Tariff Band Setting for Existing Private Wind GeneratorsFijación de banda tarifaria para generadores eólicos privados existentes

[.] To approve the regulatory methodologies that shall be applied in the various regulated sectors under its competence. [.]

In this sense, for the purposes of this tariff study, the provisions of the "Methodology for setting tariffs for private generators covered by chapter i of law 7200 that have renewed and that renew electricity purchase-sale contracts with the costa rican electricity institute (ice)", issued by means of resolution RE-0021-JD-2022, shall be applied.

III. ANALYSIS OF THE MATTER

1. Accounting information from Regulatory Accounting In relation to the use of information obtained from regulatory accounting, in accordance with the provisions of RIE-132-2017 and RE-0060-IE-2021, information as of December 2023, the IE received and validated, within the framework of the monitoring process carried out for such purposes, the information provided by the 2 existing wind plants that make up the sector, which responded in form, substance, and time.

In this context, once the valuation and technical analysis process of the information provided was completed, this information was used as input in the calculation of the methodological variables of operating costs (costos de explotación), investment, and leverage, the detail of which is presented later in the section corresponding to each variable.

It should be noted that the information included in the Regulatory Accounting is public and is available for consultation purposes in file OT-023-2024; in addition, said information is included in annex 17 "Regulatory Accounting Information" of this report.

2. Ex officio annual application of the methodology This section presents the detail of the application of the "Methodology for setting tariffs for private generators covered by chapter i of law 7200 that have renewed and that renew electricity purchase-sale contracts with the costa rican electricity institute (ice)", as established in resolution RE-0021-JD-2022.

The general formula for the tariff calculation, established in the aforementioned applicable current methodology, is as follows:

2.1 Tariff Band Two (2) tariff bands shall be calculated, one applicable to wind plants and one applicable to wind plants that meet the assumptions cited above, according to the following formulas:

Where:

Ca = Average unit operating costs (costos de explotación) per contracted kW.

σ = Standard deviation of the operating cost (costo de explotación) of the group of electric generation plants to which the methodology is intended to be applied, with respect to their average operating cost, per contracted kW.

X = Number of standard deviations to include in the estimation of the lower limit of the tariff band for each group of hydroelectric and wind plants to which the methodology is intended to be applied. See section 3.2.4 called "Definition of the tariff band" I = Average unit investment per contracted kW.

Xu = Average plant age factor.

Ke = Cost of capital.

H = Average number of annual hours that the group of plants was in operation generating energy for sale to ICE in the last 5 years.

Fp = Plant factor.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

It is important to highlight that the upper limit of the tariff bands (price cap) is determined considering the average operating cost (costo de explotación) plus one standard deviation, calculating the cap for the group of wind plants to which the methodology applies, with the information corresponding to each generation source.

The lower limit of the tariff bands (price floor) shall be determined based on the average operating cost (costo de explotación) minus the amount corresponding to the number of standard deviations defined for each group of hydroelectric and wind plants multiplied by the standard deviation estimated for each group of hydroelectric and wind plants respectively, with the information corresponding to each generation source.

The following table summarizes the update of the main variables of this ex officio annual application:

Table 1 Tariff band for existing private wind plants Below is the detail of how each of the variables was calculated according to the cited applicable current methodology.

2.2 Calculation of model variables 2.2.1 Annual operating cost (Ca) The annual operating cost (costo de explotación) represents the costs necessary to maintain and operate a plant under normal conditions for our country. It does not include depreciation expenses and financial expenses, in accordance with the applicable current regulations and because according to the model's premises, this involves tariffing plants whose initial investment cost was already covered via tariffs through previous contracts.

In this regard, the methodology approved through resolution RE-0021-JD-2022, establishes:

"The calculation of this value shall be made through the use of the financial-accounting information of the group of plants to which this methodology applies, and only the costs necessary to maintain and operate the power contracted by ICE, which corresponds to the regulated public service, shall be considered in the calculation.

That information must be justified in accordance with Article 33 of Law 7593; costs that do not correspond to those necessary to maintain and operate the power contracted by ICE, indicated in the previous section, nor those defined in Article 32 of that same Law, shall not be contemplated, and it shall contemplate only the useful and utilizable costs necessary to provide the regulated public service, which is the sale of energy to ICE." The calculation formula established in the tariff methodology, used in this study to calculate the annual operating cost (costo de explotación) is as follows:

Where:

Cai = Unit operating cost (costo de explotación) of plant i.

CaTi = Total annual operating cost (costo de explotación) of each plant to maintain and operate the proportion contracted by ICE of the plant under normal conditions.

Pconi = Contracted power in kW, of plant i for the cut-off period (fiscal year-end).

i = Each of the plants per group.

For the determination of operating costs (costos de explotación), this study used the information presented by private generators of existing wind plants, within the framework of the Regulatory Accounting process promoted by the Regulatory Authority, in accordance with the provisions of RIE-132-2017 and RE-0060-IE-2021, information as of December 2023.

In this context, said determination of tariff costs involved the review, analysis, and validation of the information and documentation presented by the companies with their traceable and reasonable justifications regarding the costs necessary to maintain and operate the plant in light of the cost principle and the guidelines established in Law 7593. It is important to mention that the information included in the Regulatory Accounting is public and is available in file OT-023-2024; it is also included in annex 17 "Regulatory Accounting Information" of this report.

Thus, data were collected from the mentioned regulatory accountings, from which the operating costs (costos de explotación) of 2 plants with current energy purchase-sale contracts with ICE were calculated, excluding those whose contracts are expired and for which ICE indicated its refusal to renew.

The plants considered in the calculation were: Aeroenergía S.A. and Molinos de Viento del Arenal S.A.

Based on the regulatory accountings presented, and the subsequent clarifications and justifications submitted by the companies, the IE carried out the analysis and valuation of costs and expenses in strict adherence to the current legal framework presented below:

In accordance with the provisions of Article 4, subsection c) of the Aresep Law, Law 7593, fundamental objectives of Aresep are to ensure that public services are provided in accordance with the provisions of subsection b) of Article 3 of that Law. Said article determines the way to set tariffs and prices for public services, so that only the costs necessary to provide the service are contemplated, which allow for a competitive return and guarantee the adequate development of the activity (principle of service at cost), in accordance with the provisions of Article 31 of the same Law.

