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GU\.t\TORy C~«: q.f'~,.l.. ~ .A:C, ~Republic of the Philippines 'f Approved for \

ENERGY REGULATORY COMMISSI N PO;;:tin9San Miguel Avenue, Pasig City www.er~.g()v.ph

bf '2./r"11f,IN THE MATTER OF THEAPPLICATION FORAUTHORITY TOIMPLEMENT A NEWCUSTOMER INFORMATIONSYSTEM (CIS), WITHPRAYER FOR PROVISIONALAUTHORITY

ERCCase No. 2016-182RC

MANILA ELECTRICCOMPANY (MERALCO),

Applicant.J(------------------------------------J(

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 27 October 2016, ApplicantManila Electric Company (MERALCO) filed an Application forauthority to implement its New Customer Information System (CIS)Project with prayer for provisional authority.

In its Application, MERALCO alleged, among others, thefollowing:

1. Applicant MERALCO is a private corporation dulyorganized and existing under the laws of the Republicof the Philippines, with principal office located atLopez Building, Ortigas Avenue, Barangay Ugong,Pasig City. It may be served with notices and otherprocesses of this Honorable Commission through itsundersigned counsel at the address indicated herein.

2. MERALCO has a legislative franchise to construct,operate and maintain an electric power distributionsystem for the conveyance of electric power to the end-users in the cities and municipalities of Metro Manila,Bulacan, Cavite and Rizal, and certain

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ERC Case No. 2016-182RCNotice of Public Hearing j 5 December 2016 of 13

citiesjmunicipalitiesjbarangays in Batangas, Laguna,Quezon and Pampanga, pursuant to Republic Act No.9209.

3. MERALCQ is part of the First Entry Group ofdistribution utilities that entered Performance BasedRegulation ("PBR"). In its Final Determination dated 6June 2011 in ERC Case No. 2010-069 RC, theHonorable Commission set out its final position on theprice control arrangements that would apply toMERALCQ for the Third Regulatory Period (3RP)covering the period from 1 July 2011 to 30 June 2015,including its approval of MERALCQ's proposed CapitalExpenditure (CAPEX) Program, for the said period.

4. The last year of MERALCQ's Third RegulatoryPeriod expired on 30 June 2015. The FourthRegulatory Period (4RP) for the First Entry Groupcommenced on 1 July 2015 and will end on 30 June2019. However, MERALCQ is yet to undergo the resetprocess and is awaiting the release by this HonorableCommission of the final rules to govern the filing of itsreset application for the next regulatory period.

5. This Application is being filed pursuant to Section20 (b) of Commonwealth Act No. 146, as amended,otherwise known as the Public Service Act, whichrequires any public service to seek the prior approval ofthe Honorable Commission before it can establish,.construct, maintain, and operate new facilities or makeany extension of its existing facilities .

.A. BACKGROUND AND RATIONALE FOR THENEW CUSTOMER INFORMATION SYSTEM(CIS)

6. The existing CIS of MERALCQ, the CMSV10, storesthe transaction records of MERALCQ's close to 6million customers ranging from residential, generalservice, small to very large commercial and industrialto flat streetlight services. It directly supports themeter-to-cash activities of MERALCQ by integratingthe core processes that contribute to MERALCQ'sfinancial viability such as service application, meterreading, and commercial management (contracting,billing, payments and collection) through the interfaceof the CMSV10 with the different internal systems ofMERALCQ, such as the following:

ERC Case No. 2016-182RCNotice of Public Hearing /5 December 2016 of 13

a. Financial Management Systems, the CallCenter's Computer Telephony system and theCorporate Data warehouse system;

b. Enterprise Asset Management (EAM) - Thisfacilitates compliance with the EnergyRegulatory Commission's Order! forMERALCOto develop a more integrated AssetManagement System;2

c. Prepaid Electricity Management System(PEMS) - This formed part of MERALCO'scapital expenditure project line-up for theThird Regulatory Period. Integration isnecessary to facilitate the monitoring ofconsumption, monthly true-up adjustment ofthe Prepaid Billing, and the shifting frompostpaid to prepaid programs and vice versaof about 40,000 customers;

d. Meter Data Management System (MDMS) -This formed part of MERALCO's approvedcapital expenditure projects line-up for theThird Regulatory Period. Integration isnecessary for management of the ls-minutereadings of the smart meter and meter eventslike disconnection and reconnection. TheMDMS is the core application system tosupport the Smart Grid initiatives; and

e. Outage Management System (OMS) - Thisprovides information on outages affectingdistribution facilities. This information islinked to customer information in the CIS andallows feedback to affected customers.Moreover, outage reports recorded in the CISare forwarded to the Outage Manage Systemto trigger trouble resolution activities.

7. The existing CIS ofMERALCO, the CMSV10,is a 10-year old system that was acquired in CY2006 from

Order dated 6 July 2011 in ERC Case No. 2010-069 RC.2 An Application for the approval of the EAM has been filed before theEnergy Regulatory Commission (ERC) and docketed as ERC Case No. 2013-014RC, entitled "In the Matter of the Application for Authority to Implement anEnterprise Asset Management System, with Prayer for ProvisionalAuthority. "

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ERCCase No. 2016-182RCNotice of Public Hearing / 5 December 2016 of 13

Soluziona Philippines, Inc. to support the requiredactivities and processes in anticipation of the RetailCompetition and Open Access (RCOA), which wasscheduled to start in July 2007.

8. In 2007, the CMSV10 was used to handle thedemand aggregation of customers under the CustomerChoice Program (CCP) in as much as the programrequires the monitoring of customers' 15 minutereadings and the application of different prices for eachtime period which cannot be supported by the obsoleteCMS Mainframe (CMS MF).

9. In 2011, the intended use of the CMSV10was furtherrealized when the system was used to support thegrowing complexities of handling the concerns ofMERALCO's General Power (GP) or medium and largecommercial/industrial customers.

10. In March 2013, MERALCO filed an application tomigrate the rest of its captive customers from the CMSMF, which has been in service for fifteen (15) yearsback then, to the existing CMSV10 in order to addressthe technological obsolescence of the CMS MF.

11. The application for the migration of the rest ofMERALCO's customers to the CMSV10 was approvedby the Honorable Commission on September 2, 2013under Energy Regulatory Commission (ERC) Case No.2013-32 RC. The migration was done in phases andwas completed in April 2014.

B. PROJECT DESCRIPTIONCOMPONENTS

AND

12. At present, MERALCO is faced with rapidly evolvingchanges and developments in the electric powerindustry, and its ever-growing customer base.Accordingly, and in order to address the problemsposed by technological obsolescence as well asrequirements of future customers, includingregulatory, technological and industry requirements,MERALCO proposes to purchase a new CustomerInformation System (CIS) to replace the existingCMSV10. Attached as Annex "A" and made anintegral part hereof is the Project Justification for theproposed new CIS Project, which document includes amore detailed description of the Project, the various

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options considered by MERALCO, and the Qualitativeand Quantitative Analyses of the options considered.

13. The project will include the acquisition of a newapplication system, database licenses and hardware.More particularly, the project will involve the followingactivities:

a. Process Review and Design - this involves thereview of MERALCO's current businessprocesses and aligning them with global utilitybest practices in order to determine the mosteffective and efficient way of providingcustomer service. This will also helpdetermine the right application system forMERALCO.

b. Procurement - this involves the selection andacquisition of the replacement system and theimplementation service provider of theproject. This involves also the acquisition ofthe necessary hardware and licenses neededfor the development phase.

c. Detailed Design - this involves the systemdesign that will incorporate the businessrequirements into the replacement system.

d. Build and Test - this involves the actualdevelopment of the changes in thereplacement system and the testing of itscomponents and its integration with otherapplication systems.

e. Procurement - this involves the acquisition ofthe necessary hardware and licenses for thego-live phase.

f. Data Migration - this involves the migrationof the data from the existing CIS to thereplacement system.

g. Deployment - this involves the preparatoryactivities prior to go-live. This includes usertrainings, communication activities to internalusers and external customers of the systemand process changes, and the actual systemdeployment activities.

