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 Philippine Independent Power Producers Association, Inc. (PIPPA) o An association composed of 28 independent power producers supplying more than 86.7% (11,868.4 MW) of the national installed generating capacity. 2

 Issued on July 6, 2011, entitled, entitled “Resolution Adopting the Amended Rules on the Definition and Boundaries of Connection Assets for Customers of Transmission Provider” (“Resolution No. 16”) 3

 PIPPA seeks the following amendments to Resolution 16: ◦First : Replacement of Diagram 4 of Annex C with Diagrams 4-A and 4-B (*Main amendment being sought) ◦Second : Revision of the definition of “Connection Assets” in Section 2.0 of Annex A ◦Third : Inclusion of the definitions of “Generator”, “Distribution Utility” and “Load Customer” in Section 2.0 of Annex A 4

 Replace Diagram 4 of Annex C with Diagrams 4-A and 4-B PIPPA’s Reasons:  Proposed Diagrams 4-A and 4-B distinguish between assets that are shared with another Generator and those that are not, whereas Diagram 4 does not.  Unlike Diagram 4, the Proposed Diagrams are consistent with Section 4.2 of Annex A: “Connection Assets for Generation Customers of Transmission Provider include those assets from the last Single Mechanical Connection of a User System or Equipment of a Generator, at its Connection Point, to the last Single Mechanical Connection which is not shared with another Generator within the Grid”. 5

 The Published Diagram erroneously classifies connection assets such as switchyard or related facilities as transmission assets if another customer of NGCP happens to be connected to those facilities, even if that other customer is merely a load customer of NGCP and is not itself a GenCo … 6

 Proposed Diagrams 4-A & 4-B: 7

 NGCP’s first string of arguments against PIPPA’s First Amendment is that switchyards allegedly perform transmission functions.  According to NGCP: Diagram 4 is “consistent with Section 9 of the EPIRA”, which provide: “A generation company may develop and own or operate dedicated point-to-point limited transmission facilities that are consistent with the TDP : Provided, That such facilities are required only for the purpose of connecting to the transmission system, and are used solely by the generating facility, subject to prior authorization by the ERC...” (Section 9 of EPIRA; emphasis supplied in NGCP presentation) “With an End-user connected at the Generator’s switchyard, the Generator is already performing a Transmission Function” 8

PIPPA’s counterarguments against NGCP: o NGCP assumes that the switchyard facilities of a Generation Plant are “transmission facilities” -- but they are not The ERC’s Subtransmission Guidelines, as amended, provides: “‘Transmission Assets’ shall refer to the grid-wide electrical infrastructure through which electricity flows in large quantities between generators or generating plants consisting of several units or blocks of generators and the many more dispersed load centers. *** (Emphasis supplied)” o Thus, functionally, an asset is not a “Transmission Asset” simply because it happens to connect one generation plant to a DU 9

PIPPA’s counterarguments against NGCP: o The “dedicated point-to-point limited facilities” referred to in Section 9 of the EPIRA and its IRR refers to a line (composed of wires, poles or towers, insulators, line hardware) used to connect a Generation Plant to the grid or to a DU system without any entity connected in between - They do not include the switchyard of the Generation Plant at which one end of the line happens to be connected. o The switchyard of the Generation Plant forms part of the GenCo’s User System (Section of the Amended Grid Code) 10

Transco/NGCP Switchyard or Substation Power plant/Customer -owned Switchyard or Substation (User System) Power plant/Customer -owned Switchyard or Substation (User System) 11

 NGCP’s second string of arguments is that the switchyards should be transferred to because of “Competitive Purposes Perform transmission functions. According to NGCP: o “The generator is already competing with the transmission provider”; and o DU’s connected to Grid via generator-owned asset cannot procure and compete for the lowest priced electricity” “Owner of generator-connection asset can deny access between competing generators/RES”; No alternative source of supply if generator connection to the grid is unavailable”; and “The alleged ‘savings’ of the DUs can easily be wiped out by uncompetitive pricing.’ 12

PIPPA’s counterarguments against NGCP:  GenCos are not in competition with NGCP o “Competitive purposes” refers to competition among Generation Companies. reason for transferring ownership of the assets to a third party (i.e. NGCP) – so that a GenCo cannot control the ability of another GenCo to supply electricity to the Grid transferring ownership of these assets to NGCP unfairly favors one competitor (NGCP) against the other (GenCo) 13

PIPPA’s counterarguments against NGCP:  GenCos do not in compete with the DU’s No DU is compelled to purchase electricity from a particular GenCo, whether or not it is directly connected to the DU A direct connection to a GenCo benefits the DUs and their customers because of “cheaper electricity” – No PDS charges Frequently, DUs directly connected to a GenCo are also connected to the Grid via another line 14

