Mandaluyongand Pasig areas applying for additional loads. At present, the initialload of 8 MVA is served by Mandaluyong transformer #1, Rockwelltransformer #4 and SM-Shangrila transformer #1. Normally,Mandaluyong transformer #2 is at 34% loading but it will be 0%during peak load since its loads will be carried by transformer #1.

Considering the expected additional loads of all customerapplications in the area (total of 25.66 MVA), there will be a capacitydeficiency of 17.66 MVA. The transformers (Mandaluyong #1,Rockwell #4, and SM-Shangrila #2) will be critically loaded as high as82%. The constraint of realizing the additional loads and loadbalancing among the said substation transformers is the absence ofautomatic voltage regulation of Mandaluyong transformer #2.

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Ultimate Present EnergizationCustomers Load Load Remarks

(MVA) (MVA)Date

Currently served by Energized 2011St. Francis BSA 1.00 SM-Shangrila 44VR but not in fullTwin Towers 4.00 to be shifted to

Mandaluyong 43VDcapacity

Harmony Currently served by Energized 20112,10 1.00 but not in full

Homes Inc. Mandalnyong 53VD canacitvCurrently served by Energized 2011

SMDCLight 10,56 2,00 New Rockwell 44SVV but not in fullResidences to be unloaded by

Mandalnyong 54VD capacity

Robinsons Land Energized 2014Corporation 6.5 1.00 Currently served by but not in full(Cyberscape Mandaluyong 44VD capacityAlDha)

Podium andCurrently served by Existing Podium

BDO Ortigas 3.00 SM-Shangrila 44VR and additional9.00 to be shifted to load in 2015-

Tower Mandaluvon. 44VD 2016Total 25.66 8.00

AdditionalCapacity 17.66Needed

In the process of determining the most cost-effective solution toaddress the identified deficiencies, MERALCO generated severaltechnically-feasible alternatives that could satisfy the distributionsystem requirements in a timely and efficient manner.

Project Alternative

The problem and project alternatives are summarized below:

Proiect Alternatives Classification

Alternative 1Replace the existing transformer with Stand-alonea new transformer with OLTC.

Alternative 2Operate and Maintain the Power Stand-aloneTransformer

Alternative 1:

This project alternative is to replace the 83MVA power transformernO.2 (NLTC) with a new 83 MVApower transformer with OLTC.Thiswill address the voltage quality problem experienced by customerssince the OLTC will automatically regulate voltage at the desiredlevel. The project will also optimize the transformers load capacity inMandaluyong since there will be flexibility of load shifting andbalancing of feeder loads carried by Mandaluyong transformers, SM-Shan"rila and Rockwell substation transformers.

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Alternative 2:

The use and continuous operation of the existing power transformerno. 2 (NLTC) will result to continuous voltage quality problemexperienced by customers. The manual intervention of MERALCOsystem operator to correct the voltage problem of customer throughmonitoring and shifting loads of Mandaluyong bank 2 (with OLTC) isa stop gap solution. The transformer #2 secondary breaker and bustie breaker will be frequently operated, however, this is not thenormal practice in the electric industry. Also, there are still customervoltage complaints even with the shifting ofloads correction.

Also with this alternative, the transformer load capacity is notoptimized and the voltage quality output to customers will remain aproblem.

Comparison of Alternatj.ves

a) Technical Comparison

The following table summarizes the comparison of the advantagesand disadvantages of the alternatives:

reqUIre

DisadvantagesNo significantdisadvantages

• Customer voltageproblem

• Impractical andfrequent manualswitchingoperations of bustie breaker whichcan causeprematuremechanicalbreakdown of thebreakers

• Willfrequentmaintenance of

Advantages• Since voltage regulation is •automatically controlled,customers voltage qualitywill be resolved

• Flexible load shiftingcontingencies

• Flexible load balancing offeeders source fromMandalnyong, SM-Shangrila and Rockwell

• Optimize Mandaluyongtransformer #2 loadcaoacitv .

• No significant advantagesAlternative 2Operate andMaintain thePower Transformer

AlternativeAlternative 1Replace theexistingtransformer with anew transformerwith OLTC.

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I

the breakers dueto frequentoperations

b) Financial Comparison

The table below is the CBA data of Alternative 1 project todetermine the NPV, IRR, and B/C if the Alternative 1 project isimplemented. For a conservative result, MERALCO considered thefollowing criteria:

• Power transformer asset life = 35 years• Remaining asset life of existing Mandaluyong power

transformer #2 = 13 years

Cost (in peso) ofCost (in peso)Alternative 1-

Alternative 2 - Replace the existingOperate and

Cash inflow/outflow criteria maintain thepower transformer

existing power#2 with a newtransformer with

transformer #2 OLTCAdditional maintenance ofsecondary breakers and bus 957,545 -tie breakerDepreciation cost of existingpower transformer #2 (13 - 19,777,688.60years remaining useful life)Investment - (52,908,466)Additional revenue attainedto optimize the substation - 77,119,602.73set up (both banks #1and #2with OLTCs)

Major maintenance of power 3,120,098.91 -transformer

The result of Net Present Value (NPV) is 893,618 and the InternalRate of Return (IRR) is 15%, while the Benefit/Cost (B/C) ratio is 2.10with Alternative 1 project implemented.

Impact of the Project

The project will resolve the voltage quality problems of customersserved by power transformer #2. There will be flexibility of balancingthe loads at Mandaluyong and Pasig areas which are served by powertransformers at Mandaluyong, SM-Shangrila, and Rockwellsubstations. The N-1 contingency function of Mandaluyong powertransformers will be readily utilized for reliable and quality power tocustomers. The substation load capacity can now be optimized.

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,

The Commission deferred the replacement project with a new 83MVA power transformer with OLTC without prejudice to refilingsince other technicallv feasible alternatives were not considered.

A rovalPro' ect to continue as ro osedPro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional' ustification

IApproved CAPEXCost (PhP) 0.00

Project Title

Project CodeProject TypeProject RankProject Category

15. Spare 83 MVA 110 kV-34.5 kV-I3.8 kVPower Transformer with OLTC for GISSubstation

MER-I5Renewal2Substation Pro' ect

j

Pro' ect Descri tion DurationPurchase an 83MVA, 115kV-34.5kV-I3.8kV powertransformer with OLTCfor GIS substation to serveas back up for the replacement of any existing83MVA power transformer that breaks down at aGIS substation.

January to June2016

Proposed CAPEXCost (PhP) 46,443,027.00

fC tE .summarvo os stimatesAsset category Labor Cost Material Cost Amount (PhP)

Power transformers - 46,443,027 46,443,027TOTAL (PhP) 46,443,027 46,443,027

Project JustificationThe need to have an available spare of at least one (1) unit of 83 MVA110kV-34.5kV-I3.8kV power transformer for GIS substation at anygiven time will address the quick replacement of any commissioned83MVA power transformer that breaks down. This will not exposethe critical loading of adjacent transformers which carry the loads astem ora solution because of the breakdown.

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Technical Analysis

MERALCO's Existing Distribution System and EquipmentCondition

Currently, MERALCOhas 112units of 83 MYAl1okV-34.5kV-13.8kVpower transformers installed in various substations. Each of thesetransformers serves 46.68 MVAof demand on the average. Of thesetransformers, 43 are 15years and above of continuous service. Out ofthe 112 units, 44 power transformers are designed for and in use inGIS substations and 68 power transformers are designed for use inconventional substations.

While load-shifting may be done in case of a breakdown of any ofthese transformers, this is but a temporary solution and would not beable to address any further contingencies. As such, in case of anyfailure of any of these 83 MYA transformer should be sufficiently andspeedily addressed, otherwise, it would result in sustained powerinterruption to the detriment of MERALCO's customers, commerceand vital public service.

Perfonnance Assessment - Analysis of Problems

Load-shifting may be done in case of a breakdown of any ofMERALCO's power transformers, but this is only a temporarysolution and would not be able to address any further contingencies.In case of failure of any of the transformers carrying the transferredload of the defective transformer, this would result in sustainedpower interruption to the detriment of MERALCO's customers,commerce and vital public service.

For MERALCOto be able to readily address any such situation, it isnecessary to have at least one (1) 83 MYA conventional powertransformer and at least one (1) 83 MYA conventional powertransformer at any given time to readily and quickly addresscontingencies requiring ilie immediate replacement of any of itscommissioned 83 MYApower transformers.

The power transformer failure rate in MERALCOis 1.67 units or 111MVAper year based on 1981 to 2011 data. Since 2010 to present, 3units of 83MYApower transformers became unfit for operation.

In ilie process of determining the most cost-effective solution toaddress the identified deficiencies, MERALCO generated severaltechnically-feasible alternatives iliat could satisfy the distributionsystem requirements in a timely and efficient manner.

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II

I

Project Alternative


PrOiCct Alternatives ClassificationAlternative 1 Replace the existing transformer with

Sland-alonea new transformer with OLTC

Alternative 2 Operate and Maintain the PowerSland-aloneTransformer

Alternative 1:

Continue to accommodate the loads of the transformer that brokedown to the other adjacent transformer banks, which can temporarilycarry the load. The said transformers will be operating above thecritical level. Also, there will be higher system loss as a result.

At this condition, an outage of any of these transformers and those inadjacent substations would result in prolonged and widespreadpower interruptions. MERALCO would have difficultyaccommodating the load applications of large customers due toinadequate capacity. Likewise, increased exposure of the affected34.5kV distribution lines due to emergency load shifting would resultin higher line losses and possibly more frequent interruptions whichwould burden consumers.

Alternative 2:

Provide a readily available 83 MVA llokV-34.5kV-13.8kV powertransformer with OLTCat any given time.

The preferred project yields a Net Present Value of PhP493.493,Internal Rate of Return of 15% and Benefit-Cost Ratio of 1.40. Thefinancial analysis was done with the assumption that two banks aretemporarily carrying the loads of the defective transformer.Historically, this assumption is the minimum number of transformerbanks.


Without the project, any breakdown of a commissioned 83 MVApower transformer cannot be replaced immediately and will result tocritical loading of adjacent transformers which can temporarily carrythe load. At this condition, any further breakdown of the adjacenttransformers would result to prolonged and widespread powerinterruptions. The increased exposure of the affected 34.5kVdistribution lines due to emergency load shifting would result inhigher line losses and possibly more power interruptions.

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The Commission deferred the project for a need to have an availablespare of at least one (1) unit of an 83 MVA 1l0kV-34.SkV-13.8kVpower transformer for a GIS substation and at least one (1) unit of an83 MVA1l0kV-34.SkV-13.8kVpower transformer for a conventionalsubstation. This deferral is without prejudice to refiling sincealternatives rovided do not directl address the s ecific roblem.

ApprovalPro'ectto continue as ro osedPro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification

Approved CAPEX Cost (PhP) 0.00

Project Title


16.Relocation of Facilities Affected by Public-Private Partnershi (PPP) Pro' ects

MER-16Network - Renewal1Prima and Seconda Distribution Pro' ects

Project Description DurationRelocation of facilities affected by C-6 Extension(Flood Control Dike Expressway). These PPPprojects will affect the existing MERALCOsubtransmission and distribution line facilities(poles, overhead conductors, insulators andaccessories).

Proposed CAPEX Cost (PhP) 516,477,546.00

Summ of Cost EstimatesPROJECT/ ITEM Poles,

DistributionOverhead Underground

Towers and Conductors Conductors Total (PhP)NAME Fixtures Transformers and Devices and DevicesRelocation offacilitiesaffected by C-s ITI 5,548,179 117,540 1,720,369 217,595 7,603,683SKYWAYRelocation of facilitiesaffected by C-6 33,728,911 460,332 6,737,661 852,189 41,779,093EXPRESSWAY GLOBALLINK SOUTH SECl'IONRelocation of facilitiesaffected by C-6 Extension 9,648,552 34,925 su,l80 64,655 10,259,312(Flood Control Dike

resswa )Relocation of facilities 5,990,858 20,992 307,243 38,861 6,357,953affected b NLEXEAST

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LAMESA PARKWAY

Relocation of facilitiesaffected by NLEX-SLEX

169,171,251 596,815 8,735,290 1,104,852 179,608,208CONNECTOR ROADCOS)(ALONG PNR TRACKSRelocation of facilitiesaffected byR-7 8,527,020 180,647 2,644,043 334,422 11,686,132EXPRESSWAYRelocation of facilitiesaffected by Cavite-Laguna 57,399,681 277,5°3 4,061,673 513,726 62,252,583EXPRESSWAYRelocation offacilitiesaffected by LRT1- 182,624,364 818,°70 11,973,698 1,514,451 196,930,583Extension

TOTAL 472,638,815 2,506,823 36,691,157 4,640,751 516,477,546

Project JustificationCompletIOn of these relocatIOn projects will ensure that the safety,flexibility and reliability performance of MERALCO'ssubtransmission and distribution facilities is not compromised in theIon -term b these infrastructure ro'ects.

Technical Analysis

The major capital project pertains to the relocation of electricalfacilities in compliance with, and in support of the NationalGovernment's Public-Private Partnership (PPP) Projects withinMERALCO's franchise area. Hence, the projects are not classifiedunder any asset category.

On 27 June 2013, MERALCOand the Department of Public Worksand Highway (DPWH) convened for a Strategic Planning Meeting inorder to synchronize ongoing and future DPWH projects withMERALCO's electric capital projects. As a result, a MERALCO-DPWH coordination body was established through the appointmentof a Single Point of Contact (SPOC) and establishment of a WorkingCommittee from both DPWH and MERALCO. DPWH sought forsupport in the implementation of the following PPP projects:

a. C-6 Extension (Flood Control Dike Expressway);b. C-5 FrI Skyway;c, C-6 Expressway Global Link South Section;d. NLEXEast La Mesa Parkway;e. NLEX-Connector Road (along PNR Tracks);f. R-7 Expressway;g. Cavite Laguna Expressway; andh. LRT 1Extension.

MERALCO's Existing Distribution System

At present, there are subtransmission and distribution facilitieslocated at the above-mentioned PPP project sites; such as distributiontransformers, overhead conductors and devices, poles, towers andfixtures and under round conductor and devices.

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These electrical facilities serve the load requirements of thecustomers in those areas.

NATIONAL GOVERNMENT'S PPP PROJECTS ANDMERALCO'S RELOCATION OF FACILITIES

a) C-6 Extension (Flood Control Dike Expressway)

This project will provide a high standard highway with a dike that willease traffic flow and mitigate flooding in the western coastalcommunities along the Laguna Lake. The highway will run fromTaguig in Metro Manila through the towns of Calamba to the LosBanos-Bay boundary in Laguna.

AFFECTED FACILITIES:STl: 3 polesos: 54 poles

BaUbago.canlubang (115kV LIne)CIPUPfP-los Balm (115kV LIne)

The private partner will finance, design, construct, operate, andmaintain the 47-kilometer flood control dike with a six (6) laneexpressway toll road on top. It will also include the construction ofinterchanges, bridges, floodgates, and pumps, from Taguig to LosBanos. The private proponent will also undertake the reclamation of700 hectares located west of and abutting the expressway-dike andseparated from the shoreline by a 100-ISO-meter channel, in Taguigand Muntinlupa.

This project aims to mitigate flooding in the western coastalcommunities along Laguna Lake, from Bicutan, Taguig in MetroManila through Calamba to Bay in Laguna. It also aims to ease trafficcongestion by providing motorists an alternate route in going to andfrom Laguna, avoiding the existing Calamba-Los Banos route, makingtravel time shorter and more convenient. The project will furtherenhance the economic development of Laguna with greater access totourism spots in the Southern Tagalog Region. Shown below is thedescription of the Laguna Lakeshore Expressway Dike project.

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b) C-s FTI Skyway

The C-5 FTI Skyway is a 2- to 4-lane connector road project, with atotal length of 6.8 kilometers, which will provide direct access to FoodTerminal Inc. (FTI) from both Skyway and C5. Shown below is adescription of the C-5 FTI Skyway Project.

c) C-6 Expressway Global Link South Section Project

The C-6 Expressway Global Link South Section Project pertains to theconstruction of 4 to 6 lane expressway with a length of 59.5kilometers. The expressway will start from NLEX at Bocaue/Marilaoboundary, (through the towns of Sta. Maria and San Jose del Montein the Province of Bulacan), to Rodriguez, San Mateo, Antipolo andTaytay in the province of Rizal to Taguig, and then this will connectwith the SLEX at Sucat, Muntinlupa, including Global City AccessLink Road at grade expressway with some elevated portions nearTaguig area. The aforementioned project will relieve trafficcongestion in Metro Manila's arterial roads and will connect Southand North Luzon to develop international logistics base. A Global CityLink of C-6 Expressway will provide a vital access to commercial andbusiness centers. Shown below is the description of the C-6Expressway.

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d) NLEX East La Mesa Parkway

The North Luzon Expressway (NLEX) EastProject is a 4-laneexpressway which will start from the La Mesa Parkway at BarangayBigte, Norzagaray, Bulacan and will extend northwards, through themunicipalities of Norzagaray, Angat, San Ildefonso, San Miguel inBulacan and the municipalities of Gapan and Sta. Rosa in theprovince of Nueva Ecija, The expressway will cross the major rivers ofAngat, Penaranda and Pampanga, It has an estimated total length ofabout 91 km and lies approximately 7 kilometers east of MaharlikaHighway, The project will form an important transport access in theeastern area of Region III. This will further spur economicdevelopment in these areas. Travelers will have an alternate route ingoing to and from Cabanatuan City which connects to major roadsleading to Regions II and Cordillera Administrative Region (CAR),Shown below is the description of the NLEX East route,

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AFFECTED SUBTRANSMISSION LINEFACILITIES (CND-AKLE 69KV LINE)CIRCUIT lENGTH = 2.82 km (CROSS COUNTRY)AFFECTED POLES = 4 STS POLES; 64 OSPOlES

La MesaParkway

,,

ILEGEND:

Nt£>.... "....•... ......,. ,. .

I NLEXEast I

e} NLEX-SLEX Connector Road (Along PNR Tracks)Project

The project involves the construction and operation and maintenance(O&M) of a 13-4 kilometers 4-lane elevated expressway over thePhilippine National Railway (PNR) right of way which will start inCaloocan City and ends in Buendia, Makati City and will connectNorth Luzon Expressway (NLEX) and South Luzon Expressway(SLEX). It is also expected to decongest Metro Manila by providing analternative route to C-5 Road, Epifanio de los Santos Avenue (EDSA),and other major thoroughfares. Shown below is thedescription/location ofthe project

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t) R-7 Expressway

The R-7 Expressway Project involves the construction of a 4-lanepartially elevated and partially underground expressway, with atotal length of 16.1 kilometers, along Quezon Avenue and DonMariano Marcos Avenue. The project is intended to connect QuezonCity and Manila City with high-speed transport facility which willaddress traffic congestion. Shown below is the description of theLaguna Lakeshore Expressway Dike project.

•••• •!

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g) Cavite-Laguna Expressway (CALAX)

This CALAXExpressway involves the construction of 4-lane, c1osed-system tolled expressway connecting CAVITEX and SLEX, with atotal length of 47.018 kilometers. This will include the constructionof centralized toll plazas, a toll collection system, viaducts andbridges (i.e. waterway, expressway, overpass, underpass, andramps). The CALA Expressway will start from the CAVITEX inKawit, Cavite and will end at the SLEX-Mamplasan Interchange inBifian, Laguna. It will have nine (9) interchanges in variouslocations such as Kawit, DaangHari, Governor's Drive, AguinaldoHighway, Silang, Sta. Rosa- Tagaytay, Laguna Blvd., Technopark,and a Toll Barrier before SLEX. It will provide a critical link for theprovinces of Cavite and Laguna and will connect the two major tollroads - Cavite Expressway (CAVITEX) and South LuzonExpressway (SLEX).

