ERC Case No. 2002-18 - Energy Regulatory Commission

Republic of the Philippines
ENERGY REGULATORY COMMISSION
San Miguel Avenue, Pasig City
IN THE MATTER OF THE APPLICATION
FOR AUTHORITY TO REVISE/UNBUNDLE
RATES IN ACCORDANCE WITH SECTION
36 OF R.A. 9136, AND FOR APPROVAL OF
APPRAISAL OF PROPERTIES, WITH
PRAYER FOR PROVISIONAL AUTHORITY.
ERC CASE NOS. 2002-18
and 2002-143
MANSONS CORPORATION (MANSONS)
Applicant.
x-----------------------------------------------------x
D E C I S I O N
Before the Commission for resolution is the application filed on January 16,
2002 by applicant Mansons Corporation (MANSONS) for authority to
revise/unbundle its rates in accordance with Section 36 of Republic Act No. 9136
(R.A. 9136) with prayer for provisional authority. Subsequently, on March 4, 2002,
MANSONS filed an “Amended Application”.
Having found the application sufficient in form and substance with the
required fees having been paid, an Order and a Notice of Public Hearing were
issued both dated April 10, 2002 setting the same for initial hearing on June 11,
2002.

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In the same Order, MANSONS was directed to publish at its own expense,
the Notice of Public Hearing twice for two (2) successive weeks in two (2)
newspapers of nationwide circulation in the country, the last date of publication to
be made not later than two (2) weeks before the scheduled date of initial hearing.
Copies of the application, the Order and the Notice of Public Hearing were
furnished the Office of the Solicitor General (OSG), the Commission on Audit
(COA) and the Committees on Energy of both Houses of Congress and were
requested to have their respective duly authorized representatives present at the
initial hearing.
Likewise, copies of the Order and the Notice of Public Hearing were
furnished the Offices of the Municipal Mayors of Floridablanca and Guagua, both
in the Province of Pampanga, for the appropriate posting thereof on their
respective bulletin boards.
During the June 11, 2002 initial hearing of this case, applicant and Atty.
Joel Jimenez of the Office of the Solicitor General appeared. Applicant presented
its proofs of compliance with the Commission’s publication and posting of notice
requirements and had these marked as Exhibits “A” to “C”, inclusive. Thereafter,
it moved for a resetting of the case to have its financial statements re-audited to
conform to the requirements of the Commission. Atty. Jimenez did not object.
At the September 10, 2002 hearing, applicant presented its witnesses,
Engr. Reynaldo Gimongala, applicant’s Head, Engineering Department and Mr.
Ricardo Limbauan, applicant’s External Auditor, for direct examinations. Engr.
Gimongala testified on the manner by which the applicant prepared its revised
rate application including the different schedules using the unbundling process.

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Mr. Limbauan testified on the re-audit made on applicant’s financial statements.
In the course thereof, documents were presented and marked as Exhibits “D” to
“DD”, inclusive.
The Commission propounded clarificatory questions on the witnesses. In
the course thereof, applicant was directed to submit the several explanations on
matters asked.
At the continuation of the hearing on November 15, 2002, applicant
presented its last witness, Engr. Roberto Mendoza, Assistant Vice President for
Machinery and Technical Specialties of Asian Appraisal, Inc., for direct
examination. He testified on the methodologies used in arriving at the sound
value appraisal of applicant’s properties. In course thereof, documents were
presented and marked as Exhibits “EE” to “FF-2”, inclusive. Thereafter the
Commission propounded clarificatory questions. Applicant then moved that it be
given ten (10) days from said date of hearing to submit its formal offer of exhibits
which the Commission granted.
On November 19, 2002, applicant filed its formal offer of exhibits which was
admitted for the purposes for which they were being offered.
On November 28, 2002, applicant was directed to submit its Assets
Additions and Retirements from 1993 to 1998 and amend its formal offer of
exhibits.
I. MANSONS PROPOSAL
MANSONS proposed to adopt and applies for approval the following rate
schedule which embody the unbundling of its rates in accordance with the sectors

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or functions identified in Section 5 of RA 9136. These rates were developed on
the basis of the data and calculations as contained in the schedules prescribed in
the Uniform Rate Filing Requirements (UFR) as per ERC Order dated October 30,
2001, as follows:
TABLE 1
RATE SCHEDULE
Residential Service
Commercial
Street Lights
Industrial 1
Industrial 2
MANSONS classified its existing Industrial customers into two (2)
categories based on load schedule, such as: Industrial 1, which shall be applied
to regular industrial customers; and Industrial 2, which shall be applied to large
industrial customer.
Further, MANSONS incorporated the Government Building customers in
the Residential class, while Hospital customer was included in Industrial 1 class.
MANSONS took into consideration that Government Building and Residential
class, Hospital and Industrial 1 class rate level are almost the same, respectively.
I.A.
Revenue Requirement
MANSONS calculated its Total Revenue Requirement based on test year
2000 using the Return on Rate Base (RORB) methodology. The application
contains assets valued both at historical costs and appraised value. MANSONS’
calculation used the appraised or sound value of assets, as underlying basis for
the formulation and design of the Revised Rate Schedules. The submitted

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historical cost of assets, as required in the UFR, was solely for informational
purposes, and not as basis for ratemaking.
On the basis of the submitted schedule (Schedule B), the proposed Total
Revenue Requirement amounted to PhP 82,818,978, which was calculated by
adding the total cost of service and the total return on rate base (computed at 12%
of the rate base). Details as follows:
TABLE 2
Amount
Account Name
(PhP)
Fuel 0
Purchased Power 63,039,806
Payroll 4,924,542
Operation & Maint.enance 6,068,284
Depreciation & Amortization 4,358,090
Income Taxes 0
Other Expense 0
Return On Rate Base 4,428,257
Revenue Requirement 82,818,978
Less: Other Revenue Items 0
Total Revenue Requirement 82,818,978
I.A.1.
Operating Revenue
MANSONS reported a total operating revenue of PhP 65,326,040,
computed as follows:
TABLE 3
Total Revenue
Customer Type
(PhP)
Residential 47,429,048
Commercial 7,848,835
Streetlights 1,701,975
Industrial 1 6,162,131
Industrial 2 2,184,051
Total 65,326,040
I.B.
Rate Base
MANSONS proposed that Schedule B (Restated Value of assets) be used