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ERC Case No. 2016-182RCNotice of Public Hearing / 5 December 2016 of 13

The need for a new Customer Information System (CIS)

14. Since the promulgation of the EPIRA, the ERC wasalready preparing for RCOA by issuing rules whichwere considered by MERALCO in setting up a CIS.New business requirements were expected to emergewith open access and deregulation, requiringMERALCOto be more agile in responding to the needsof its customers. The three main drivers that requiredfurther system development/ customization were asfollows:

a. New business processes triggered by the thenupcoming market situation (deregulation,competitive market, regulatory requirements).Aside from the customer process typical of aregulated market, new processes likemarketing, accounting, billing and settlementof energy transactions (including losses andenergy imbalances) between the distributionutility, retail suppliers and market operatorsettlement of financials with otherdistribution utilities, market operators andgenerating companies and demandforecasting were to emerge. Not only werenew processes defined and implemented, butprocesses that were well established inregulated markets would also be redefinedand adapted to the new market reality. Theseincluded shifts to flexible pricing, quarter-hour/hourly meter readings, non-electricityproduct offers and sales and bundling ofdifferent products and services.

b. Advances in technology such as those forremote meter reading, hourly reading, amongother things.

c. Need for data interchange between differentmarket players (distribution utility, retailsuppliers and the market operator otherdistribution companies, retail companies,market operators). This included handlingcustomer requests to change suppliers,comparison of meter reading data betweendistribution and supply companies and

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ERC Case No. 2016-182RCNotice of Public Hearing / 5 December 20160f13

transfer of billing information for settlementpurposes.

15. Furthermore, some initiatives and programs offeredby MERALCO are not sufficiently supported by thecurrent system. Programs, such as RCOA, PRES andNet Metering, require varying functionalities that thecurrent system cannot provide without major programcode changes. MERALCOcurrently undertakes manualprocessing of these data in order to provide thenecessary services to the customers. For these manualprocesses to be automated in the current CIS, majorcode changes are required which necessitates thepresence of an extensive support organization tocontinually streamline system architectures byrevisiting the same in order to make it more costeffective.

16. In fact, the existing CIS, the CMSVI0, has beencustomized a number of times to allow the processingand handling of RCOA, Prepaid Metering, Feed-in-Tariff and Net Metering to name a few. Suchcustomizations limit the system upgrades that can beavailed of by MERALCO from the system vendor. Anew CIS will not only enable MERALCOto perform allof the customer service processes as stated above but itwill also enable MERALCO to timely launch,implement and support new programs and complywith new system and regulatory requirements withminimal program code changes. New generationcustomer information systems are already equipped tohandle different tariff designs (i.e. flat, volume-based,time-of-use) and monthly, bi-monthly or quarterlyusage data, which accompany smart meteringimplementations. Less program code changes not onlymean less use of system and infrastructure resourcesbut would also enable MERALCO to avail of vendordriven upgrades at no additional cost.

17. In the event that the current CIS is maintained in itscurrent form, which means enhancements to theCMSVI0 and purchases for hardware technologyupgrades will not be performed, and only hardware toconsider customer / load growth shall be purchased,the risk of system breakdown and system unavailabilityincreases. In turn, MERALCO would be forced tomanually process applications, meter readings, bills,payments and complaints. To illustrate the impact of

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ERC Case No. 2016-182RCNotice of Public Hearing / 5 December 20160f13

an unexpected system breakdown, it is worth stressingthat a one day disruption will result in the following:

a. Manual Processing of Service Applications

This translates to 1,800 ordinary serviceapplications (assuming 1 customer is to 1ordinary service application) per day orapproximately 304,000 kWh of unservedenergy per day of delay in processing serviceapplications. (based on current averagefigures) in case of system breakdown orunavailability.