The development of industrial and commercial centers in theprovinces of Cavite and Laguna has caused traffic congestion in majorroad networks in the area, particularly, the Governor's Drive,Aguinaldo Highway, and Sta. Rosa- Tagaytay Road. The proposedexpressway project aims to provide faster, safer, more comfortableand reliable route between Bacoor and Kawit, Cavite areas, and theLaguna and South Luzon Expressway (SLEX) areas. This will alsoenhance trade and socio-economic activities around them. Shownbelow is the description/location of the project.

\.\ \ l'. \ ~'\

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h)LRTl-Extension

The current LRT Line 1 will be extended starting from its existingBaclaran Station to the future Niyog Station in Bacoor, Cavite, withan approximate length of 11.7 kilometers. Of this length, 10.5kilometers will be elevated and 1.2 kilometers will be at-grade. Uponimplementation of the proposed project, the whole stretch of theintegrated LRT 1 will have a total length of approximately 32.4kilometers.

The LRT Line 1 South Extension Project aims to provide rapid andreliable access to and from the densely populated residential sub-urban communities south of Manila, and the various strategiccommercial, industrial, and educational districts in Metro Manila.This will make the mobility of people and goods in the areasignificantly faster and less costly. The project aims to increaseaverage weekday ridership from 560,000 to 820,000 passengers in2015.Shown below is the description of the LRTLine 1Project.

Performance Assessment

MERALCO is mandated to relocate its facility to give way to theimplementation of the PPP projects. MERALCO adheres to itscommitment in providing safe and reliable electric facility to itscustomers. If the relocation of affected facilities will not beimplemented, portions of the lines will be cut, which may result toloss of flexibility of the affected circuits and loss of service to theaffected customers.

The relocation projects of sub-transmission and distribution linefacilities will adhere with the timeline of implementation of PPPprojects. The table below shows the period of implementation of thePPP projects covering the 4th Regulatory Period.

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There will be an expected critical loading of Bagbaguin powertransformer bank no. 1 (85%), Malinta power transformer bank no. 1(71%) and Balintawak power transformer bank no. 6 (73%) in 2016brought about by the forecasted small-area load growth of 3.83% inthe areas served by these power transformer banks. Majorcommercial and industrial customers in the area such as Bureau ofFire Protection, Nettex Manufacturing and Export Corporation, UltraTextile Mills Incorporated, Dragon Asia Rolling Mills Incorporatedand Ferrotech Steel Corporation will be affected by the reduction ofoperational switching flexibility during contingencies. A new projectis needed to resolve the forecasted capacity deficiencies of the abovepower transformers.

The table below shows the Gantt chart of PPP projects:

PPP Projects RY2016 RY2017 RY2018Affecting Relocation 1" Half 2nd Half 1,t Half 2nd Half 1" Half 2nd Half

of Facilities (Jul-Dec (Jan-Jun (Jm-Dec (Jan-Jun (JuI-Dec (Jan-Jun2015) 2016) 2016) 2017) 2017) 2018)

C-6 Extension (Flood

.L.Control DikeExpressway) t-I.C-s FTI Skyway ,C-6 Expressway Global -rLink South Section -I . : ---t--NLEX East La MesaParkway .-+-.NLEX-SLEX ConnectorRoad (along PNR track) -=t- .R-7 ExpresswayCavite- LagunaExpressway ----rl .....~.Relocation of facilitiesaffected by LRTl-

I .Extension

Comparison of Alternatives

MERALCOhas been constrained to immediately relocate its facilitiesto give way to the implementation of the National Government's PPPprojects. MERALCOhas conducted site inspection and review of howthe affected facilities would be relocated with least possible cost.


Considering that no additional load will result from the projects,there will be no expected effect in terms of sales and operationalefficiency. Further, the completion of the relocation projects willensure that the safety, flexibility and reliability performance ofMERALCO's sub-transmission and distribution facilities will not becompromised in the long-term by these infrastructure projects.

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Proposal for Assets Value Recovery

Due to the implementation of the projects, MERALCO may beconstrained to retire the facilities before the end of their respectiveuseful life. Thus, MERALCOproposes that it be allowed to recover thevalue of the facilities that may be retired equivalent to their respectiveremaining economic life had they not been retired due to the NationalGovernment's PPP projects through accelerated depreciation or anyother mechanism that can account for the remaining value of saidfacilities.

The Commission approved the relocation of facilities affected by PPPprojects which will include the following: (1) actual fieldinspection/survey of the locations and facilities that will be affectedby the project; (2) preparation of project design and cost estimates;(3) securing of permits and right .ofways; (4) installation of facilitiesin the new location; and (5) retirement of old facilities. However,approval of the inclusion of the cost as Capex shall be deferred untilsuch time that MERALCO could justify that the cost should not beshouldered by DPWH. It is worthy to note that the DPWH shoulderedthe cost of such relocation nroiect in the vicinitv of the aimort.

ApprovalPro' ect to continue as ro osedPro' ect to continue with revised ca ital e enditure ,(Pro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional' ustification

Approved CAPEXCost (PhP) 0.00

Project TitleProject CodeProject TypeProject RankProject Category

17. Customer Outa e PortalMER-1Non-Network Asset2Non-Network Pro'ect

Project Description DurationThe Customer Outage Portal is a web portal that ismade available to MERALCOcustomers in order toprovide needed information on power outages.Customers will be updated on near real-time basison the status of his service with MERALCO even

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without having to call the latter's Call Centerhotline. In implementing this project MERALCOintends to use weh and mobile channels throughinteractive maps that customers may access ondemand, as well as SMS and e-mail alertsautomatically sent to customers' mobile deviceswhenever power interruptions affect theirpremises. MERALCOis also looking at integratingthis service with social media sites in order to makeit more convenient for customers to gain access topower outage reports or vice versa (i.e. report anoutage online) especially during and after typhoonsor calamities. Overall, this Portal will enhanceMERALCO's comprehensive customercommunication efforts in meeting the demands ofits customers on the much-needed outageinformation.

Proposed CAPEXCost (PhP)

E •fCsummarvo ost stimatesAsset Category Labor Cost Material Cost Total

Information Systems18,000,000.00 36,962,212.00 54,962,212.00(Non-network)

Project JustificationThe project is intended to provide the customers relevant outageinformation that includes geographical representation of the locationof the outage/s, estimated time of restoration, no. of customersaffected, etc. Scheduled power interruptions such as MLDs and pre-arranged interruptions (normally published in broadsheets) aresummarized and overlaid in a GIS map that will help the customersmitigate the impact to their scheduled activities, businesses oroperating plans, especially if these customers are commercial andindustrial in nature. With various outage information at hand, thecustomers are able to plan and act in response to an outage.

This outage portal project will also provide additional channels foroutage reporting that leverages modern and widely-used devices suchas smartphones, tablets, computer, etc. This will offer convenience onthe way customers report an outage, especially during inclementweather when all the phone lines of MERALCO Call Center areclogged even if the latter operates 24x7.

Not only the MERALCO customers but also the vital governmentagencies, media and emergency-response or other criticalorganizations will benefit from this portal project. Saidor anizations will also be iven access to the outa e ortal in order to

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keep them well-informed about ongoing restoration efforts,estimated restoration time, and other important information.

Internally, MERALCObelieves that this new service platform willcontribute to more efficient information dissemination especiallyduring typhoons or calamities. By setting-up a Customer OutagePortal, MERALCO's assessment that it will able to reach out andprovide the outage information needed by its 5.6 million customers,most especially during typhoon seasons, and at the same time, help itavoid investing in capacity extension of its existing Call Center facilityfrom the sur e of calls of its customers durin hoons.

Technical Analysis

MERALCO's Existing Channels for Outage Reporting andOutage Map

Outages are inevitable in the operation of a distribution system andpose a negative impact and at times anxiety and distress to thecustomers. Thus, in the event of an outage, and especially in theevents of storms and widespread interruption, customers, whichinclude government agencies such as the Department of Energy, theMetro Manila Development Authority, the National and RegionalDisaster Risk Reduction Management Councils, and the LocalGovernment Units, would inquire regarding these outages and oftenrequests, and sometimes demand, for real-time updates and status ofthe service interruptions.

Currently, the available customer channels to report any serviceinterruption are through MERALCO'sCall Center and, to a limitedextent, through Facebook and Twitter. Such traditional channelsinvolve the customer calling the MERALCOhotIine (Call Center) orposting a Facebook or Twitter message. MERALCO feedback onthese customer initiated reports would also be through the CallCenter and Facebook and Twitter responses. However, gettingfeedback from Call Center is a major challenge in view of capacityconstraints.

To augment these channels, MERALCOhas invested in setting up anSMS advisory system in order to provide power interruption alertsand electronic billing notifications. Nonetheless, this service mayonly be provided to customers who have allowed them to be notifiedby MERALCOand to those who update MERALCOwhenever thereare changes in their contact numbers.

For internal operations, MERALCO currently employs a legacyapplication which has been in operation since 2001. Referred to asOUTAGES,this application is capable of displaying various outagesinformation includin eo ra hicallocation on a ma . However, this

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system is primarily designed for and currently used only by internalMERALCO users because of the highly technical and sensitiveinformation contained that may not be disclosed to the publicwithout risk to system security, limitation on server support, andsome mapping convention and highly technical representation thatwould not be easily appreciated by the customers. Althoughinformation can be manually extracted and sensitive informationfiltered from this system to address any customer-initiated outagereport, these information also have to be manually relayed to theCompany's customer-facing communications systems, such as theCall Center, Facebook and Twitter channels, as well as informationblasts through corporate wide channels (e.g. TVand Radio) especiallyand exponentially in times of widespread outages. This manualprocess of extracting, filtering and transfer of informationcontributes to the lag in the availability of information which wouldbe critical especially in times of widespread interruptions due tocalamity and emergencies. As earlier explained, MERALCOmay noteasily provide direct customer access to OUTAGES because of thesensitive information it contains that can readily be used against theinterest of the security of the distribution system and even the entirepower industry.

On the other hand, the ERC-approved Advanced DistributionManagement System (ADMS), which was primarily proposed toreplace another legacy application of MERALCO called OTMS orOperating Trouble Management System, also has outage detectionand mapping capability similar to OUTAGES. Similarly, theapproved specifications of ADMS is only for limited number of usersand displays sensitive information that again prohibits MERALCOfrom providing customers with direct access to the system. ADMS,though, is designed to connect and provide relevant, updated, andaccurate information to OUTAGES and eventually to a morecustomer-friendly Outage Portal application like what this projectintends to deliver.

Performance Assessment - Analysis

1. Impact of Storms/Typhoons to MERALCOCall Center

Every year, the Philippines experiences about 23-25 typhoons,around 2-3 typhoons directly impact the MERALCO franchise andlast for about 4-5 days. During a major typhoon, MERALCOexperiences influx of calls from customers, the highest numbermonitored about a million calls reported by PLOT to MERALCO.This high volume of calls extends even after a major typhoon haspassed because power restoration works, which can includerestoration works of parts of the transmission system that affects thesupply of power to the distribution system, can last for a week or two.

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It is not only the typhoons that trigger calls surge to the MERALCOoffices. There are other instances that MERALCOcalls "major outageevents." These events are normally caused by ALD (automatic loaddropping) and MLD (manual load dropping) implementationbrought about by temporary generation shortfall due to maintenanceand unforeseen troubles in some generating plants or majortransmission lines. In such circumstances, customers are requestedto bear prolonged brown-outs in areas scheduled to be dropped fromthe grid. Affected customers will normally start calling MERALCO.

However, the existing capacity of all MERALCO centers receivingcustomer outage complaints could only accommodate up to about40,000 calls during stormy days, based on 104 attending call centerrepresentative agents plus 28 agents in the extension facility duringmajor event days assumed to handle about 200 calls per agent and anaverage of 5-minute talk time.

In the past few years, there have been plans to expand the currentcapacity to cater to 100,000 calls, but the cost to outsource the excesscalls to service providers using external sites has not been veryencouraging. The cost to put up additional in-premise facilities iseven worse.

2. Limited Channels of Outage Reporting

Since the MERALCO Call Center facility is limited to handle callsduring typhoon, customers find it very hard to report an outage intheir area, much more to seek feedback or inquire about the powerrestoration status. With the Customer Outage Portal, customers willhave an alternative channel to report and inquire power outagesincluding restoration without calling the MERALCO Call Centerhotline. In fact, this service platform, MERALCO's vision will allow acustomer to directly report an outage concern by simply posting apicture of the affected electric service or a community without power,or grab a picture/reported power concern in social media likeFacebook, Instagram and Twitter. With these reports automaticallyreflected and updated in the system, MERALCOis able to harness thepower of social networking or crowd-sourcing in providing customerinformation.

3. Increasing Customer Clamor for Outage Information

During typhoon Glenda in July 2014 when 89% of MERALCOfranchise area was without power due to the devastation brought bythe typhoon, the outpouring of customer inquiries to MERALCOCallCenter and MERALCO's social media accounts (Le. Facebook) as towhen power will be restored in their area was overwhelming. Thegreat majority of the comments received in MERALCO's social mediaaccount were all nointing to "Estimated Time of Restoration".

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Furthermore, the results of MERALCO's recently-conducted 2014CSI survey confirmed the customers' demand for power statusinformation, especially during days of massive and prolongedoutages.

Customers were aware that MERALCO's workforce complementcould not readily restore power. Nonetheless, the sentiment of themajority of the survey base (99% of customers) was for MERALCOtoapprise them as to when the power will be restored so they could alsoplan their appropriate course of action, like to stay temporarily insome other place until the power is back.

Customers want outage information or notifications be madeavailable by MERALCO 1 to 2 days in advance, at the latest on thevery same day, few hours before any power interruption is made. Thecustomer clamor for estimated time of restoration will be addressedby the Customer Outage Portal.

4. Restricted View of Power Outages in Lateral Circuits

Without smart meters installed in customer premises or outagesensors deployed in strategic locations in the secondary circuits likedistribution transformers, fuse cut-outs, line switches and the like,the MERALCOrestoration crews will not have the real-time visibilityof the full power restoration works in a heavily affected area. Likewhat happened during Typhoon Glenda, MERALCO's SCADAsystemreported 100% restoration but only because all primary circuits havebeen energized after one week of power restoration efforts. However,further analysis from other systems revealed that there were about200,000 customers more that were left without power. These werethe isolated cases of secondary line troubles, distributiontransformers tripped off in some subdivisions, or service wires ofindividual customer premises being damaged by the typhoon.

All said situations are not captured automatically in the existingOUTAGESunless triggered by reported outages lodged in MERALCOCall Center system and forwarded to and tagged at OUTAGES. Evenwith the launching of ADMS, this will not be addressed unless thereis one single Outage Map that integrates both outage informationfrom Call Center System and Networks' OUTAGES (or ADMS at alater time).

With the Customer Outage Portal in place, MERALCO is seeingadditional improvement on power restoration time duringtyphoon/stormy conditions. The crews and supervisors working onthe field will have a real-time view of all unrestored secondary orlateral circuits. The faster reporting of outages from customers underthe 'self-helD' facility of this Portal will also orovide a 5-10 min

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advantage to MERALCO's restoration crews and contribute to thetotal reduction efforts of MERALCOon restoration time, especiallyduring typhoon. Customers are now able to save time calling andtalking to the Call Center agents, with the same intention of lodgingthe complaint and creating an outage report to trigger actions of therestoration crews.

OPTIONS CONSIDERED

1. Implement a Customer Outage Portal using Hybrid (On-premise +Hosted) Set-up

Hybrid cloud setup is an infrastructure provisioning model that willallowMERALCOto host the Customer Outage Portal on dedicated onpremise servers and public cloud servers on the same network. Apublicly-available Customer Outage Portal, hosted on public cloudservers, will serve as the main application for use by internal andexternal end-users. On the other hand, an enterprise-facingCustomer Outage Portal, customized and built in-house according tothe organization's specific requirements and hosted by dedicatedon-premise servers, will serve as a gateway for critical informationfrom the ADMS to the publicly-available Customer Outage Portal.This adds another secure layer between the publicly-availableCustomer Outage Portal and the mission-critical ADMS application.The enterprise-grade Customer Outage Portal will also serve as aback-up application in case network connectivity between the onpremise and public cloud servers gets disconnected. It has thecapability of accommodating up to a significant number of internalMERALCOend-users and external vital MERALCOcustomers giventhe recommended on-premise hardware. This option will giveMERALCOthe flexibility to instantly change infrastructure serviceswithout compromising security or reliability.

With this approach, MERALCO can keep its mission-criticalapplications such as the ADMS and company-sensitive informationsuch as customer information behind its corporate firewall ondedicated servers safe from third-party access, while a publicly-available Customer Outage Portal mirror application and itsinformation dissemination capability with fewer security concernsare available on the shared web platform. Critical system interfacesbetween the ADMS and the Customer Outage Portal is also keptwithin the enterprise, ensuring a reliable and up-to-date outagecommunications channel all the time in the worst cases such asdisaster- and typhoon-related network communications outages.

When MERALCO needs to quickly scale up to handle spikes inresources, bandwidth, storage or computing needs, the organizationcan instantly do so on the public cloud to keep the publicly-availableCustomer Outal!e Portal running smoothlv. When demand subsides,

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the organization does not have to pay for unused capacity in thepublic cloud and only for the resources that were used by theenterprise Customer Outage Portal through its dedicated servers.

The existing SMS platform will be integrated with the Hybrid set-upwherein the outage information will be sent to affected customersthrough SMS.

2. Implement a Customer Outage Portal using Cloud Service Hosting

Many vendors also offer their outage map solution by hosting it ontheir standard cloud data centers, built on top of a web servicesplatform (e.g., Amazon Web Services).

This Software-as-a-Service (SaaS) model can incur less CAPEXbut,in turn, will require significantly higher annual OPEX, which istypical to cloud hosting services. Since this solution will require veryfew infrastructures to be installed within MERALCO's premises, theimplementation period can be relatively shorter. Moreover, due tothe capability of cloud computing to reallocate resources on demand,it can accommodate multiple users to cater more than 5 millionMERALCO customers that may simultaneously access the outagemap during storms.

However, there is relatively higher security risk with this kind ofimplementation because of the limited control over certain sensitivedata (Le., various company and customer data). Despite theadvantages that cloud computing can deliver, this is not consideredas the primary option because of its limitation for expansion andinterface with other services in the future.

3. Leverage Existing Resources

The Distribution System Troubles and Outages RestorationManagement Solution (OUTAGES), as described earlier, can displaygraphically the location of power outages, number of customersaffected per area, number of circuits affected, vital customers withoutpower, and other reports.

The application, however, does not currently provide near-real timeinformation since updates are made manually. Other functions thatsupport the Customer Outage Portal processes are not yet available inthe system. And most of all, the application has no capacity to caterfor the voluminous access of customers in times of widespreadoutages.

OUTAGES can be leveraged to provide most of the functions andrequirements of a customer outage portal by upgrading its computerserver, add storage caoacity, establish communication with the

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ADMS, and re-develop its major functions in order to satisfycustomer-facing application requirements on user friendliness,reliability, responsiveness, and others.


aJ Technical Comparison


Criteria

bJ Financial Comparison

CAPEX:30M

4-6 months

: High

Covered by SLA

Capable ofhandling5.6milIioncustomers

~~

CAPEX:20M

1year

•Low _.~Good;depending onthe allottedresources

Via web . --lbrowser only .J

Guaranteed tohandle 2,000internal users

The financial evaluations of the alternative projects aresummarized in the following table:

Project AlternativeL H brid (On- remise + Hosted2. Cloud Service Hostin

Levera "n existin resources

Project CostMillion

o Million20 Million

NPVI 6 I

2 2268

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Given the analysis and comparison of options, Option 1: "HybridCloud Set-Up" is the most technically feasible and economicallyviable projects due to the following:

. Risk Management: MERALCOcan manage risk in terms ofinformation security, as mission critical applications are notdirectly communicating with the publicly available customerportal application.

• Reliability: MERALCOcan still operate and provide informationto vital customers even when access to the publicly availablecustomer portal is unavailable, as the on premise portalapplication will still be available to service the access requests.Moreover, the customer portal application will also be able toservice requests through web browsers from mobile devices andpersonal computers.

