2016-12-06 (17) · ERCCASENO. 2016-103RC NOTICE OFPUBLIC HEARING/ 01DECEMBER 2016 PAGE40F25 7. In addition to this predicament, COTELCO-PPALMA anticipates that the energyrequirements

Republic of the PhilippinesENERGY REGULATORY COMMISSION

San Miguel Avenue, Pasig City

IN THE MATI'ER OF THEJOINT APPLICATION FORAPPROVAL OF THE POWERSUPPLY CONTRACT (PSC)ENTERED INTO BY ANDBETWEEN COTABATOELECTRIC COOPERATIVE,INC. - PPALMA (COTELCO-PPALMA) AND SAN MIGUELCONSOLIDATED POWERCORPORATION (SMCPC),WITH PRAYER FORCONFIDENTIALTREATMENT OFINFORMATION,

ERC CASE NO. 2016-103 RC

COTABATO ELECTRICCOOPERATIVE, INC.PPALMA (COTELCOPPALMA) AND SAN MIGUELCONSOLIDATED POWERCORPORATION (SMCPC),

Applicant.)(------------------------------------)(

o 0 CLi~ .•T2~DDate:. ~d=.P~~.=0t6By:- ,•...•.CZJ(. _-

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 29 April 2016, Cotabato ElectricCooperative, Inc. - PPALMA (COTELCO-PPALMA) and San MiguelConsolidated Power Corporation (SMCPC) filed a Joint Applicationwith Prayer for Confidential Treatment of Information seeking theCommission's approval of the Power Supply Contract (PSC) enteredinto by both parties.

Subsequently, on 16 September 2016, the Commission issuedan Order directing Applicants to submit additional documents. Thedispositive portion of the Order read as follows:

ERC CASE NO. 2016-103 RCNOTICE OF PUBLIC HEARING/ 01 DECEMBER 2016PAGE20F25

WHEREFORE, the foregoing premises considered,Applicants COTELCO - PPALMA and SMCPC are hereby directedTO SUBMIT within ten (10) from receipt hereof, the following:

1) Terms of Reference containing the minimum requirementsenumerated in Section 2 of the 2015 Resolution and Paragraph 2(b) of the 2016 Resolution; and

2) Soft copy of the Joint Application in Word format.

Accordingly, the initial hearing of the instant JointApplication shall be deferred until Applicants have submitted theircompliance with the foregoing directive.

SO ORDERED.

Accordingly, on 07 October 2016, the Commission receivedApplicants' compliance with the above directive.

In the Joint Application with Prayer for ConfidentialTreatment of Information, Applicants alleged the following:

The Joint Applicants

1. The Cotabato Electric Cooperative, Incorporated(COTELCO-Main), from where COTELCO-PPALMA derivesits authority, is a non-stock, non-profit electric cooperativeduly organized and existing under the Philippine Laws, withprincipal office at Matalam, North Cotabato. It originallyholds a franchise to operate light and power services in theCity of Kidapawan and in the Municipalities of Antipas,Arakan, Banisilan, Carmen, Kabacan, Magpet, Makilala,Matalam, Mlang, Pres. Roxas, and Tulunan, all in theProvince of North Cotabato;

1.1 Subsequently, it applied further for a franchise withthe then National Electrification Commission (NEC)for the Municipalities of Pigkawayan, Pikit, Alamada,Libungan, Midsayap, and Aleosan (PPALMA),likewise, all in the Province of North Cotabato(PPALMAArea);

1.2 The then NEC granted said application which wassubsequently affirmed with finality by the HonorableCourt of Appeals;

1.3 Pursuant to a COTELCO-Main Board Resolution, thePPALMA area was created as a separate business unitusing the franchise of COTELCO. Said Boardresolution was subsequently approved with

ERC CASE NO. 2016-103 RCNOTICE OF PUBLIC HEARING/ 01 DECEMBER 2016PAGE 3 OF 25

modification by the National ElectrificationAdministration (NEA);

1.4 As a separate business unit, COTELCO-PPALMAhasthe authority to supply and distribute electricity in thePPALMAarea; and

1.5 COTELCO-PPALMAhas its principal office address atVillarica, Midsayap, North Cotabato. It shall also beherein referred to as the "Buyer."