NGCP’s “Counter-Proposal” -  NGCP admits that Diagram 4, Annex C, is “inconsistent” with the definition of “Connection Assets” for Generation Customers of Transmission Provider” in Section 4.2, Annex A, of Resolution 16.  NGCP’s proposed solution is to revise the definition to make this consistent with the diagram, as follows: “Connection Assets for Generation Customers of Transmission Provider include those assets from the last Single Mechanical Connection of a User System or Equipment of a Generator, at its Connection Point, to the last Single Mechanical Connection which is not shared with another Generator Customer within the Grid.” 15

PIPPA’s counterarguments -  NGCP’s proposal is unusual. It is Diagram 4 that should be amended and not the definition in Section 4.2, because the diagram was meant to illustrate the definition, and not the other way around.  The existing definition in Section 4.2 is consistent with the definitions contained in previous issuances of the ERC pursuant to which the GenCos have designed their Generation Plants. 16

 First: Replacement of Diagram 4 of Annex C with Diagrams 4-A and 4-B (*Main amendment being sought)  Second: Revision of the definition of “Connection Assets” in Section 2.0 of Annex A  Third: Inclusion of the definitions of “Generator”, “Distribution Utility” and “Load Customer” in Section 2.0 of Annex A 17

 Revision of the definition of “Connection Assets” in Section 2.0 of Annex A  PIPPA’s Reason: o For the avoidance of doubt as to the meaning of “Connection Assets”. ◦“Connection Assets (CA): Those assets that are put in place primarily to connect a Customer/s to the Grid and used for purposes of Transmission Connection Services for the conveyance of electricity which if taken out of the System, will only affect the Customer connected to it and will have minimal effect on the Grid, or other connected Customers. For the avoidance of doubt, Connection Assets exclude a User System or Equipment or other Facilities owned by a Customer such as a Load Customer or a Generator, which User System or Equipment or other Facilities shall remain owned by such Customer.” (Proposed revisions underscored) 18

NGCP’s argument:  “NGCP disagrees with the proposal of PIPPA. NGCP proposes that the existing definition be retained.” PIPPA’s Counterargument:  It is in the interest of all concerned that the boundaries of “Connection Assets” are clearly defined, especially considering the significant investments required for the construction of new plants to address the country’s rapidly increasing energy requirements. 19

 First: Replacement of Diagram 4 of Annex C with Diagrams 4-A and 4-B (*Main amendment being sought)  Second: Revision of the definition of “Connection Assets” in Section 2.0 of Annex A  Third: Inclusion of the definitions of “Generator”, “Distribution Utility” and “Load Customer” in Section 2.0 of Annex A 20

 Inclusion of the definitions of “Generator”, “Distribution Utility” and Load Customer” in Section 2.0 of Annex  PIPPA’s Reason: o To minimize the need to refer to another ERC issuance for the meaning of these terms. o “Generator: Has the same meaning as Generation Company under the Philippine Grid Code, which is a person or entity authorized by the ERC to operate a facility used in the generation of electricity.” o “Distribution Utility: Has the same meaning given to this in the Philippine Grid Code, which is an Electric Cooperative, private corporation, government-owned utility, or existing local government unit that has an exclusive franchise to operate a Distribution System.” o “Load Customer: A Distribution Utility or other End User that receives electricity through the Grid.” 21

NGCP’s argument:  “NGCP is in a position that it is best practice to cross reference the definition with the primary document. PIPPA’s counterargument:  Resolution 16 does not say which document should be cross-referenced for the definition of these terms.  Cross referencing is not ideal considering the myriad ERC issuances currently in existence. 22

 Diagram 4 Annex C effectively prevents DUs from directly connecting to a Generation Plant that also supplies electricity to the Grid - o Directly connecting to a Generation Plant allows DUs to avoid paying PDS charges  Diagram 4 Annex C will make electricity in the Philippines even more expensive than it already is - o by unnecessarily requiring consumers to pay PDS charges even when they are directly connected to a generator 23

 Diagram 4 Annex C will discourage construction of new Generation Plants with large generating capacities - ◦new and large generation plants are necessary to address rapidly increasing electricity needs; ◦larger plants produce more electricity at lower costs; ◦local governments will hesitate to allow the construction of a large generation plant w/out direct benefit to constituents; ◦no DU can fully absorb the entire output of a large Generation Plant 24

 Diagram 4 Annex C runs counter to the stated reasons of EPIRA to: ◦“ensure and accelerate the total electrification of the country”; ◦“ensure the quality, reliability, security and affordability of the supply of electric power”; ◦“ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency”; ◦“enhance the inflow of private capital and broaden the ownership base of the power generation... sector” ◦“protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power”; ◦“provide for an orderly and transparent privatization of the assets and liabilities of the National Power Corporation” 25

Thank you 26