• Software Maintenance: MERALCO can easily implementsoftware upgrades, application enhancements or requiredmodifications to the publicly available and on premise customerportal, as the portal application will be built in-house.

. Cost: Based on the financial analysis of the net present values ofthe hybrid cloud and cloud service hosting options, the hybridcloud solution is a more cost-effective investment compared tocloud-service hosting. Though leveraging on existing resourcesrequires less investment, it cannot fully support the functional andtechnical requirements ofthe Customer Outage Portal.


Without the project, MERALCOwill continue to rely heavily on itscall center personnel and social media sites to cascade powersituation to affected customers. But the outpouring of customer callsduring typhoon and other major outage event days cannot beaccommodated by existing capacity of outage notifications andreceive outage information. The resources to accommodate millionsof customer calls will still be insufficient when typhoons or calamitieshit the franchise area of MERALCO. Customers will remainscrabbling for the specifics of the power outages, thus continue tobash MERALCO and eventually the government for poor servicerestoration and information dissemination during calamities.

The Commission approved the project "Hybrid Cloud Set-Up". Thefast-paced development on technology matched with increasingnumber of customers lead to the growth of various complex customerrequirements. With the implementation of an outage map,customers, includin" government line agencies and LGUs, are

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empowered to plan and act on mitigating the impact of a poweroutage by providing them necessary information on the details of anoutage. Moreover, they will also be provided with more channels foroutage reporting in order to leverage utilization of modern devicessuch as smartphones, tablets, etc. that contributes to the moreefficient service restoration, particularly during storms. With this setof capabilities, this project is essential in providing the best service tothe customers that will meet their current and future needs.

A rovalPro.ect to continue as ro osed ./Pro.ect to continue with revised ca ital ex enditurePro.ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional .ustification

Approved CAPEXCost (PhP)

Project TitleProject CodeProject TypeProject RankProject Category

18. EnerMER-18Non-Network Asset2Non-Network Pro.ect

ement

Project Description DurationThis project will develop MERALCO's competenceto better serve its customers by establishingprocesses and systems to support the:

handling of voluminous transactionsvolatility of the marketefficiency requirementsstrategic planning, evaluation and execution ofenergy purchase based on fundamental andcomprehensive analysis of the market.

It will also address processing requirements offront, middle and back office operations, at thesame time, address requirements of riskmanagement. Moreover, this project will aidMERALCO in decision-making, and will help inefficiently and effectively providing the electricityrequirements of its customers. It shall likewiseo timize the business rocesses around the

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scheduling, dispatch, delivery and accounting ofpower and the risks associated with these activities.


Total

97,381,494Software and Hardware1Lot

Summa of Cost Estimatesuanti Ma'orE ui mentDescri tion

Commercial Off-The-Shelf (COTS) ESRM

Project JustificationThe project will address the technological challenges that MERALCOfaces with its Energy Resource Management (ERM) - the systemcurrentl used in Ener Sourcin Office.

Technical Analysis

MERALCO'sExisting System

Section 23 of the Electric Power Industry Reform Act (EPIRA)mandates that "a distribution utility shall have the obligation tosupply electricity in the least cost manner to its captive market,subject to the collection of retail rate duly approved by ERG."Further, Section 25 of EPIRA provides that "retail rates charged bydistribution utilities for the supply of electricity in their captivemarket shall be subject to regulation by ERC based on the principleof full recovery of prudent and reasonable costs incurred, or suchother principles that will promote efficiency as may be determinedby the ERC." (Emphases added)

To achieve this legal mandate to source energy in the least costmanner, MERALCO:

a) Develops an energy resource plan that will achieve the aboveregulatory mandate and ensure reliability and security of energysupply;

b) Prepares optimal energy delivery schedules of MERALCO's energyresources based on the best available demand and price forecaststhat will result to least generation costs while fulfilling contractualand regulatory obligations;

c) Ensures the implementation of energy delivery schedules byclosely monitoring hourly demand, nomination and actualdispatch of energy resource providers (e.g., IPPs, NPC plants, etc.);

d) Validates power bills in accordance with the contractual provisionsand applicable ERC rules and regulations, and provides timelyendorsement of invoices of energy resource providers;

e) Initiates the filing of disputes whenever a discrepancy or violationof contractual or re ulato obli ations, rules and re ulations is

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committed by energy resource providers; andf) Develops and implements the risk management framework for

energy sourcmg.

Performance Assessment - Analysis

With the recent developments in the electric power industry and theinitial implementation of Retail Competition and Open Access(RCOA) on a voluntary basis, industry players are facing morecomplex processes and higher risks on their energy transactions.Thus, the current market structure requires industry players to adaptby continuously improving their processes, employing riskmanagement practices and using more sophisticated datamanagement and analysis tools.

A. Operational Efficiency

Given the voluminous hourly market transaction data and complexpricing structures of bilateral contracts, significant amount of timeand resources are being utilized on gathering, analyzing, andpreparing reportorial requirements involving these data.

Implementing an energy sourcing and risk management system willsignificantly contribute to saving time and resources spent withregard to the day-to-day energy sourcing processes.

B. Risk Management

As mentioned above, the recent developments in the electric powerindustry have introduced a lot of significant risks to industry players.Being the largest distribution utility in the country, MERALCOhasconsiderable exposure to these risks.

Currently, MERALCOhas been managing several bilateral contractswith various counterparties to supply the energy requirements of itscaptive customers. Apart from bilateral contracts, the residual volumeis being sourced from the WESM,where spot prices tend to be highlyvolatile. Implementation and management of these bilateral contractscovers energy resource planning and scheduling, day-to-daynominations and validation of power supplier bills. All these bilateralcontracts, spot prices and related processes expose MERALCO to asignificant amount of risks. The main risk that the system is intendedto help mitigate is the electricity price risk, which is directly affectedby market prices, and by the prices of the different power supplycontracts, which have different cost structures. Thus, monitoring andreporting of such risks are very critical. Through an Energy Sourcingand Risk Management (ESRM) system, these risks can be closelymonitored and accurately and timely reported to provide invaluableinouts to energy sourcinl! and management ooerations and to the

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personnel who constantly make decisions intended to enableMERALCO to fulfill its mandate to source energy in a least costmanner. The proposed ESRM is intended to provide ample warningsto the energy traders in order to avoid, if not lessen, the impact ofimpending price anomalies in the system. The scope of this projectdoes not include price and demand forecasting. It will be augmentedby a residual project in RES15A.l Procurement of a Price and DemandForecasting Tool.




Alternative Advantages Disadvantages• The system can be fully • Longer lead time tocustomized to fit implement the project.MERALCO's

Alternative 1 requirements. • Accuracy of its outputGround-Up is uncertain and needsDevelopment • The system can be to be tested.

accessible and easilymodified to changes inuser reauirements.

• Shorter lead time to • The initial cost ofAlternative 2 implement the project. acquiring the softwareCommercial Off- could be costly.The-Shelf (COTS) • Outputs are reliable

and already tested.

Based on the comparison of alternatives, the Commercial Off-the-Shelf option is the most feasible and cost efficient considering theurgency of MERALCO's requirements.


The financial evaluations of the alternative projects aresummarized in the following table:

Project Project Description NPVAlternativeAlternative 1 Ground-Un Develonment PhP~2,21Alternative 2 Commercial Off-The-Shelf (COTS) PhP"7,61Q,Q<;Q


MERALCO will continue to use the ERM - which 1S facingtechnological obsolescence.

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The Commission approved the procurement of Commercial-Off-the-Shelf (COTS). ESRM is the best solution given the urgency ofMERALCO's requirements. While the ground-up development willalso address the problem, it will require a longer lead time ofimplementation. Also, the procurement of ESRM proves to bebeneficial as it will provide additional savings avoid some costs andIDossiblvresult in increased revenue.

ApprovalPro' ect to continue as ro osed ,fPro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification


Project Title


19. Acquisition of a Next Generation FirewallFor Third Pa -Hosted A lications

MER-19Non-Network Asset1Non-Network Pro'ect

Project Description DurationThis project is intended to acquire a NextGeneration Firewall to support the infrastructurerequirements for MERALCO to interface and September 2015integrate with third party hosted applications ands stems.


Descri tionFirewall E ui ment

Switches

Sunlmauantisets

3 sets

of Cost EstimatesMa'orE ui ment

FirewallsSupporting NetworkingE ui ment

Total,15 ,8 5.26

1,794,592.80

'3,994,7'2,561,331,146.171,81 ,11 .21

63 097,401.00

Su artin e Ul ment

ServiceslIotImplementationServicesAncillaries 1lot1m ortation Costs 1lot

Total (PhP Real201 )

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Pro' ect JustificationIf MERALCO does not acquire the solution, it will not have thecapability to leverage services available from third party-hostedapplications, as its current architecture is not geared towards this.

Moreover, the necessary capabilities to adapt to more advancedthreats will not be there, thereby rendering it incapable of having thero er visibili and defense for otential attacks and com romise.

Technical Analysis

MERALCO's Existing System

Currently, MERALCOhas a network infrastructure that has its web-facing systems, such as the MERALCO website(http://www.meralco.com.ph. the Customer Management SystemWeb(CMS Web at https:jje-services.meralco.com.phjcmswebjlogin.jsp) and the supplier portal (https:jje-mms.meralco.com.phjirjjportal), available to external access, whileisolating internal MERALCOsystems to be purely used by MERALCOpersonnel and staff for MERALCO operations. The web-facingsystems are developed to provide information for the public. Thesecurrent systems are mostly static and non-sensitive systems, wherethe level of security only entails perimeter security that is, preventingpublic access into the internal network.

Need for Dynamic and Interactive Systems; Third Party-Hosted Applications

With the technological trends and tools available even to the mostordinary customer, such as dynamic web service, mobile or on-the-goapplications, that can be accessed and used by the customers throughtheir intelligent and mobile devices, the customers are now preferringdynamic, interactive, and even near real-time information, such asoutage information, to serve their information needs. Moreover,customers of any enterprise are preferring to be provided relevant,customized and personalized information instead of sifting throughthe layers of information (e.g. accessing the layers of a static websitefor a particular information needed) that a traditional informationplatforms offers.

As such, enterprises and utilities are undergoing a shift from staticinformation solutions, to a platform that can provide personalized,customized and fast information.

In the current information technology scenario, there has been ama'or shift for cloud-based solutions, whether as Infrastructure-as-

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http://www.meralco.com.ph.

a-Service (IAAS), Platform-as-a-Service (PAAS), and Software-as-a-Service(SAAS), to provide customer facing solutions or platformsinstead of developing and storing them in-house. This is theprevailing trend by which solutions are being developed and offeredcommercially, thereby presenting opportunities where clients neednot go through the pains of building the solution and theinfrastructure to support it and the domain expertise needed todevelop.

Major industry players moving their solutions to the cloud includeSAP (for its full suite of solutions - HR, Finance, Procurement, etc.),Microsoft (Office 365), Google (Google Apps), Adobe (with itssoftware suite available on the Internet) and also SalesForce.

Of much relevance to MERALCO and its customers are customer-oriented solutions that can receive and process information comingfrom the utility's internal systems, which can be safely provided to thegeneral public and/or a regular customer, to generate public orindividualized reports such as detailing and profiling individualconsumption of a registered user or outage information. Thesecustomer-oriented solutions would serve as the platform by whichnon-sensitive data from a utility's customer management systems canbe provided to an external or third-party hosted system that thecustomer can access to obtain customer-level view of his/her requiredinformation. To realize the benefit of engaging in such solutions,there is a basic need to send data from corporate systems to thesethird party-hosted solutions and vice-versa.

Performance Assessment - Analysis of Firewall Systems

Gartner defines Next Generation Firewalls as "deep-packet inspectionfirewalls that move beyond port/protocol inspection and blocking toadd application-level inspection, intrusion prevention, and bringingintelligence from outside the firewall."

The Next Generation Firewall capabilities will allow MERALCO toenhance its capabilities in securing it's boundary between the web-facing/customer facing systems and the internal systems that itoperates and maintains to provide its distribution service. Thisincludes the capability to perform intrusion detection and prevention(IDP), have application visibility and execute threat detectionexecution and filtering, all of which are essential in maintaining asecure information infrastructure with the capacity for threat defense,monitoring and immediate reaction. Other features include thecapability for threat intelligence feeds that will allow immediateknowledge into traffic with what may be emerging threats, and useridentification to improve traffic awareness.

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The next generation firewall would also support networksegmentation that would allow the set up needed for interfacingbetween internal systems and the third party-hosted systems therebyisolating the internal systems that need not be part of the process.

On the other hand, utilizing services that are based on the Internetwould eliminate the need for MERALCO to build that service in-house which would entail heavy costs for developing and building theinfrastructure and application to support, and for which the processand solution expertise would need to be built or acquired elsewherestill, thereby entailing costs on several levels from infrastructure, tobig data processing systems and system development.

Other than the security concerns and the need to maintain that, thiswill support the possibility of MERALCO tapping into these cloud-based semces (e.g. big data analytics, software as a semce,infrastructure as a service for servers and storage, etc.) to enhance itsservice to its customers. Given the explosion in the range of servicesbeing developed in externally hosted systems, it is possible thatsolutions will enhance its current customer-facing capabilities,whether communicating with them directly or improving its internaldata processing capabilities that will redound to improvedprovisioning. There are, for example, such services that can processbig data processing capabilities that could potentially improve theefficient use of energy, thereby reducing power demand. Also, non-critical systems that can be hosted in the internet to enable mobilityand enhance productivity can take advantage of this cloud-basedsemce.

In the process of planning this solution, MERALCOwent through aprocess of assessing its capability to achieve its objectives ofinterfacing with third party-hosted systems without acquiring a nextgeneration firewall. It determined that without it, it is not feasible toproceed without ensuring the security of the system, thus, removingthe prospect of achieving a level of functionality that would otherwisebe possible with the proper selection of third party-hosted services.



The following table summarizes the comparison of the advantagesand disadvantages ofthe alternatives:

Alternative1. Acquire a NextGenerationFirewall toSunnort

Advantages• Opens up opportunitiesfor servIceenhancement with thecomnanv

Disadvantages• Need to invest on thefirewall to enableinterchange with ThirdPartv-Hosted

137

Interchange • Improves security SolutionswithThird capabilities that areParty-Hosted needed to secure theSolutions (SaaS, data exchangeIaaS,PaaS) • May result in reduced

operational problemsand potential 24%avoided cost onoperational expenses inmaintaining non-critical applicationshifted from on-premise to third partyhosted.l

2. Continue • More control on • Limited expansIOnBuildupofOn- infrastructure aud based on approvedPremise maintenance budget spendingInfrastructure • Restricts theto address load capability to avail ofgrowth(Status subscription basedQuo) solutions and adopt to

emerging globalstandards (thirdparty-hostedsolutions)


The prospects for financial benefit for the project lies III thepossibility of the externally hosted service requiring infrastructure,big data systems, and e-mail systems.

The following summarizes the Least Cost Analysis comparing theTotal Cost of Ownership (TCO) for the two (2) alternativesconsidering the case of Acquiring a Next Generation Firewall thusenabling subscription to Third Party Hosted Solution vs. Build-up ofOn-Premise Infrastructure to address load growth.

Project Project Description TCO(PhP)AlternativeAcquire a Next Generation Firewall to

Alternative 1 SupportInterchangewithThirdParty- 66,628,221HostedSolutions(SaaS,IaaS,PaaS)

Alternative 2 Continue Buildup of On-Premise71,776,617Infrastructure to address load p"rovvth

The cost assumptions used in the above comparison considers emailsystem to be subscribed to third party hosting providers vs. build-upof on-premise infrastructure to address load growth requirements (ie.mailbox, archive growth) as a sample. The firewall is critical in theimnlementation of such solution. However, this proiect is directed to

1From EMC Cloud Advisory Report - Comparing cost models using a unified set of IT spendmatrices. See http://www.emc.com/services/consulting/private-cloud-virtualization/offerings/cloud-advisory-cloud-optimizer.htm

138

the acquisition of the firewall rather than the subscription to thirdparty service. The above comparison illustrates the advantage ofinvesting in the Next Generation firewall to allow subscription toThird Party hosted solutions.


With the Next Generation Firewall MERALCO's internal systems cansecurely perform data exchange or integrate with these externalsystems. This will allow MERALCOto leverage on existing services inthe cloud that would enhance MERALCO's capabilities to serve itscustomers, whether directly or indirectly, thereby improving itsservice to the customer.

The Commission approved the acquisition of a Next GenerationFirewall to support the infrastructure requirements for MERALCOtointerface and integrate with third party hosted applications andsvstems.

ApprovalPro' ect to continue as ro osed "'Pro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification


Project Title


20. Acquisition of 115 kV Line and 115 kVSwitchyard at the Navotas FishportCom lex

MER-20Network Asset2Subtransmission Develo ment Pro' ect

Project Description DurationThis project involves the acquisition of theEmbedded Generator's dedicated facilities inMERALCOarea particularly on the 115 kV system.MERALCOshall acquire a 115 kV switching stationand 115 kV line interconnecting the embeddedgenerator to the MERALCOsystem. This will alsoinclude ac uisition of substation, lines, rotection,

January to June2016

139

SCADA, telecommunications and meteringfacilities.

Acquisition of the following facilities/equipment:

115kVLine• Approximately 428 meters of 2-795 MCM BR.ACSR conductor per phase with 3#5 CU. WELDOHSW

• Five (5) units of steel poles

115kVSwitching Station• Four (4) units of 115kV power circuit breakers• Eight (8) units of 115kV disconnect switches• Six (6) units of current transformers• Eighteen (18) units of potential transformers• Twelve (12) units of surge arresters• One (1) lot of SCADAand Telecom equipment• One (1) lot of control and protection equipment• One (1) lot of AC& DC system• Two (2) units of steel poles• One (1) lot of associated line hardware andconnectors inside 115kVSwitching Station


Summary of Cost Estimates

118,478,179.00

1. Acquisition of 115kV Line as approved by ERC thm ERC CaseNo. 2012-042 MC on September 30, 2014:

Lahor ~herAssetCategory Cost MaterialCost Cost Total

Poles, Towers &FixturesOverheadConductors andDevices-DistributionTotal (PhP,Real20 )

2,129,771.61 2,129,771.61

2. Acquisition of 115kV Switchyard

Asset Category

Switch earProtectiveE ui mentMetering andControlE ui ment

LaborCost Material Cost

25,749,280.2

13,332,114.84

5,658,859.56

OtherCost Total

25, 49,280.24

13,332,114.84

5,658,859.56

140

Other Station '4,486,231.59 '4,486,231.59Eauioment - -

Structures andImprovements - 13,635,182.30 - 13,635,182.30(DistributionPuroose)Land & LandRights - 300,00.00 - 3°0,000.00(DistributionPurnose)Total (PhP, Real - 73,161,668.53 - 73,161,668.53201")

Descrintion IOuantltV Total (PhP)Acauisition of 111; kV Line lIot 45,316,51O.~1Acquisition of 115kV Switchvard lIot 7Q161,668.53

Total (PhP) 118,478.178.84

Project JustificationThe formerly dedicated facilities of TMO was reconfigured for betterreliabili and now ceased to be dedicated.

Technical Analysis


MERALCO's 115kV lines are formed in loop. Customers connectingto 115kV lines will have to be part of that loop in order to maintainsecurity and flexibility of the network. There is one (1) forecastedproject that shall involve acquisition of the interconnection facilitiesof an existing generating facility currently connected to theMERALCO's115kV subtransmission system.

Therma Mobile, Inc. (TMO), now the owner of the former 242 MWDuracom Power Barges located at Navotas, Metro Manila, has apower supply agreement with MERALCOsince March 4, 2013. Thisdiesel-fired power plant consists of four (4) barges with 42 generatorunits. Currently, the switching station was already cut-in with GracePark - Malabon 115 kV line. As a consequence of the cut-in, thefacilities owned by TMO, particularly, the 115 kV interconnectionfacilities and switching station, will have to be acquired byMERALCO, as the said facilities are now considered part of thenetwork system of MERALCO.