2. SMCPC is a corporation duly created and existing by andunder the laws of the Republic of the Philippines, withbusiness address at No. 40 San Miguel Avenue,Mandaluyong City 1550. It shall also be herein referred to asthe "Seller";

3. The Joint Applicants may be served with the orders, noticesand other processes of the Honorable Commission throughtheir respective undersigned counsels at the addressesindicated herein;

Nature of the Application

4. The Joint Application for approval of the Power SupplyContract (PSC) dated 12 April 2016 entered into by andbetween COTELCO-PPALMA and SMCPC, is beingsubmitted to the Honorable Commission for its review andapproval pursuant to: a) Sections 25 and 45(b) of RepublicAct No. 9136, otherwise known as the Electric PowerIndustry Reform Act of 2001 (EPIRA), b) Rule 5, Section4(e) and Rule 11,Section 5 of the EPIRA Implementing Rulesand Regulations (IRR), c) Rule 20(B) of the EnergyRegulatory Commission (ERC) Rules of Practice andProcedure, and other pertinent rules and regulations;

Statement of Facts

5. The lack of power supply has been a persistent problem inMindanao. This problem is further aggravated by the El NiflOphenomenon which drastically reduces the supply ofhydroelectric power, a major power source which Mindanaois heavily dependent on. This power supply problem is beingfelt considerably in the PPALMA area of Mindanao whereCOTELCO-PPALMAserves its customers;

6. Presently, the power supply of COTELCO-PPALMAunder itsexisting energy supply agreements is not sufficient to ensurea stable supply of electricity to its customers. This explainsthe rotational brownouts ranging from 3 to 6 hours beingexperienced in the PPALMAarea;


7. In addition to this predicament, COTELCO-PPALMAanticipates that the energy requirements of its customers willsignificantly increase in the next few years gleaning from itsActual and Forecasted Load Data, a copy of which is heretoattached as Annex "R". If COTELCO-PPALMAmaintains itscurrently deficient power supply level, and if it does notobtain an increase in power supply corresponding to itsanticipated requirements, brownouts will inescapablyworsen;

8. Considering the current power crisis in Mindanao, coupledwith the deficiency in the present power supply ofCOTELCO-PPALMA and the anticipated increase in itsfuture power requirements, COTELCO-PPALMA iscompelled to procure additional power supply from aqualified generation company in order to avert long andcontinuous power outages in the PPALMAarea;

9. SMCPC for its part, is mindful of the social dimensioninvolved in its commercial endeavors as a generationcompany. Desirous of contributing to the efforts of theenergy sector to address the power shortage in Mindanao,SMCPC is constructing an initial 2 x 150 MW CirculatingFluidized Bed Coal-Fired Thermal Power Plant (the Plant)located in Brgy. Culaman, Malita, Davao del Sur, which isexpected to be commercially operational by the 3rd quarter ofCY2016. The Plant description is attached as Annex "N";

10.. To connect the Plant to the Mindanao Grid, the NationalGrid Corporation of the Philippines (NGCP) is undertakingthe construction of the 230 kV Malita-MatanaoTransmission Line and its corresponding substation inMalita, Davao del Sur. NGCP has filed the appropriateapplication with this Honorable Commission, whichapplication is docketed as ERC Case No. 2014-060 RC.Upon completion of the transmission facilities, SMCPCwillexecute the necessary service agreements with NGCP, andundertakes to submit the same to this HonorableCommission;

