2007 ANNUAL REPORT Power Corporation - Aboitiz Equity Ventures

(Left most photo)
Inside the 360-MW
Magat hydro plant
Luzon Hydro
Corporation generated
279 GwH in 2007, the
highest-ever recorded
generation level
since the start of its
commercial operations
in 2001.
The Magat
acquisition was
a strategic move
in achieving both
goals of building
a stronger
renewable
energy business
and gaining
a foothold
in a newly
established open
power market.
Each year, Hedcor allocates a percentage of its revenues to communities
where its plants are located. Since 1991, Hedcor has given back 1.1 billion
in donations and taxes to its host communities.
Luzon Hydro Corporation (LHC) contributed 481 million in income in
2007, down by 27% mainly due to lower capacity fees brought about by
the declining tariff structure stipulated in the contract with the National
Power Corporation (NPC). LHC generated 279 GwH of power, 10% higher
than its generation in 2006 and the highest-ever recorded generation
level since the start of commercial operations in 2001. Furthermore,
LHC applied for and was granted a one-year Income Tax Holiday (ITH)
extension by the Board of Investment (BOI). LHC is 50% owned by
Philippine Hydropower Corporation (PHC), a wholly-owned holding
company of AP.
SN Aboitiz Power-Magat, Inc. (SNAP-Magat), the joint venture between
AP and Norway’s SN Power Invest AS (SN Power) for the 360-MW Magat
hydro plant, contributed 1.6 billion to AP’s income in 2007. This amount
represents the company’s contribution for eight months of operation in
2007, during which it generated 717 GwH of electricity. The Power Sector
Assets and Liabilities Corporation (PSALM) officially turned over the $530
million plant to SNAP on April 26, 2007.
The Magat acquisition was a strategic move in achieving both goals of
building a stronger renewable energy business and gaining a foothold
in a newly-established open power market. The plant is strategically
valuable because its ability to store water allows the company to sell
most of its energy at peak hours, when prices are higher. This flexibility
allowed the plant to sell power to the spot market at an average price of
5.28 per kwH compared to the average spot price of 4.71 per kwH for
18 • ABOITIZ POWER CORPORATION ANNUAL REPORT 2007
2007. Twenty one percent of the energy sold by the plant served bilateral
contracts with various utilities. Although the average selling price of
these contracts ( 4.41 per kwH) was less than the price from sales to the
spot market, bilateral contract revenues are more predictable.
The country’s energy spot market is expanding to include the purchase
of ancillary services such as regulating reserve, contingency reserve,
back-up reserve and reactive power support. Magat has been certified to
provide these services and will participate in the market for them. When
this new market is established, the plant will have the flexibility of selling
the optimum set of services that provide it with the highest contribution.
The combined contribution of Western Mindanao Power Corporation
(WMPC) and Southern Philippines Power Corporation (SPPC) totaled
142 million in 2007, up by 6%. These plants generated 332 GWH of
energy, down by 20% from 2006. Despite this, income contribution
from both companies increased due to lower costs and fixed capacity
payments.
East Asia Utilities Corporation (EAUC) and Cebu Private Power
Corporation (CPPC) contributed a combined total of 224 million to AP’s
income in 2007, from electricity sales that only started in the second
quarter of the year. The two plants generated 504 GwH of electricity
from April 2007 to December 2007. AP acquired a 60% stake in the 70-
MW CPPC plant and 50% of the 50-MW EAUC plant in April 2007. Both
plants are ideally located to serve the high-growth load centers of Cebu
City and Mactan Island. CPPC, which is one of the largest power plants
in Cebu, supplies 62 MW of power to VECO. The EAUC plant is the sole
electricity provider of the Mactan Export Processing Zone 1.