On July 27, 2012, TMO filed before the Energy RegulatoryCommission (ERC) an application for the authority to develop, ownand operate a dedicated point-to-point limited facilities to connect itsgenerating facilities to the distribution system of MERALCO. OnSeptember 30, 2013, the ERC made permanent the Order issued onOctober 1, 2012 granting TMO provisional authority to execute thero'ect as s ecified in their a lication. The said Order covers TMO's

141

II

iI

interconnection project which will connect its generating facilities tothe subtransmission system of MERALCO, specifically theconstruction of the 115 kV lines, as dedicated point to point facility.


Embedded generation shall refer to the generating units that areindirectly connected to the grid through the Distribution Utilities'lines or industrial generation facilities that are synchronized with thegrid. In providing facilities for electric service and energy to beexported by the customer, MERALCOadheres to the following:

Any customer that will connect to MERALCO's 115 kV lines will alsobe part of that loop, as such, the customer will have to cut-in and notjust tap into an existing line. The customer will have to provide a lotfor the provision of a switchyard for this scheme. For the control andprotection of the switchyard, relays, SCADA equipment andtelecommunication equipment will have to be provided. Thecustomer shall also be required to take all necessary measures toensure that its proposed connection shall not result in thedegradation of the subtransmission system. This includes theinstallation of protection system to automatically disconnect itsgenerators in the event of system faults, voltage fluctuation and largefrequency deviation due to weather conditions, or other unusualconditions that may cause voltage or current disturbances on thesystem. It is also required to meet MERALCO's standards on powerquality such as limitation of DC injection, flicker severity andharmonics. For the registration of energy consumption and exportedenergy, metering assets will have to be provided also.

Project Alternative



Alternative 1 Maintain the current set-up Stand-alone

Acquisition of 115 kV Line and 115Alternative 2 kV Switchyard at the Navotas Stand-alone

Fishport Complex

Alternative 1:Maintain the current set-up

The diesel-fired power plant located at Navotas in Metro Manila hasfour (4) power barges with 42 generator units rated 242 MW.Currently, the switching station was already cut-in with Grace Park -Malabon 115 kV line.

142

Alternative 2: Acquisition of 115 kV Line and 115 kV Switchyard atthe Navotas Fishport Complex

I,

This project involves the acquisition of the TMO 115 kV line andswitching station, which connects its Embedded Generator inMERALCO system. The constructed 115 kV lines with approximatetotal length of 428 meters from the tapping point at Malabon - GracePark 115 kV line to TMO's Switching Station shall be acquiredincluding the line's protection imd control equipment.

Also covered in the acquisition are: 1) teleprotection and radio linksinstalled at TMO's premises to provide communication withMERALCO's Malabon, Malinta, North Port and Grace ParkSubstations and MERALCO Operating Center (MOC) for its SCADAand protection system applications, 2) synchronism check relay thatwere installed at relevant 115 kV line terminations at 115 kVsubstations in the vicinity of TMO to control the manual andautomatic closing of the line breaker(s) after a fault ifthe frequency ofthe line and the bus is not in synchronism, and 3) import and exportbilling meter systems installed at TMO Switching Station for each ofthe two (2) incoming lines from the power barges.

I

""'" ~_ C~l1HYIII(RAlCOh"'l,lh_ r_""oqohfllDnbrM:RAlCO_e-r-._. r_/oI~"'lolllW.co.•.....•~""\\ ;--~ ':.'"?

Geographical Overview of the Area andSingle Line Diagram of the Subtransmission System

143

Shown below in Figure below is the single line diagram of theproposed network upon completion of the project.

"-Malabon

i'-11~~vlIM, 1.19~ MCM ACSR r ,r r.".".,lIJela, /11"' pII"./.ppt<>.imItIo> Io"U'" w 0-08 kmj

\. U, ;,,q---11SkV ~•.•..-

SwltehlnllStldo••

iJt Grace Park

"n h h ,.Lf.

'.12 MW Powe< B",lWSUlill!lll- (x,III"9'15 kVM£RrllCOFl>dI~~- r.dlm., for ""'lul.h!oo by Il\EAALCO

_ Cu._ focii1li••

- - r.dl~1oo ~ a<quJ.I'ion by MERALCO oppove<l by ERe



The following table summarizes the companson of the advantagesand disadvantages of the alternatives:

Alternative Advantages Disadvantages• Not be able to fullycontrol assets that arealready part ofMERALCO'sdistribution

Alternative 1 system (MERALCOwillhave limited access to

Maintain the -installed facilities during

current set-up maintenance works,possible pre-arranged/forcedinterruptions and otheremergency conditions)

• Connection of • No significantAlternative 2 embedded generators disadvantages

will be advantageousAcquisition of to the entire grid115 kV Liueand especially during

115kV power CriSISSwitchyardat the • Large customersNavotas Fishport driving our economy

Complex will have an alternatesource of power

144


The financial evaluations of the alternative projects are summarizedin the following table:

Project Project Project Cost NPVAlternative Description (Million, PhP) (Million, PhP)

Alternative 1Maintain the currentset-uD - -

Acquisition of 115kVLine aDd 115 kV

Alternative 2 Switchyard at the 118.48 -Navotas FishportComolex

For the first alternative, the current set-up does not require newfacilities to be installed. While the second involves acquisition ofinstalled facilities and as such, no new facilities will be constructed.

Based on the above comparison of alternatives, the second alternativewill be beneficial to both MERALCOand its customer. MERALCO'sdistribution system is designed to automatically reclose at least twiceduring an electrical fault condition. This is done to increase thereliability of service to customers. Re-energizing a distribution circuitinto an unsynchronized generator could significantly damage thedistribution system facilities and other customer equipment, not tomention the safety hazards to the line crew. A synchronism checkrelay shall be installed near the feeder circuit breaker to detect liveline condition of the feeder and to control the manual and automaticclosing of the circuit breaker. Installation of 34.5 kV meteringfacilities shall be installed with separate meters for import and exportbilling. In addition, the customer shall have provision for remotemonitoring of its connection status, real power output, reactive poweroutput, and voltage as well as telephone hotline.


The interconnection of embedded generator in MERALCO'ssubtransmission and distribution system does not have a significanteffect on the steady-state and fault conditions in the system, inverselyit may contribute to the reduction oftechnicallosses. Increase in busfault duty levels within the area may vary depending on the MWcapacity. Somehow, connection of embedded generators will beadvantageous to the entire grid especially during power crisis. Largecustomers driving our economy will also have an alternative source ofpower.

145

The Distribution Impact Study (DIS) submitted by MERALCOshowsthat the interconnection of TMO's power barges with its 115 kVsystem is feasible and will not require any reinforcement on itsnetwork.

The Commission deferred the project "Acquisition of 115kV Line and115 kV Switchyard at the Navotas Fishport Complex" withoutprejudice to refiling. MERALCOfailed to provide enough justificationto support a new connection scheme is better than the existingscheme for the connection of TMO's generating facility toMERALCO'ssubtransmission system.

ApprovalPro' ect to continue as ro osedPro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification


Project Title


21.Repiacement of Call Center System (CTI,Voice Lo er and Tele hon Infrastructure)

MER-21Non Network Asset1Non Network Pro 'ect

Pro' ect Descri tion DurationThe project is for replacement of the existing CallCenter system. Particularly, this consists of thefollowing:

• Replacement of Nortel Contact Center Suite 6.0which provides the Computer-telephonyintegration (CTI)fWeb services interfaces. It iscomprised of the following modules:a) Contact Center Manager Serverb) Contact Center Manager Administrationc) Communication Control Tool Kitd) Contact Center Multimedia

• Replacement of Nortel Call Pilot 600R Release5.0 which rovides Voice, Fax, and Email

October 2015

146

servIces• Replacement of Nortel MPS500 which is the

interactive voice response (IVR) system andself-service solutiona) Interactive Voice Response Application

Server and Databaseb) Media Processing Server (MPS)

• Replacement of Verint Audiolog which providesvoice logging (recording) and playback services

• Replacement of Nortel Telephony Manager 3.2which provides system management of theexisting Call Center Infrastructure

• Replacement of Short Messaging System whichprovides customer notification services throughtext messages

• Replacement of Nortel Telephony System(Nortel CSlOOO)


3,702,840.00

Total (PhP)

65,878,875.0028, 81,0 6. 1

22 6000.00120,418,761.91

Software

1Iot

1lot

1Iot

Summa of Cost Estimatesuanti Ma.orE ui ment

Software andlicensesServer stora e

Cost estimates were derived from proposals provided by various CallCenter system vendors through a request for information (RFI). ITInfrastructure and system integration cost estimates were derivedfrom historical infrastructure ricin usin existin confi rations.

Pro' ect Justification

• Equipment obsolescence upon reaching the Application Systems'useful life of five (5) years has been the main driver of thisreplacement project. In fact, this system has been in full operationfor about 7 years and MERALCO has already received severalnotices from the system manufacturer cancelling its productionand technical support on equipment/device and elements thatcomprise the system. Particularly:

./ Contact Center Manager (CCM) 6.0 for CSlOOOwas declaredEnd of Life effective June 2012. It is also targeted for End ofServices Support by June 30, 2015;

./ Media Processin Server release 3.0 was declared End of Life

147

effective December 31, 2012;./ Verint Audiolog was declared End of Maintenance

(Termination of any support) effective December 31, 2015;./ Nortel Call Pilot 600R was declared End of Manufacturer's

Support for Hardware by February 7, 2014. It is also targetedfor End of Services Support by February 7, 2017; and

./ Communication Server (CS) 1000 Rs.5 was declared End ofManufacturer's Support for Software by December 31, 2010. Itis also targeted for End of Services Support by December 31,2016.

• Verily, loss of communications with customers during serviceoutage events would have an immense detrimental impact oncustomer service and satisfaction. As life threatening events arealso reported through the Call Center system, equipment failureduring these calamities may also affect customer safety. Moreover,the project will also provide improvements to the Call Center'soperations to better serve its growing customer base, with evolvingneeds, in the years to come. The project will provide a facility toeffectively handle non-traditional media transactions withcustomers (e.g. social media, web chat) as well as increase theefficiency in customer concern handling through a unifiedmonitoring and reporting tool. The project will also implementthe system in a highly available architecture with provisions fordisaster recovery and business continuity. This will be attainedthrough leveraging existing virtualization standards of thecomnanv.

Technical Analysis

MERALCO's Existing Call Center System

MERALCO'sCall Center is currently the primary group that managesthe Company's 5.2 million (approx.) customers' communications forcomplaints, advisories, inquiries, assistance and other relevantinformation. The primary medium used by customers is phone calls.This is supplemented by other communications media such as email,SMS and fax.

MERALCO's existing Call Center system was originally acquired in1999 and refurbished in 2008. It receives incoming calls from itscustomers through its hotline numbers (e.g., 16211 and 631-1111provided by PLDT), which are then received by the telephony system(i.e. PABX).Telecommunication providers (e.g., PLDT, Globe, Smartand Sun) automatically direct the incoming calls to the main site,unless the trunk lines feeding the main site are full, in which case thecalls are routed to the disaster recovery site.

148

Once received by the telephony system, incoming calls are routed tothe Interactive Voice Response System (IVRS) where customers areprovided important advisories and self-service options. The IVRS islinked with the customer management system of the Company forcustomer data and other pertinent information, such as existingcomplaint report and status, contact information, and account status,for use in routing treatment, customer self-service and customerprofile presentment to agent.

From the IVRS, calls are distributed equally to two (2) serviceproviders, with skills-based routing being employed to direct calls toagents. With the aid of Computer-Telephony Integration (CTI),interactions between a telephone and the agents' computer are madepossible. As an agent receives a call, a screen pop is simultaneouslyenabled on such agent's desktop displaying information regarding thecall. The information displayed includes customer information, suchas service identification number, customer name, preferred language,applicable concern type. For appropriate handling of concerns,further access to customer records is also available to the agentsthrough the Company's customer management system.

Additionally, agent seats are equipped with applications that includepreview dialers for outbound campaigns as well as a facility to handleemails queued from the Company's email server.

The existing Call Center system was refurbished and upgraded to itsthen latest version in 2008. The upgrade cost was PhP 21,298,381.45.Notably, the original system was acquired In 1999 forPhP60,688,000.

Description

Data of AcauisitionCOST

Original System

1999PhP60.'7M

Refurbish andUp~ade ofSvstem

2008PhP21.3M

Performance Assessment - Gap Analysis

The Call Center manages an annual volume of a little over two (2)million transactions (across all communication channels) with theuse of existing systems and one hundred sixty two (162) seats.

149

_, 445,712i 164,99598,791

II Phone to SMS 0 Social Media L Email

Number of transactions per communication channel(Based on 2010 to 2014 data)

Inbound transactions are received mainly through voice calls; but inthe recent years, non-voice transactions such as thru SMS, email, andsocial networking sites (i.e. Twitter, Facebook) have been increasing.In fact, the figure below shows that MERALCO's non-voicetransactions have increased exponentially in the last five (5) years,from as low as over 30,000 in 2010 to as high as almost 200,000 in2014.

250,000

200,000

214,749

r--' 199,077

f

150,000

100,000

50,000 30,304

151,209

115,159

[_.

.'. ;

. ".' ,.

...'o:'.<L

2010 2011 2012 2013 2014

Number of Non-voice transactions(Based on 2010 to 2014 data)

To ensure customer satisfaction, MERALCO's Call Center mustprepare for and address this shift in customer communicationsthrough the acquisition of social media engagement tools, while stillmaintaining traditional customer engagement channels (e.g.telephone, email, etc.). The Call Center must be ready for thismultichannel mix of customer engagement, such that its social mediaengagement tools can seamlessly integrate with the traditionalcustomer engagement systems. This is aligned with the drive of theCompany to improve customer satisfaction by providing morecustomer touch points.

Furthermore, during periods of crisis (e.g. typhoons, massive powerinterruptions, etc.), inbound transactions immensely increase, whichresults in con estion and im acts on customer satisfaction. While

150

the Call Center has been trying to address further bursts of loadduring these periods of crisis, through the spill-over of excess calls tothe Company's Business Centers, there remains a need for facilities toenable the Call Center to aptly and seamlessly respond to these loadbursts. The acquisition of social media engagement tools will providecustomers with alternative media of communication and aidMERALCO in addressing these load bursts. Additionally, theenhancement to allow tracking and consolidating of transactionsfrom a specific customer regardless of contact channel will facilitateefficient and quicker handling of transactions.

Call Center systems of MERALCO have reached their End-of-Life(EOL) status and End of Services Support (EOSS), which will occurby June 2015. The systems have to be replaced to prevent anynegative impact on Call Center operations and customer serviceprovisioning should systems fail. Effective Call Center systems arealso crucial in achieving the target performance level for average timeto answer, as determined by ERC in accordance with the RDWR, andother key customer service indices (e.g., Customer Satisfaction Index,Answer Level, and Average Handling Time). The system alsosupports various company programs (e.g. Kuryente Load) andservices (such as inquiry and reporting services for MERALCOprograms on Peak/Off Peak, Kuryente Watch (K-Watch), and Time ofUse (TOU), refund-related services [e.g., Refund hotlineJ, election-related services [e.g., Halalan hotline]).

In the process of determining the most cost-effective solution toaddress the identified deficiencies, MERALCO generated severaltechnically-feasible alternatives that could satisfy the distributionsystem requirements in a timely and efficient manner.

Project Alternative


Project Alternatives Classification

Alternative 1Purchase of Call Center System Stand-alone(Reolacement)

Alternative 2Third-Party Call Center System Stand-aloneServices

Alternative 1: Purchase of Call Center System (Replacement) byCall Center System Providers

The main consideration for the project is a replacement of theexisting system via the top providers of contact center systems. Thetop providers were determined through the evaluations of Gartner, a3rd party information technology research and advisory company,which assessed Contact Center s stems based on their abili to

lSI

execute and completeness of vision. These top providers were theninvited through the company's Procurement office to participate in arequest for information (RFI). Of the companies contacted, four (4)providers responded, three (3) of these were call center systemproviders and one (1) offered a third-party call center system. Thethree (3) call center system providers were Alcatel, Avaya and Cisco.Avaya and Cisco are currently in the Leader's Quadrant of Gartner'sMagic Quadrant for Contact Center Infrastructure (2014). Alcatel iscurrently in the Challenger's Quadrant.

All the main systems of the solutions offered are run on a virtualizedenvironment. Being in a virtualized environment allows the solutionsto easily implement business continuity and disaster recovery, whichare inherent capabilities of virtualized systems.

a) Alcatel offers its Open Touch Customer Service (OTCS) ContactCenter Solution.

b) Avaya is the provider of the existing Call Center system andnow offers its Aura solution.

c) Cisco offers its Customer Collaboration Solutions.

Alternative 2: Third-Party Call Center System Services

The oilier option considered was ilie acquisition of call centerservices from a 3,d party provider. This can either be a hosted contactcenter service or a Contact Center as a Service (CCaaS). Hostedcontact center services are provisioned by means of a contact centerinfrastructure that is owned and managed by a third party on serversthat are in its data centers but dedicated to an individual client's use.On the other hand, CCaaS solutions are provided on multitenant andmulti-instance platforms using system partitioning capabilities orvirtual contact center processes to segregate user groups. For iliisreason, a hosted contact center service is ilie only viable option forthe MERALCO due to need for customer information security,stringent service level agreement, and complexity of deployment.

Cosmocall (Hosted Contact Center)

MERALCOrequested a proposal for a hosted contact center solutionfrom one of the top telecommunications providers in the country,and was offered a CosmoCall hosted contact center solution. Thevendor will reside the CosmoCall systems in its data center, whichwill be connected to MERALCO premises via a Telco-providedcommunications link. The proposed solution includes the CustomerPremises Equipment (CPE) that will allow the establishment of therequired connections. Similar to the private build option, agents andtheir desktops will be provided by MERALCO.

152



Based on the request for information conducted, solutions providedwere all similar. It is now apparent that most of the solutions offeredby vendors are more software centric, which can run on theCompany's standard servers (e.g. x86 architecture). Although, it isstill important to note that some solutions may still reqUIreproprietary components (i.e. appliance servers).

The solutions offered were also based on Internet standards (Le. IP).These leverage on the location independent nature of the IP-basedinfrastructure, translating to lower costs for the implementation ofbusiness continuity/disaster recovery set-ups. These proposedsolutions can also leverage on the Company's existing IPinfrastructure, thereby allowing reach of the entire franchise area.This equates to faster deployment to agents in remote offices, withtheoretically the same access to tools and systems as agents in themain office.

Thus, the only decision point is whether to privately build the systemor have it hosted by a 3rd party provider. Total cost of ownership isthus the main driver in choosing which option to undertake. It is alsoimportant to take note that a hosted contact center option, thoughtechnically viable, may pose more security risks than the privatelybuilt option. This translates to possible additional investments, bothfor existing systems (e.g. customer management system, advanceddistribution management system, etc.) and communication link,required to ensure the security of customer and companyinformation.


AlternativeAlternative 1

Advantages• Lower total cost ofownership

• More control oversystem components (e.g.system downtime,restoration time) andfaster serviceproVIsIOnmg

• More control overinformation security

Disadvantages• No significantdisadvantages

153

Alternative 2 • More agile deployment, • Higher total cost ofif ever expansions may ownershipbe needed, they can be • May pose additionalprovisioned faster cost to expose local

systems with requiredinterlaces

• Poses security concernssince customer datahas to be sent offsite

• May pose additionalcost to curb securityrisks


MERALCO's Call Center is the company's most accessible and widestreaching customer touch point, which makes it its main tool. The CallCenter system is a necessity in maintaining retail operations andcustomer management. Since the system is mission critical, thefinancial analysis was carried out by companng the Cost ofInvestment on a replacement of the Call Center system and itsmaintenance cost versus the Avoided Cost if it use a 3rd party hostedcall center service (e.g. Cosmocall). The financial analysis of the CallCenter system yields positive financial indicators:

Net Present Value 15,703,333.37Internal Rate of Return 25.14%Benefit-Cost Ratio 1.12

The financial evaluations of the alternative projects are summarizedin the following table:

Project Project Description PV (Life-cycle Costs)AlternativeAlternative 1 Purchase of Can Center PhP127,218,233.07System (ReDlacement)

Alternative 2 Third-Party Can Center PhP148,325,979.64System Services

The Commission approved the Call Center system which is a vital toolfor MERALCO, since it is the main platform used in providingcustomers with a way to communicate their concerns and inquiries.Due to the existing systems' obsolescence, MERALCO runs the risk oflosing this bridge to its customers. The worst case scenario, with thecontinuous operation of this obsolete equipment, would be to have afailure during a service outage event (e.g. typhoon). Since these areequipment with EoL and EoSS declarations, restoration, if possible,will likely take longer and be more expensive.