11. SMCPCconducted a series of presentations to introduce andoffer the Plant capacity to prospective clients. SMCPCtendered terms and conditions of its proposed service tovarious distribution utilities (DU), among which isCOTELCO-PPALMA;

12. COTELCO-PPALMA found to be meritorious the plan tocontract 10 MW of power supply from SMCPC, andproceeded in accordance with the procurement process thenprevailing in the years prior to October 2015. However, withthe advent of the CSP Resolution (ERC Resolution NO.13,


Series of 2015, directing all distribution utilities to conduct acompetitive selection process [CSP] in the procurement oftheir supply to the captive market), both COTELCO-PPALMA and SMCPC abandoned all talks, representations,commitments and agreements that they have previouslymade involving the 10 MW power supply. They chose to obeythe order of this Honorable Commission;

13. Competitive Selection Process (CSP). Confronted with thenecessity to procure additional power supply, COTELCO-PPALMA conducted bidding in compliance with the CSPResolution and consummated the same prior to theHonorable Commission's issuance of its Resolution NO.1,Series of 2016 on 15 March 2016 restating the effectivity ofsaid CSP Resolution to 30 April2016. It conducted the CSPas follows:

13.1 On 27 January2016, COTELCO-PPALMA's Bids andAwards Committee (BAC) published in "The ManilaBulletin", page B-12, an announcement of its"Invitation to Bid for the Supply and Delivery ofElectric Power";

13.2 On 3 February 2016, the BAC held a Pre-BidConference wherein the guidelines and procedures onthe offer of bid documents as well as other details ofthe bid process were discussed. Only SMCPCattended said Pre-Bid Conference and purchased thebid documents. The bid documents indicated thefollowing terms of reference:

Contract Term: Ten (10) yearsStart of Supply: 26 June 2016Power Plant: Greenfield Power PlantMaximum Allowable Bid Capacity based tariff schemePrice: PhP4.12/kWh at 100% Load FactorBase Indices: Forex:PhP44.00 / USD

NewCastle Coal Price Index:US$74.00/MT

Outage Allowances: Maximum of 48.25 days outageallowances for planned andunplanned outages

Force Majeure: Bidder to indicate its proposed forcemajeure terms

Replacement Power: SELLER to procure ReplacementPower cost of which shall be passedonto BUYER

Security Deposit: Maximum of 1month security depositbased on one month consumption

Contract Capacity: 10,000 kW


Nomination Protocol: Non-binding year-ahead and month-ahead nominationsBinding day-ahead nomination

Application Process with Joint filingtheERC: Generator to shoulder filing and

publication costs

CSR Programs/Value- Community outreach programs mustadded Services: be conducted annually III the

franchise 'areaPenalties: Bidder to indicate

13.3 The BACproceeded with the bidding proper at a date,time and place specified in the bid documents. On 10February 2016, at 10a.m. at COTELCO-PPALMAoffice, only SMCPC responded to the bid invitationand submitted its bid proposal with technical andfinancial eligibility requirements. There being onlyone bidder, the BAC declared a failure of bidding andcalled for another bidding;

13-4 On 11 February 2016, the BAC published for thesecond time in "The Manila Bulletin," page B-12, theannouncement of its "Invitation to Bid for the Supplyand Delivery of Electric Power";

13.5 On 17February 2016, at 9 a.m. at COTELCO-PPALMAoffice, the BAC held a second Pre-Bid Conference.Again, only SMCPC attended. At 1 p.m., on even date,the BAC conducted the bidding proper, however, onlySMCPC submitted an offer. For the second time, theBAC declared a failure of bidding and resolved toresort to direct negotiation;

13.6 Twice bid out and failed, the procurement ofCOTELCO-PPALMA's power supply through directnegotiations comes legally in order under theHonorable Commission's CSP Resolution. Hence, on24 February 2016, the BAC initiated directnegotiations with SMCPC using as reference thelatter's lone bid offer. The BAC, finding the bidproposals submitted by SMCPC to have complied withthe technical and financial parameters set byCOTELCO-PPALMA, resolved to recommend theaward of the power supply contract to SMCPC, subjectto modifications agreed upon in the negotiations;

