REPUBLIC OF THE PHILIPPINES

ENERGY REGULATORY COMMISSION

SAN MIGUEL AVENUE, PASIG CITY

IN THE MATTER OF THE

APPLICATION FOR:

1. THE CONFIRMATION OF TRUE-

UP CALCULATIONS OF THE
ACTUAL AVERAGE RATE PER
RATE SCHEDULE VIS-À-VIS
THE ERC-APPROVED
AVERAGE RATE PER RATE
SCHEDULE IMPLEMENTED
FOR THE LAPSED
REGULATORY YEARS, AND

2. APPROVAL OF THE REFUND

SCHEME AND REFUND RATE
ON A PER RATE SCHEDULE
BASIS

WITH PRAYER FOR PROVISIONAL

AUTHORITY
2021-020 RC
ERC Case No. 2020-_________

CAGAYAN ELECTRIC POWER AND March 23, 2021

LIGHT COMPANY, INC.
(CEPALCO)
Applicant.
x------------------------------------------x

APPLICATION
Applicant Cagayan Electric Power and Light Company, Inc. (“CEPALCO”),
thru counsel and unto this Honorable Commission, respectfully states that:

1) Applicant CEPALCO is a privately-owned distribution utility, with

principal office address at CEPALCO Administration Building, Fr.
Masterson Avenue, Upper Balulang, Cagayan de Oro City; franchised
under Republic Act No. 9284 to operate and maintain an electric
distribution system in the city of Cagayan de Oro, and in the
municipalities of Tagoloan, Jasaan and Villanueva, all in the Province
 of Misamis Oriental. CEPALCO is represented here by its President
and Chief Operating Officer, Chiquita C. Capili.

2) CEPALCO, along with Dagupan Electric Corporation (DECORP) and

Manila Electric Company (MERALCO), comprise the First Entry
Group or “Group A” of distribution utilities that entered the
Performance Based Regulation (“PBR”). PBR is the rate-setting
methodology adopted by the Honorable Commission for setting the
Distribution, Supply and Metering (“DSM”) charges of privately-
owned Distribution Utilities (“DUs”).

3) Pursuant to the Position Paper and the Rules for Setting Distribution
Wheeling Rates for Privately-owned Electricity Distribution Utilities
Operating under Performance Based Regulation (First Entry Group:
Third Regulatory Period) dated 01 December 2009 (“3rd RP RDWR”),
the First Entry Group completed the Regulatory Reset Process for
the Third Regulatory Period (“3rd RP”) covering the period from 01
July 2011 to 30 June 2015. In the decision dated 06 June 2011 in ERC
Case No. 2010-064 RC, the Commission set out its final
determination of the price control arrangements that applied to
CEPALCO for the 3rd RP.

4) Under the 3rd RP RDWR, the “Regulatory Reset Process” is defined as

“the actions prior to the start of any Regulatory Period, through which
the price control arrangements are established that will apply to a
Regulated Entity with regard to the provision of Regulated Distribution
Services in each Regulated Distribution System for the next Regulatory
Period”. To commence the Regulatory Reset, the Commission must
publish a Regulatory Reset Issues Paper within twenty-one (21)
months prior to the end of the Regulatory Period.

5) On 14 October 2013, the Commission posted the Issues Paper, which

described the issues identified to be revisited
th
for the Fourth Regulatory Period (“4 RP”). This was the starting
point so that the 4th RP for the First Entry Group should have
commenced on 01 July 2015 and ended on 30 June 2019. However,
the Issues Paper and the revised RDWR posted by the Commission
for comments and public consultations were not officially released
within the timeframe prescribed. Due to the absence of the RDWR
and Position Paper for the 4RP, the lapsed regulatory years ensued.

6) To date, the reset for the 4th RP for CEPALCO and other private DUs
under PBR has not commenced and is not expected to commence
pending issuance by the Commission of the relevant rules.
7) On 20 January 2016, while the regulatory reset for the 4th RP
remained on hold, CEPALCO filed before the Commission an
Application for an Interim Average Rate adjustment and its
Corresponding Translation into Distribution Charges for each Rate
Schedule. This was docketed as ERC Case No. 2016-007 RC.