The need for the system is undeniable, thus, options are to privatelybuild it or have it hosted by a 3,d party provider. Through the analysis

154

of the data received from the request of information, it has beendetermined that the cost of a hosted service is higher than ifMERALCO rivatel builds the solution.

ApprovalPro' ect to continue as ro osed ,(Pro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification


Project Title


22. Retail Competition and Open Access(RCOA)Meter Conversion Pro ram)

MER-22Non Network Asset1Non Network Pro'ect

Project Description DurationContinuation of the meter conversions incompliance to regulatory requirements related toRetail Com etition and 0 en Access (RCOA).

July 2015-June 2016


Total Cost(Ph)

',05',386,'793,029,85818, 94,23248,887,7842 ,1286

1, ,6669,080,60113,0 0, 9,023, 44

1 0, 11 00,002,66

1278045286

22,780.8922, 80.8922, 80.8920,2 1.

011. 2

94'1353

Summary of Cost EstimatesUnit Cost(Ph) Count

96,5971

8252,14612, 1481,17996,6, 971I0t1I0t1I0t

Item

0- 999 kW00- 9kW250- kW0-2 kW

kWLicenses (MDMS)Licenses (MDCS)Communication E ui mentServer Ex ansion (MDMS)Server ansion (MDCS)

Total CAPEX, in PhP

Meters

2 $2.089, at conversion rate of 1$: Php453 $3, at a conversion rate of 1$: Php45

155

Project JustificationThe supply of additional 96,597 RCOA compliant meters, includingnecessary system expansion, licenses, and communication equipmentwill address the forecasted meter conversions in RY2016 for Phase 2to Phase 6 customers, assuming ample power supply and mandatorycontestabili in RY201 .

Technical Analysis


Chapter 2, Section 31 of the Electric Power Industry Reform Act of2001 (EPIRA), states that "Retail competition and open access ondistribution wires shall be implemented not later than three (3) yearsupon the effectivity of this Act." EPIRA thus became the basis forRetail Competition and Open Access (RCOA). Its aim is to ensuretransparent and reasonable prices of electricity in a regime of free andfair competition and full public accountability to achieve greateroperational and economic efficiency and enhance the competitivenessof Philippine products in the global market.

EPIRA likewise set the threshold levels for RCOA. Under the sameChapter and Section of EPlRA mentioned above, the threshold levelsfor RCOAwere set, as follows:

"Upon the initial implementation of Open Access, the ERC shallallow all electricity End-users with a monthly average peakdemand of at least one megawatt (1 MWJ for the precedingtwelve (12) months to be the Contestable Market. Two (2) yearsthereafter, the threshold levelfor the Contestable Market shall bereduced to seven hundred fifty kilowatts (750 kWJ. At this level,Aggregators shall be allowed to supply electricity to End-userswhose aggregate monthly average peak demand within aContiguous Area is at least seven hundred fifty kilowatts (750kWJ. Subsequently and every year thereafter, the ERC shallevaluate the performance of the market. On the basis of suchevaluation, it shall gradually reduce the threshold level until itreaches the household demand level="Interpreting the above-quoted promulgations and considering thatthe RCOA Commercial Run started in year 2013, the eligibility andtimeline for contestability is shown in table below:

Phase

1

2

3

Ave. Peak Demand ContestableCustomers

1MW and larl!e end-users750 kW and large end-users;Aggregation of at least 7"0 kWBased on ERe's market evaluation

ImplementationYear20,"2015

BeYond 2015

156

When RCOAstarted its Commercial Operation last June 2013, therewere 238 contestable customers that successfully switched to thecontestable market under the MERALCO franchise area. ByDecember 2014, there were already 348 Contestable Customerswithin the MERALCO's franchise area, served by twelve (12) RetailElectricity Suppliers (RES). This is summarized in the figure below:

Otmid.lh. fr~nd,l~~(c.inP8fllf'"nt'

1{( InBlIiui<JICO"lafl~(

3 0:.. in \l.tll.ln"'$

-MERALCO's replacement/conversion program of the 1st phase ofcontestable customers started as early as 2009. Currently, out of the831 potential contestable customers (based on as of November 2014extract), MERALCO still has four (4) services that are not yetconverted due to differing customer concerns, like budget constraintsas these customers are all government services. For the next phaseof contestability, the DUwould need enough lead time to work on theconversion of the next and other phases of contestability.


Though the Rules assume mandatory contestability, RCOAremains involuntary contestability since its Commercial Operation last June2013. It also is still in Phase 1 (lMW & Up end-users). TheCommission has issued the 2nd Phase of RCOA (750-999 kW End-Users and Aggregation) which is to be implemented on 26 June 2016.

Thus, MERALCO assumes the following scenario on how thecontestability will proceed in the succeeding years to have a basis forthis forecast.

157

The table below shows the details of the assumed coverage of each ofthe phases and the rationale for each:

Phase Rationale1 1MW&Un DOE Circular No. DC20lS-06-001O2 7S0 - 999 kW DOE Circular No. DC201S-06-00l0

3 SOo -749 kW Patterned after Phase 1 to 2 wherein Phase 2minimum coverage was decreased bv 2sokW

4 2S0 -499 kW Patterned after Phase 1 to 2 wherein Phase 2minimum coverae:e was decreased by 250kW

S SO- 249 kW Defined in consideration of involved customer count6 S-49 kW Defined in consideration of involved customer count

Timeline of Contestability

Based on Section 2 of the Department of Energy (DOE) Circular No.DC2015-o6-o01O [Providing Policies to Facilitate the FullImplementation of Retail Competition and Open Access (RCOA) inthe Philippine Electric Power Industry], all Contestable Customerswith an average demand ranging from 750 kW and 999 kW for thepreceding 12-month period, are mandated to secure their RetailSupply Contracts (RSCs) with a Retail Electricity Supplier (RES) nolater than 25 June 2016.

Moreover, Section 3 of the said circular provides that all electricityEnd-Users with an average demand ranging from 501 kW to below750 kW for the preceding twelve (12) months may be allowed tochoose their respective RES effective 26 June 2018, subject todetermination of the ERC on the basis of its evaluation on theperformance of the Retail Market. Voluntary contestability for End-Users with average demand of 500 kW and below for the precedingtwelve (12) months shall be based on the continuing evaluation andassessment by the ERC.

In RY2017,MERALCO's assumption was there will be ample supplyof power. That is, availability of supply in the market will exceed thedemand. Thus, mandatory contestability may already been declaredfor those phases which are already in RCOA operation. Thismandatory contestability goes down to the next phase every yearthereafter starting from this period. The number of customersaffected per regulatory year starting from the Commercial Run (June2013) of RCOA,given the above assumptions, is laid out in the tablebelow. Note that the values indicated already took into considerationthe growth rate per year for each phase.

158

RelUllatory Year (RY)Phase 2013 2014 2015 2016 2017

1 IMW&UD 238 89 435 - -2 750 -999 kW - - 192 - 1333 500 -749 kW - - - 178 6474 250 - 499 kW - - - - 2,1465 50 - 249 kW - - - - 12,3146 5-49 kW - - - - 81,179Total Per Year 238 89 627 178 96419Cumulative 238 327 954 1,132 97,551

Table below, on the other hand, shows the actual number of meterreplaced to meet RCOA eligibility requirements in preparation for theswitch to the contestable market.

Phase RY2013-20151 IMW&Up 7622 750 - 999 kW 1923 500 -749 kW -

4 250 - 499 kW -5 50 - 249 kW -6 5-49kW -Cumulative 954

In consideration of the count of meters already replaced, and with theassumption that the actual meter conversion will take place in 2016(prior the actual introduction of contestability), the forecastedrequirement for meter conversion for RY2016 is 96,597 shown in thetable below:

Phase Threshold RelUllatorv Year201" 2016

1 IMW&UD - -2 750 - 999 kW - 1333 500 -749 kW 178 6474 250 -499 kW - 2,1465 50 - 249kW - 12,~146 5-49 kW - 81,179

Total 178 96,419Cumulative 178 <)6,5<)7

Note however that the above forecast does not take into considerationthe possibility of Aggregation starting from the declaration of Phase 2of RCOA for lack of available Aggregation Rules/guidance. WhenAggregation is declared within the coverage of this submission,additional meter requirement needs to be submitted.

159

To meet the forecasted requirement, MERALCO outlines in tablebelow the additional equipment and licenses for the RCOA meterconversion program in RY2016.

Item Count RemarksMeters 96,597 TarQ"etmeter conversionsLicenses (MDMS) 96,597 Customer-license ratio (1:1)Licenses (MDCS) 96,<;07 Customer-license ratio (1:1)Communication Lot GPRS meter & LAN modems andenuinment 81M cards for AMR metersServer expansion 2X CPU & RAM(MDMS)Server expansion lOX Storage(MDCS)

The program is lined-up primarily to comply with the regulatoryrequirements related to Retail Competition and Open Access rules aswritten in the EPlRA. Relevant business case and cost benefits werenot considered.

The cost required for RCOAmeter conversion of 96,597 customers isPhPl,051,386,179. This corresponds to the cost of meters, meteringdevices and accessories, and labor. The total cost including thelicenses and server expansion (MDMS + MDCS) and communicationequipment is equal to PhPl,278,045,286.

Total Cost(PhP)

1,051,386,1793,029,85818,794,2 28,88 8

249,128,63931,54 ,6669,080,6011 ,040,,02 ,

15°,511,5004 ,002,66

1,278,045 286

96,597133822,1 612,3181,17996,5976110t110t110t

Count

22,780.8922, 80.822 80.820,231.34,011.52

4

1 5

Unit Cost(PhP)Item

Meters750 -999 kW00- kW2 0 -499 kW50 - 249 kW-49kW

Licenses (MDMS)Licenses (MDCSCommunication E ui mentServer E ansion (MDMS)Server Ex ansion (MDCS)

Total CAPEX, in PhP

4 $2.089, at conversion rate 011$: PhP455$3, at a conversion rate of 1$ : PhP 45

160

Considering RCOA issuances by the DOE effecting voluntarycontestability up to 750 kW by 26 June 2016, the Commissionmodified the meters and the corresponding licenses to wit as follows:

nem Unit Cost Count Total Cost(PhP) (PhD)

Meters750 - 999 kW 22,780.89 133 3,029,858500 -749 kW 22,780.89 - -

250 - 499 kW 22,780.89 - -50 - 249 kW 20,231.34 - -5-49 kW 9,011.52 - -

Sub-Total 958 21,824,092Communication Equipment and Licenses

Licenses (MDMS) 94.00 133 12,502

Licenses (MDCS) 135.00 133 17,955Communication 1 lotEouioment - 7,023,744

Server Expansion (MDMS) - 1 lot 15°,511,500Server Expansion (MDCS) - 1 lot 47,002,667

Sub-Total 204,757,293Total CAPEX, in PhP 207,598,226

The Commission approved the projects for acqmrmg meters andmetering devices and investing on communication equipment andlicenses in RY2016 amounting to PhP207,598,226.00 whichconsiders the RCOAcustomers level of 750 kW to 999 kWas declaredby the DOE to be contestable customers. Requirements for othercustomers with lower demand may be addressed in the succeedingca ex a !ications.

ApprovalPro' ect to continue as ro osedPro' ect to continue with revised ca ital ex enditure ,(Pro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta !ication with additional 'ustification

Approved CAPEXCost (PhP) 2°7,598,226.00

161

Project Title


23. Expansion of the Advanced MeteringInfrastructure to Support Prepaid RetailElectric Service (AMI-PRES)

MER-2Non Network Asset1Non Network Pro'ect

Project Description DurationExpansion of the current capacity of the RFtechnology and AMI-IS system to serve theforecasted 100,000 additional activations in RY2016. This includes 100,000 intelligent meters, 60collectors, 180 routers, software licenses, telecomse ui ment, hardware ca aci and inte ration.

July 2015

Proposed CAPEX Cost (PhP)

Summary of Cost Estimates

The total incremental investment required to activate 100,000customers is PhP781,262,S98. Seventy-five percent (75%), orPhPS87,SS2,000, of the total cost is for intelligent meters which costPhPS,876 per unit (unit + labor cost). With a collector to router tometer ratio of 1:3:2,000, 50 collectors and 150 routers are required tosupport 100,000 customers. In addition, 20% contingency or anadditional 10 collectors and 30 routers would have to be invested forspares and pocket deployment. The first five collectors and 15routers, or 10% contingency, would be reserved as spares inanticipation of possible changes in the network design in order toachieve better network performance. The remaining 10%contingencywould be used for pocket deployments, to address demand fromoutside the cities mentioned above. The remainder of the cost is forICTsystem support - software, hardware, telecoms and integration.

The table below shows a more detailed investment picture.

Item Unit Cost Connt Total Cost(PhP (PhP

Meters 5,876 587,552,000Meters 4,946 100,000 494,601,000Labor Cost 930 100,000 92,951,000

Collectors 390,573 23.434,423Collector 360,752 60 21,645,140Labor Cost 29,821 60 1,789,282

Routers. 105,062 18,911,160 [Router 75,241 180 13,543,313

162

Labor Cost 29,821 180 5,367,847Software Oicenses) 204 100,000 20,352,723Hardware 113,365,142 1 113,365,142Telecoms 11,737,210

Base Station 1,131,536 1 1,131,536Remote Station 84,821 59 5,004,464NTC Licenses 5,601,210 5,601,210

; 3'" Party Inte.ration 5,909,940 1 5,909,940I Total (PhP) 781,262,598

Project JustificationThe investment for additional meters, collectors, routers and systemcomponents would address the forecasted KLoad activations of100,000 customers. This investment will allow the implementation ofKLoad to Manila, Mandaluyong, Makati, Pasig, Cainta, Taytay andAngono.

Over 10 years, this would provide customers with PhPS,247 millionworth of savin s.

Technical Anal sis


MERALCO's Kuryente Load (KLoad) program is MERALCO's firstcustomer-facing Intelligent Grid project that allows customers to loadtheir electricity in smaller denominations, just liketelecommunications company load. It is designed for residentialcustomers who want the ability to manage their consumption and tobe flexible on the payment of their electric bill.

The KLoad program has been made possible through the ERC'sapproval of (i) the roll-out of 40,000 Intelligent Meters (1M), alongwith attendant field devices such as collectors and routers, (ii) theAdvanced Metering Infrastructure Integrated Solution (AMI-IS) and(iii) the Implementation Services of Prepaid Electricity ManagementSystem (IS-PEMS) . The AMI-IS consists of the Prepaid Metering,Billing and Collection System (PMBS) and the Meter DataManagement System (MDMS) that work with other corporate andexternal systems to deliver the functionalities of KLoad, as well as theMeter Data Collection System (MDCS), a back-end system thathandles direct communication with the meters and collectors. AMI-ISwas designed to be scalable up to millions of meters, but the currenthardware and software environment is sized to accommodate at most40,000 customers. Any additional customer would require additionalhardware resources and software licenses.

An intelligent meter (1M) has the capability to capture data anderform commands remotel. It can record the customer's

163

consumption in intervals of 15 minutes and push the data to AMI-ISevery hour, avoiding manual meter reading. It can also be remotelydisconnected and reconnected, whether automatically or on-demand.IMs would also help in outage management as it extends detectiondown to the household level, complementing the Customer OutagePortal project. IMs would send notifications to MERALCO'sAdvanced Distribution Management System (ADMS) during outages,allowing the communication of this information without having towait for a customer to contact MERALCO's Call Center. IMs couldalso detect voltage and power quality issues and send tamper alarms,thereby discouraging electricity pilferage and addressing potentialload side problems. With these features, MERALCOwould have thecapability to improve customer experience through the following:

• Provision of near real time consumption information;• Faster reconnection of service;• Communication of reason of outage and estimated time of

restoration to affected customers, in conjunction with theCustomer Outage Portal project; and

• Improvement on detection of voltage and power qualityproblems.

Radio Frequency (RF) mesh communication technology, whichoperates with collectors and routers, is being utilized to sendcommands to and transmit the data from the meters to MDCS andAMI-IS. Each collector has a capacity of 2,000 meters and has arange of 2-3 kilometers depending on the presence of obstructions inthe area.

Currently, six (6) collectors and thirteen (13) routers are installed inportions of Sampaloc and Tondo in Manila, and Cainta, Taytay andAngono in Rizal; covering a total of approximately 15,500 mid-consumption customers. Figure below shows the areas where KLoadis being commercially piloted. The coverage areas are illustrated withgreen polygons.

164

As seen in the figure above, KLoad is only available in portions ofManila, Cainta, Taytay and Angono. These areas were selected forpilot implementation of KLoad so as to give MERALCO theopportunity to monitor customer experience and consumptionbehavior prior to submission for ERC approval and commercial roll-out of its Prepaid Retail Electric Service (PRES). Armed withvaluable inputs from its pilot implementation of KLoad, on 12December 2014, MERALCOfiled an application for authority to offerKLoad commercially. It is worthy to note that the said applicationwas approved by the Commission, Hence, MERALCO shall expandcoverage of its KLoad program in Manila and Rizal.

The rest of the previously approved CAPEX will be utilized byDecember 2015. This timeline takes into consideration the results ofresearch on customers' application behavior, which show that forty-nine (49%) of the interested customers plan to apply for availmentwithin 2-4 months after hearing about KLoad and the remainderintend to apply after five months. The gestation period is due tocustomers' "wait-and-see" attitude that prompts them to awaittestimonials from early adopters before taking action on intent toavail of KLoad.

The figure below shows the forecasted ramp-up to 40,000 customers,which would be supported by collector and router installations inManila, Cainta, Taytay and Angono.

40,00034,500

29,0002.3,500

18,000

D11,00014,000 [J , j

6,000 7,500 9,000 D '.1 [J4,500 D .3,000 C D= r:=J C ...

Jan-IS Feb-IS Mar-IS Apr-IS May-IS Jun-iS lul-15 Aug-IS Sep-IS Oct-iS Nov-IS Dec-IS

Performance Assessment -Analysis

KLoadwas commercially piloted last January 2014 in Taytay, Rizal. Itexpanded to Cainta, Angono, Sampaloc and Tondo and received morethan 12,000 applications out of 15,500 mid-consumption targetcustomers in a span of one year. As of 2014 year-end, there are 2,500active customers who are enjoying the benefits under the KLoad pilotprogram.

To gain a better grasp and understanding of the customer experienceof KLoad subscribers, MERALCOconducted a quantitative researchon 150 active commercial ilot customers with at least one month

165

experience with the service. Results showed that 90% (135respondents) of the research participants were satisfied (top 2 boxeson a 4-point scale) with KLoad (see Figure below). This issignificantly higher than global research standards across allindustries (i.e., 40% satisfaction for top 2 boxes and 60% for top 4boxes on a lO-point scale). Payment convenience, budgetmanagement and ability to monitor and control consumption are thetop reasons why customers were happy with the service.

Payment convenience"Mmta!! ,'ang ugod mag'produce ng pem para sa

kury,'nte, wol(J{lgpfe<JSIJ,e

.<a paqlJabayad, mIwlagong]OO pwede naak,Jrlg mOOKa.k",yetl/p.'