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as basis in the determination of its rate base. Thus, MANSONS utilized the
appraised value of assets as of September 1, 1998 as reported by an
independent appraiser, Asian Appraisal Co., Inc. (AACI) in the rate base
determination. An adjustment was made by MANSONS to reflect additions,
retirements for the period September 2, 1998 to December 31, 2000. The
proposed rate base is as follows:
TABLE 4
Amount
(PhP)
Distribution Plant 64,360,260
General Plant 652,600
Total Plant In Service 65,012,860
Distribution Plant 40,138,830
General Plant 127,160
Total Accum. Depr. 40,265,990
Net Plant In Service 24,746,870
Cash Working Capital 12,155,270
Total Rate Base 36,902,140
I.B.1. Plant in Service
In support of its unbundled rate application, MANSONS submitted for
approval to the Commission a report of AACI with respect to the sound value of its
properties existing as of September 1, 1998. Based on the said report,
MANSONS’ assets were appraised based on cost level as of September 1998 at
the prevailing Peso-to-Dollar exchange rate of PhP 43.923 to US$1.00 with total
cost of reproduction, new of PhP 64,263,600 and sound value of PhP 28,355,700,
to wit:
TABLE 5
Particulars
Cost of Reproduction,
New
Sound Value
Electrical Distribution System PhP 63,686,000 PhP 27,821,000
Transportation Equipment 415,000 415,000
Furniture & Office Equipment 162,600 119,700
TOTAL PhP 64,263,600 PhP 28,355,700

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I.C.
Weighted Average Cost of Capital (WACC)
MANSONS proposed a Weighted Average Cost of Capital of 12.00% or
equivalent to a return of PhP 4,428,257, computed as follows:
TABLE 6
Component
Amount
As Of
12/31/2000
Component
As % of Total
Component
Cost Of
Capital
Weighted
Cost Of
Capital
Common Equity PhP 30,544,246 100% 12.00% 12.00%
Total PhP 30,544,246 100% 12.00%
Rate Base PhP 36,902,140
Return On Rate Base PhP 4,428,257
I.E.
Rate Design
MANSONS’ proposed rate structure consisted of charges for the following
specific functions: a) Generation/Transmission, b) Distribution, c) Supply, and
d) Metering.
I.E.1.
Generation Charge
In calculating the Generation and Transmission Charge, MANSONS
submitted for approval the following formula:
Generation Charge without Demand Meter:
A 1
------------------- x -------
B-(C+C1+C2) 1-FT
Where:
A= Cost of power for the previous month (exclusive of prompt payment
discounts) less amount recovered from pilferage.
B= kWh purchased for the previous month
C= System loss equivalent to 15% (in kWh)
C1= 1% Company Used (in kWh) or actual whichever is lower
C2= kWh Lifeline consumption for the previous month
FT= Local and National Franchise Tax (2.5%)
Generation Charge with Demand Meter:
A 1
------------------- x -------
B-(C+C1+C2) 1-FT

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Where:
A= Cost of power for the previous month (exclusive of Demand charge and prompt
payment discounts and other discounts) less amount recovered from pilferage.
B= kWh purchased for the previous month
C= System loss equivalent to 15% (in kWh)
C1=1% Company Used (in kWh) or actual whichever is lower
C2= kWh Lifeline consumption for the previous month
FT= Local and National Franchise Tax (2.5%)
I.E.2.
Transmission Charge
MANSONS likewise proposed a formula designed to calculate the
Transmission Charge:
A 1
------------------- x -------
B-(C+C1+C2) 1-FT
Where:
A= Cost of transmission for the previous month (exclusive of prompt payment
discounts and other discounts) less amount recovered from pilferage.
B= kWh purchased for the previous month
C= System loss equivalent to 15% (in kWh)
C1=1% Company Used (in kWh) or actual whichever is lower
C2= kWh Lifeline consumption for the previous month
FT= Local and National Franchise Tax (2.5%)
I.E.3.
System Loss
MANSONS proposed a 15% system loss cap to be the recoverable rate for
its system loss through the proposed Generation and Transmission Charge
Formula. Since its franchise area covers mostly agricultural lands, MANSONS
proposed the following technical and non-technical losses per customer class, to
wit:
TABLE 7
Proposed Cap for technical loss:
Customer Class Proposed Ave. Cap/Mo. (%)
Commercial 2
Residential 3
Industrial 1
Street Lights 2
TOTAL 8

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TABLE 8
Proposed Cap for non-technical loss:
Customer Class Proposed Ave. Cap/Mo. (%)
Commercial 2
Residential 3
Industrial 0.5
Street Lights 1
Others 0.5
TOTAL 7.0
I.E.4.
Distribution Charge
MANSONS proposed a peso per kilowatt-hour for distribution charge
applicable to all customer classes.
I.E.5.
Supply and Metering Charges
MANSONS proposed a peso per kilowatt-hour for both metering and supply
function applicable to all customer classes.
I.F.
Inter-Class Cross Subsidy
The total revenue requirement for each customer class was compared to
normalized existing rates, which resulted to the following inter-class cross subsidy
calculation:
TABLE 9
Rates per
Revenue
Requirement
Cross
Subsidy
Customer
Class
Actual
Average Rate
Average
Increase
Total
Residential 4.9522 0.5823 5.5345 5.7329 (0.1984)
Commercial 5.0978 0.5823 5.6801 5.0868 0.5933
Streetlights 3.9816 0.5823 4.5639 4.8947 (0.3308)
Industrial 1 5.2125 0.5823 5.7948 5.1429 0.6518
Industrial 2 5.0917 0.5823 5.6739 5.3073 0.3667
Total 4.9921 0.5823 5.5744 5.5744