b. Unaccounted Meter Readings

In the event of a system breakdown, there willbe unaccounted meter reading data, whichwill result in either non-billing or inaccuracyof amount billed to customers.

c. Delays in Billing Customers

Should the CMS v10 break down for a day,billing of at least 275,000 services will not begenerated, resulting in delay in customers'receipt of their bills.

d. Manual PaYment Collection at BusinessCenters and Delayed Posting of PaYments

With an average of 82,400 bills or PhP 392million being collected on a day-to-day basisby business centers, such volume and amountof paYments and Official Receipts collectingpaYments and issuing official receipts shall bedone manually during unexpected systembreakdown.

System unavailability also results in delays inposting paYments, whether paYments arereceived at MERALCO Business Centers or atthird-party collection agents (TPAs, e.g.,Bayad Center, banks). Manually acceptedpaYments at Business Centers would bereflected in the customers' accounts only afterthe system becomes available and thepaYments are encoded. Likewise, paYments

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ERC Case No. 2016-182RCNotice of Public Hearing /5 December 2016 of 13 "

received at TPAs would be reflected in thecustomers' accounts only after the systembecomes available to process payment recordssent to MERALCO by the TPAs. Because of thedelay in payment posting, customers whoseservices are disconnected and who have paidtheir bills would remain disconnected despitethe payment, because it is the system thatgenerates the reconnection field order.

e. Manual Concern Handling

Customer concerns such as complaints,requests, and inquiries received duringperiods of system unavailability are handledmanually, and this generally results in delay inconcern resolution.

18. More importantly, the inability to maintain thepresent CIS could lead to damaging repercussions tocustomers and government programs and initiativesthat empower the customers to manage theirconsumption. In particular, these would include:

a. Inability to Support Full Implementation ofRetail Competition and Open Access (RCOA);"

b. Inability to Support Advanced MeteringInfrastructure;

c. Inability to Support Renewables; and

d. Inability to Support Other EmergingRequirements

19. In sum, aside from the efficiency benefits of havinga next generation CIS, there is an urgent need forMERALCO to replace its existing CIS, the CMSV10, inorder to adopt with the rapidly evolving changes anddevelopments in the electric power industry, and itsever-growing customer base, to one that can handle thecomplex management of a more complicated array offunctionality requirements.

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C. PROJECT COST

20. The estimated cost of the CIS Project is ONEBILLION SEVEN HUNDRED FIFTY EIGHTMILLION, Philippine Currency, (PhP1,758,000,000.00 ).

21. Based on the Least Cost Analysis (as shown inAnnex "A"), it is least costly to purchase a new CISthan to keep enhancing the current CIS to addressfuture requirements as the latter will result insubstantially higher OPEX costs in addition to theprogramming costs, hardware and licensing costs anda significantly higher level of manpower resources inorder to maintain the system.

22. In light of the resulting benefits of the new CISProject in the overall service to the electricityconsumers, MERALCO respectfully submits that thebuilding block components, particularly the return ofcapital and return on capital associated with the newCIS Project, from the time it is put to service andconsidered used and useful should be considered as adeferred amount to be included in MERALCO's FourthRegulatory Period reset calculations.

D. URGENT NEED TO ISSUE PROVISIONALAUTHORITY

23. As can be seen from the attached Project Schedule, aproject of this magnitude will require a preparationperiod of at least 30 months prior to the targetcommissioning date in June 2019.

24. It is submitted that the replacement system needs tobe meticulously planned and developed as coreapplication projects take years before the same can beimplemented, since activities ranging from planning,procurement, design, development, testing anddeployment have to be executed.

25. During the period while the new CIS is beingdeveloped, installed and implemented and prior tocommissioning, the existing CIS, the CMSV10,will stillserve MERALCO's meter to cash processes - Le.,service application, meter reading, billing, payments,field orders and customer assistance - for all itscustomers in parallel until operations using the

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ERC Case No. 2016-182RCNotice of Public Hearing / 5 December 2016of 13

replacement system is stabilized. This will ensureminimal disruption to customer processes during thetransition from the existing to the new CIS.