13.7 The COTELCO Board, in a Resolution dated 11March2016, approved the CSP conducted by its BAC leadingto the selection of SMCPC as the power supplier ofCOTELCO-PPALMA;


13.8 Accordingly, COTELCO-PPALMA served uponSMCPC a Notice of Award dated 21 March 2016 and aNotice to Proceed dated 28 March 2016, respectively;

13.9 On 12 April2016, COTELCO-PPALMA and SMCPC,through their authorized representatives, signed the,Power Supply Contract that is now being presentedfor the approval of the Honorable Commission;

14. Salient Features of the PSC.

14.1 Contract Capacity. The Contract Capacity for theduration of the PSC shall be 10,000 kW. The Buyershall maintain a minimum hourly nomination of atleast forty percent (40%) of the Contract Capacity forthe duration of the PSC. The Contract Capacity shallbe subject to a separate nomination protocol upon thecommercial operations of the Interim MindanaoElectricity Market (IMEM) or the WholesaleElectricity Spot Market (WESM);

14.2 Generation Source. SMCPC is constructing a 2 x 150MW Circulating Fluidized Bed Coal-Fired ThermalPower Plant (the Plant) located in Barangay Culaman,Malita, Davao del Sur, which is expected to becommercially operational by the 1stquarter of calendaryear 2016;

14.3 Contract Term. The PSC shall take effect between theParties on the date of signing (Execution Date) andshall remain effective for a period of ten (10) yearsfrom Commercial Operations Date (COD).The supplyof electric power by the Seller shall commence uponCOD, and shall continue until the end of the ContractTerm;

14-4 Contract Charges. Under the PSC, the Buyer shall paythe following Contract Charges for the duration of theContract, subject to the applicable value-added tax(VAT), and computed as follows:

Unit

PhP kW-monthPhP kW-month

PhP/kWh

PhP kWh

Amount

1,386.8021383.80791,770.6100

0.2831

1.6566


I Total Energy Fee 11.9397

14.5 Other Charges. The Buyer shall bear all other costsand charges incurred after the Delivery Point,including but not limited to transmission line losses,any interconnection charges and site specific lossadjustments, among others;

14.6 Adjustment Formula. The Contract Charges areadjusted on a monthly basis in accordance with thefollowing Adjustment Formula (Annex II -B of thePSC):

MONTHLY CONTRACT CHARGES = Capacity Chargesmonth+ EnergyChargesmonth

Where:

Capacity Charges

Energy Charges

= Capital Recovery Fee(CRF) + FixedOperation andMaintenance Fee(FOM)

= Variable Operation andMaintenance Fee(VOM) + Fuel Fee +Start-up Charge

I. CAPITAL RECOVERY FEE (CRFmonth)

CRFmonth = CRFadjusted x CC

Where:

CRFadjusted

CRFbase

FXm

= (CRF(base)X 0.30) + (CRF(base)X0.70xFXm)

FXo

= Capital Recovery Fee in PhP/kW-month contained in Annex II-A ofthe PSC

= The simple average of the dailyexchange rate of the PhilippinePeso to the US Dollar, as postedby the Bang ko Sentral ngPilipinas (BSP) for the calendar


month within which the start ofthe current Billing Period occurs

FXo = Exchange rate of the PhilippinePeso to the US Dollar, Base =PhP44.00

CC = Contract Capacity in kW

II. FIXED OPERATION AND MAINTENANCEFEE (FOMmonth)

FOMmonth= FOM xPHC:PIm x CCPHCPlo

Where:

FOM

PHCPlm

CC

= Fixed Operation andMaintenance Fee in PhP/kW-month contained in Annex II-A ofthe PSC