Ableto monilor and~onl,ol consumpllon

"Notu/o kamif.'9 m091rpid ,wMOQ"m,1 nq k"'yCn!~ yungnal,ripid kDpangdugoog,a<U.<unOOna!(J(Jdk",,,

Jruryenfe"

90%afcustomersare satisfjedwith KLaad

Overall Satisfaction with

K""W=URYENTELOAD

• VOry'''t,'fle~• ",'mewh", """r<eJ~ >o",o.,M' out Ht<lf.ed• N"t >at,,',.d .l1 ,I'

The remaining 10% (15 respondents) that was not satisfied with theservice was because of perceived higher consumption, limited budgetand/or lack of confidence with the service (see Figure below).MERALCO, nevertheless, is optimistic that percentage of satisfiedcustomers can further increase since reasons for dissatisfaction canbe addressed by system and service design improvements andcustomer education.

Overall Satisfaction with

K""<>=URYENTELOAD "lo'itL""UOsong

rOli<ump'iilIJQ'IQ

m","mptlOJ' '0 d.,oileai ,am'c'o.' ""'0'-

Reason for Low Satisfaction.Ka,l),iNJih,mina,otirid,a""qlan,,,mon~

,wyen'. '"0' tomaa,ang consuowt,co

nqaycn-

-Ko" k~Na emergency/liM,agod ,"o~oroglcoJdo'''!w,la''Qrem, <MOnew"",ol"" ng .",)"'ote

1010 no '0;>'09 ,aHongo" atwaia"Q~f(J'

.~,LJ'["~illKf'.!~!!~.g:~li'\1!'!"'051 so Unda/,a, 11'01

chorges ,,10 no pa/ollg '0IU,,!,,~,(f "0 I""p,,,d

"''''';0''1'

3%Of tOf.1

I' '0'0000""1

h,o! lOtar11,",_doc"l

W;Jrvo! ",stom "Iitches1"odJ "omon 'otolly

o,oy 10/"" !Ol' /mgo poIcng Do!O '0 urn;>,,,, ka

Iiloq"

2. Own limitatiQIl, tobudget

3.0th"rs

'I. Pprcpiv~dhigher 6%01."tal

comtJ"'pho" under PReS 10"""",,"""1

.,.",,,,;,ilod'orl,"wil" '""I'od

• ",mowho, 00<,"'do".NOl,,,,,,,,",d",I'

Due to high satisfaction with and growing customer demand forKLoad, MERALCOis obliged to offer KLoad to more customers andincrease covera e in the ilot areas (Manila, Cainta, Ta a and

166

Angono) and expand to Mandaluyong, Makati and Pasig. Being someof the densest municipalities in Metro Manila (see Table below) andin MERALCO's franchise area, these areas would allow MERALCO tomaximize the optimal capacity of the collectors. Moreover, as seen inFigure below, these municipalities are adjacent to each other, thusoptimizing the RF mesh technology being used.

Total Mid-consumptionMunicipality Customer Rank (101-350 kWh) Rank

Density DensityManila 9,283 1 4.14° 1Makati 7,378 2 3,104 2Caloocan 4,965 3 2,331 3Marikina 4,632 5 2,292 4Pasay 4,827 4 2,202 5

Mandaluyong 3,849 7 1,816 6II Pasi~ 3,462 9 1,614 7I Quezon City 3,553 8 1,592 8I Ta~i~ 3,348 10 1,571 9I San Juan 4,°35 6 1,565 10

'.' , •. .: •. Oi ..

0.,•..'.",.."...;,..-

Table below shows the breakdown of the forecasted activations perarea. The seven municipalities have a total of 419,000 mid-consumption customers (column b). Manila would have 100%coverage; Pasig, Cainta, Taytay and Angono, 75%; Mandaluyong, 50%and Makati, 25% (column c). This would cover a total of 311,750customers (column d).

In forecasting the number of activations, 45% take-up rate was used.This is based on the conversion rate in Rizal over one ear (Feb 201

167

to Jan 2015): 1,500 activations out ofthe 3,500 covered customers inTaytay, Cainta and Angono. Since KLoad has been available in Rizalfor one year, customer demand and behavior has already normalizeddue to word of mouth and publicity. In the interviews conductedduring KLoad's early days in Rizal, customers had a wait-and-seemindset. However, after six months of gestation and after hearingpositive comments from KLoad customers and media, applicationrate in Rizal increased and stabilized and customers now walk in toBusiness Centers to apply. Manila, on the other hand, is still in theprocess of normalization as it was activated later in June 2014.

Adding the forecasted activations per area, a total of 100,000customers are targeted to be subscribed to KLoad in RY 2016.

(a) (b) (e)(d) - (b) • (e) = (d) • 45%(e)

Target Market Covered ActivationsArea (mid- Coverage Customers (rounded

consumvnon) figures)Manila 160,000 100% 160,000 32,000Mandaluyong 38,000 50% '9,000 8,500Makati 66,000 25% 16,500 70400Pasig 77,000 75% 57,750 25,900Cainta 34,000 75% 25,500 11,4°0 I

Taylay 32,000 75% 24,000 10,800

Angono 12,000 75% 9,000 4,000Total 419,000 311,750 100,000 ----l_.-,.- -_.

In November 2014, KLoad was featured by different news programsand as a result, it reached and gained interest from areas outsideManila and Rizal. Inquiries and requests regarding the availability ofKLoad have been received from several LGUs and propertydevelopers. Quezon City, for example, released a city resolutionrequesting to be the next deployment area for KLoad. With these inconsideration, MERALCO plans to fulfil the request of customers bydeploying in pocket areas given that there is enough demand and notechnical concerns. Any activation from pocket deployments will bepart ofthe total forecasted activation of 100,000.

To meet the forecasted ramp-up, MERALCO plans to increase thecurrent capacity by acquiring additional field devices and expandingthe AMI-IS system. Listed in the table below are the incrementalequipment and system components required to serve the 100,000customers.

I Item Count RemarksI Meters 100,000 Tai"2"et activationsCollectors 50

Target customers: 100,000Per unit capacity: 2,000

, Routers 1~0 Collector-router ratio: l:~

168

S areCollectorsRouters

i Pocket de loymentI Collectors: RoutersLicenses

I •i Hardware capacity

5'55'5

100,000

2.5X

Based on a timal RF desi n10% for cantin ency

In addition to those above; To addressdemand outside Manila, Mandaluyong,Makati, Pasig, Cainta, Taytay, AngonoCustomer-license ratio: 1:1Additional10ok customers is 2.5Xofcurrent capacity

To anticipate the gestation period in the new implementation areas,MERALCO would start installing collectors and routers as early asJuly 2015, assuming approval in June 2015.

Expanding the existing technology and system would be a more cost-and time-efficient solution for MERALCO as acquiring a new onewould necessitate the following:

• System development, testing, and integration to MERALCO'sback-end systems, which require significant investment andtime and entail additional risks; and

• Maintenance of two separate systems with the samefunctionality/purpose, resulting in financial and operationalinefficiencies

Another option is to stick with the business-as-usual scenario inwhich MERALCO would be using digital meters and continueconducting manual activities. This would entail an investment ofPhP184 million for meter CAPEX and PhP3l2 million for manualactivities OPEX over 10 years. However, with this do nothing option,customers would stay under the current postpaid program and wouldnot experience the benefits of KLoad - that is, control inconsumption, flexibility of payment and energy savings.

Figure below shows the lo-year investment picture (in millions ofPhP) for the 100,000 customers.

781

LIS!]~ro16 ~m1 ~rou ~~ ~~ ~ml ~= "~.~~ ~~. ~ . - -•

"•'" •.--. •• CoIIe<\OI'I.".. ,_~.. 4)

• M.,." saa

169

A total of PhP933 million worth of CAPEX would be invested over 10years, which consists of PhP781 million in RY 2016 and PhP151million in RY 2021. PhP630 million would be a one-time investmentfor meters, collectors and routers with these equipment having 10years useful life. The remaining PhP151 million would be for system-related investment such as software, hardware, telecoms andintegration. In RY 2021, the same amount would be refreshed forsystem-related items.

However, a closer evaluation of the incremental CAPEX investmentwould only be PhP749 million, in view of the PhP184 million thatwould nevertheless have to be invested for meters even without thisproject.

The summary of the 10-year cost-benefit analysis is illustrated in thefigure below.

5,247

1,559

0'" IICAPO: • 320

Costs Utility Benefits Customer Savings

MERALCa will be spending a total of PhP1,559 million in 10 years,consisting of CAPEX amounting to PhP933 million and apEXamounting to PhP627 million. aPEX comprises system maintenance(PhP363 million), SMS notifications (PhP242 million) and balanceinquiry maintenance (PhP22 million). SMS notifications are the textmessages sent to customers to inform them of their daily balance,loading transactions, adjustments, reconnection and disconnectionand other activities related to their prepaid account.

With the use of intelligent meters, MERALca would be able to avoidmanual activities related to meter reading, billing, payment anddisconnection and reconnection, which will result in operationalsavings of PhP312 million.

Table below shows the costs incurred by MERALCa by manuallymaintaining customer accounts. Column (b) shows how many timesan activity is being conducted per customer per month. Column (c) isthe unit cost of each activity. To be conservative, the costs indicatedand used in the cost-benefit anal sis are minimum unit costs based

170

on specific area and route. Column Cd) is multiplied to column (b) toaccount for services that would still need to be done manually as take-up is not 100% per route.

n".d d "hIManna ActiVIties AVOI e WIt Inte j I!cnt Meters

Cost per MultiplierFrequency (to accountfor

Activity per Month Account out.of-route(PhP) services)(a) (b) (e) Cd)

Meter Reading I 2.85 80%Generate Bills 1 3-40 100%

I Deliver Bills 1 2.50 80%Acceptance of 1PaymentBusiness 0.43 3.09 100%CenterBayad Center 0-49 11.00 100%

Third-Darty 0.03 '3.00 100%Electronic 0.02 5.00 100%Auto-payment 0.03 9.00 100%Generate DN 1 1.03 100%Deliver DN 1 3.75 80%Disconnection 0.010 35.94 100%Reconnection 0.004 35.94 100.0%

MERALCO will also benefit from savings from write-offs. With 0.3%of the total accounts being written off, MERALCO will save PhP8million over 10 years. Adding savings from manual activities andwrite-offs, utility benefits will be a total of PhP320 million. Comparedwith the typical CAPEX-OPEX trade-off, PRES would incur anadditional OPEX greater than the potential savings as it aims todeliver a new service highly beneficial to customers.

While the benefit-to-cost ratio may appear as less than 1, this stilldoes not consider the customer savings due to their ability to controlconsumption. Notably, when MERALCO monitored the consumptionof the current KLoad customers and compared it with theirconsumption while still on postpaid, an average of 29% savings wasobserved. Projecting this to 100,000 customers with an average bill ofPhPl,321 per month, PhPS,247 million worth of consumption isanticipated to be saved by KLoad customers. MERALCO wouldcontinually monitor KLoad customers' consumption to account forany changes in energy savings.

171


This investment would provide PhP327 million worth of utilitybenefits and activate 100,000 customers who could save PhP5,247million in their consumption over 10 years. The projected decrease inconsumption would potentially lead to the following benefits:

• Lower MERALCO total demand, thus, mitigating possiblesupply shortage, reducing the need for reserve and peakingplants, and limiting exposure to WESM. Overall, these wouldlikely have an impact oflowering rates.

• Reduced line losses through real time monitoring of aggregatedmeter consumption vis-a.-vis transformer- and substation-levelconsumption. The discouragement of electricity pilferagebrought about by the tamper alarms would result in lower rates.

• Help minimize the incidence of congestion in the distributionnetwork, especially during times of peak periods, resulting in amore efficient utilization of network assets.

• Reduced carbon emissions and greenhouse gas output, due toreduction of total demand and efficient utilization of networkassets.

This does not only benefit KLoad customers but MERALCO's entirecustomer base.

It is worthy to note that only 21,570 meters out of 40,000 meterspreviously approved pilot project were deployed in 2015 byMERALCO. The remaining 18,430 meters are scheduled to beimplemented on the 1" semester of 2016. This deployment coincideswith the proposed project of 100,00 meters intended supposedly forJuly 2015-June 2016. Based on its performance on the previouslyapproved pilot project, it is highly probable that MERALCO cannotfully implement the deployment of 100,000 meters as proposed untilend of June 2016. Hence, this project can be deferred to RY2017(July2016 to June 2017). However, MERALCO needs approval of theproject considering the meter delivery lead time to avoid inability ofMERALCOto serve its customers. Moreover, as provided in RDWR, aRegulated Entity like MERALCOmust promptly notify the ERC inwriting if any capital expenditure for a Major Project, which isforecasted to be undertaken in the capital expenditure program thatis approved by the ERChas not been substantially undertaken within18 months of the time it was so forecasted to be undertaken.Meaning, if MERALCO cannot implement the 100,000 meters(assuming it has been approved by the Commission) for the 1"semester of 2016, MERALCOmust notify the Commission of the saiddeferment. On the other hand, MERALCOhas the option to proceedwith the deplo ent of the said 100,000 meters 18 months from

172

January 2016 to June 2017. The said period covers the proposedimplementation from January to June 2016 (6 months) and theRY2017(July 2016 to June 2017), which is 12months, for a total of 18months.

With this observation, the Commission approved the project foracquiring meters, collectors, and routers, and investing in additionalICT capacity in RY2016, amounting to PhP781,262,598, which willaddress the incremental 100,000 forecasted activations subject to theprovisions of the RDWR on deferred capital expenditure on majorro' ects and 0 timization in its next PBR reset.

Pro' ect to continue as ro osed ,(Pro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification

Approval


Infrastructure toaid (AMI-Post aid)

Distribution Pro' ect

II!

Project Description DurationDevelopment of Postpaid Plus system andcommercial pilot to 5,000 and 40,000 customersin Jun 2016 and Dec 2016, respectively.

July 2015 toThe Postpaid Plus system would leverage on the December 2015existing AMI-lSI, building on top of its existingfunctionalities. For the commercial pilot, PP+would be de 10 ed in areas with PRES covera e.


Pro' ect JustificationProvide customers an energy management tool that would help themunderstands and control their consumption without having to switchto re aid lifes Ie.

173

Technical Analysis


MERALCO's Advanced Metering Infrastructure - Prepaid RetailElectric Service (AMI-PRES) was approved in the 3'd RP FinalDetermination. The approval includes the roll-out of 4°,000intelligent meters and the development of the Advanced MeteringInfrastructure Integrated Solution (AMI-IS). The AMI-IS, composedof the Meter Data Management System (MDMS) and PrepaidMetering Management System (PEMS), is working with othercorporate and external systems to deliver the functionalities ofKLoad.

MDMS provides a single interface point to MERALCO's Meter DataCollection Systems (MDCS). It handles retrieval and processing ofconsumption, interval readings and event data coming fromintelligent meters. It will also route remote connect/disconnectcommands to the intelligent meters through the corresponding head-end systems.

PEMS supports the business process of providing prepaid electricservice. It interfaces with MERALCO's internal CustomerManagement System (CMS) for all customers data-related activitiessuch as creation of new consumer, assign/change meter of consumer,rate management for billing and perform all administrative tasks tomaintain consumer data integrity. PEMShandles rating and chargingof meter reading data from the Meter Data Management System(MDMS), payment information from the vending stations andcrediting of the prepaid service with the appropriate rate data fromCMS.

To send commands to and transmit the data from the meters toMDCS and AMI-IS, PRES utilizes the Radio Frequency (RF) meshcommunication technology, which operates with collectors androuters.

Byleveraging on the existing RFmesh technology, AMI-IS and MDCSbeing employed for PRES, the desired enhanced AMI-Postpaid, or tobe more commonly known as "Postpaid Plus (PP+)," experience canbe delivered. Both AMI-IS and MDCS can support the mainfunctionalities of PP+ by providing consumption data and by workingwith both internal MERALCOand external systems.

Same with the meters used in PRES, the intelligent meters (1M) forPP+ can capture customer's consumption in intervals of 15 minutesand push the data to AMI-IS every hour, thus, avoiding manual meterreadin . Automatic and on-demand disconnection and reconnection

174

can also be done remotely. IMs can also send notifications toMERALCO's Advanced Distribution Management System (ADMS)during outages which extends detection down to the household level.This improves MERALCO'soutage management and customers neednot contact the Call Center. Non-technical system loss and other loadside problems can also be addressed as IMs can detect voltage andpower quality issues and send tamper alarms.


MERALCO's Advanced Meter Infrastructure (AMI) program, one ofthe Intelligent Grid initiatives, started with PRES [more popularlyknown as Kuryente Load (KLoad)], which aims to help customersmanage consumption through provision of consumption informationand prepaid loading in manageable denominations.

In January 2013, MERALCOconducted a technical pilot to test theperformance of its prepaid system. Two months into the technicalpilot, a market research was conducted to gauge satisfaction with theservice, feedback on the key features thereof and resulting changes incustomer behavior. Findings showed that 60% received the servicepositively, while 20% prefer the current postpaid service. Theremaining 20% appreciated the consumption information, using thisto manage their electricity use, but expressed that the prepaidlifestyle is not for them. The sentiment from this last group ofcustomers led to the idea of upgrading MERALCO's current postpaidservice while leveraging on the intelligent meter's capabilities toprovide consumption data.

Moreover, based on 2013 Customer Satisfaction Research and for thethird consecutive year, residential customers found rates/price themost important attribute that makes them happy yet gave it thelowest satisfaction rating (see Figure below). Particularly, they ratedprice based on value for money, reasonability and stability,transparency and understandability of bill and price components,availability of pricing options, and ability to encourage efficiency.Since MERALCOrecognizes that power rates remain largely beyondthe control of customers, MERALCOwould instead focus on helpingcustomers understand and control their consumption. By offeringPP+, customers would have the flexibility of managing their energyusage and budget through the consumption information that wouldbe provided via different channels.

175

, "Rales/PricePrnduo:t qualitV/fe",u,.'Meter le<ldiogInquiry{,omplaint handlingB,lling proceduresPayment procedure<Inform",-,on ,ervice./w'lome, ,,,mmunit.lioo.Innovation on oompany servicesS~i<e application handlingPmsonnel qu"lilyTelephone or c.11 center serviceComp"oy ;mag~ "nd reputolion

."S. '\!Ion7,00 '7.77 J7.391115:7_S7""~75sBllr::.768~7.70~_-:'1.76~'

7.s8~':"._7 .728{~',.-,7,48_..17.80.-r.T .

"1'; .,S12-'--:",11.F _9M;;;:stfc:'. __sIfT'615>5 Mi."j4 M',4((, I3.;:'

-' -_.------~,~----Price:./ Value for money./ Reasonable rates./ Stable rilte~./ Price component, easy to

understand.,I MOl1thly bill relleets my

cOrlSllmption,/ Pricmg options./ Encourage operational efficiency

2013 Customer Satisfaction Index

A qualitative research was conducted to test customers' acceptance ofpp+ and its features. Results showed that pp+'s hero feature is thenear-real time consumption monitoring it offers, as this givescustomers the ability to control their consumption and promoteenergy conservation practices. A quantitative research was also donein September-October 2014 and results indicated a 43% take-up onpp+ (2-4 million out of 5.6 million when projected to the entirecustomer base). Similar with the qualitative research, participantsfound PP+ as a tool that will help them control their consumption.

The envisioned PP+ allows subscribers to avail of the new featuressuch as near real-time consumption monitoring and analytics thatwill help customers manage their consumption and provide a betteroverall customer experience. PP+ is available through variouschannels mainly through web portal, mobile applications, IVRS,SMSand email. Figure below shows the envisioned features of PP+.