8) On 16 March 2016, CEPALCO filed another rate adjustment

application before the Commission, docketed as ERC Case No. 2016-
029 RC, to recover the capital cost of the 138 kV Kirahon Substation
asset. The 138 kV Kirahon Substation project was previously
approved by the Commission in its Decision dated 15 June 2015
rendered in ERC Case No. 2014-158 RC.

9) On 28 May 2019, the Commission rendered its Decision in the

Interim Rate Adjustment application case docketed as ERC Case No.
2016-007 RC, which ordered a reduction of P1.06% over CEPALCO’s
distribution charges last approved for RY2015, or an effective
reduction in CEPALCO’s Maximum Average Price (MAP) by
P0.012/kWh.

10) On even date, the Commission granted an Interim Rate Adjustment

in ERC Case No. 2016-029 RC to recover the capital cost of the 138
kV Kirahon Substation asset, resulting in an upward adjustment in
CEPALCO’s Maximum Average Price (MAP) by P0.1801/kWh.

11) The Decision rendered in the Interim Rate Adjustment application

case, docketed as ERC Case No. 2016-007 RC, and the rate
adjustment in the 138 kV Kirahon case, docketed as ERC Case No.
2016-029 RC, were simultaneously implemented by CEPALCO
starting from October 2019, more particularly described as follows:

TABLE 1: AVERAGE RATE ADJUSTMENTS FROM RY 2015

ERC-approved Rate, P/kWh
Interim Ave Kirahon Rate
RY 2015 Prevailing Average
Rate Schedule Rate (IAR) Adjustment
Rate (IAR + Kirahon
Case # 2014- Case # 2016-
Case # 2019-029 RC Rate Adjustment)*
028 RC 007 RC
Streetlight 1.0835 1.0720 0.1727 1.2447
Residential 2.3927 2.3673 0.3191 2.6864
Commercial 1.5536 1.5371 0.2475 1.7847
Big Industrial 0.7316 0.7238 0.1230 0.8468
Small Industrial 0.9194 0.9096 0.1528 1.0624
High Voltage 69KV 0.6344 0.6277 0.1013 0.7290
High Voltage 138KV 0.1345 0.1331 0.0206 0.1536
*Implemented starting from October 2019

12) Due to the absence of a regulatory reset when the 3rd RP ended on 30
June 2015, CEPALCO continued to implement its last approved
 distribution charges for Regulatory Year (RY) 2015, until these
charges were adjusted on October 2019, in accordance with the
Decision issued in ERC Case No. 2016-007 RC, and the Interim Rate
Adjustment in the 138 kV Kirahon Substation Rate Adjustment case,
provisionally authorized in ERC Case No. 2016-029RC.

13) Given that the provisions of the RDWR are prospective in

application, there are no rules to govern the lapsed regulatory years
while the RDWR is on hold. To resolve and close with finality all
issues relating to the lapsed regulatory years, CEPALCO proposes to
true-up its Actual Average Rate by customer class against the
applicable ERC-approved average rates also by customer class
(called “Rate Schedule”).

14) When CEPALCO implemented the distribution charges during the

lapsed RYs based on charges translated for each customer class in
RY 2015, this effectively fixed the allocation of revenue requirement
by customer class based on sales mix and load factor profile
approved by the Commission for RY 2015. Notably, the translated
charges for RY 2015 no longer captured the significant changes in
customers’ sales mix and load profile that occurred during the lapsed
RYs.

15) The actual weighted average rate varies depending on the sales mix
and load factor of customers whose rate design consist of a demand
charge billed on a P/kW and energy charge billed on a P/kWh. In fact,
the Commission, in its Decision dated 04 August 2014 in ERC Case
No. 2014-028RC (CEPALCO’s Rate Translation for RY 2015),
acknowledged the effect of sales mix to the actual average rate, to
wit:

“Since the recalculated MAP was based on forecasted

sales mix, the monthly actual sales mix will determine
whether the actual rates will be above or below the said
recalculated MAP. Variation in sales mix may result to
an erratic pattern of average rates, particularly, if the
consumption behavior of the different types of
customers varies significantly from the forecast.”
Underscoring provided.