= Philippine Consumer Price Index(CPI) for All Income Householdsin the Philippines - All Items(2006=100), as posted by thePhilippine National StatisticsOffice (NSO) for the calendarmonth within which the start ofthe current Billing Period occurs

= Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month of the COD

= Contract Capacity in kW

III. VARIABLE OPERATION ANDMAINTENANCE FEE (VOMmonth)

VOM [(0 85 \ OM USCPltnFXm') (' ,', ,PHCPlm "')]:month= ;' . 'x l ',.x, . " X-, ,-, . +; O.15xVOMx , " ," ,,',xAE" USCPlo fXo/,PHCPIo

Where:

ERC CASE NO. 2016-103 RCNOTICE OF PUBLIC HEARING/ 01 DECEMBER 2016PAGE 10OF 25

VOM

USCPIm

USCPIo

FXm

FXo

PHCPIm

PHCPIo

AE

= Variable Operation andMaintenance Fee in PhP/kWhcontained in Annex II-A of thePSC

= United States (US) CPI for AllUrban Consumers- All Items(1982-84=100), as posted by theUnites States Bureau of LaborStatistics (USBLS) for thecalendar month within which thestart of the current Billing Periodoccurs

= US CPI for All Urban Consumers- All Items (1982-84=100) forthe calendar month of the COD

= The average daily exchange rateof the Philippine Peso to the USDollar, as posted by the BSP forthe calendar month within whichthe start of the current BillingPeriod occurs

= Exchange rate of the PhilippinePeso to the US Dollar,Base=PhP44.00

= Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month within which thestart of the current Billing Periodoccurs

= Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month of the COD

= Associated Energy in kWhdelivered to the Buyer by theSeller during the current BillingPeriod at the Delivery Pointsstated in Annex III of the PSC

The Parties agree to adopt changes in any of theinflationary indices subject to prior notification by the


Seller to the Buyer for the occurrence of any of thefollowing events: a) shift made in the base year andother adjustments to such inflation index made by therelevant authorized entity; or b) the inflation index:i)becomes unavailable, ii) is replaced by a newbenchmark rate as determined by the relevantauthorized entity or its successor-in-interest, iii).ceases to exist, or iv) in the reasonable determinationof either Party, fails to reflect the real costs and formsan integral part of this price adjustment formula;

IV. FUEL FEE (Fuelmonth)

I = [i(FU el cost. +.Fre.igbitCost)i xCRxFX .]xAEFue month 1..000 III

Where:

Fuel Cost = Base Fuel Cost,USD/MTxNewcastlem

Newcasileo

in

Ne'\l\7castleni = Average monthly coal price indexin USD/MT as posted by globalcoal on the websitewww.globalcoal.com for thecalendar month within which thestart of the current Billing Periodoccurs

Newcastleo = Coal price index equivalent toUSD74.oojMT

Base Fuel Cos~= Blended Cost equivalent toUSD62.69/MT

Freight Cost = Actual Transport Costs inUSD/MT which includes but notlimited to port charges, fuelinsurance, wharfage fees, excisetax, handling, customs brokeragefees, custom duties, stevedoresand arrastre costs, tuggage costs,survey fee, towage, pilotage, lightdues, mooring and unmooring,berthing and de-berthing, andtonnage dues and sundries on thecoal used during the currentBilling Period. Freight costs shallinclude all other existing and

http://www.globalcoal.com


future taxes, fees, imposts andother charges that may beimposed on the transport of coal

CR

FXm

FXo

AE

= Consumption rate at 0.70kg/kWhescalated annually by one and ahalf percent (1.5%) or the actualplant fuel consumption rate,whichever is lower

= The average daily exchange rateof the Philippine Peso to the USDollar, as posted by the BSP forthe calendar month within whichthe start of the current BillingPeriod occurs

= Exchange rate of the PhilippinePeso to the US Dollar,Base=PhP44.00

= Associated Energy in kWhdelivered to the Buyer by theSeller during the current BillingPeriod at the Delivery Pointsstated in Annex III of the PSC