26. Thus, there is an urgent need for a provisionalauthority to be issued to allow MERALCO toimmediately start the implementation of the new CISProject and complete the same on schedule, andtherefore, enable it to implement a modern integratedcustomer information system as soon as possible so asto better serve its consumers. Unless a provisionalauthority is immediately issued, MERALCO will beunable to start the procurement process for thedifferent components of the project and the longer ittakes to implement the new CIS project, the longer itwill take for MERALCOto comply with new regulatoryand customer requirements. Worse, the risk of systembreakdown of the existing CMSVIOgreatly increaseswith the delay in the implementation of the new CISproject.

27. It bears emphasis that the issuance of a provisionalauthority would not affect the retail rates ofMERALCO.

28. In support of the prayer for the grant of aprovisional authority, attached as Annex "B" is theJudicial Affidavit of Ms. Liza Rose G. Serrano-Diangson, Vice President and Head of MERALCO'sCustomer Process Office.

PRAYER

WHEREFORE, it is most respectfully prayed tothis Honorable Commission that the instant Applicationfor Authority to implement a new Customer InformationSystem Project be APPROVEDand that the building blockcomponents associated with the foregoing project fromthe time the same are put in service and considered useand useful be recognized as a deferred amount to beincluded in MERALCO's subsequent regulatory resetcalculations.

Pending hearing, it is likewise prayed that aprovisional authority be immediately issued authorizingApplicant MERALCO to implement the new CustomerInformation System Project.

ERC Case No. 2016-182RCNotice of Public Hearing / 5 December 2016 Of13

Applicant MERALCOprays for such other relief asare deemed just and equitable under the prelnises.

The Commission has set the said Application for initial hearingfor the determination of compliance with the jurisdictionalrequirements, expository presentation, Pre-Trial Conference, andpresentation of evidence on initial hearing for detennination ofcompliance with the jurisdictional requirements, expositorypresentation, Pre-trial Conference, and presentation of evidence on25 January 2017 (Wednesday) at ten o'clock in the morning(10:00 A.M.), at the ERC Hearing Room, 15th Floor, PacificCenter Building, San Miguel Avenue, Pasig City.

All persons who have an interest in the subject matter of theproceeding may become a party by filing, at least five (5) days prior tothe initial hearing and subject to the requirements in the ERC's Rulesof Practice and Procedure, a verified petition with the Commissiongiving the docket number and title of the proceeding and stating: (1)the petitioner's name and address; (2) the nature of petitioner'sinterest in the subject matter of the proceeding, and the way andmanner in which such interest is affected by the issues involved in theproceeding; and (3) a statement of the relief desired.

All other persons who may want their views known to theCommission with respect to the subject matter of the proceeding mayfile their opposition to the Application or comment thereon at anystage of the proceeding before the Applicants conclude thepresentation of their evidence. No particular form of opposition orcomment is required, but the document, letter or writing shouldcontain the name and address of such person and a concise statementof the opposition or comment and the grounds relied'upon.

All such persons who wish to have a copy of the Applicationmay request the Applicants, prior to the date of the initial hearing,that they be furnished with a copy of the Application. The Applicantsare hereby directed to furnish all those making a request with copiesof the Application and its attachments, subject to reimbursement ofreasonable photocopying costs. Any such person may likewiseexamine the Application and other pertinent records filed with theCommission during the standard officehours.


WITNESS, the Honorable Chairman JOSE VICENTE B.SALAZAR and the Honorable Commissioners ALFREDO J. NON,GLORIAVICTORIA C. YAP-TARDC, JOSEFINA PATRICIA A.MAGPALE-ASIRIT, and GERONIMO D. STA. ANA, EnergyRegulatory Commission, this 5th day of December 2016 in Pasig City.

ATTY. NAT J. MARASIGANC ief of Staff

Office of the Chairman and CEO

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