For its part, Article 6, subsections a) and d) of the Law under comment indicate respectively, that it corresponds to the Regulatory Authority to regulate and fiscalize, accounting-wise, financially, and technically, the providers of public services, to verify the correct management of the factors that affect the cost of the service, whether the investments made, the indebtedness incurred, the levels of income received, the costs and expenses made or the income received, and the profitability or profit obtained, having to set tariffs and prices in accordance with the respective technical studies.

Likewise, Article 31 establishes a technical discretion in favor of the Regulatory Authority that empowers it so that the technical analyses of income, costs, and benefits of tariff settings are made with the model or methodology that best adapts to the needs of the service, in order for it to be provided under competitive conditions and at adequate costs for the user or consumer, having to contemplate, at the time of setting tariffs for public services, the financial balance in the provision of the service.

In this regard, Article 32 of Law 7593 establishes the following:

"Article 32.- Costs not to be considered The following shall not be accepted as costs of regulated companies:

• a)Fines imposed on them for non-compliance with the obligations established by this law.
• b)Unnecessary expenditures or those unrelated to the provision of the public service.
• c)Contributions, expenses, investments, and debts incurred for activities unrelated to the administration, operation, or maintenance of the regulated activity.
• d)Disproportionate operating expenses in relation to the normal expenses of equivalent activities.
• e)Investments rejected by the Regulatory Authority for being considered excessive for the provision of the public service.
• f)The value of billings not collected by the regulated companies, with the exception of the percentages technically set by the Regulatory Authority." Additionally, Article 33 of the mentioned law and its regulation established by Decree 29732, indicate that the providers' petitions regarding tariffs must be duly justified with their corresponding supporting information.

From the foregoing and from what is established in the current tariff methodology, it follows that, for tariff setting, expenditures that are unnecessary or unrelated to the provision of the service and disproportionate operating expenses in relation to the normal expenses of equivalent activities, among others, shall not be accepted as costs.

Pursuant to the cited provisions, Aresep has exclusive and exclusionary competence in the regulation, setting, and supervision of tariffs or prices of public services, including the tariffs for electric supply services, being under the obligation to carry out technical analyses of income, costs, and benefits to determine tariff settings, having to observe the principles of service at cost and financial balance, given that the exercise of such competencies has its constitutional basis in the provisions of Article 46 of the Political Constitution.

In this sense, the Office of the Attorney General of the Republic has stated:

The legislator defines not only how the tariff must be, what elements it must contemplate, but also which costs it cannot consider. It is a power attributed in Article 32, which authorizes the Authority to disregard as costs of regulated companies the expenditures it considers unnecessary or unrelated to the provision of the service, as well as to assess whether the operating expenses are proportional to the normal expenses of equivalent activities. (Legal Opinions Nos. C-329-2002 of December 4, 2002, and C-242-2003 of August 11, 2003), reiterated in C-1141-2016 of June 20, 2016.

In accordance with the provisions of the cited legal provisions (Articles 3 subsection b), 4 subsection c), 6 subsections a) and d), 14, 31, and 32 of Law 7593), the Regulatory Authority has full competence to carry out the respective reviews and valuations that lead it to determine the costs necessary for the provision of the public service.

In this context, below is the detail for each company of the cost and expense items not considered or excluded, for which the review of the additional information presented by the companies in their positions at the public hearing is contemplated. The foregoing, with due justification in light of the provisions of Article 32 of Law 7593:

Molinos de Viento del Arenal, Sociedad Anónima (MOVASA): Expenses totaling ₡ 4,568,980.96 are excluded, according to the information presented by the company available in OT-023-2024 and in annex 17 "Regulatory Accounting Information" of this report, for the reasons detailed below for each of the expenses not considered:

Aeroenergía S.A.: Expenses totaling ₡ 3,316,545.76 are excluded, according to the information presented by the company available in OT-023-2024 and in annex 17 "Regulatory Accounting Information" of this report, for the reasons detailed below for each of the expenses not considered:

| Description | Amount ₡ | Justifications for exclusion according to article 32 Law 7593 | | --- | --- | --- | | Membership Fees and Subscriptions | 2,566,190.63 | Although the annual fees to ACOPE may be necessary to comply with certain legal and operational requirements, they are not directly linked to the essential operating costs for wind energy generation. Being administrative in nature and not essential for the direct operation of the public service, they are justified as excluded in accordance with article 32 of Law 7593. | | Meals and Lodging | 12,000.00 | Although these expenses cover the meals of operational collaborators during necessary field trips related to the operation of the asset, they are not directly linked to the essential and continuous costs of wind energy generation. As such, these expenses are considered administrative and not essential for the provision of the public service, and are therefore justified as excluded in accordance with article 32 of Law 7593. | | Employee Services | 110,113.05 | These expenses, related to employee services through the rental of devices for drinking water control and a chiller, are not directly linked to the operation, maintenance, or administration of the wind energy generation asset. Therefore, not being essential for the provision of the public service, they are justified as excluded in accordance with article 32 of Law 7593. | | Surcharges and Fines | 628,242.07 | Fines and penalties, such as late payment to the municipality or the fine imposed by ICE, are not necessary expenses for the operation or maintenance of the wind energy generation asset. According to article 32 of Law 7593, these expenses are not accepted as costs, as they are not related to the provision of the public service and are considered unnecessary. Therefore, they are justified as excluded. | | Total | 3,316,545.76 | | Once the above values of total costs per plant (CaTi) are obtained, each datum is divided by the contracted power corresponding to each plant to obtain the unit operating cost (costo de explotación) (Cai), and these values (which were in colones per kW) were converted to the currency of United States dollars by dividing by the simple average of the BCCR Reference Sale Exchange Rate for September 2024, the cut-off date of the data obtained from the regulatory accounting, as established in the tariff methodology. At the time of resolution, the most recent value of this index that was available on the day of the public hearing shall be used.