The Parties further agree that when any or all of theabove components of the Fuel Cost no longer reflectthe Seller's actual cost of coal (including the FOBprice, coal indexation, premiums, among others), theFuel Cost shall be computed based on the Seller'sactual cost of fuel subject to the Seller's priornotification to the Buyer and subject to the approvalof the Honorable Commission prior toimplementation;

V. Start-up Charge (per Unit and per Start-up) -to be added on top ofVOM & Fuel charges

Cold Start-up - downtime of eight (8) hours andabove

Start-up ChargefCG

= 130,000 liters x LFOm x -TPC

Warm Start-up - downtime of less than eight (8)hours


Start-up Charge

Where:

LFOm

CC

TPC

cc= 36,000 liters x LFOm x -fPC

= The actual price of diesel oil inPhP/liter as billed by supplier ofdiesel oil applicable for the BillingPeriod

= Contract Capacity in kW

= Total plant capacity (net) per unitinkW

14.7 Grid Connection. Pursuant to the HonorableCommission's Decision dated 17 November 2014 inERC Case No. 2014-060 RC1, the National GridCorporation of the Philippines (NGCP) wasauthorized to construct the 230 kV Malita-MatanaoTransmission Line in Malita, Davao del Sur. Uponcompletion of the said Transmission Line, SMCPCwillexecute the necessary Service Agreement with NGCPand undertakes to submit the same to the HonorableCommission;

14.8 Sources of Funds. The total estimated Project Cost ofthe Power Plant is PhP24,824 Million. SMC GlobalPower Holdings Corporation, SMCPC's parentcompany, advanced a total amount of US$300 Millionto commence and allow the on-going construction ofthe said Power Plant. It was initially financed throughone hundred percent (100%) equity since the fundingthereof was undertaken by the said parent companywithout interest payments. SMCPC intends toundertake project financing with a target Debt toEquity ratio of 70%:30%;

14.9 Discounts. The Seller provides for both PromptPayment Discount (PPD) and Collection EfficiencyDiscount (CED);

a) PPD. The Buyer may avail of the PPD equivalentto one percent (1%)of the total of the Capacity andEnergy Charges and other components of thecurrent power bill except the IMEM or the WESMcharges and Replacement Power Cost, if any,provided that:

1 In the Matter of the Application for Approval of the Malita-Matanao 230 kV TransmissionProject, with Prayer for the Issuance of a Provisional Authority, NGCP - Applicant.


1. The Buyer has no arrears from previous powerbillings including the Security Deposit or anyunpaid charges or penalties including VAT;

11. The Buyer has submitted all necessary Bureauof Internal Revenue (BIR) Tax Certificates forall taxes withheld as well as for all zero (0)-rated VAT end-consumers;

lll. The Buyer pays the power bill in full on orbefore the 10th day of the calendar monthfollowing the current Billing Period; and

IV. The Buyer complies with other policies andprocedures as may be required by the Seller,subject to prior notification by the Seller to theBuyer;

b) CED. The Buyer shall be entitled to the followingCED:

Collection Efficiency Levels Discount,PhP/kWh

Below 65% None66% to 75% 0.0576% to 85% 0.1086% to 95% 0.15

96% and above 0.20

In order for the Buyer to avail of the CED, it mustcomply with the following conditions:

1. The Buyer has no outstanding obligations tothe Seller from previous power bills includingVAT; and

11. The Buyer shall submit to the Seller: a copy ofits Monthly Financial and Statistical Report(MFSR)/Collection Efficiency Report signed byits Finance Manager and General Manager,stamped "received" by the NEA; AuditedFinancial Statements (AFS) stamped "received"by the BIR (to be submitted to the Seller withinthree (3) calendar days from receipt of the BIR;zero (o)-rated VAT certificates as updatedmonthly; and a duly accomplished CEDAvailment Form;