4

6

roWER "!TERRU~'O"AOVISE~1. A, •• , .ffe<;lod bV?o •••or;nt.rr"ptl~"2, r$t1m.lodtimeof,ostolOt"'O3. R•• ,on of ou •• ~e

ADD,TIONAt ~AYMENT 09TLO~S1. O~lino p,y.,o",2, /l.ov.n«opa" ••lp,yrnonlj"P'Y

,nyti",'. any a.,o"n! bolo" yO"' bm

."ivo,"13. M"ltipl'1""0"'""" 10'bill.p.v",.n!

fj)5:::::::::;;::"._ DTHERNOT,,'CAnOllSI, En.'lvTip'l. B,~' Id•••3, R.\~,,l,dvi,,,rv4. MonIMyB,1I5.•• ym.ntConf"mn,o"6. D""""I~.«>o/T.,m;""ti""

Notl,.,

+ Meter on/off+ Energy Markers

,-I

POSTPAID PLUSFEATURES_1 L

3~~OGHI.I\'_,l~,~RTAd.i'~"Iwill b. Hot 'o'o"ah t."',.moil or both If ~fO_d.~n.dkWh/.,"m.t.d p.'o «.ditu,.~. i.b,e,ch.dwithln. billing p.ciotd

CG~;u~,:OT'ON,~FG~M"'10~1, 1'100"•• 1timund hE>to,iool?hp!kWn,on."m~Mn

~O"rlvf DIIIV/W •• kly!MonthlvIV."1y

l. Mo~th",o.d.'. <on'o11'pllon3, M•••• ~~.d

1

2[~l:RGY ""A,\TICS1. u•• ;~ Comp •• l.""1. Con$umptionln,;,"'J. Appli.n",P'oHI.

PP+ would ride on the existing AMI technology and would useintelli ent meters that will communicate to the collector throu h RF

176

mesh. For RY 2016, 5,000 pilot customers within the areas withexisting KLoad coverage would be activated under PP+. Thus, noadditional collectors and routers would be installed.

In the process of determining the most cost-effective solution toaddress the identified deficiencies, MERALCO generated severaltechnically-feasible alternatives that could meet functionalrequirements and forecasted demand of PP+.

Project Alternative


Project Alternatives Classification

Alternative 1Leverage on existing RF mesh Stand-alonecommunications technology and AMI-IS

Alternative 2Use a new communications platform Stand-aloneand develop a separate instance for PP+

Alternative 1: Leverage on existing RF mesh communicationstechnology and AMI-IS

RF mesh being deployed for PRES would be utilized in transmittingdata from meters to existing collectors. The system would ride on thecapabilities of MDMS in consolidating and validating data fromintelligent meters. It will also hinge on the logic of PEMS for ratingand charging, but instead of computing the decrements (current loadminus consumption), it will work with incremental consumption(previous plus current consumption). Figure below illustrates thesystem architecture of building on top of the existing AMI-IS.

Alternative 2: Use a new communications platform and develop aseparate rating and charging solution for PP+

MERALCOto use a new communications latform, develo a new

177

!IIIIIi

""

ji~!

rating and charging system separate from PEMS and integrate toexisting internal and external systems. The new PP+ system wouldwork on logic opposite to that of PEMS - incrementing consumptioninstead of decrementing load.




AlternativeAlternative 1:Leverage onexisting RF meshcommunicationstechnology andAMI-IS

Alternative 2:Use anewcommunicationsplatform anddevelop aseparate ratingand chargingsolution for PP+

Advantages• RF mesh technology

already in place• Would only requireincremental cost./ Basicfunctionalitiesalready available inPEMS

"' Already integratedwith internal andexternal systems

"' Already tuned andtested

• Will not impact theexisting PEMS

Disadvantages• Single point of failure but

may be addressed by highavailability and disasterrecovery

• Maintenance of twoseparate AMI systems

• Longer developmenttimeline

• Setup newcommunications platform

• Additional integrationcomplexity

• More investment sincedevelopment is ground up

• Higher risk for a non-fieldtested system

• Non- an in technical

178

179


RemarksRY2016tar.et customers

Will activate in areas with existing KLoad coverage

System and web development + licenses for 5,000customersMinimum canacity (scalable to 40,000 customers)Will activate in areas with existing KLoad coverage

11S

- I~lIY1016 ~YJOll R'flOll R'O019 flYl020 1I;Y2021RY10n RY20H FlYl02£ IlYl0n

6000060000

0000000000

10$00001080000

7]90001'000

0000000000 .2!l1OO00000000

216 ~5

1

1

Count5,000

.• COII1ctOn

I ItemI, MetersCollectorsand routers

ISoftware

HardwareITelecomms

In RY 2016, 5,000 customers would initially be targeted because ofthe limited time for recruitment. For the first half of RY 2017, another35,000 would be activated to maximize the hardware capacityinvested in RY 2016. The equipment and system components listed intable below are required to serve the 5,000 customers.

capability with PRES maynegatively impactcustomer experience

Figure below shows the lO-year investment picture (in millions ofPhP) for the 5,000 customers in RY 2016 and 35,000 customers inthe first half ofRY 2017.

A total of PhP 555M worth of CAPEX would be invested over 10 years.In RY 2016, PhP 29M would be a one-time investment for 5,000meters and PhP 187M for software and integration and 40,000capacity of hardware. Additional PhP 206M for the additional 35,000meters and Phn aM for corresnonding additional licenses in RY 2017.

Based on the comparison of alternatives, leveraging on existing AMI-IS and building on top of its existing functionalities (Alternative 1) isthe best solution to address the lack of infrastructure and systemfunctionalities to provide an energy management tool to customer ascompared to other alternatives.

In RY 2021 and RY 2022, licenses, hardware and integration worthPhP 124M would be refreshed. Meters would be acquired in RY 2016and RY 2017 and they have a lO-year useful life.

Illustrated in Figure below is the cost-benefit analysis over 10 years.

642""I<A~

MERALCO will be spending a total of PhP642 million in 10 years withCAPEX amounting to PhP555 million and OPEX amounting to PhP87million. OPEX covers system maintenance (PhP35 million) and SMSnotifications (PhP52 million). SMS notifications are the text messagessent to customers to inform them of their running balance, paymenttransactions, adjustments, reconnection and disconnection and otheractivities related to their postpaid account.

With the use of intelligent meters, MERALCO would be avoidingmanual activities related to meter reading, billing, payment, anddisconnection and reconnection, which results to operational savingsof PhP85 million. Table below shows the costs incurred byMERALCO by manually maintaining customer accounts. Column (b)shows how many times an activity is being conducted per customerper month. Column (c) is the unit cost of each activity. To beconservative, the costs indicated and used in the cost-benefit analysisare minimum unit costs based on specific area and route. Column (d)is multiplied to column (b) to account for services that would stillneed to be done manually, as take-up is not 100% per route. Theutility benefits would not offset the additional OPEX since PP+ is anew project that enhances the existing postpaid experience offeringcustomers energy management capabilities.

(a) (b) (c) (d)

Cost perMultiplier

ActivityFrequency account

(to accountforper Month (PhP)

out~of-routeservices

Meter Readin 1 2.85 80%

Generate Bills 1 3-40 100%

Deliver Bills 1 2.50 80%

Acce tance of Pa ent 1Business Center 0.43 3.09 100%

Bayad Center 0-49 11.00 100%

Third-party 0.03 '3.00 100%

180

Electronic 0.02 5.00 100%

Auto-payment 0.03 9.00 100%

! Generate DN 1 1.03 100%

Deliver DN 1 3.75 80%

Disconnection 0.010 35.94 100%

Reconnection 0.004 35.94 100.0%

With PP+, customers would have the ability to monitor and controlconsumption, thus, leading to saVings on their bill. Currently,MERALCO's PRES or KLoad helps customers save an average of 29%compared with their last year's consumption when they were still inPostpaid. MERALCOis projecting savings of 29% for PP+ customerssimilar with KLoad as both are energy management tools. Thus,PhPl,441 million worth of savings for 40,000 customers in 10 years.


Investing in PP+ would provide customers an energy managementtool that would help them understands and control theirconsumption. For the 40,000 customers, MERALCO would have atotal of PhP85 million worth of utility benefits and customers cansave up to PhPl,441 million in 10 years. The projected decrease inconsumption would not only benefit PP+ customers but MERALCO'sentire customer base, as this would potentially lead to the followingbenefits:

• Lower MERALCO total demand, thus, mitigating possiblesupply shortage, reducing the need for reserve and peakingplants, and limiting exposure to WESM. Overall, these wouldlikely have an impact oflowering rates.

• Reduced line losses through real time monitoring of aggregatedmeter consumption vis-B.-vistransformer- and substation-levelconsumption. The discouragement of electricity pilferagebrought about by the tamper alarms would result in lower rates.

• Help minimize the incidence of congestion in the distributionnetwork, especially during times of peak periods, resulting in amore efficient utilization of network assets.

• Reduced carbon emissions and greenhouse gas output, due toreduction of total demand and efficient utilization of networkassets.

The Commission approved the Advanced Metering Infrastructure toSupport Postpaid (AMI-Postpaid) for an investment ofPhP216,490,675, which comprises one time investment for systemand web development, 5,000 meters, licenses, hardware capacity,and integration. Provided that MERALCOshall comply with the ERCaooroved AMI Rules.

181

Pro ect to contmue as ro osed ./Pro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification

Approval

Approved CAPEXCost (PhP) 216,490,675.00

Project Title

Project CodeProject TypeProject RankPro' ect Category

25. Construction of MERALCO Center ofExcellence on Power and Energy (MCOPE)Trainin Facili

MER-25Non Network2Non Network Pro'ect

July 2017

Project Description DurationThe development of MERALCO Trammg facIlItyinvolves the construction of laboratories onMetering, Distribution Connection, SCADA,System Operations, and Information andCommunications Technology (lCT);Simulation/Testing Areas on Substation,Distribution and Transmission and Sub-transmission, training halls, an Energy InformationCenter, Auditorium and Com uter Laboratories.


I

In the next five years, training requirements of engineers andanalysts alone are projected to increase by as much as 100%. Thereare 872 developing talents occupying engineer and analyst positionswho have to be intensively trained in the areas of Power SupplyManagement, Electric Utility Planning, Asset Management,Engineering Design, Electric Capital Project Management, PowerSystem Protective Relaying, Power System Operations and Control,Power System and Engineering Analysis, Power SubstationOperations and Maintenance, Equipment Testing and Maintenance,Metering and Grid Automation and Operations Technology.

182

The existing expertise gap among these young engineers coupled bythe increasing use of new and emerging technologies (Le. gridautomation) drive the need to rapidly accelerate competencyupgrade.

The existing training facility is not adequate or appropriate toaddress current and forecasted training requirements. There is aserious need for laboratories and R&D facilities on Metering,Distribution Connection, Sub-transmission/Distribution Lines,Substation, SCADAand System Operations and ICTwhere engineerscan train through simulations, research, tests and experiments -methodologies that are crucial to mastering skills and reducinghuman errors in operations.

Technical Analysis

MERALCO's Training Camp and Its Existing Condition

The MERALCOTraining Camp (MTC)is MERALCO'straining facilityfor providing training and continuous capability development andskills upgrade for its employees. It features a training yard forlinemen, a one-storey structure that houses the four (4) trainingclassrooms and a small office for the training staff. The structure ofthe main training facility at the MTCwas built in 1985. Since then,the camp has not undergone any major upgrade in its facilities. Thecondition of the training facility has deteriorated over the years. In2014, MERALCOadded alongside the main training facility elevatedtraining classrooms made from container vans. Only three (3)training classrooms were created from this improvement.

The MERALCOTraining Camp comes short not only in meeting thenumber of classrooms requirement but also lacks the laboratories,technical tools and equipment necessary in the conduct of training.The development programs lined up by MERALCOfor its employeesin order for them to cope with the current technological requirementsand manage the modernized system of the Company would require atraining facility with adequate session and laboratory classroomsequipped with advanced tools and equipment that could provide theemployees hands-on experience in the form of simulations, researchand experiments.


Aside from the deteriorating condition of the training facility, the lackof adequate training classrooms and the necessary advanced toolsand equipment have perennially posed problems in carrying outcapability development programs for employees. Due to its very basicfeatures, the MTC has been utilized mostl for linemen and skills-

183

based training only. Training programs that could not be handled byMTC have to be conducted in different venues, mostly external,depending on the number of trainees and where there are availabletools and equipment. Engineers have to be sent for technicaltrainings abroad due to the absence of training laboratories in theMTC.

In 2014, MERALCOmanagement decided to improve the trainingfacility to accommodate the increasing training and developmentrequirements. However, given the limited resources available, thecost had to be at a minimum. Hence, only three additional classroomswere constructed in the form of elevated container vans. Even withthis recent addition, a total of seven (7) classrooms are still notadequate to support current and future training requirements.MERALCOhas more than 5,700 employees. The current capacity ofMTC is still not adequate to support the training requirements ofthese employees, most critical of which are engineers and analystsoccupying technical positions critical to operations. Also, in the nextfive years alone (2016-2020), there would be 872 developing talentsoccupying engineer and analyst positions who have to be intensivelytrained in the areas of Power Supply Management, Electric UtilityPlanning, Asset Management, Engineering Design, Electric CapitalProject Management, Power System Protective Relaying, PowerSystem Operations and Control, Power System and EngineeringAnalysis, Power Substation Operations and Maintenance, EquipmentTesting and Maintenance, Metering and Grid Automation andOperations Technology.

Behavioral and leadership development programs are held in meetingrooms, mini-theaters and halls in different buildings in theMERALCO Ortigas Compound. Oftentimes, these venues are toolarge, too small, or simply inappropriate for these types of programsmaking them less conducive and effective for learning. Since thesevenues are also used for other purposes (Le. meetings, externalbriefings, etc.), the conduct of training programs depends largely onthe availability of these venues.

Further, there is a serious need for laboratories and R&Dfacilities onMetering, Distribution Connection, Sub_transmission/DistributionLines, Substation, SCADAand System Operations and lCT whereengineers can train through simulations, research, tests andexperiments _methodologies that are crucial to mastering skills andreducing human errors in actual operations.

I1841,

But because of the absence of training tools, equipment and.laboratories at MERALCO's training facility, engineeringdevelopment programs given to employees are limited to classroom-based with very little opportunity for hands-on exercises (Le.simulation, research and exneriments on power in controlled

environments, etc.). Engineers had to be sent to foreign trainings toacquire expertise on Power System and Engineering Analysis, ElectricUtility Planning, Engineering Design, Power System Operations,Power Substation, Power System Protective Relaying, EquipmentTesting and Maintenance, Metering and Grid Automation &Operations Technology. Since foreign trainings tend to be very costly,only a handful of engineers are selected to attend. While echoseminars are conducted after the training, these sessions are not aseffective in the absence oftraining laboratories.

If the foregoing issues are not addressed, the same could pose asignificant obstacle for MERALCO's ability to have and maintainwell-trained personnel equipped with skills, capability andtechnological know-how in order to deliver quality service to itscustomers. This would negatively impact the service performancelevel of MERALCO. In the next five years, training requirements ofengineers and analysts alone are projected to increase by as much as100% [brought by advancement in technology].

Technical Training Requirements Forecast (2016-2020)

YearForecasted Average Remarks

Technical Trainin~ Man-Davs2011 2.8 (actual)2012 2.76 (actual) Focused on traditional

2013 3 (actual) DU competencies

2014 3 (estimate)

2015 3Transition to emerging

comnetencies

2016 62017 6 Focused on critical and

2018 6 emerging

2019 6 competencies

2020 6

The forecasted increase is driven by these two factors:

(1) Widening expertise gap among young engineers who comprise I66% of the technical workforce. As at October 2014, there are atleast 872 engineers (with tenure of 0-15 years) that have to betrained in the aforementioned engineering expertise areas(please refer to table below).

Tenure Count % of Total0-5 406 31%6-10 335 25%

11-15 "3" 10%

16-20 40 ,%21&un 412 'u%

TOTAL 1,"24Profile of Networks En ineers and Anal sts b Tenure (October 30,2014)

185

The development of these engineers will have to be fast-trackedas they need to be adequately prepared to succeed the experts(engineers with tenure of more than 18 years), 428 of which canleave the company due to retirement.

(2) Grid automation/installation of Smart substation andequipment. This is an emerging technology and MERALCOis yetto build its expertise on the use and application of such.

Given the highly technical nature of engineering work, training isa primary focus area in the company's people developmentefforts for engineers and analysts. Adequate and appropriatelearning and development opportunities lead to productivity andefficiency by significantly reducing the likelihood of errors,accidents and wastage of time, money and resources.

Project Alternative

Alternative 1: Re-development of Existing Training Facility(MERALCOCenter of Excellence on Power and Energy)

This option entails the construction of a new building at the MTC iliatwill feature the following:

Facility

Training HallsandLaboratories*1.1Metering1.2 DistributionLine1.3DistributionConnection1.4SCADA1.5 SystemOnerations1.6ICT

1.7 Training Hall

2. Simulationand TestingAreas

Features

These are training laboratories fortechnologies adopted by MERALCO. It 'l'fillaccelerate the development of engineers andanalysts and enable them to build expertiseon Metering, Distribution Line, DistributionConnection, SCADA, System Operations, andInformation and CommunicationTechnology.

Collapsible training halls (that can beconverted into 3 training rooms) that can beused for small / large group trainings andconferences.This will serve as test -bed for Smart Grid andthe interrelationship of its variouscomponents -- IEC 6185°, remote controlledline devices, intelligent electronic devices,smart meters, and outage detectors -- allan asimulated distribution netvvork. The resultsof these tests will allow MERALCO toenhance its design and constructionstandards for a more efficient and advancednetvvork.

Floor Space(sa.m.)

'30

106.6

105.2

130

105.2

326.6

186

This will be an area for testing componentsof Smart Substation (lEC 61850) such ascontrolling and operating intelligent

2.1 Substationelectronic devices that integrates relays and 249.5control cable for switchgear based on IEC61850 standards, monitoring powertransformers and circuit breakers usmgsensors.

2.2 DistributionThis area will focus on line devices, both 282.9conventional and remote-controlled.

2.3 This will be a testing area for real-timeTransmission monitoring of transmission lines using 312.6Subtransmission sensors.

This will feature a glance of the futuretransformed by Smart Grid and emerging

Energytechnologies - a more competitive nation anda more sustainable environment. It will

3. Information feature exhibit booths Renewables, 189.5Center

onIntelligent Network, Home Area NetworkAutomation, Smart Meters, Electric Vehicles,etc.This will serve as venue for system-basedtrainings - such as Advanced DistributionManagement System (ADMS), EnterpriseAsset management (EAM), Customer

4.Computer Management System (CMS), Enterprise 163.2Laboratories Resource Planning and Human Resource

systems, and other system processes thatmay be adopted by MERALCO duecontinuing and disruptive technologicaldevelonments.The Library will feature the most currentlearning resources on energy that will buildknowledge and support research on theenergy industry. This will serve as source ofreference for the trainees during their

Library training. MERALCO will open this for '58.85. resource sharing among the academe,cooperatives, government institutions,consumers and other industry partners aspart of the social responsibility of MERALCOtowards the development of the powerindustrv.

6. Faculty OfficeThis wHl be the office space for line trainers, 99.8foreign and local visiting faculty

7. Cafeteria 97539.64

TOTAL FLOOR SPACE 3,112.94Comfort PROJECT COSTS**Rooms,Storage 1.Architectural 52,500,000.00

8. Rooms, 2. Structural 45,000,000.00Electrical 3. Electrical 22,500,000.00Rooms and 4. Mechanical 22,5°0,000.00Hallways 5. Sanitary 7,500,000.00

Total Project Cost PhP150,ooo,ooo.oo*Devices will be sourcedfrom retired facilities and vendor partnerships**Project Costs is based on the rate of about PhP48,ooo/sqm. in view of therequired quality of building materials and fixtures to suit the purpose of thetraininq f~cilih'.

187

In terms of curriculum, the facility will offer courses on the followingenergy expertise areas: Power Supply Management, Electric UtilityPlanning, Asset Management, Engineering Design, Electric CapitalProject Management, Power System Protective Relaying, PowerSystem Operations and Control, Power System and EngineeringAnalysis, Power Substation Operations and Maintenance, EquipmentTesting and Maintenance and Metering.

Alternative 2. Sending Employees to External Trainings

This option entails sending engineers to train in institutions that haveproper training facilities such as GE (USA) and KEPCO Academy(South Korea).