Subsequently, these indexed values (which were in colones per kW) were converted to the currency of United States dollars divided by the BCCR Reference Sale Exchange Rate1 of December 11, 2024, the date of the public hearing, according to the methodology and the Board of Directors agreement AC-004-015-2004 which establishes the following:

1https://gee.bccr.fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro.aspx?idioma=1&CodCuadro=%20400 b) Instruct the Reguladora General to direct the Technical Directorates to include the following procedures as part of their tariff calculation methodologies:

- Update the following variables as of the date of the public hearing: Minimum wages, the selling exchange rate of the United States dollar against the colón, and the price of fuels.

In line with the foregoing, it is important to highlight that the regulatory accounting information of the companies used in the calculation is cut off as of the 2023 fiscal year-end, that is, as of December 2023, therefore it complies with what is indicated in the tariff methodology, which establishes that the cut-off date for the input data of the variables shall be the fiscal year-end date established at the national level, that is, December 31 of the year prior to the start of the tariff-setting procedure, or failing that, the national fiscal year-end established by Law.

Finally, based on these data, the average annual exploitation cost (costo de explotación) for the group of wind plants is calculated; this is obtained as a simple average of the exploitation cost per contracted kW of each plant considered in the calculation.

Where:

Caf = Average exploitation cost for each group of plants.

Cai = Annual unit exploitation cost of plant i.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

i = Each of the plants per group.

n = Number of plants per group.

Additionally, according to the empirical rule of Chebyshev's Theorem, it is possible to determine extreme outliers using limits established by the standard deviation of the data series. In a range formed by two standard deviations above and two below the average, in this case no extreme values were determined. Therefore, the simple average procedure was calculated considering all plants.

Therefore, the annual exploitation cost (Ca) resulting from the procedure described above for an existing private wind plant is US$130.04 per kW (see Anexo 1).

2.2.2 Average investment per contracted kW The investment cost represents the total costs necessary to build a generation plant under normal conditions for our country.

In this regard, the tariff methodology established through resolution RE-0021-JD-2022, indicated:

"The calculation of this value shall be done using the financial-accounting information submitted by each plant to which this methodology applies and only the investment corresponding to the power contracted by ICE, which corresponds to the regulated public service, shall be considered in the calculation.

This information must be justified in accordance with article 33 of Ley 7593 and investments that do not correspond to those necessary to maintain and operate the power contracted by ICE indicated in the preceding section, nor those defined in article 32 of that same Law, shall not be contemplated.

In this case, the value at historical cost of the fixed asset of property, plant, and equipment of each plant shall be considered, proportional to the maximum power contracted by ICE, with its value updated to the present in accordance with the provisions of section 6.2 of this methodology.

The financial-accounting information of the investment from the latest annual report available as of the start date of the tariff-setting process shall be used, in accordance with the regulatory accounting provisions issued for this sector." The calculation formulas established by the tariff methodology, used in this study to calculate the investment variable, are detailed below:

Ii = Amount of the unit investment of plant i.

ITi = Total investment proportional to the power contracted by ICE of plant i.

Pconi = Contracted power in kW, for plant i for the cut-off period (fiscal year-end).

i = Each of the plants per group.

If = Average investment amount for each group of plants.

Ii = Amount of the unit investment of plant i.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

i = Each of the plants per group.

n = Number of plants per group.

The information used to calculate the total investment costs per plant, for the generation of energy for sale to ICE, considers 2 existing wind plants with a current contract with ICE, which submitted this information within the 2023 regulatory accounting process in accordance with the cited resolution RE-0060-IE-2021.

The plants considered in the calculation are the following: Aeroenergía S.A. and Molinos de Viento del Arenal S.A.

The investment costs of the plants (ITi) were calculated from the historical values of the property, plant, and equipment assets associated with the provision of the public service of the existing wind plants from their respective regulatory accountings, to then convert them to dollars using the selling exchange rate at the time each plant entered operation.

Subsequently, in accordance with the provisions of the tariff methodology, said values were indexed to December 2023 (fiscal year-end prior to the start of the tariff-setting procedure), using the United States Producer Price Index (IPP-EEUU) for new construction ("Inputs to new construction, goods") obtained from the "Bureau of Labor Statistics" (Series Id WPUIP2310001) and finally, to determine the variable Ii, it was divided by the contracted capacity at the date each plant entered operation using historical data provided by the DOCSE.

Regarding the use of the United States Producer Price Index, the current methodology establishes its use, which meets the following characteristics: it comes from a publicly accessible source, specialized in the generation of technical information, and with the most recent information.

In this regard, firstly, because the investment costs of the existing wind plants are recorded with dates close to the early nineties, it is therefore necessary to index said values with a representative price index with data available from that time.

Second, the United States Industrial Producer Price Index WPUIP2310001 comes from the United States Bureau of Labor Statistics; this index is updated every month and can be collected at any time via the internet, so it is considered a specialized public source of technical information and with the most recent information.

Third, as has been done in this tariff application, the indexing was performed annually.

Fourth, by using this index once again in this tariff setting considering the indexings of past tariff settings, this representative index has therefore been applied consistently, considering that this is the same index that was used in tariff applications for existing plants since 2013.

It is demonstrated that, by using this index to index the investment costs in the present tariff setting, the methodology is being complied with.

On the other hand, the fact that the amounts of the investment costs are recorded in colones does not make the application of this foreign index to those data impossible, as long as a prior currency conversion treatment exists (from colones to United States dollars), just as the IE performs it.

Subsequently, a simple average of the investment data of the plants obtained from the previous procedure was applied to calculate the average investment cost (If).

Additionally, according to the empirical rule of Chebyshev's Theorem, it is possible to determine extreme outliers using limits established by the standard deviation of the data series. In a range formed by two standard deviations above and two below the average, in this case no extreme values were determined. Therefore, the simple average procedure was calculated considering all plants.

Thus, the weighted average investment cost resulting from following the described calculation method is $4,263.34 per kW (see anexo 2).

2.2.3 Average remaining life (Xu) The age factor measures the age of the plant, expressed in terms of its remaining value, given the time the plants have been in operation.

