EDC PR 2016 (FS section)

Financial Statement
used for the wind energy project. In determining the amount of provisions for rehabilitation and
restoration costs, assumptions and estimates are required in relation to the expected cost to
rehabilitate and restore sites and infrastructure when such obligation exists.
As of December 31, 2016 and 2015, the Company adjusted its provision for rehabilitation and
restoration costs amounting to ₱1,012.4 million and ₱1,058.0 million, respectively, presented
under “Provisions and other long-term liabilities” account in the consolidated statement of
financial position (see Note 18). The revision in estimate was mainly attributable to changes in
discount rates.
Provision for Liabilities on Regulatory Assessments and Other Contingencies
The Company has pending assessments from various regulatory agencies and outstanding legal
cases. The Company’s estimate of the probable costs for the resolution of these assessments and
legal cases has been developed in consultation with in-house and external legal counsels handling
the defense of these cases, and is based upon the thorough analysis of the potential outcomes.
Management, in consultation with its in-house and external legal counsels, believe that the
Company’s positions on these assessments are consistent with the relevant laws, and these
assessments would not have a material adverse effect on the Company’s consolidated financial
position and results of operations. It is possible, however, that future results of operations could
be materially affected by changes in the estimates or in the effectiveness of strategies relating to
these proceedings. As of December 31, 2016 and 2015, provisions for these liabilities amounting
to ₱586.7 million and ₱547.9 million, respectively, are recorded and recognized as part of
“Others” under “Provisions and other long-term liabilities” (see Note 18). Interest on liability
from litigation amounted to ₱7.8 million in 2016, 2015 and 2014 (see Note 24).
Estimation of Liability from Shortfall Generation
The Parent Company’s Unified Leyte PPA with NPC requires the annual nomination of capacity
that EDC shall deliver to NPC. On a monthly basis, EDC bills a uniform capacity to NPC based
on the nominated energy. At the end of the contract year, EDC’s fulfillment of the nominated
capacity and the parties’ responsibilities for any shortfall shall be determined. On the other hand,
the PPAs for Mount Apo I and II provide a minimum offtake energy, which the Parent Company
shall meet each contract year. The contract year for the Unified Leyte PPA is for fiscal period
ending July 25 while the contract year for the Mindanao I and Mindanao II PPAs is for fiscal
period ending December 25 (see Note 34). Assessment is made at every reporting date whether
the nominated capacity or minimum offtake energy would be met based on management’s
projection of electricity generation covering the entire contract year. If the occurrence of shortfall
generation is determined to be probable, the amount of estimated reimbursement to NPC is
accounted for as a reduction to revenue for the period and a corresponding liability to NPC is
recognized. As of December 31, 2016 and 2015, the Company’s estimated liability arising from
such shortfall generation amounted to ₱396.0 million and ₱441.5 million, respectively, shown
under “Trade and other payables” account specifically under “Other payables” (see Note 16).
Moreover, the amount of estimations relating to the shortfall generation under the PPA’s covering
Unified Leyte may be subsequently adjusted or reported depending on the subsequent
reconciliation by the Technical or Steering Committee established in accordance with the Unified
Leyte PPA, in view of the parties’ responsibilities in connection with the consequences of
typhoons and similar events. As of February 28, 2017, the reconciliation with NPC for the
contract year 2013-2014 is still ongoing.
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