While this option does not require a huge initial capital outlay,external training will turn out to be more expensive as compared toOption 1. To develop the current pool alone, the total training cost isestimated at P160,258,875.00 (see Figure below).

Est. Training No. of Total CostCost/employee Employees (PhP)

2016 164.062.' 160 26,2.r::;O 000,00

2017 180.468.7' 160 28,875,000.002018 198,515.61 160 31,762,'00.002019 218.'67.17 160 34,938,750.002020 240,203.88 160 38,4'2,625.00TOTAL 160,258 8"'<.00Total Training Cost to Develop Current Pool

Notes:1. Training cost includes program fee for a 3-day training, airfare and

accommodation only and excludes miscellaneous fees.Average Program fee (3-dayS): USD 2,144.22Airfare and Accommodation: USD 1,600.00;Total Cost USD3,744.22or PI64,o62.50

at $1=P43.8175 (2014 exchange rate)2. Succeeding training cost after the first year is computed with a 10%

escalation rate3. Current pool is estimated at 800 engineers/analysts




188

Alternative Advantages Disadvantages• Transfer of technical • Outright initial capital

knowledge is virtually investment costassured. Number oftrainees has little effecton costs.

• Once operational,Alternative 1. training costs will be atRe-development of the minimum.MERALCO • More effectiveTraining Facility knowledge transfer due

to longer trainingexposure.

• May be used as anavenue to extendexpertise to other DDsfor the industIy'sadvancement

• More flexible • Entails higherexpenditure since cost investment - total costdepends on number of to train current poolpersonnel to be sent to alone over a period oftraining five years is higher

than Alternative 1• Training costs will be

Alternative 2.incurred every year as

Training oflong as the Company is

personnel abroadin operation.

• Cost is dependent onexternal factors;training fees, fares,accommodations, etc).

• Less effectiveknowledge transferdue to limited trainingtime.


In RY 2016, 5,000 customers would initially be targeted because ofthe limited time for recruitment. For the first half of RY 2017, another35,000 would be activated to maximize the hardware capacityinvested in RY 2016. The equipment and system components listed intable below are required to serve the 5,000 customers.

Project Project Project Cost PVAlternative Descrintion (Life-Cvcle Cost)

Re-developmentofAlternative 1 MERALCOTraining PhP150,OOO,ooo PhP154,702,305

Facilitv(M-COPE)

Alternative 2Training of personnel PhP160,258,875 PhP367,171,oo8abroad (for current pool only)

189

Based on the comparison of the above alternatives, the upgrading ofexisting MERALCO training facility is the optimum solution toaddress current and projected technical capability developmentrequirements ofMERALCO.


Without the project, the technical knowledge and expertise of thecompany's workforce will significantly diminish. Due to the lack ofmajor intervention to build competencies to support current andemerging technologies, the percentage of errors attributed to humanfactors will increase.

If the project is not implemented, the company will have to sendengineers to train in institutions that have proper training facilitiessuch as GE (USA) and KEPCOAcademy (South Korea). While thismay provide more flexible expenditures since cost depends onnumber of personnel to be sent to training, the cost of training thecurrent pool alone will be more expensive. It is to be noted also thattraining costs will be incurred every year as long as MERALCOis inoperation.

The Commission approved the project "Upgrading of MERALCO'sTraining Facility" with complete and proper equipment andamenities house in a new structure, will ensure that there is apermanent facility to address capability development requirementsnot only of the current pool, but more importantly for the cominggenerations of engineers and analysts. It would facilitate thecontinuous building of competencies to ensure a reliable workforce tosupport the local energy industry. The successes that will be gainedfrom this investment will ultimately benefit the rest of the industrythrough advocacy programs and best practice sharing. It is worthy tonote that the said training facility may also be used by otherDistribution Utility and other private institutions and any incomederived for such undertaking will be considered in rate adjustments.

ApprovalPro' ectto continue as ro osed "'Pro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional' ustification

Approved CAPEX Cost (PhP) 15°,000,000.00

190

Project Title


26. Lot Acquisition and Construction of NewBuilding for Montalban Auxiliary BusinessCenter

MER-26Non Network2Non Network Pro.ect

Pro. ect Description DurationThe major capital project pertains to theconstruction of the Rodriguez (Montalban)Auxiliary Business Center (ABC)which will replacethe existing San Mateo Extension Office (EO)located at 2F Amado Arcade #503 General LunaAvenue, Malanday, San Mateo Rizal. Saidextension office serves about 83,000 customers inRodriguez and San Mateo.

June 2016

The project will benefit not only the customers ofMERALCO but will also enable its personnel tomove safely and unhindered in the workspace, andallow them to erform their. obs more efficient!


fCsummarvo ost

Asset Category Labor Material Other Cost Total (PhP)Cost Cost

Lot and LandRights - - 13,°00,000 13,000,000

Facilities and 28,000,000 28,000,000Structures

- -

Total (PhP Real 2016) At 000 000

Project JustificationThe construction of facilities and structures aims to support theefficient operation of the new auxiliary business center to furtherimprove the quality of service to targeted customers. Theimplementation of this load growth project contributes to complianceto the mandated customer service performance level. Failure toprovide such to the prospective customers shall result to negativecustomer satisfaction.

191

Technical Analysis


The existing office has only a floor area of 180 square meters. Thisspace is no longer sufficient to accommodate transacting customersand this causes longer queues and waiting times.

TransactionService ApplicationComnlaintsPavrnentDisconnectionReconnectionOther transaction (inquiryon refunds, reouest etc)


Volume per mouth84085

33,0004,0001000

1,219

The proposed project is intended to cover not only the projectedcustomer transactions for RY 2016 but also as much as possible anyprojected increase of customer transactions for succeeding years. Theproposed project is for the acquisition of a lot with a total land area of1,000 square meters, including the construction of a building andprovisions for parking space, equipment storage and generator set.This will also allow provisions for waiting and queuing areas fortransacting customers. This will include parking space, meter andequipment storage and a generator set.

In addition, the project was classified under Load Growth categorySInce it is necessary to meet the rapid growth In customertransactions or higher service level requirements.

The implementation of this load growth project contributes tocompliance to the mandated customer service performance level.Failure to provide such to the prospective customers shall result tonegative customer satisfaction.

Project Alternative


Alternative 1

Alternative 2

Alternative 3

Proiect AlternativesAcquiring new lot and construction ofnew building to replace the existingExtension OfficeContinue leasing the existing extensionofficeLease a bigger space to replace existingExtension Office

Classification

Stand-alone

Stand-alone

Stand-alone

192



The following table summarizes the comparison of the advantagesand disadvantages ofthe alternatives:

mall

handling

MERALCO will not beable to address theproblemaccommodatingcustomers andfoot traffic.

• No asset ownership• MERALCO pays formonthly rental fee, 10%annual increase on rentalexpenses and interests forany delayed payment.

• MERALCO's use of tbeproperty is limited/subjectto the terms andconditions of the leasea) MERALCOmay not beable to modify theassets to suit changingbusiness requirementswithout lessorapproval and subjectto payment ofadditional fees.

b) MERALCO's pre-termination of leasewill make it liable forpre-termination fees.

c) Mav attract nenalties

Disadvantages• Major capital outlay up-frontMERALCO will incurmaintenance and repaIrscosts which typicallyincrease as assets age

• MERALCOwill incur costsfor the replacement ordisposal of assets at theend of their useful lives

assetAdvantages

• Outrightownership

• Assets can be.modified at any stageto suit changingbusinessrequirements

• Targeted venue andsize of the propertywill provideconvenience tocustomers

• Improvement oflifetime quality andcost effectiveness ofbuildinl! is ensured

• No major capital •outlay up-front

Alternative 2Continue leasingthe existingextension offices

AlternativeAlternative 1Acquiring new lotand Constructionof New Building toreplace 2 existingExtension Offices

193

and fees.d) Although it IS the

lessor that willshoulder the repaIrand maintenance costson the building underthe lessor, the lessordoes not warrantrepairs over the termof the lease.

Alternative 3 0 No major capital 0 No asset ownershipLease a bigger outlay up-front. 0 Under a new leasespace to replace 0 Existing problem on agreement. MERALCOexisting Extension haudling traffic could may be subject to aOffices be addressed security deposit, rental fee

and annual mcrease onrental expenses whichmay be higher than thefees being paid byMERALCO for lease oftheexisting offices.

0 MERALCO's use of theproperty is limited/subjectto the terms andconditions of the lease.a) MERALCO may not be

able to modify assets tosuit changing businessrequirements withoutlessor approval andpayment of additionalfees.


The financial evaluations of the alternative projects are summarizedin the table below:

Project Project Description NPV(PhP)Alternative

Acquiring new lot and

Alternative 1 Construction of New Building -28.8 Millionto replace the existingExtension Office

Alternative 2Continue leasing the existing -4.8 Millionextension offices

Alternative 3Lease a bigger space to replace -16.9 Millionexisting Extension Office

Note: NPVs are negative amount because the alternatives willinitially result to additional costs/investments on the part ofMERALCO.

)94

Based on Cost Benefit Analysis (CBA), the financial viability of theproposed project resulted to an Investment Rate of Return (IRR) =-9% and an NPV of -PhP28.8 Million.

The following were the factors considered in the CBA:

a) the initial investments, which include cost for lot acquisition,construction of new building and rental and set-up costs thatwould be incurred during the construction of the building;

b) operational savings, which include the savings on transportationand meal allowances, and office rental fee;

c) expected additional expenses brought about by the new TeamLeaders that would be hired, which is typical requirement of anAuxiliary BC; and

d) additional revenue from realized sales.

Impact oithe Project

The construction of facilities and structures is necessary to supportthe efficient operation of the new auxiliary business center to furtherimprove the quality of service to targeted customers.

Projected Customer and Sales Growth

Projected Customer Count

SanMateo Rodri uez2012 201 201 201 201683,290 85,200 87,151 89,147 91,188

Projected Energy Sales MWh

2012 2013 2014 I 201!i 2016

I SanMate07Rodriouez 207,763 219,687 232,297 I 245,63' 259,730

The new Rodriguez (Montalban) ABC customer base is expected togrow by 9-48% with energy sales increase of 25.01% from RY2012 toRY2016.

Following are the on-going housing projects in San Mateo andRodriguez, Rizal aside from the future housing developments in thearea which will result in significant increase in the residentialcustomer base and energy sales within the area:

Rodriguez. Rizal

1. Monte Brissa Phase 32. Green Breeze Subdivision3. Monte Brissa Phase 1 Ext.

Estrella Hei hts

Landwork Asia, Inc.Verdant PointLandwork Asia, Inc.

Borland Develo ment Cor

195

5. Summit View Ph26. Eastwood Residences Ph 47. Eastwood Residences Ph 58. South Ville 8-B9. San Jose Plains Phase l-K10. San Jose Plains Phase l-Kl11. San Jase Plains Phase 1-D12. San Isidro Plains Phase I-N13. South Ville 8-A14. South Ville 8-115. South Ville 8-2

San Mateo

1. Villa San Mateo Ph42. Villa San Mateo Ph53. Villa San Mateo Ph64. Portobello Homes5. Greenbrier Village 3-A6. Dream Home Subdivision

Borland Development Corp.Verdant PointVerdant PointBaque Corp. (NHA)NSJBI (NHA)NSJBI (NHA)NSJBI (NHA)NSJBI (NHA)Gateway Sand Builders, Inc. (NHA)Baque Corp. (NHA)Baque Corp. (NHA)

The New Apec Development Corp.The New Apec Development CorpThe New Apec Development Corp.The New Apec Development Corp.Marigold Homes, Inc.Archinet International, Inc.

The Commission deferred the proposed construction of a new officebecause the financial evaluations presented for the said project, aswell as the alternatives, showed negative results. It likewise appearedfrom the results that the chosen project is not the least cost amongthe resented alternative solutions.

A rovalPro' ect to continue as ro osedPro' ect to continue with revised ca ital ex enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification

Approved CAPEXCost (PhP) 0.00

Project Description DurationThe proposed major capital project is for theconstruction of the new Sapang Palay AuxiliaryBusiness Center (ABC),which will re lace two (2)

June 2016

196

existing Extension Offices (EOs) of Sta. MariaBranch; namely, Sapang Palay Extension Officelocated at G/F, Assumption Road, Sapang Palay,and San Jose del Monte Extension Office located atTungkong Mangga, Quirino Highway, San Jose delMonte, Bulacan.


Summa of CostAsset Cate 0 Cost

Lot and Land Ri hts 13,000,000Facilities and Structures 28,000,000

Total (PhP, Real 2016)

Total13,000,00028,000,0001,000,000

Project JustificationThe construction of facilities and structures aims to support theefficient operation of the new auxiliary business center to furtherimprove the quality of service to targeted customers. Theimplementation of this load growth project contributes to complianceto the mandated customer service performance level. Failure toprovide such to the prospective customers shall result to negativecustomer satisfaction.

The construction of the new Sapang Palay ABC aims to address therapid growth of transacting customers in the area. The project willbenefit not only the customers of MERALCObut will also enable itspersonnel to move safely and unhindered in the workspace, and allowthem to perform their jobs more efficiently.

After the implementation of this project, the existing Sapang Palayand San Jose del Monte EOs will be closed, resulting in thetermination of its existing lease agreements and cessation of rentalfees and escalation provision of 10% per year.

Extension Office Monthlv Rental Fee1) Sanang Palav PhP34,OOO.002) San Jose del Monte Bulacan PhP46,ooo.oo

Technical Analysis 1


At present, MERALCOis leasing office space for its Sapang Palay andSan Jose Del Monte EOs with both floor areas less than 100 of squaremeters. The said office spaces are no longer sufficient toaccommodate office ersonnel and transactin customers in the area.

197


The proposed project is intended to cover not only the projectedcustomer transactions for RY 2016 but also the projected increase ofcustomer transactions for succeeding years. The proposed project isfor the acquisition of a lot with a total land area of 1,000 squaremeters, including the construction of a 600 square meters, building,and allocation of 400 square meters for the parking space andgenerator set. This building will house 18 regular BC personnelincluding support services. This will also allow provisions for waitingand queuing areas for transacting customers, which were notprovided in the current set-up.

In addition, the project was classified under Load Growth categorysince the projects are necessary to meet the rapid growth in customertransactions or higher service level requirements.

The implementation of this load growth project contributes tocompliance to the mandated customer service performance level.Failure to provide such to the prospective customers shall result tonegative customer satisfaction.

Historical and Projected Volume of Customer Transactions

City 8ta. Maria Sapang San Jose delBranch PalavEO Monte EO

2014 Monthly 75,460 39,369 73,115Transactions2015 Projected 80,742 42,125 78,233Monthlv Transactions2016 Projected . 86,394 45,074 83,709Monthlv transactions

With an annual growth rate of 7%, combined customers of SapangPalay and San Jose del Monte Bulacan would be 120,358 in 2015 and128,783 in 2016.

Project Alternative



Alternative 1Leverage on existing RF mesh Stand-alonecommunications technology and AMI-IS

Alternative 2Use a new communications platform Stand-aloneand develop a separate instance for PP+

198

I




AlternativeAlternative 1Acquiring new lotand Constructionof New Buildingto replace 2existingExtension Offices

Alternative 2Continue leasingthe existingextension offices

Advantages• Outright assetownership

• Assets can bemodified at any stageto suit changingbusinessrequirements

• Targeted venue andsize of the propertywill provideconvenience tocustomers

• Improvement oflifetime quality andcost effectiveness ofbuildinl! is ensured

• No major capitaloutlay up-front

Disadvantages• Major capital outlay up-front

• MERALCO will incurmaintenance and repaIrscosts which typicallyincrease as assets age

• MERALCO will incur costsfor the replacement ordisposal of assets at theend of their useful lives

• MERALCO will not beable to address theproblem inaccommodating allcustomers and handlingfoot traffic.

• No asset ownership• MERALCO pays formonthly rental fee, 10%annual increase onrental expenses andinterests for any delayedpayment.

• MERALCO's use of theproperty islimited/subject to tbeterms and conditions ofthe leasea) MERALCO may not beable to modify theassets to suit changingbusiness requirementsvvithout lessor approvaland subject to paymentof additional fees.

b) MERALCO's pre-termination of leasewill make it liable forpre-termination fees.

c) may attract penaltiesand fees

199

d) Although it is the lessorthat will shoulder therepair and maintenancecosts on the buildingunder the lessor, thelessor does not warrantrepairs over the term ofthe lease.

Alternative 3 • No major capital • No asset ownershipLease a bigger outlay up-front. 0 Under a new leasespace to replace • Existing problem on agreement, MERALCOexisting handling traffic could may be subject to aExtension Offices be addressed security deposit, rental fee

and annual increase onrental expenses whichmay be higher than thefees being paid byMERALCO for lease of theexisting offices.

0 Also, in case the existinglease agreement will onlybe amended toaccommodate for theincrease in office space,MERALCO may be subjectto the above-mentionedfees.

• MERALCO's use of theproperty islimited/subject to theterms and conditions ofthe lease.a) MERALCO may not be

able to modify assets tosuit changing businessrequirements withoutlessor approval andpayment of additionalfees.


The financial evaluations of the alternative projects are summarizedin the table below:

Project Project Description NPV(PhP)Alternative

Acquiring new lot and ConstructionAlternative 1 of New Building to replace 2 existing -25.5 Million

Extension Offices

Alternative 2Continue leasing the existing -9-4 Millionextension offices

Alternative 3 Lease a bigger space to replace -16.9 Millionexisting Extension Offices

Note: NPVs are negativ~;ramount because the alternative will primarilyresult to additional costs investment on the nart of MERALCO.

200

IIII

IIII

Based on Cost Benefit Analysis (CBA), the financial viability of theproposed project resulted to an Investment Rate of Return (IRR) ~-6% and an NPV of -PhP25.5 Million.

The following were the factors considered in the CBA :

a) the initial investments, which include cost for lot acquisition,construction of new building and rental and set-up costs thatwould be incurred during the construction of the building;

b) operational savings, which include the savings on transportationand meal allowances, and office rental fee;

c) expected additional expenses brought about by the new TeamLeaders that would be hired, which is typical requirement of anAuxiliary BC;

d) additional revenue from realized sales.


Without the project, the existing office area will not be able toaccommodate the projected increase in customer base by RY2016which will lead to longer queues and waiting times.

Projected Customer and Sales Growth

Projected Customer Count

2015 2016 2017 2018 2019

I Customer Count 104,626 107,954 111,392 114,942 118,609

Projected Energy Sales MWh

2015 2016 2017 2018 2019

I Customer Count 219,764 231,653 244.186 257,396 271,332

The new Sapang Palay ABC customer base is expected to grow by13.37% with energy sales increase of 23-46% from RY2012 to RY2016.

Below are some of the anticipated housing developments that willhave a significant effect on the customer count within the area ofSapang Palay and San Jose del Monte:

• Colinas Verdes Subd, Tungkong Mangga• Montecillo Townhomes, Bgy. Graceville• Springtown Villas, Bgy. Gaya-gaya• Towerville Ph 6, Bgy, Gaya-gaya• Primavera Heights, Tungkong Mangga

201

[,

Negotiations for the lot acquisition should commence within thesecond semester of 2015 and construction should start on the 1stquarter of 2016. It is targeted that the new building will beoperational by November 2016.

Further, there is a need to immediately implement the project inorder to meet the rapid growth in customer transactions. There areprospective sellers of lots which meet the project requirements.

The Commission deferred the proposed lot acquisition andconstruction of new Sapang Palay auxiliary business center becausethe financial evaluations presented for the said project, as well as thealternatives, showed negative results. It likewise appeared from theresults that the chosen project is not the least cost among theoresented alternative solutions.

ApprovalPro'ect to continue as ro osedPro'ect to continue with revised ca ital e enditurePro' ect to continue with technical amendmentsProject to be deferred which may be included in its nexta lication with additional 'ustification

III'

\


202

I,/

Documents

Technical Analysis MERALCO'sExisting Distribution System