In accordance with the provisions of the tariff methodology, the calculation of this variable shall contemplate the remaining lives of each plant to which this methodology applies, considering the information available in the Autoridad Reguladora.

In that sense, the average remaining life that the plants of private generators for the sale of electricity to ICE have had is estimated by means of the following formula:

Where:

Vu = Average useful life of the plants for electricity generation (years).

Vof = Average operating life of the group of plants (years).

Vr = Residual value of the plants (10%).

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

The average operating life for the group of plants to which this methodology is applied is calculated as follows:

Where:

Vof = Average operating life of the group of plants (years).

Voi = Average operating life of each plant.

i = Each of the plants per group.

n = Number of plants per group.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

The operating life (Voi) of each plant shall be estimated as the difference between the date on which each plant began operating and the date of the fiscal year-end established at the national level, that is, December 31 of the year prior to the start of the tariff-setting procedure (or failing that, the national fiscal year-end established by Law), according to the following formula:

The average operating life of the group of plants (Vof) is calculated as a simple average of the average operating lives of the different plants.

Note: the maximum period to consider for Voi shall be the one corresponding to the source according to the preceding numeral (40 or 20 years, whether a hydroelectric or wind plant, respectively).

Therefore, applying the described methods results in an average operating life of 20 years and an average remaining life factor of 10% (see anexo 3).

2.2.4 Profitability (Ke) In accordance with the methodology approved through resolution RE-0021-JD-2022, the calculation of profitability on capital contributions is determined by the method called the Capital Asset Pricing Model, commonly known as CAPM.

The CAPM determines the cost of average equity capital for each industry, according to the following formula:

Where:

Ke = Profitability on equity capital contributions.

KL = Risk-free rate, which corresponds to an investment alternative that has no risk for the investor.

PR = Risk premium. It is defined as the difference between the risk-free rate and the market rate of return.

RP = Country risk. It is the risk of an economic investment due only to specific and common factors of a certain country.

βa = Levered beta of the investment. It is the covariance of the profitability of a given asset and the market profitability. It is called "levered" when part of the investment is financed with debt.

The levered beta is obtained from the following formula:

Where:

βa = Levered beta.

βd = Unlevered beta.

D/Kp = Relationship between debt and equity capital (estimated through financial leverage).

t = Income tax rate.

In relation to the changes introduced in the current methodology (RE-0021-JD-2022), it is convenient to extract the following from resolution RE-0005-JD-2024:

"[.]

The value of the debt (D) shall be taken as zero (0) given that the methodology does not include financial expenses in accordance with the applicable current regulations and because according to the model's premises, it concerns pricing plants whose initial investment cost was already covered via tariffs through previous contracts. Given that the value of Debt (D) is zero (0), the unlevered beta and the levered beta are equal.

(.)

4. Relationship between debt and equity capital (D/Kp): It is estimated with the formula D/Kp = Y/(1-Y), where Y is the financial leverage. For this calculation, a weighted average by contracted power of the most recent information regarding the level of financing of each type of private electricity generation plant, derived from regulatory accounting or that available in the Autoridad Reguladora, shall be used. For purposes of this methodology, a value of D=0 is considered.

[.]" The parameters required to be calculated to estimate the profitability on capital contributions are the following: risk-free rate, risk premium, country risk, unlevered beta, relationship between debt and equity capital, and income tax rate. The source for each of them is the following:

. The risk-free rate (KL): It is the nominal rate (TCMNOM) of the United States of America (USA) Treasury Bonds. The rate with the same maturity period as that for which the risk premium is calculated is used, which is available on the internet page of the United States Federal Reserve, at the internet address: http://www.federalreserve.gov/datadownload/Build.aspx?rel=H15.

The data from the last 5 years are averaged. For this case, the average risk-free rate for the last 5 years is 2.28% (see Anexo 4).

. Risk premium (PR): the variable called "Implied Premium (FCFE)" shall be used, which is available on the internet page: http://www.stern.nyu.edu/~adamodar/pc/datasets/histimpl.xls The data from the last 5 years are averaged. For this case, the simple average risk premium for the last 5 years is 4.94% (see Anexo 5).

. Country risk (RP): the value published for Costa Rica is considered, from the data called "Risk Premiums for the other markets" where the country risk is called "Country Risk Premium". The values for this variable and the unlevered beta shall be obtained from the information published by Dr. Aswath Damodaran, at the internet address: http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/ctryprem.html The data from the last 5 years are averaged. For this case, the simple average country risk for the last 5 years is 6.26% (see Anexo 6).

. Relationship between debt and equity capital (D/Kp): It is estimated with the formula D/Kp = Y/(1-Y), where Y is the financial leverage. For this calculation, a weighted average by contracted power of the most recent information regarding the level of financing of each type of private electricity generation plant, derived from regulatory accounting or that available in the Autoridad Reguladora, shall be used. The foregoing is according to resolution RE-0021-JD-2022.

In this case, the relationship between debt and equity capital for this type of plant results in 0% (see Anexo 8). The leverage result is zero because, as of the report date, the information submitted by the companies has not justified the association and benefit for the public service of their liabilities with financial cost.

. Unlevered beta: For the unlevered beta (βd) value, the "Utility General" values set in previous tariff settings are taken, and for the 2021 data, the value from the information published by Dr. Aswath Damodaran at: http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/Betas.html is taken. The data from the last 5 years are averaged. For this case, the unlevered beta value obtained is 0.4085 (see Anexo 7).

Upon levering it in accordance with the provisions of the tariff methodology, the result is a levered beta level of 0.4085.

It is important to note that on this occasion the marginal unlevered beta from Damodaran's website Excel file was used, which contemplates the staggered corporate tax rate, more aligned with the reality of companies whose income tax rate is also staggered in our country and whose tax regulations contemplate a series of deductible expenses that mean the full rate is not ultimately paid. Furthermore, upon consulting the author of the information source, it was clarified to us that the marginal rate must be used since the payment of interest is tax-deductible (which generates a tax shield and saves taxes) (see Anexo 15).