“It bears stressing that the MAP is based purely on a cost

per kWh given a reasonable estimate of its sales mix and
the projected energy consumption. During the annual rate
verification process, the RDWR requires the adjustment of
rates based on actual economic indices, energy
 consumption, average distribution price and service
quality performance. Any change in the sales mix may
result to either a lower or higher actual average rate.”
Underscoring provided

16) Due to the absence of the annual rates translation during the lapsed
RYs, CEPALCO proposes to true-up its rates on a per customer class.
The proposed True-Up Calculations of the Actual Average Rate
against the ERC-approved Average Rates by Rate Schedule during
the lapsed period is submitted to be the most fair and reasonable
approach. This ensures that the customers are fairly billed with the
Distribution, Supply and Metering Charges equivalent to the ERC
approved average rates by Rate Schedule during the lapsed period,
starting with the approved rate for RY 2015, which was the lowest
rate in the 3rd RP.

17) Due to the absence of the annual rates translation, the true-up
calculations proposed herein fairly and reasonably captures the
changes in customers’ sales mix and load factor. This normalizes the
impact to the actual average rate during the lapsed period against
the last approved average rate by Rate Schedule translated in RY
2015. This is particularly significant to customer classes whose rates
are designed to include a demand charge (in P/kW) and an energy
charge (in P/kWh).

18) The following tables show CEPALCO’s calculations of its

(over)/under-recoveries per rate schedule as against the ERC-
approved average rates per rate schedule, with a proposal to refund
the over-recoveries per rate schedule over a period of twenty-four
(24) months, as follows:

Table 2: For the Period July 2015 to September 2019

ERC- Actual Average Rate (Over)/Under-Recovery
Customer Class approved DSM Revenue Energy Sales Average Rate
P/kWh Peso
Rate (RY (Peso) (kWh) (P/kWh)
Reference A B C D = B/C E = A-D F=ExC
Streetlight 1.0835 47,049,030 43,433,690 1.0832 0.0003 11,373
Residential 2.3927 2,567,866,612 1,074,714,975 2.3893 0.0034 3,604,545
Commercial 1.5536 1,556,860,353 1,007,422,730 1.5454 0.0082 8,271,600
Big Industrial 0.7316 402,281,324 521,475,845 0.7714 (0.0399) (20,790,377)
Small Industrial 0.9194 328,282,163 346,442,834 0.9476 (0.0282) (9,777,047)
High Voltage 69KV 0.6344 543,513,306 892,394,338 0.6091 0.0253 22,620,056
High Voltage 138KV 0.1345 71,185,424 732,801,299 0.0971 0.0373 27,368,323
TOTAL ₱31,308,474
Table 3: For the Period October 2019 to November 2020
ERC-
Actual Average Rate
approved (Over)/Under-Recovery
Customer Class
Rate, DSM Revenue, Energy Sales, Average Rate,
P/kWh Peso
P/kWh* Peso kWh P/kWh
Reference => G H I J = H/I K = G-J L=KxI
Streetlight 1.2447 12,824,141 10,614,080 1.2082 0.0365 387,363
Residential 2.6864 917,477,954 345,524,884 2.6553 0.0311 10,753,416
Commercial 1.7847 435,886,093 246,969,466 1.7649 0.0197 4,871,234
Big Industrial 0.8468 121,495,870 141,854,010 0.8565 (0.0097) (1,374,236)
Small Industrial 1.0624 126,162,537 118,096,468 1.0683 (0.0059) (692,274)
High Voltage 69KV 0.7290 162,068,422 261,015,296 0.6209 0.1081 28,208,297
High Voltage 138KV 0.1536 45,004,256 324,498,940 0.1387 0.0149 4,849,862
TOTAL ₱47,003,662
*Prevailing Average Rate authorized under ERC Case No. 2016-007 RC and ERC Case No. 2019-029 RC

Total (Over)/Under-recovery, July 2015 to November 2020 ₱78,312,136

LESS: Amounts for/already Refunded
(1) Over-collection of under-recoveries from 2RP (58,404,334)
(2) Reset Expert Fee (5,098,534)
Net (Over)/Under-recovery ₱14,809,268

