Forecast ofCPI, Forex & Demand

Nelson Canlas

Supervising Energy Regulatory Officer

CPI & Forex ForecastsUSA CPI Forecast

0.0%

1.0%

2.0%

3.0%

4.0%

Year

CP

I (%

pa)

IMF Base Line Aug05 2.7% 2.9% 2.6% 2.5% 2.5% 2.5% 2.5%

Access Eco Sept05 2.7% 3.0% 2.5% 2.4% 2.3% 2.3% 2.3%

EIU Average Sept05 2.7% 3.2% 3.3% 2.8% 2.8% 2.8% 2.7%

TRANSCO Aug05 2.7% 3.2% 2.9% 2.9% 2.8% 2.8% 2.8%

2004 2005 2006 2007 2008 2009 2010

Exchange Rate - Peso/US$

50.0

55.0

60.0

65.0

Year

Exc

han

ge

Rat

e (P

hP

/US

$)

NEDA High Sept04 56.0 57.0 57.0 57.0 57.0 57.0 57.0

NEDA Low Sept04 54.0 55.0 55.0 55.0 55.0 55.0 55.0

EIU EoY Sept05 56.2 54.7 53.5 52.8 52.5 52.8 53.3

IMF Aug05 56.2 57.8 59.0 59.9 60.5 61.0 61.4

TRANSCO Aug05 56.2 56.00 58.34 59.98 61.03 61.69 62.35

PPP 56.2 56.0 58.6 60.3 61.3 62.0 62.9

2004 2005 2006 2007 2008 2009 2010

Philippines CPI Forecast

0.0%

5.0%

10.0%

Year

CP

I (%

pa)

NEDA High Sept04 5.0% 5.0% 5.0% 4.0% 4.0% 4.0% 4.0%

NEDA Low Sept04 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0%

OECD Reform Stall 7.9% 8.2% 7.5% 4.7% 4.0% 4.0% 4.0%

OECD Reform Go 7.9% 8.1% 7.8% 4.6% 3.5% 3.5% 3.5%

EIU Average Sept05 7.9% 8.2% 7.7% 5.8% 4.6% 3.9% 4.3%

TRANSCO Aug05 7.9% 8.2% 7.2% 5.8% 4.6% 3.9% 3.9%

2004 2005 2006 2007 2008 2009 2010

2004 2005 2006 2007 2008 2009 2010Philippines CPI (% pa) 6.1% 4.7% 4.8% 4.8% 4.6% 4.4% 4.2%USA CPI (% pa) 2.7% 3.0% 2.5% 2.4% 2.3% 2.3% 2.3%Exchange Rate (Peso/US$) 56.2 54.7 53.5 52.8 52.5 52.8 53.3

Demand ForecastsSPD for Luzon

6000

6500

7000

7500

8000

8500

9000

9500

10000

Year

Sys

tem

Pea

k D

eman

d (

MW

)

2005 DOE 6323 6443 6728 6981 7252 7552 7878 8225 8596 8990 9397

2005 NPC 6323 6479 6768 7070 7386 7715 8059 8419 8795 9187 9597

2006 TRANSCO 6323 6443 6747 7014 7290 7574 7866 8149 8437 8728 9025

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SPD for Visayas

1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2000

Year

Sys

tem

Pea

k D

eman

d (

MW

)

DOE 1034 1096 1154 1214 1289 1364 1448 1536 1632 1737 1850

NPC 1068 1129 1193 1261 1333 1409 1489 1574 1664 1759 1859

TRANSCO 1029 1096 1167 1242 1323 1409 1499 1562 1650 1745 1846

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SPD for Mindanao

10001100120013001400150016001700180019002000210022002300

Year

Sys

tem

Pea

k D

eman

d (

MW

)

DOE 1177 1211 1293 1363 1440 1525 1620 1725 1841 1969 2112

NPC 1177 1308 1382 1461 1544 1632 1725 1823 1926 2036 2152

TRANSCO 1177 1263 1344 1434 1533 1642 1762 1841 1957 2082 2216

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2004 2005 2006 2007 2008 2009 2010

Luzon 6,323 6,443 6,728 6,981 7,252 7,552 7,878

Visayas 1,034 1,096 1,154 1,214 1,289 1,364 1,448

Mindanao 1,177 1,211 1,293 1,363 1,440 1,525 1,610

Total 8,534 8,750 9,175 9,558 9,981 10,441 10,936

Capital Expenditure Forecasts

Alvin Jones Ortega

Energy Regulatory Officer II

Optimization of Capex

• ERC has reviewed Independent Experts comments on Capex forecast;

• ERC is also mandated to implement Section 9(d) of EPIRA and Rule 3 Section 4(c) and Rule 6 Section 10(c) of its IRR;

• Decision tree

Date Draft for Discussion 6

ERC Decision Tree for CAPEXBreak

GroundIs date after June 26,

2001 ?

Project must be accepted so long

as prior approvals valid

N

Y

Network asset ?

Connectionasset not in

RAB

Y

Review as should fall

above

N

Network control, safety or metering asset ?

N

Other 1 Y

Non – network asset ?

N

Other 2 Y

Replacement ?Age

>= Life less 15 y ?

Y

Acceptcapex

Y

Reviewjustification

N

N

Refurbish ?

N

Newasset ?

Review as should fall

above

Y Extend or get to

life ?

N

Y

Sharedasset ?

Y

N

N

N-1Justific-ation ?

Y

Does SKM report agree

with N-1 ?Y

Acceptcapex

Y

N

Doesrating exceed15 y require-

ment?

N

N

YInclude assetsin optimized

networkat reduced rating

Include all in optimized network

Is line or substation

required now?

N

Y

Force Majeure Damage?

N

Y

ERC’s Approach

• The ERC analysis followed the following approach for the Draft Determination:– Remove O&M and other overheads listed in

Table 3.7 of the Draft Determination;– Remove connection asset projects summarised

by Table 3.6 of the Draft Determination;– Remove unapproved capex projects described

in Table 3.4 of the Draft Determination;– Apply the ERC forecasts of CPI and exchange

rate.

Capital Expenditure Forecasts

Comparison of Options for Capex Forecast

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Regulatory Year

Mil

lio

n P

hP

(n

om

inal

)

TRANSCO APP

Remove O&M.Overhead andother expensesRemoveConnectionAssetsRemoveunapprovedprojectsAdjusting CPI andForex

TRANSCO APP 6,416.90 11,922.90 17,471.90 10,994.60 6,153.70 5,599.30

Remove O&M. Overhead and otherexpenses

4,394.60 9,758.40 14,837.60 8,483.80 4,205.40 3,651.90

Remove Connection Assets 3,369.20 8,302.80 13,347.10 6,975.30 3,075.60 1,430.40

Remove unapproved projects 492.8 3,337.70 4,338.00 4,379.30 3,013.00 1,398.80

Adjusting CPI and Forex 489.9 3,073.70 3,899.10 3,868.00 2,599.50 1,241.60

2005 2006 2007 2008 2009 2010

Capital Expenditure Forecasts

TRANSCO vs ERC Capex Forecast

-

5,000.0

10,000.0

15,000.0

20,000.0

Year

Mil

lio

n P

hP

TRANSCO

ERC

TRANSCO 6,416.9 11,922.9 17,471.9 10,994.6 6,153.7 5,599.3

ERC 489.9 3,073.7 3,899.1 3,868.0 2,599.5 1,241.6

2005 2006 2007 2008 2009 2010