. Income tax rate: It is the tax rate for for-profit legal entities, corresponding to the last bracket of income taxes —the highest marginal rate—, established and updated via decree by the Ministerio de Hacienda (30%).

In accordance with the foregoing, the level of profitability obtained is 10.55% (see anexo 9).

2.2.5 Sales expectations 2.2.5.1 Plant factor In accordance with the current tariff methodology, the individual plant factor is calculated for each year of the last 5 years with available information and a simple average of the plant factor shall be calculated with them for each of those years, to obtain the average plant factor for the group of plants (Fpf).

The current tariff methodology established through RE-0021-JD-2022 establishes the following:

"The calculation of this value shall be done using the statistical information that this Autoridad Reguladora receives on the production of each plant and the hours in which it was in operation delivering energy to ICE during the last 5 available years.

The last year to be used corresponds to the year prior to the start of the tariff-setting procedure, which ends on the fiscal year-end date established at the national level, that is, December 31 of the year prior to the start of the tariff-setting procedure, or failing that, the national fiscal year-end established by Law." The individual plant factor for each plant is calculated as follows:

Where:

Fpi,a = Plant factor of each plant i in each year a.

Egi,a = Amount of energy in kWh that each plant i generated in each year.

Pconi,a = Contracted power in kW, for each plant i in each year a.

Hi,a = Number of hours the plant was in operation delivering energy for sale to ICE in each year.

i = Each of the plants per group.

a = Each of the 5 years.

The average annual plant factor shall be calculated as follows:

Fpa = Average annual plant factor for each group of plants.

Fpia = Plant factor of each plant i in each year a.

i = Each of the plants per group.

a = Each of the years.

n = Index representing the number of plants per group.

Subsequently, the average plant factor for the group of plants to be used within the model is calculated, calculated as follows:

Fpf = Average plant factor for each group of plants.

Q = Number of years used to calculate the average.

a = Each of the years.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

In this context, consistently with what is established in the tariff methodology, the data from the plants of the aforementioned group that generated energy in the respective year were used. In accordance with the tariff methodology, the data from the last five-year period for which Aresep possesses real information were used. No tenders to acquire energy have been presented in the last five-year period (2019-2023). (Anexo 10).

Regarding the information on the amount of energy generated per plant and the capacity contracted by ICE,[2] it was obtained from the data series of the Division Operación y Control del Sistema Eléctrico (DOCSE) for 2019, 2020, 2021, 2022, and 2023 published by the DOCSE. This information is tabulated in anexo 10.

[2] https://apps.grupoice.com/CenceWeb/CenceDescargaArchivos.jsf?init=true&categoria=3&codigoTipoArchivo=3007 As for the installed and contracted capacity, within the framework of tariff file ET-095-2019, information was requested from all private generating companies and the DOCSE regarding their installed capacities, requiring them to submit photographs of the nameplates; these data were confirmed with the DOCSE for this study through official letter OF-0363-IE-2022 of May 13, 2022, and additionally they were asked to confirm if any change in the capacity contracted by ICE had occurred, obtaining the response from the DOCSE through official letter 0810-362-2022 of June 15, 2022, in which it indicated that there have been no changes in the nameplate capacities of the plants or in the capacities contracted by ICE. (Anexo 13).

Based on the information detailed in the preceding paragraph, and according to the provisions of resolution RE-0021-JD-2022, the data corresponding to the contracted capacity in kW of each plant were taken. It is important to note that, according to said information, none of the plants considered in the tariff analysis presented changes in their capacities between 2019 and 2023. This information can be consulted in Anexo 13. For cases in which a nameplate change could occur during the year, the power is considered as the monthly average of the powers indicated in the DOCSE reports.

2.2.5.2 Hours in operation It is the average number of operating hours in which the group of plants per source was in operation delivering energy for sale to ICE during the last 5 years prior to the tariff calculation.

In this regard, the current tariff methodology established through RE-0021-JD-2022, establishes:

"The calculation of this value shall be done using the statistical information that this Autoridad Reguladora receives on the operating hours of each plant in the calculation year, that is, the hours in which each plant in the group was delivering energy for sale to ICE.

The last year to be used corresponds to the year prior to the start of the tariff-setting procedure, which ends on the fiscal year-end date established at the national level, that is, December 31 of the year prior to the start of the tariff-setting procedure, or failing that, the national fiscal year-end established by Law." The operating hours of each plant are calculated as follows:

Where:

Hia = Number of hours each plant was in operation delivering energy for sale to ICE in each year.

kWha = Kilowatt-hours or energy sold to ICE by each plant i for each year a.

Pconia = Contracted power in kW, for each plant i for each year a.

i = Each of the plants per group.

a = Each of the 5 years.

The average annual operating hours are calculated as:

Ha = Average number of annual hours delivering energy to ICE for each group of plants, for each of the 5 years.

Hia = Number of hours each plant i was in operation delivering energy for sale to ICE in each year.

i = Each of the plants per group.

a = Each of the years.

n = Index representing the number of plants per group.

Once the previous values are obtained, the average hours over the last 5 years delivering energy to ICE for the group of plants of each source are calculated; this is obtained as follows:

The operating hours of each plant are calculated as follows:

Hf = Average number of hours delivering energy to ICE for each group of plants.

Ha = Average number of annual hours for each group of plants, for each of the 5 years.

a = Each of the years.

Q = Index representing the number of years.

f = Subscript indicating the hydroelectric (h) or wind (e) source for which the band is calculated.

In relation to the actual operating hours that each plant was delivering to ICE, in the same way, through official letter OF-0363-IE-2022, the DOCSE was requested to indicate if it had data on the total annual hours in which the analyzed companies are in operation delivering energy for sale to ICE, to which said entity, through official letter 0810-362-2022, indicated that it does not keep a record of the number of operating hours in the manner required by the IE, as indicated in the tariff methodology.

Under this scenario, in accordance with the procedure established in said methodology (detailed previously), the actual operating hours were calculated as follows: for each of the years of the last five-year period (2019 to 2023), an arithmetic average of the actual operating hours of each individual plant was estimated for each year analyzed. In the case of the actual operating hours delivering energy to ICE per plant, they were determined from the total energy sold to ICE for each year, divided by the capacity contracted by ICE for the respective plant.