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I.G.
Lifeline Rate
MANSONS proposed a rate of PhP 1.7865 per kWh for its lifeline
customers computed based on its proposed Distribution Charges. MANSONS’
basis for determining the consumption level for its lifeline customers is as follows:
TABLE 10
Quantiy Type of Load Watts
1 Incandescent Bulb 40
1 20 Watts Fluorescent Lamp 32
1 Convenience Outlet 13
Total 85
With regard to the recovery of loss in revenue due to lifeline rate,
MANSONS proposed the following:
1. Any loss in revenue due to lifeline rate will be recovered thru its
proposed Generation Charge Formula.
2. If the Commission will not consider the said formula, any loss in
revenue will be recovered by charging all customers by peso per
kilowatt-hour for lifeline loss, computed as follows:
TABLE 11
Computed Residential Rate PhP 5.7329
Less: Proposed Lifeline Rate Subsidy PhP 1.7865
Total PhP 3.9464
Multiply: kWh sold by lifeline customer/yr. 88,680
Revenue loss PhP 349,967
Divide: Total kWh sold 13,277,204
Less: kWh sold by lifeline customer 88,680
13,188,524
Recovery for lifeline loss:
Revenue Loss 349,967
KWh 13,188,524
= PhP 0.0265/kWh
I.G.
Other Charges/Non-Recurring Rates
MANSONS’ proposed the following Other Charges and/or non-recurring

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charges, to wit:
TABLE 12
Other Charges
Amount (PhP)
Reconnection at Service Drop 20.00
Reconnection due to withdrawal of meter 20.00
Transfer of meter location 20.00
Replacement of meter 20.00
New Connection – Single Phase Meter 20.00
New Connection – Three Phase Meter 75.00
Relocation of Secondary Pole
Actual cost of labor
Bump damaged pole due to accident
Actual cost of labor
Calibration of watt hour meter (as requested by 20.00
consumer)
Installation/Dismantling of transformer (private Actual cost of labor
construction)
Calibration of Industrial/Commercial Meter
(Polyphase)
Based on ERC
calibration rates
Reconnection, transfer of line and meter 25.00
Installation of transformer
50.00/kVa
Interruption Charge 2,500.00
Based on ERC
Calibration of Polyphase Industrial/Commercial calibration rates
Calibration Fee residential customer meter 20.00
II.
COMMISSION DISCUSSIONS AND CONCLUSIONS:
In reaching the conclusion herein, the Commission took into consideration
the documents as well as the comments and issues presented by the applicant,
intervenor, and other interested parties who submitted their respective positions
on the instant application.
II.A.
Determination of the Total Revenue Requirement
II.A.1.
Test Year
The Commission finds MANSONS proposal to use the test year 2000 in its
unbundled rate application acceptable since it is consistent with Rule 15 Section 6
(c) of the Implementing Rules and Regulations (IRR) of R. A. 9136. Therefore,
the discussions and conclusions that follow are based on Schedule B, “Revalued
Cost by Function” (Cost of Service by Function-Historical Test Year).

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II.A.2.
Generation and Transmission Costs
Generation Cost
The Commission updated the generation cost based on the most recent
approved NPC rate, i.e., ERC Case No. 2003-291 (In the Matter of the Application
for the Approval of the Revised Unbundled Generation Tariffs, National Power
Corporation (NPC) and Power Sector Assets and Liabilities Management
(PSALM) – Applicants) Order dated September 29, 2003.
Notably, the
Commission approved the adoption of the Incremental Currency Exchange Rate
Adjustment (ICERA) in ERC Case No. 2003-498, Order dated December 4, 2003
(NPC and PSALM – applicants). The Commission directed NPC and PSALM to
refund to its customers the Deferred Accounting Adjustment (DAA) and FOREX
Correction for Luzon amounting to PhP (0.0065) per kWh within a period of six
months starting December 2003 to May 2004.
The total purchased power cost, as presented in the amended application
amounting to PhP 63,039,806 was adjusted to reflect the following:
a) The Commission decided to retain the system loss cap prescribed
under Rule IX Section 1 of the Implementing Rules and Regulation of
Republic Act No. 7832 pending the conduct of a comprehensive study
on the matter. Hence, the Commission used the maximum allowable
cap for system loss at 9.5% instead of the 15% proposed herein by
MANSONS and actual company use of 0.9542% for the year 2000.
(See further discussion on Section II.J.3).

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b) The Commission also used annualization in calculating the kilowatt-hour
purchase power cost. This is calculated as the sum of the products of
the average kilowatt-hour consumption for each rate class and the yearend
number of customers for each rate class; and
c) Since power rates are to be applied prospectively, the Commission also
updated the purchased power costs to the most recent levels available.
Based on December 2003 data submitted by MANSONS to the
Commission, MANSONS buys 100% of its power requirements from NPC. As
such, the generation cost as computed by the Commission reflects the cost of
electric power bought from NPC as of supply month December 2003. The
resulting total adjusted purchased power cost amounting to PhP 54,750,234 for
the test year 2000 was computed as follows:
TABLE 13
Purchased power cost submitted by MANSONS
(inclusive of transmission component) PhP 63,039,806
Adjustment due to update of purchased power
costs 4,424,479
Total PhP 67,464,285
Less: Excess system loss 12,714,051
Total Purchased Power Cost included in
Revenue Requirement PhP 54,750,234
Transmission Cost
The Commission’s Decision in ERC Case No. 2001-901 dated June 26,
2002 and Order dated September 20, 2002 set the transmission charges for the
TRANSCO without any provision for an automatic adjustment thereof. Since the
transmission rates to be paid by MANSONS are fixed, it is the decision of the
Commission to likewise fix the unbundled transmission rates to be billed to endusers.
The transmission charges approved for billing by MANSONS have been