14.10 Outages. The Seller shall not be obligated to deliverenergy during the Annual Outage Allowance of: sevenhundred twenty (720) cumulative outage hours for


each Contract Year for each Unit of the Plant(Scheduled Outage) and four hundred thirty-eight(438) cumulative outage hours for each Contract Yearfor each Unit of the Plant (Forced Outage);

The Seller shall be allowed an additional MajorMaintenance Outage Allowance of seven hundredtwenty (720) cumulative outage hours once every five(5) years from the first Major Maintenance of eachUnit of the Power Plant. The Seller is not obligated todeliver energy during Major Maintenance Outage;

Unutilized outage hours for a Contract Year shall notbe carried over to the following Contract Year; and

14.11 Replacement Power. To ensure the uninterruptedsupply of energy to the Buyer during the AnnualOutage Allowance or Major Maintenance Outagehours, the Seller may procure Replacement Energyfrom other sources, the cost of which shall be passed-on to the Buyer;

Rate Impact on COTELCO-PPALMA's Overall GenerationRate

15. COTELCO-PPALMA evaluated the impact of the PSC on itseffective rates considering capacities of its other suppliers ofelectricity in the PPALMA area. The table below summarizesthe rate impact of the subject PSC:


RATE IMPACT CALCULATIONGeneration Charges'

-- - - , - - - - -Scenario 1.NPC ICurrent Generation with Reduced NPC/PSALM by 2016 onward without other bilateral contracts

NPC 100% 1,127,990.03 3,479,585.25 3.0848

Our Franchise Area suffers 12.16 hours curtailment everydayTotal 100% 1,127,990,03 3,479,686,26 3.0848

Scenario 2Reduced NPC/PSALM with Additional Supply from TSI & FOC by 2016 onward

NPC 14% 1,127,990.03 3,479,585.25 3.0848FOC 48% 3,720,000.00 20,111,436.00 5.4063TSI 38% 2,976,000.00 16,650,720.00 5.5950

Our Franchise Area suffers 3.6 hours curtailment everyday

Total 100% 7,823,990.03 40,241,741,26 6,1434

Scenario 3

Reduced NPC/PSALM with Additional Supply from TSI and SMCPC by 2016 onward

NPC 7% 1,127,990.03 3,479,585.25 3.0848

FOC 24% 3,720,000.00 20,111,436.00 5.4063TSI 19% 2,976,000.00 16,650,720.00 5.5950SMCPCproposed bilateral contract to cover the deficit 49% 7,440,000.00 34,522,344.00 4.6401Our Franchise Area suffers minimal hours of curtailment everydayTotal 100% 16,263,990.03 74,764,086,26 4.8981

Impact:

Reduced NPCjPSALM by 2016 onward without additional supply 3.0848Reduced NPC/PSALM with additional supply from TSI by 2016 onward 5.1434Increase in Generation Costs before SMCPC (A) 2,0686

Reduced NPCjPSALM by 2016 onward without additional supply 3.0848Reduced NPC/PSALM with additional supply from TSI by 2016 and SMCPC to cover deficit 4.8981Increase in Generation Costs after SMCPC (B) 1,8133

Net Rate Reduction per Kwh on Generation Costs after SMCPC (A-B) (0.2463)

Billing Rates data used: Jan 26. Feb 26, 2016

IScenario 1: NPC • Supply for 2016 was based on the newly approved CSEE with PSALM, which was reduced due toinsufficient projected capacity considering without additional supply from other IPP's

Franchise Area will suffer 12-16 hours curtailment everyday.