Subsequently, the arithmetic average of the five resulting values was obtained for both the plant factor and the variable of actual operating hours delivering energy to ICE, thus determining the plant factor data and actual operating hours delivering energy to ICE to be used in the tariff setting.

Considering that, in accordance with the methodological calculation procedure, the actual operating hours delivering energy to ICE are calculated in relation to the contracted capacity and the energy generated for sale to ICE, upon applying the formula for determining the plant factor, its result is 1. In that sense, for the final calculation of sales expectations, the variable of actual operating hours in operation delivering energy to ICE for an existing wind plant, resulting from the previous procedure, is 2,889.10 hours (Anexo 11).

2.2.6 Definition of the deviation for the tariff band According to the current methodology (RE-0021-JD-2022), to establish the tariff band, the following steps are performed:

a. The standard deviation corresponding to all the data used to estimate the average exploitation cost was calculated, resulting in US$35.40 per kW (see Anexo 12).

b. The upper limit is established as the updated average exploitation cost plus the standard deviation, that is, US$130.04 + US$35.40 per kW = US$165.44 per kW (see Anexo 12).

c. Lower limit: it is obtained considering the changes introduced in this proposal with respect to the current methodology RE-0021-JD-2022.

(.)

i. Definition of the tariff band ii.

. The lower limit of the band is established with the value of the average annual exploitation cost minus the amount corresponding to the number of standard deviations estimated to incorporate in the lower limit multiplied by the standard deviation for each group of hydroelectric and wind plants, respectively, to which the methodology is intended to be applied (Ca𝑓 - Xσ).

(.)

Taking into consideration the reform to the methodology RE-0005-JD-2024 proposed previously, the lower limit is established as the updated average exploitation cost minus the amount corresponding to the number of standard deviations multiplied by the standard deviation, that is, US$130.04 - 3 * US$35.40 per kW = US$23.83 per kW (see Anexo 12).

Under no circumstances may the prices paid for the purchase of electrical energy be greater than the upper limit of the current tariff band, nor less than the lower limit of that band, as established by article 21 of the Reglamento al Capítulo I de la Ley 7200.

2.2.7 Calculation of the tariff band and tariff structure Below, a summary of all the variables calculated in this tariff application is presented, where the price respects the technical specifications defined in the cited resolutions DGT-R-48-2016 and DGT-R-012-2018, in which the mandatory use of the electronic invoice system was resolved, in accordance with the technical and normative specifications defined therein, where it is worth mentioning that the unit price must be composed of a number with 13 integers and 5 decimals:

3. Tariff Structure In accordance with the provisions of the current methodology (RE-0021-JD-2022), the tariff structure or the single annual tariff defined in the negotiation process of the addenda to the current renewed contracts or recontracting by ICE shall be applied; in the case of a time-of-day and/or seasonal tariff structure, ICE itself must establish the applicable parameters in the contracting terms or leave it open to the presentation of sale offers from private generators to which this methodology applies.

Furthermore, ICE may define or request such a structure by energy blocks; all of the foregoing must be justified based on the detected needs of the National Electric System (Sistema Eléctrico Nacional, SEN) and the optimization of the generation fleet available at all times.

The individual rate or prices resulting from the application of a rate structure, if so considered in the corresponding agreement, may not be lower than or exceed the established band, meaning that these prices must be within the corresponding band in effect at the time of the energy purchases.

The applicable rate structure shall be the one that considers only energy.

4. Other Considerations . Currency in which the rate shall be expressed As established by resolution RE-0021-JD-2022, the rates resulting from the detailed methodology shall be expressed and invoiced in United States dollars (US$ or $). The conditions under which payments are made shall be defined in accordance with what the parties establish contractually, and based on the applicable regulations.

. Adjustment of the rate band values The rate band values shall be reviewed at least once a year, in accordance with the provisions of Ley 7593.

. Obligation to submit information As established by RE-0021-JD-2022 and in resolution RE-0060- IE-2021, existing private wind generators to which the rates established through this rate methodology are applied are obligated to submit annually to Aresep the Audited Financial Statements corresponding to the completed fiscal year-end, no later than the last business day of the fourth month following the respective fiscal year-end. In turn, they must comply with the submission of regulatory accounting in the terms established by resolution RIE-132-2017 of December 22, 2017, its update resolution RE-0060-IE-2021 of September 21, 2021, and other resolutions issued for the purpose of collecting any information necessary to perform the corresponding regulatory tasks.

. Application of the methodology The model presented is applicable to the rate settings for energy sales to ICE by private generators producing with existing wind plants, within the framework of the provisions of Chapter 1 of Law No. 7200, and for those purchases and sales of electric energy from existing private wind plants with conditions similar to those established in Chapter 1 of Law No. 7200, that are legally feasible and must be regulated by Aresep.

Any other electricity generation plant under special laws that does not have specific applicable rate methodologies may use the established bands, provided that the premises and considerations established in the model are met, especially regarding that these are plants with wind sources, that they have renewed and renew their electricity purchase and sale contract with ICE or other companies permitted by current regulations, and with the investment already amortized.

. Regulatory Accounting It must be indicated to new private wind generators that provide the public electricity service in its generation stage under Chapter I of Law 7200, that they must comply with resolutions RIE-132-2017 "Implementation of Regulatory Accounting for the Public Electricity Supply Service in its Generation Stage, provided by Generators under Chapter I of Law 7200, Consortia of Public Companies, Municipal and Cooperative Companies engaged in Electricity Generation and other similar entities authorized by the legal framework" of December 22, 2017, and its update RE-0060-IE-2021 of September 21, 2021.

[.]

III. CONCLUSIONS

1. From the application of the approved rate methodology for existing private wind generators, it is obtained that the expected sale hours in real operation are 2,889.10, the profitability is 10.55%; the operating cost is 130.04 US$ per kW and the average investment cost is 4,263.34 US$ per kW.

2. From the update of the variables that make up the rate methodology for existing private wind generation plants, a lower band (lower limit) of US$ 0.02382 per kWh and an upper band (upper limit) of US$ 0.07284 per kWh are obtained.