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calculated based on the approved TRANSCO rates, which include cross subsidy
elements to be phased out over a three-year period.
System Loss
A separate charge to account for allowable system loss shall likewise be
provided. The Commission decided to retain the system loss cap prescribed
under Rule IX Section 1 of the I.R.R. of R.A. 7832 pending the conduct of a
comprehensive study on the matter. Hence, the Commission used the maximum
allowable cap for system loss at 9.5% or actual, whichever is lower.
Based on the new generation and transmission charges, as well as the
allowable system loss, the Commission has determined MANSONS unbundled
generation, transmission and recoverable system loss as follows:
TABLE 14
Generation Charge PhP 34,067,359
Transmission Charge 12,802,791
Recoverable System Loss 7,880,084
Total PhP 54,750,234
MANSONS approved generation charge shall remain fixed until changes in
NPC’s generation rate are approved and authorized by the Commission pursuant
to its Order dated February 24, 2003, ERC Case No. 2003-44 (GRAM) and ERC
Case No. 2003-498 (ICERA), Order dated December 4, 2003. In view thereof, the
Commission does not foresee the need for MANSONS to continue to implement
its Purchased Power Adjustment (PPA) clause.
Towards this end, the
Commission hereby directs MANSONS to discontinue the implementation of its
PPA clause upon the effectivity of the herein approved unbundled rates.

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II.A.3. Operation and Maintenance (Less Power Cost & Payroll)
The general criteria in the evaluation of expenses to be allowed for
recovery are: (1) that the expense is a requisite of, or necessary in the operation
of the utility; (2) it is recurring; and (3) it redounds to the benefit of the utility’s
customers (Public Service Commission [PSC] Decision in Cases Nos. 85889,
85890 and 89893). The Commission enjoins MANSONS to incur only “prudent
and reasonable costs” for inclusion in the determination of retail rates. While a
distribution utility enjoys the benefit of passing its costs of purchased power and
other reasonable costs to the consumer, it is obligated as a public utility to ensure
that its costs of operations including payroll are kept at a minimum. The
distribution utility must bear in mind that as a service-oriented company, its
mandate is to advocate and transact judiciously for and in behalf of its consumers.
“Reasonable costs” refers to the costs of those goods and services which,
while may not be the lowest in price, need to be incurred with consideration of
quality, efficiency, reliability and security, which are characteristics of the service
delivered by the distribution utility. “Prudent costs” demand that the utility ensures
that its purchases of goods and services are at their minimum, without sacrificing
the foregoing characteristics. When making a purchase or executing a contract, a
utility cannot simply rely on its right to pass on its costs to its consumers. As
such, the Commission, in fulfillment of the policy of the EPIRA to establish a
regime of free and fair competition and full public accountability to achieve greater
operational and economic efficiency, enjoins MANSONS to institute and report to
the Commission their respective policies and procedures for cost-cutting and the
transparent and competitive procurement of goods and services.

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MANSONS customers have a right to receive safe, reliable, and adequate
service at a reasonable rate. To this end, MANSONS should view a petition for an
increase in rates to be the last recourse. In future filings, MANSONS should be
reminded that it has the burden of proving that all reasonable and appropriate cost
cutting measures have been taken before resorting to a petition to increase rates.
Operations and Maintenance account was adjusted to PhP 4,752,499 after
considering adjustment of PhP 1,315,785, computed as follows:
TABLE 15
O & M per MANSONS PhP 6,068,284
Adjustments:
Expenses excluded for ratemaking purposes PhP (321,461)
Franchise Tax (separate item) (994,324) (1,315,785)
Adjusted O & M PhP 4,752,499
Adjustments
The Commission finds some expenses to be unnecessary in the provision
of MANSONS electric service and therefore excluded the same for ratemaking
purposes, as follows:
TABLE 16
Particulars
Amount
Donations PhP 115,326
Interest Expense 206,135
Total Expenses excluded for
ratemaking purposes PhP 321,461
Franchise tax shall appear as a separate line item on the customers’ bills
as percentage of the total monthly electricity charges. Given this rate design, it is
appropriate to remove the amount of PhP 994,324 associated with franchise taxes
from the revenue requirement as this is just a pass through item.
For future rate cases, MANSONS will continue to be required to make full
disclosures of all it’s O & M expenses in order for the Commission to determine

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the prudence of its expenditures. Unless otherwise justified by MANSONS,
expenses found to be unreasonably incurred shall not be allowed by the
Commission as part of its recoverable costs to be passed on to MANSONS endusers.
II.A.4.
Depreciation and Amortization
MANSONS is required to set up a depreciation fund each year
corresponding to the whole amount of depreciation that it has recorded on its
books. The setting up of this fund should be done on a monthly basis
corresponding to the monthly depreciation. MANSONS will be required to strictly
account for the expenditures out of this fund which should be used solely for
investment in electric plant. The utility is free to withdraw funds from this account
at any time but all withdrawals should be reported to the Commission within thirty
(30) days specifying the use of the funds. This report should be consolidated with
the monthly reportorial requirement (M-001 & M-002).
II.D. Rate Base
II.D.1. Net Plant in Service
The Commission has determined MANSONS’ net plant in service as of
December 31, 2000 considered in this case as follows:
TABLE 17
Plant, Property & Equipment
Sound Value
Assets as of September 1, 1998 per Appraisal Report PhP 28,355,700
Add (Deduct) Adjustment :
Addition/(Retirement) from Sept. 2, 1998-Dec.2000 749,260
Depreciation Expense from Sept. 2,1998-Dec. 2000 (4,358,090)
Adjusted Net Plant in Service as of Dec. 31, 2000 PhP 24,746,870
The Commission considered appraisal of assets conducted by AACI of
MANSONS properties and equipment existing as of September 1, 1998 with a

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total value of PhP 64,263,600 as cost of reproduction, new and PhP 28,355,700
as sound value, as shown in Table 5 of this Decision.
II.D.2.
Allowance for Cash Working Capital
Working capital is money a business must have available to meet payroll
and expenses until customers have paid for the service or product. Utilities are
usually allowed, as part of their rate base, an amount for working capital to cover
expenses during the time it takes for the customers to use the service, be billed
for it and collect payments.
MANSONS has included an amount equal to two (2) months cash
operating and maintenance expenses including purchased power costs as the
allowance for cash working capital.
The cash working capital allowance included in the rate base should
approximate the actual cash requirements of MANSONS based on the estimated
net lag in its cash flow. In order to refine the application of the formula used in
past rate proceedings, a more detailed review of the actual lag in cash flow
associated with the payments for purchased power and the inflow of cash from
MANSONS customers was undertaken. With respect to the outflow of cash
associated with the payments for purchased power, it was determined that the
time from the provision of service to the outflow of funds can be calculated as
follows:
15 days One-half of the billing cycle
5 days Meter reading and bill preparations
30 days Approximate time before payment is due
50 days Total