TABLE 4. AVERAGE REFUND RATE

Net (Over)/Under-recovery, Peso 14,809,268
Less: 50% of Related Business Revenue (47,850,664)
Total (Over)/Under-recovery, Peso (33,041,397)
Monthly Refund for 24 months, Peso (1,376,725)
Average Monthly Energy Sales, RY2020, kWh 102,587,901
Average Monthly Refund Rate, P/kWh (0.0134)

19) CEPALCO further proposes to proportionately allocate the average

monthly refund rate of P0.0134/kWh to its Rate Schedule using the
Regulatory Year (RY) 2020 as the billing determinant, more
particularly described as follows:
 RY 2020 Refund
Allocated Monthly (24
Rate Sked kWh Sales Rate,
Revenue kWh Sales Rev Mix Refund, Peso Months), Peso
P/kWh
Streetlight 10,688,096 9,156,934 0.70% (230,512) - 9,604.67 763,078 (0.0126)
Residential 751,874,603 292,368,999 49.08% (16,215,814) - 675,658.92 24,364,083 (0.0277)
Commercial 385,199,434 228,534,890 25.14% (8,307,665) - 346,152.71 19,044,574 (0.0182)
Big Industrial 108,519,448 130,030,165 7.08% (2,340,458) - 97,519.10 10,835,847 (0.0090)
Small Industrial 107,481,094 104,650,281 7.02% (2,318,064) - 96,586.00 8,720,857 (0.0111)
High Voltage 69KV 136,128,776 225,931,787 8.89% (2,935,914) - 122,329.74 18,827,649 (0.0065)
High Voltage 138KV 32,130,743 240,381,757 2.10% (692,969) - 28,873.73 20,031,813 (0.0014)
Total 1,532,022,194 1,231,054,813 100.00% (33,041,397) - 1,376,724.86 102,587,901 (0.0134)

20) CEPALCO is willing to implement its proposed refund scheme

pending final resolution of this application case so that its customers
can immediately benefit from the proposed refund scheme,
especially during these unsettling times brought about by the
COVID-19 pandemic. In support thereof, CEPALCO submits the
Judicial Affidavit of its witness, Richard S. Ratunil, Head of Corporate
Planning and Regulatory Compliance Officer (RCO).

PRAYER

WHEREFORE, premises considered, CEPALCO respectfully prays that-

1. A Decision be rendered CONFIRMING CEPALCO’s true-up calculations

of its (over)/under-recoveries of its actual average rate per rate schedule
vis-à-vis the ERC-approved average rate also on a per rate schedule
basis, calculated as follows:
For the Period July 2015 to September 2019:
ERC-approved Actual Average Rate (Over)/Under-Recovery
Customer Class Rate (RY 2015) DSM Revenue Energy Sales Average Rate
P/kWh Peso
(P/kWh) (Peso) (kWh) (P/kWh)
Reference A B C D = B/C E = A-D F=ExC
Streetlight 1.0835 47,049,030 43,433,690 1.0832 0.0003 11,373
Residential 2.3927 2,567,866,612 1,074,714,975 2.3893 0.0034 3,604,545
Commercial 1.5536 1,556,860,353 1,007,422,730 1.5454 0.0082 8,271,600
Big Industrial 0.7316 402,281,324 521,475,845 0.7714 (0.0399) (20,790,377)
Small Industrial 0.9194 328,282,163 346,442,834 0.9476 (0.0282) (9,777,047)
High Voltage 69KV 0.6344 543,513,306 892,394,338 0.6091 0.0253 22,620,056
High Voltage 138KV 0.1345 71,185,424 732,801,299 0.0971 0.0373 27,368,323
TOTAL ₱31,308,474
For the Period October 2019 to November 2020:
Actual Average Rate (Over)/Under-Recovery
ERC-approved
Customer Class DSM Revenue, Energy Sales, Average
Rate, P/kWh* P/kWh Peso
Peso kWh Rate, P/kWh
Reference G H I J = H/I K = G-J L=KxI
Streetlight 1.2447 12,824,141 10,614,080 1.2082 0.0365 387,363
Residential 2.6864 917,477,954 345,524,884 2.6553 0.0311 10,753,416
Commercial 1.7847 435,886,093 246,969,466 1.7649 0.0197 4,871,234
Big Industrial 0.8468 121,495,870 141,854,010 0.8565 (0.0097) (1,374,236)
Small Industrial 1.0624 126,162,537 118,096,468 1.0683 (0.0059) (692,274)
High Voltage 69KV 0.7290 162,068,422 261,015,296 0.6209 0.1081 28,208,297
High Voltage 138KV 0.1536 45,004,256 324,498,940 0.1387 0.0149 4,849,862
TOTAL ₱47,003,662
*Prevailing Average Rate (Interim Average Rate + Kirahon Average Rate)