[.]

III. That, regarding the public hearing, it is convenient to extract the following from the cited report IN-0003-IE-2025

[.]

According to official letter IN-0771-DGAU-2024 of December 13, 2024, corresponding to the report on oppositions and coadjuvancies (folio 74) and the hearing record AC-0501-DGAU-2024 sent by the Dirección General de Atención al Usuario (folio 72), three oppositions were filed and admitted.

A summary of each of the oppositions is presented below, as well as its respective analysis and response:

1. Opposition: Instituto Costarricense de Electricidad, legal identification number 4-000-042139, represented by Mr. Kenneth Lobo Méndez, identity card number 2-0555-0804, in his capacity as Special Administrative Attorney-in-Fact, to represent the institution before Aresep at all stages of this proceeding.

Observations: Did not take the floor at the public hearing. Submits a written brief via official letter number 610-304-2024 (visible at folio 059) Notifications: To the email addresses: [email protected], [email protected], [email protected], [email protected] Summary:

I. Regarding the investment amount

The company argues that, the unit investment amount as established by resolution RE-0021-JD-2022 on page No. 65: "The investment cost represents the total costs necessary to build a generation plant under normal conditions for our country." It also indicates that, for the calculation of the unit investment amount, said resolution states the following:

"The calculation of this value shall be done using the financial-accounting information submitted by each plant to which this methodology applies, and only the investment corresponding to the power contracted by ICE, which corresponds to the regulated public service, shall be considered in the calculation.

In this case, the historical cost value of the fixed assets, property, plant, and equipment of each plant shall be considered, proportional to the maximum power contracted by ICE, with its value updated to the present in accordance with the provisions of section 6.2 of this methodology. The cut-off date for the data to perform the rate calculation shall be the national fiscal year-end, that is December 31 of the year prior to the start of the rate-setting procedure, or failing that, the national fiscal year-end established by Law." In this regard, the report with official letter No. IN-0169-IE-2024 on page No. 21, cites:

"The investment costs of the plants (ITi) were calculated from the historical values of the property, plant, and equipment assets associated with the provision of the public service of the existing wind plants from their respective regulatory accounts, and then converted to dollars using the selling exchange rate at the time each plant began operation." (Highlighting does not correspond to the original) Next, the calculation of the investment costs carried out by ARESEP is presented:

P.E. Aeroenergía: according to the information sources, the historical cost of the investment contained in the spreadsheets "Anexo 16 Aplicación Tarifaria Eólicas Existentes AP.xlsx", tab "CR2-INV-EÓ", "Anexo 2-5 Plan de cuentas uniforme generación privada (actualización RIE- 132-2017) AE2023" tab "a. Plan de cuentas Ley7200", as well as in "Anexo 6 Formularios complementarios a la CR-GP (actualización RIE-132-2017)AE2023", showed an increase in account 1.2.4.05.01 historical cost of computer equipment for an amount of 173,991,848.44 CRC; however, with the available regulatory accounting information and on the ARESEP website (SISTEMA DE CONSULTA DE EXPEDIENTES (aresep.go.cr)), it was not possible to corroborate the increase.

Petition:

That the IE clarify the calculation of account 1.2.4.05.01 of the regulatory accounting of the Aeroenergía S.A. wind plant, historical cost of computer equipment for an amount of 293,916,622.73 CRC, which showed an increase of 173,991,848.44 CRC compared to the year 2022, because with the information available in the file it was not possible to validate the indicated increase.

Calculate the rate band considering the previous point if it proceeds.

Response:

In response to the arguments presented by the opposing company regarding the rate recognition of the investment amount, it is necessary to clarify that, in all rate settings, the IE performs a rigorous technical analysis of the information provided by public service providers, in accordance with the provisions of Ley 7593, so that only the costs necessary to provide the service are contemplated, allowing a competitive return and guaranteeing the adequate development of the activity, in accordance with Article 31 of the same Law; aiming for the harmonization of the interests of users, consumers, and public service providers.

In this regard, it is worth remembering that the supply of electric energy by private generating companies, in the generation stage, is a public service, in accordance with subsection a) of Article 5 of Ley 7593 and Article 3 of Ley 7200. Therefore, it is vested with a public interest, and the information corresponding to the public service, for regulatory purposes, must be traceable, transparent, and accessible to the users of public services, and must provide the necessary inputs so that the rate applications for private generators are, to the greatest extent possible, adjusted to the reality of their sector.

In this sense, regulatory accounting is an instrument through which access to information related to the provision of the public service is guaranteed, allowing transparency in data traceability, reducing the information asymmetry necessary to harmonize the interests between users and providers, as well as reducing the regulator's discretion in the exercise of its regulatory tasks. Furthermore, considering that this is an industry-level setting, having real information provided by the providers allows for a more rigorous technical analysis, assessing the level and evolution of common expenses and costs.

In this context, the party analyzes the traceability and support of the information related to the rate calculation brought to the public hearing on December 11, 2024, through report IN-0169-IE-2024, arguing that the IE indexed the historical cost of the investment with the data reported by the company, for which the IE includes the 2023 additions in investments reported by the Aeroenergía plant in the document called "Anexo 2-5 Plan de cuentas uniforme generación privada (actualización RIE-132- 2017)AE2023"; however, in the form provided by the same company, the document "Anexo 6 Formularios complementarios a la CR-GP (actualización RIE-132-2017)¨AE2023", the company did not justify the increase of ₡173,991,848.44 in the sheet "Mej-adic-ret PPE-INT".

In this regard, once the assessment and technical analysis process of the opposition filed by ICE is completed, it is indicated that only the amount of ₡119,924,774.29 (amount recognized and justified by the company in the previous study) is recognized.

2. Opposition: Molinos de Viento del Arenal Sociedad Anónima, legal identification number 3-101-147592, represented by Mr. Salomón Lechtman Koslowski, identity card: 1-0527-0594, in his capacity as Vice President and Judicial and Extrajudicial Representative.

Observations: Did not take the floor at the public hearing. Submits a written brief (visible at folios 060 through 065).