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Therefore, MANSONS has an average of approximately fifty (50) days from
the time service is provided until payment is due. With respect to the collection of
funds from its customers, it was determined that the time lag from the provision of
service to the inflow of funds can be calculated as follows:
15 days One-half of the billing cycle
10 days Meter reading, bill preparation
10 days Required time to collect the customer’s bill
without disconnection
5 days Processing time
40 days Total
Therefore, MANSONS waits for an average of approximately forty (40)
days before it receives payment for the services provided.
Based on MANSONS current billing and collection practices, there appear
to be no cash working capital requirement associated with purchased power. The
only potential finance costs associated with purchased power would be costs
caused by customers who do not pay their bills in accordance with MANSONS
collection policies. MANSONS customers who do pay on time should not be
penalized because other customers failed to comply with MANSONS payment
schedule. If additional finance costs are incurred because of late payment of bills,
these costs should be recovered in the form of penalties for late payment.
Therefore, the formula for the calculation of the cash working capital allowance is
modified by excluding purchased power costs.
The adjusted Cash Working Capital allowed by the Commission was
computed as follows:

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TABLE 18
Adjusted O & M PhP 68,785,365
Taxes & Non-cash items
Taxes Other than Income Tax
106,685
Depreciation
4,358,090
Purchased power cost
54,750,234
Total Taxes & Non-Cash Items PhP 59,215,009
Total O&M , net of Cash & Non-Cash Item PhP 9,570,356
Cash Working Capital – O&M (2 mos.) PhP 1,595,059
Adjusted Power Cost PhP 54,750,234
Cash Working Capital – Power Cost (0) 0
Total Cash Working Capital PhP 1,595,059
II.D.3.
Summary of Rate Base
The following compares the rate base submitted by MANSONS with that
approved by ERC.
TABLE 19
Per MANSONS Per ERC
Net Plant In Service PhP 24,746,870 PhP 24,746,870
Cash Working Capital 12,155,270 1,595,059
Total Rate Base PhP 36,902,140 PhP 26,341,929
II.E.
Rate of Return
The current form of rate regulation practiced for the privately owned electric
utilities is a cost based method known as the rate of return on rate base (RORB)
methodology. Power rates are set to recover cost of service prudently incurred
plus a reasonable rate of return on rate base. The rate of return pertains to the
percentage which when multiplied by the authorized rate base, provides a return
that will fairly compensate the company for the risk inherent to the investment of
capital. This simply means that a regulated utility is allowed to set rates which will
cover operating costs and provide an opportunity to earn a reasonable rate of
return on the assets utilized in the business.

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On the basis of current jurisprudence, the Commission has determined that
the 12% rate of return will be maintained in this case but the income tax thereon
will not be allowed as operating expense. Thus, the 12% rate of return is a pretax
rate of return which is equivalent to PhP 3,161,032, computed as follows:
TABLE 20
Adjusted Rate Base PhP 26,341,929
Rate of Return 12%
Return On Rate Base PhP 3,161,032
The Commission intends to adopt a new internationally accepted method of
rate regulation known as Performance-Based Regulation. The treatment of
income tax in this new method may be different from the present RORB method.
II.F.
Revenue Requirement Summary
On
the basis of the foregoing discussion, the Commission after
considering adjustments of
PhP 10,872,582 approved a total revenue
requirement of PhP 71,946,397 equivalent to OATA of PhP 0.0344 per kWh or
0.66% increase from its existing average rate.
TABLE 21
Per
MANSONS
Adjustments
ERC
Adjusted
ERC
Fuel PhP 0 PhP 0 PhP 0
Purchased Power 63,039,806 (8,289,572) 54,750,234
Payroll 4,924,542 0 4,924,542
Operation & Maintenance 6,068,284 (1,315,785) 4,752,499
Depreciation & Amortization 4,358,090 0 4,358,090
Return on Rate Base 4,428,257 (1,267,225) 3,161,032
Total Revenue Requirement PhP 82,818,978 PhP (10,872,582) PhP 71,946,397
Adjusted Revenue (2000) PhP 71,475,841
Increase(Decrease) PhP 470,556
Annualized kWh Sales 13,683,319
Required Increase PhP/kWh 0.0344
The overall average tariff adjustment (OATA) is a measurement tool based
on the formula: (Total Revenue Requirement less Existing Revenue) divided by

Page 22 of 35
kilowatt-hour sales). This measurement is not meant to refer to any specific
customer class. MANSONS proposed an OATA of PhP 0.5823 per kWh.
II.G.
Adjusted Operating Revenue
The
Commission adjusted MANSONS actual operating revenue to
PhP 71,475,841, computed as follows:
TABLE 22
MANSONS actual operating revenue PhP 65,326,040
Add/(Deduct):
Franchise Tax (994,324)
Addtl. revenue due to increase in sales 2,789,899
Additl. Revenue due to increase in power cost 4,354,226
Total Adjusted Operating Revenue PhP 71,475,841
II.I.
Billing Determinants and Customer Class Allocation
The Commission concurs with MANSONS billing determinants and
allocation factors except for the billing determinant and allocation factor used for
energy related costs.
The Commission allocated the computed revenue
requirement using its existing customer class.
The Commission believes that any energy related costs should be
allocated based on annualized sales. Annualized sales were derived by
multiplying year-end number of customers with average annual kWh usage for
each customer class. This was performed to project for the future kWh sales for
the development of a more appropriate allocation factors and billing determinants
for each customer class. With the annualized sales per customer class, the
computed adjusted kilowatt-hour sold was 13,683,319.