Total (Over)/Under-recovery, July 2015 to November 2020 ₱78,312,136

LESS: Amounts for/already Refunded
(1) Over-collection of under-recoveries from 2RP (58,404,334)
(2) Reset Expert Fee (5,098,534)
Net (Over)/Under-recovery ₱14,809,268
Net (Over)/Under-recovery, Peso 14,809,268
Add: 50% of Related Business Revenue (47,850,664)
Total (Over)/Under-recovery, Peso (33,041,397)

2. APPROVE CEPALCO’s proposed refund scheme over a period of

twenty-four (24) months, at the average monthly refund rate of
P0.0134/kWh, calculated as follows:

Total (Over)/Under-recovery, Peso (33,041,496)

Monthly Refund for 24 months, Peso (1,376,729)
Average Monthly Energy Sales, RY2020, kWh 102,587,901
Average Monthly Refund Rate, P/kWh (0.0134)
3. ALLOCATE the average monthly refund rate of P0.0134/kWh to
CEPALCO’s Rate Schedule, more particularly described as follows:

RY 2020 Refund
Allocated Monthly (24
Rate Sked kWh Sales Rate,
Revenue kWh Sales Rev Mix Refund, Peso Months), Peso
P/kWh
Streetlight 10,688,096 9,156,934 0.70% (230,512) - 9,604.67 763,078 (0.0126)
Residential 751,874,603 292,368,999 49.08% (16,215,814) - 675,658.92 24,364,083 (0.0277)
Commercial 385,199,434 228,534,890 25.14% (8,307,665) - 346,152.71 19,044,574 (0.0182)
Big Industrial 108,519,448 130,030,165 7.08% (2,340,458) - 97,519.10 10,835,847 (0.0090)
Small Industrial 107,481,094 104,650,281 7.02% (2,318,064) - 96,586.00 8,720,857 (0.0111)
High Voltage 69KV 136,128,776 225,931,787 8.89% (2,935,914) - 122,329.74 18,827,649 (0.0065)
High Voltage 138KV 32,130,743 240,381,757 2.10% (692,969) - 28,873.73 20,031,813 (0.0014)
Total 1,532,022,194 1,231,054,813 100.00% (33,041,397) - 1,376,724.86 102,587,901 (0.0134)

4. Pending final resolution of this application case, a PROVISIONAL

AUTHORITY be issued authorizing CEPALCO to implement the
foregoing proposed refund scheme allocated on a per rate schedule.

5. Finally, DECLARE that all issues pertaining to CEPALCO’s lapsed

Regulatory Years (RYs) as fully resolved, closed and terminated.

CEPALCO also prays for such other relief or remedy as may be just and
equitable under the circumstances.

RESPECTFULLY SUBMITTED this 15th day of January 2021 at Pasig City.

Ranulfo M. Ocampo
Counsel for CEPALCO
PTR No. 8668356 | 04 January 2021 | Marikina City
IBP Lifetime No. 014284 | 18 January 2016 | RSM
IBP Roll No. 33872 | MCLE Compliance No. VI-0023649 valid until 22 April 2022
7/F STRATA 100 Bldg. | F. Ortigas Jr. Road | Ortigas Center | Pasig City
Smart: 0920-938-4470 / Globe: 0917-301-2455 | Email: ranulfoocampo@outlook.com