PSE Circular for Brokers No. 774-00

March 24, 2000 PSE CIRCULAR FOR BROKERS NO. 774-00 March 22, 2000 Philippine Stock Exchange, Inc. Philippine Stock Exchange Center Exchange Road, Ortigas Center Pasig City Attention: Ms. Luisa W. Buenaventura Supervisor-Disclosure Department Gentlemen: This is in reply to your letter dated March 21, 2000 with regards the Manila Bulletin article on the National Power Corporation (NPC) rate increase. NPC increased its rate by P0.0341 per kWh in February which in turn was reflected in the bills of Meralco customers in March. The NPC increase was the result of an upward adjustment in its automatic rate adjustments and reflected in the Meralco bill through an increase in the Purchased Power Adjustment (PPA). This is not in anyway related to the proposed basic rate increase Meralco will be applying for with the Energy Regulatory Board (ERB) in the next few months. NPC billings to Meralco include automatic adjustment clauses: the Fuel and Purchased Power Cost Adjustment (FPCA) and the Foreign Exchange (FOREX) Adjustment. These adjustments allow NPC to pass on increases or decreases in its fuel and purchased power costs and principal debt service payments over a base fuel and purchased power price and base exchange rates of the peso to the US dollar and yen, respectively. The FPCA, thus, changes every month depending on the price of the fuel used in generation and depending on the rate of NPC's independent power producers (IPPs). The FOREX, on the other hand, is dependent on the movement of the peso to yen and US dollar. Both the FPCA and the FOREX clauses including the formulas used to compute them have been approved by ERB and have been implemented since April and September 1994, respectively. ERB approved a purchased power adjustment (PPA) clause for Meralco implemented starting April 1997. This allows Meralco to recover increases and decreases in its monthly purchased power cost. Thus, Meralco is able to pass on the February P0.0341 NPC increase as a P0.0385 per kWh in the Meralco PPA rate in March. The difference between the two figures accounts for the 9.5% system loss cap set by Republic Act No. 7832 (The Anti-Electricity Pilferage Act) and the 2% franchise tax. For a 200 kWh residential user, the increase will be P7.70 for the month. The P8.14 stated in the Manila Bulletin assumed a higher system loss for Meralco. Monthly changes in NPC's rate to Meralco due to increases in the FPCA and FOREX no longer need ERB approval as the Board has already approved the formulas used in computing for these adjustments. Likewise, changes in Meralco's PPA as a result of the NPC rate changes do not need the Board's approval because of the same reason. ERB however, monitors the values of these adjustments and the manner by which they were arrived at. Very truly yours, (SGD.) CAMILO D. QUIASON Corporate Secretary