Page 23 of 35
The Commission opines that in theory, the most appropriate way to allocate
costs among customer classes is through the use of the cost causation principles.
Thus, the Commission intends, through future proceedings to move even further
towards uniform definitions of customer classes based on cost causation
characteristics. However, the Commission believes that such a change would
best be accomplished through the issuance of guidelines of general applicability to
all utilities. Furthermore, R.A. 9136 requires the identification and removal of
interclass cross-subsidies. Substantive change in customer classes at this time
prevents precise calculation of cross-subsidy in existing rates. Therefore, no
changes in customer class allocations are ordered for MANSONS at this time.
II.J.
Design and Calculation of Charges
II.J.1.
Generation Charge
The Commission updated the generation cost based on the most recent
approved NPC rate, i.e., ERC Case No. 2003-291, Order dated September 29,
2003. Notably, the Commission approved the adoption of the ICERA under ERC
Case No. 2003-498, Order dated December 4, 2003. The Commission directed
NPC and PSALM to refund to its customers the DAA and FOREX Correction for
Luzon amounting to PhP (0.0065) per kWh within a period of six months starting
December 2003 to May 2004.
The NPC’s approved rate will remain fixed until changes are authorized by
the Commission.
This eliminates the need for future Purchased Power
Adjustment.

Page 24 of 35
The Commission has developed a new recovery mechanism designed to
replace the purchased power adjustment clauses being used by the power
utilities. The Commission has promulgated the Implementing Guidelines on the
Generation Rate Adjustment Mechanism (GRAM) effective February 24, 2003. In
view thereof, the Commission does not foresee the need for the Purchased Power
Adjustment (PPA) clause. Towards this end, the Commission hereby directs
MANSONS to discontinue implementation of its PPA upon effectivity of the herein
approved unbundled rates.
II.J.2.
Transmission Charge
The Commission’s decision in ERC Case No. 2001-901 and the
Commission’s Order dated September 20, 2002 fixed the transmission charges for
the TRANSCO without any provision for automatic adjustment thereof. Since the
transmission rates to be paid by MANSONS are fixed, it is the decision of the
Commission to likewise fix the unbundled transmission rates billed to its end-use
customers.
The transmission charge shall be billed on a fixed rate per kilowatt-hour for
all end-users except for Industrial customers. The transmission charge for
Industrial customers shall be billed using a combination of a fixed rate per kilowatt
(kW) and a rate per kilowatt-hour (kWh).
In consonance with the gradual phase-out of the intra-grid subsidies being
billed by TRANSCO, the Commission hereby sets the transmission charges for
the succeeding years, as follows:

Page 25 of 35
TABLE 23
Period Charges Residential Commercial
Street
Lights Industrial Hospital
Govt.
Bldg.
Oct.2003 - Demand (PhP/kW)
138.07
Sept .2004 Transmission (PhP/kWh) 0.9667 0.8934 0.8301 0.4013 0.9036 0.9133
Oct.2004 - Demand (PhP/kW)
157.87
Sept. 2005 Transmission(PhP/kWh) 1.1053 1.0215 0.9491 0.4588 1.0332 1.0442
Oct.2005- Demand (PhP/kW)
177.66
Sept. 2006 Transmission(PhP/kWh) 1.2439 1.1496 1.0681 0.5163 1.1627 1.1751
II.J.3.
System Loss Charge
The Commission defines System Loss for utilities to include technical loss
and administrative loss or the utility’s use of power for its own operations.
The Commission approves the recovery of allowed system loss through the
establishment of a separate System Loss Charge. The system loss charge shall
vary from one customer class to another depending on their respective
contributions to the system loss. The allowed system loss is equal to the actual
system loss for the test year or the existing system loss cap prescribed in R.A.
7832 whichever is lower.
The Commission believes that the present cap on System Loss of 9.5%
should be used in the calculation of revenue requirements at this time. This
would however be subject to change upon the approval of a new policy by the
Commission. The actual system loss or cap of 9.5% plus 1% of company use or
actual whichever is lower shall be deducted from total power cost and to be billed
separately as System Loss Charge.
II.J.4.
Distribution Charge
The distribution charge shall be billed on a fixed rate per kilowatt-hour
(kWh) for all end-users except for Industrial customers. The distribution charge

Page 26 of 35
for Industrial customers shall be billed using a combination of a fixed rate per
kilowatt (kW) and a rate per kilowatt-hour (kWh).
Relevant to distribution charge, MANSONS’ proposed distribution wheeling
rates comprised of its proposed distribution and supply charges. The Commission
believes that wheeling rates are parallel to the cost of service functionalized under
Distribution. Thus, the Commission orders that the Distribution Charge provided
in the Rate Schedules be likewise utilized as Distribution Wheeling Charges
available to the future contestable market.
The Commission’s decision to allow a distribution utility to avail of the
Distribution Wheeling Charges of another distribution utility is based on the
general intent of R.A. 9136 to promote a competitive generation market.
Distribution utilities that currently or in the near future rely in full or in part on the
distribution facilities of another distribution utility should not be held captive by the
other distribution utility in the purchase of unbundled generation. Distribution
utilities are, therefore, prohibited from bundling or tying the sale of generation or
purchased power with the sale of unbundled distribution wheeling service.
II.J.5.
Metering and Supply Charges
The Commission acknowledges that cost-causation rate design principles
suggest the recovery of customer-related costs through fixed monthly charges. In
addition to this cost of service principle, however, the Commission must also
consider rate design impacts across the spectrum of customers within each rate
class. Although RA 9136 requires the removal of inter-class cross subsidies, the
law does not require removal of intra-class cross-subsidies. The Commission has
the flexibility to consider other factors in determining rate design for a particular