3. Opposition: Aeroenergía Sociedad Antónima, legal identification number N° 3-101-155347, represented by Mr. Salomón Lechtman Koslowski, identity card N° 1-0527-0594, in his capacity as Vice President, with powers of judicial and extrajudicial representative.

Observations: Did not take the floor at the public hearing. Submits a written brief (visible at folios 066 through 071) Notifications: To the email addresses: [email protected] and [email protected] Notifications: To the email addresses: [email protected] and [email protected] Summary:

I. Exchange Rate

The companies argue that according to the Excel file, Annex 16 of file ET-091-2024, for the conversion of the operating cost to US dollars per KWh, a reference exchange rate of 522.02 is used, whose value is the result of obtaining the average for the month of September 2024.

Additionally, the companies state that in accordance with the criterion regarding the previous setting, they request to use the exchange rate of the day on which the hearing is held.

Petition:

1. Correct the calculation of the exchange rate applied to define the value of the operating cost per kWh, so that the exchange rate of the date on which the public hearing took place, December 11, 2024, is applied.

Response:

Regarding the opponent's argument, the company is informed that at the time of formalizing the preliminary report to be submitted to the public hearing process (on October 31, 2024), the average exchange rate of the last full month available was indeed used, because there was no certainty of the date of the public hearing and the exchange rate that would be in effect at that time.

By virtue of the foregoing, the opponents are informed that at the time of formalizing this final report, the Intendencia de Energía updated the indexation of the "Operating Costs" using the exchange rate of the day of the public hearing, December 11, 2024, published by the BCCR, consistent with the petition.

[.]

III.That in accordance with the findings and preceding recitals and the merits of the case record, it is appropriate to set the rate band for all existing private wind generators that have a signed contract or sign a new contract for the sale to the Instituto Costarricense de Electricidad under Chapter I of Law No. 7200 and for those purchases and sales of electric energy from new private wind plants with conditions similar to those established by Ley 7200, as provided:

LA INTENDENCIA DE ENERGÍA

I.Set the following rate band for all existing private wind generators that sign a contract for sale to the Instituto Costarricense de Electricidad under Chapter I of Law No. 7200 and for those purchases and sales of electric energy from new private wind plants with conditions similar to those established by Ley 7200, that are legally feasible and must be regulated by Aresep, at:

. Lower band (lower limit) of 0.02382 US$ per kWh.

. Upper band (upper limit) of 0.07284 US$ per kW.

II.For all those purchases and sales of energy from existing wind plants with conditions similar to those established by Chapter 1 of Ley 7200, that are legally feasible and must be regulated by ARESEP, the rate structure proposed in the preceding recommendation shall be applied to them.

III.Indicate to the existing private wind generators to whom the rates established by this rate methodology RE-0021-JD-2022 are applied, that they are obligated to submit annually to Aresep the audited financial statements of the generation service they provide, a detailed breakdown of the expenses and costs, as well as the total cost of the investment made; the above must be accompanied by the due justification linking them to the provision of the public electricity supply service in its generation stage, according to the guidelines established in RE-0060-IE-2021.

IV.Indicate to the private generators that sell electric energy to ICE under Ley 7200 that, if they fail to comply with the two preceding provisions (4. and 5.), the respective documentation will be referred to the Dirección General de Atención al Usuario (DGAU), for the purpose of initiating the corresponding administrative procedures.

V.State as a response to the positions raised at the public hearing what was expressed in Considerando II of this resolution, as well as to thank the participants for their contributions.

VI. Establish that the rate band is effective from its publication in the official gazette La Gaceta

In accordance with the agreement of the Junta Directiva Nº 06-83-2021, from the minutes of extraordinary session 83-2021, held on September 23, 2021, and ratified on September 28 of the same year, the annexes of the technical report IN-0003-IE-2025 of January 10, 2024, which serve as the basis for this administrative act, are incorporated into this resolution.

In compliance with the provisions of Articles 245 and 345 of the Ley General de la Administración Pública (LGAP), it is hereby informed that the ordinary remedies of reconsideration (revocatoria) and appeal (apelación), and the extraordinary remedy of review (revisión) may be filed against this resolution. The ordinary remedies may be filed before the Intendencia de Energía, in accordance with Articles 346 and 349 of the LGAP.

In accordance with Article 346 of the LGPA, the remedies of reconsideration and appeal must be filed within a period of three business days counted from the business day following the notification, and the extraordinary remedy of review, within the periods indicated in Article 354 of said law.

PUBLISH AND NOTIFY ANNEXES

Operating costs

Risk-free rate Source: Prepared by the Intendencia with data from the United States Federal Reserve.

Risk premium Period Rate

Source: Prepared by the Intendencia with data from Aswath Damodaran

Country Risk Period Rate

Source: Prepared by the Intendencia with data from Aswath Damodaran

Plant factor

Source: Prepared by the Intendencia de Energía with data from the Intendencia, ICE, DOCSE, and private generators.

Source: Prepared by the Intendencia de Energía with data from the Intendencia, ICE, DOCSE, and private generators.

Calculation of hours in operation per year Weighting with hours in operation (adjustment to the model)

| PLANT | kW (contracted) | 2021 | Hours in operation | pf | | --- | --- | --- | --- | --- | | kWh | | | | | | AEROENERGÍA TIERRAS MORENAS (MOVASA) | 6,400.00 20,000.00 | 19,515,459.00 67,952 297.39 | 3,049.29 3,397.61 | 1.00 1.00 | | TOTAL | 26,400.00 3,223.45 1.00 | | | | Source: Prepared by the Intendencia de Energía with data from the Intendencia, ICE, DOCSE, and private generators.

Calculation of the Rate Band for Energy Sales

Source: Prepared by the Intendencia de Energía with data from ICE, Aresep, BCCR, and Aswath Damodaran.

Contracted capacity of the plants, information submitted by the companies and DOCSE, information on the plants' entry into operation.

Energy production per plant, DOCSE information.

Email consultation with Damodaran.

Re 2019 Unlevered Betas Question Marginal or Effective.msg

Calculation tool

Regulatory accounting information