Page 27 of 35
class of customers.
Therefore to mitigate the impact on below-average
consumption of residential end-users, the Commission orders MANSONS to use a
combination of peso per customer per month and peso per kilowatt-hour for the
metering function. On the other hand, the Commission orders MANSONS to use
peso per kilowatt-hour rate for the supply function. All other end-users except for
Street Lights shall be charged fixed monthly customer charge for both metering
and supply functions. Street Lights will be charged fixed monthly customer charge
for supply function only.
II.J.6.
Franchise Taxes
Franchise taxes shall appear as a separate line item on the customers’
bills. Given this rate design, it is appropriate to remove test year amounts
associated with franchise taxes from the revenue requirement used to calculate
other recurring electricity rates.
Pending issuance of guideline on this issue by the Department of Finance
(DOF), MANSONS is in the meantime directed to use the formula below in
calculating franchise taxes.
Franchise Tax:
Total Power Bill x FTx1,y
Where: FTx = National franchise tax of 2%
Fty = Applicable local franchise tax
II.K. Cross Subsidy Removal
The inter-class cross subsidies in existing rates are as follows:

Page 28 of 35
TABLE 24
Total Residential Commercial Streetlights Industrial Hospital Govt.Bldg.
New Cost-
Based Revenue 71,946,397 54,100,416 7,895,595 1,747,766 7,027,805 486,349 688,466
Existing Rates
Revenue 71,475,841 51,889,384 8,436,324 1,795,401 8,093,882 535,155 725,695
Total Change in
Revenue 470,556 2,211,032 (540,729) (47,635) (1,066,077) (48,806) (37,229)
% Change in
Revenue 0.6583%
Normalized
Revenue 71,946,397 52,230,993 8,491,863 1,807,221 8,147,168 538,678 730,472
Inter-class
Cross Subsidy 0 (1,869,423) 596,268 59,456 1,119,362 52,329 42,008
Class Billing
Determinants 13,683,319 10,000,842 1,578,998 380,481 1,482,377 98,449 142,172
(in kWh)
Inter-class
Cross Subsidy
Rates (PhP/Kwh)
(0.1869) 0.3776 0.1563 0.7551 0.5315 0.2955
Section 74 of R.A. 9136 and Rule 16 Section 16, Section 5 of the
Implementing Rules and Regulation thereof provide that ERC shall prescribe a
scheme for phasing out all cross subsidies including subsidies within Grids,
between Grids, and between classes of end-users. The phasing out period shall
not exceed three (3) years from the establishment of the Universal Charge, which
may be extendible for a maximum period of one (1) year subject to certain
conditions.
The Commission approved the cross subsidy removal scheme for the
TRANSCO in its Decision dated June 26, 2002 in ERC Case No. 2001-901 which
impacts the unbundled transmission rates for MANSONS end users. This impact
is reflected in the three-year schedule for unbundled transmission charges
provided in Section II.J.2 above.
In the instant case, the Commission will order the cross subsidy removal
process at a later date following the establishment of the Universal Charge. Until

Page 29 of 35
such time, MANSONS will continue to charge the inter-class cross subsidy rates
set forth above.
II.L.
Lifeline Rate
Section 4 (hh) of R.A. 9136 defines Lifeline Rate as the subsidized rate
given to low-income captive market end-users who cannot afford to pay at full
cost. Pursuant to Section 73 of R.A. 9136, the Commission hereby sets the level
of lifeline consumption and rate applicable to MANSONS.
In determining the lifeline level of consumption to be provided to the
marginalized end-users, the Commission calculated the probable load
requirement of typical low-income consumers by two (2) lighting facilities at 20
watts each and a 50-watt Radio that are being used at reasonable number of
hours. Thus, the Commission sets the lifeline consumption maximum level of 50
kilowatt-hours for MANSONS. The Commission considers the impact that the
subsidized Lifeline Rates will have on other end-users who must carry the costs
associated with such subsidy. This fact, combined with the desire to maximize the
benefit to as many marginalized end-users as possible, has led the Commission
to adopt the following graduated scale for lifeline discount for MANSONS. The
graduated scale is also based on the recognition that individual end-user
consumption may likely vary from month to month.
TABLE 25
KWh Consumption % Lifeline Discount
10 kWh and below 30%
11 – 20 kWh 25%
21 – 30 kWh 20%
31 – 40 kWh 15%
41 – 50 kWh 10%

Page 30 of 35
MANSONS shall apply these discounts to the following residential charges:
Generation, Transmission, Distribution, Supply, Metering and System Loss. In a
given billing period, an end-user at any of the above-consumption levels shall be
given the specified corresponding discount on each of these rate components. An
end-user with a level of consumption exceeding 50 kWh in a particular billing
period shall not be entitled to any discounted lifeline rate for said period.
The cost of subsidy to lifeline end-users shall be passed on to all nonlifeline
end users. For MANSONS, the lifeline discounts result in a Subsidy on
Lifeline by other end-users equal to PhP 0.0849/kWh.
II.M.
Other Charges/Non-Recurring Rates
MANSONS existing Other Charges were considered in the determination of
the revenue requirement. The corresponding revenue derived from these charges
were appropriately deducted from the determination of the revenue requirement
allowed to MANSONS.
The Other Charges of MANSONS are hereby pegged at their existing
levels until such time that the Commission sets new rates on the same. Further,
MANSONS is ordered to make a compliance filing on its Other Charges a year
from date of this Decision using a format to be prescribed by the Commission.
The compliance filing for approval of Other Charges shall include rates that
are cost-based as well as all supporting cost justification for the rates, including
but not limited to the amount of actual time and wages of employees performing
each task encompassed by each type of Other Charges.

Page 31 of 35
II.N.
Estimated Impact on Average Residential Consumer
A comparison of the estimated impact of all adjustments on the revenue
requirement on the monthly bill of a residential end-user consuming 99 kWh a
month using rates based on MANSONS actual existing rates as of December
2003 against the unbundled rates approved by the Commission is shown below:
TABLE 26
RESIDENTIAL
Consuming 99 kWh Peso/kWh Amount Peso/kWh Amount
Basic Charge
3.1912 315.92 Generation Charge
Transmission Charge
2.4897
0.9667
System Loss Charge
0.5759
PPA
Power Act Reduction
2.1711
(0.30)
214.94
(29.70)
Distribution Charge
Supply Charge
1.0331
0.1538
Metering Charge:
Retail Customer Charge/Mo.
5.00
Metering System Charge 0.1292
Inter-Class Cross Subsidy Charge (0.1869)
Lifeine Rate Subsidy
0.0849
Power Act Reduction
(0.30)
246.48
95.70
57.01
102.27
15.23
5.00
12.79
8.41
(18.51)
(29.70)
SUB TOTAL
501.16
SUB TOTAL
494.69
Universal Charge
Missionary Electrification
Environmental Charge
0.0373
0.0025
3.69
0.25
Universal Charge
Miissionary Electrification
Environmental Charge
Franchise Tax 2.5%
0.0373
0.0025
3.69
0.25
12.37
TOTAL BILL
Ave. Rate/kWh
Inc./(Dec.) In Rate
Inc./(Dec.) In Bill
505.10 511.00
5.1020 5.1616
0.0596
5.90
DISPOSITION
follows:
WHEREFORE, the foregoing premises considered, it is hereby decided as
1. To approve the unbundled schedule of rates of MANSONS, to be
effective the first billing cycle thirty (30) days after receipt of this
Decision, to wit;

Page 32 of 35
MANSONS CORPORATION (MANSONS)
ERC CASE NO. 2002-18 and 2002-143
RATE SCHEDULE
Residential Commercial Streetlights Industrial Hospital Govt.Bldg.
Generation Charge (PhP/kWh) 2.4897 2.4897 2.4897 2.4897 2.4897 2.4897
Transmission Charge (PhP/kWh) 0.9667 0.8934 0.8301 0.4013 0.9036 0.9133
(PhP/kW)
138.07
Distribution Charge (PhP/kWh) 1.0331 0.8950 0.6975 0.3589 0.9673 0.8284
(PhP/kW)
123.50
Customer Charges
Supply Charge (PhP/Meter/Mo.)
12.57 12.57 12.57 12.57 12.57
(PhP/kWh) 0.1538
Metering Charge (PhP/Cust./Mo.) 5.00 17.28 0 604.95 17.28 17.28
(PhP/kWh) 0.1292
System Loss Charge (PhP/kWh) 0.5759 0.5759 0.5759 0.5759 0.5759 0.5759
Inter-Class Cross
Subsidy (PhP/kWh) (0.1869) 0.3776 0.1563 0.7551 0.5315 0.2955
Lifeline Rate Subsidy (PhP/kWh) 0.0849 0.0849 0.0849 0.0849 0.0849 0.0849
Universal Charge (PhP/kWh)
Missionary Electrification
0.0373 0.0373 0.0373
Environmental Charge
0.0025 0.0025 0.0025
Note: Plus National and Local Franchise Taxes
0.0373
0.0025
0.0373
0.0025
0.0373
0.0025
2. To approve MANSONS net utility plant in service at sound value as of
September 1, 1998 amounting to PhP 28,355,700.
3. To direct MANSONS to comply with the following:
a) Discontinue charging the PPA upon effectivity of the approved
unbundled rates. MANSONS shall automatically bill its enduser
the new Generation Rate charged by NPC as approved
and authorized by the Commission;
b) Make a compliance filing with respect to its Other Charges a
year from date of this Decision;
c) Bill the amount of PhP 0.0373/kWh representing the missionary
electrification portion of the Universal Charge in accordance
with the Decision of the Commission in ERC Case No. 2001-
165 (In the Matter of the Petition for the Availments from the

Page 33 of 35
Universal Charge the Share for Missionary Electrification, NPC-
SPUG, Applicant);
d) Bill the amount of PhP 0.0025/kWh representing the
environmental portion of the Universal Charge in accordance
with the Commission’s Decision in ERC Case No. 2002-194 (In
the Matter of the Petition for the Availments from the Universal
Charge the Environmental Share/Charge for the Rehabilitation
and Management of Watershed Areas, NPC, Applicant);
e) To set up a depreciation fund each year corresponding to the
whole amount of depreciation that it has recorded on its books.
The setting up of this fund should be done on a monthly basis
corresponding to the monthly depreciation. MANSONS is
required to strictly account for the expenditures out of this fund
which should be used strictly for investment in electric plant and
all withdrawals from this fund should be reported to the
Commission within thirty (30) days from withdrawal;
f) To inform the end-users within its franchise area of the
approved unbundled rates not later than thirty (30) days after
receipt of this Decision;
g) Bill its respective end-users using a billing format which
contains at least the rate elements provided in Annex “A” (Rate
Schedule) of this Decision upon effectivity of the approved
unbundled rates;

Page 34 of 35
h) Bill its respective end-users using a billing format which
contains at least the rate elements provided in Annex “B” of this
Decision upon effectivity of the approved unbundled rates. The
rate elements provided in Annex “B” should appear on the endusers’
bills even if the rate elements currently have a rate of
zero (0) or have not yet been determined by the Commission;
and
i) To submit for verification and confirmation purposes on or
before the twentieth (20 th ) day of the month following the
effectivity of the herein approved unbundled rates and every
month thereafter: (a) five (5) sample bills for each customer
class; (b) copy of bills from the generation and transmission
companies; and (c) M-001 and M-002 with all related
schedules;
SO ORDERED.
Pasig City, January 28, 2004.
RODOLFO B. ALBANO
Chairman
OLIVER B. BUTALID
Commissioner
CARLOS R. ALINDADA
Commissioner
LETICIA V. IBAY
Commissioner
JESUS N. ALCORDO
Commissioner

Page 35 of 35
Copy furnished:
1. Attys. Norberto F. Manjares and Norberto C. Manjares III
Counsel for Applicant
Law Office of Manjares & Manjares
Suite 211, Jiao Building
2 Timog Avenue, Quezon City 1100
2. Office of the Solicitor General
134 Amorsolo Street, Legaspi Village
City of Makati 1229
3. Commission on Audit
Commonwealth Avenue
Quezon City 0880
4. Senate Committee on Energy
GSIS Building, Roxas Boulevard
Pasay City 1307
5. House Committee on Energy
Batasan Hills, Quezon City 1126
6. The Municipal Mayor
Floridablanca, Pampanga 2006
7. Mansons Corporation
Floridablanca, Pampanga 2006