IScenario 2: a.) NPC Supply was based on the newly approved CSEE with PSALM, which was reduced due toinsufficient projected capacity; and with additional supply from other IPP's such as:a.) TSI • bilateral contractb,) FOC - bilateral contract

Franchise Area will suffer 1.3 hours curtailment everyday,

IScenario 3: a,) NPC Supply was based on the newly approved CSEE with PSALM, which was reduced due toinsufficient projected capacity; and with additional supply from other IPPs such asa.) TSI - bilateral contract and;b.) FOC • bilateral contractb.) SMCPC - proposed bilateral contract

Franchise Area will suffer minimal hours of curtailment everyday.

16. The foregoing summary will show that the PSC willimmensely benefit the consumers in the PPALMAarea in thefollowing manner:

16.1 In the first scenario above, given the situation thatonly one power generator (the NPC-PSALM) suppliesenergy to COTELCO-PPALMA, the cost forCOTELCO-PPALMA would be an average ofPhP3.o848 per kWh. However, having only onesupplier, the PPALMA area will suffer powercurtailments of 12 to 15 hours every day;

ERC CASE NO. 2016-103 RCNOTICE OF PUBLIC HEARING/ 01 DECEMBER 2016PAGE 170F25

16.2 In the second scenario above, based on the projectionthat COTELCO-PPALMAwill have 3 power suppliers(namely, NPC, TSI and FDC) in the year 2016 andonwards, the cost for COTELCO-PPALMA would bean average mixed generation rate of PhP5.1434 perkWh, which is higher by PhP2.0586 than the firstscenario. But because there are already 3 powersuppliers, there will be shorter power curtailments of1to 3 hours every day in the PPALMAarea;

16.3 The third scenario projects the addition of a fourthpower supplier (SMCPC) for COTELCO-PPALMA inthe year 2016 and onwards. With SMCPC's contractprice ofPhP4.6401 per kWh, COTELCO-PPALMAwilladvantageously reduce its cost from Php 5.1434 perkWh down to PhP4.8981 per kWh, or a reduction ofPhPo.2453 per kWh. More importantly, as a result ofSMCDC's presence, power curtailments in thePPALMAarea will be reduced to the least, or none atall;

16-4 The billing data used to illustrate the three scenariosmentioned above came from the period of January 26to February 25, 2016. The supply data, on the otherhand, were based on: a) the CSEE with PSALM thatwill expire soon on December 25,2016, b) the EnergySupply Agreement (ESA) with TSI that will expire inyear December 2040, and c) the Electric PowerPurchase Agreement (EPPA) with FDC that will expireon December 2022;

17. Environmental Compliance Certificate (ECC). On 7 June2013, the Department of Environment and NaturalResources (DENR) has issued ECC No. ECC-CO-1304-0010in favor of SMCPC;

18. Board of Investments (BOI) Certificate. On 24 June 2013,the Power Plant Project was registered with the BOI whichissued Certificate of Registration No. 2013-137;

19. Certificate of Compliance (COC).The Power Plant is stillunder construction and the target/estimated COD issometime in June 2016. Hence, it is not yet covered by aCOC. Nonetheless, SMCPCundertakes to file the necessaryapplication for a COC at least three (3) months before thetarget COD;

20. Further, SMCPC's Power Plant is considered as a committedproject, and is in the process of securing a certification fromthe Department of Energy (DOE) that the same is consistentwith the Power Development Plan (PDP). It undertakes to


submit the certification as soon as the same becomesavailable;

21. Furthermore, SMCPC undertakes to submit a certificationfrom the National Power Corporation (NPC) on theinsufficiency of supply within the Mindanao Region duringthe term of the PSC;

Compliance with the Pre-filing Requirements

22. Copies of the foregoing documents and/or information areattached to the Joint Application as annexes and madeintegral parts hereof:

Annex Documents/InformationA SMCPC's Articles of IncorporationB SMCPC's Certificate of Registration issued by

the Securities and ExchangeCommission (SEC)

C SMCPC's Latest General Information Sheet(GIS)

D SMCPC's Certificate of Registration with theBOI

E ECC issued by the DENR to the CirculatingFluidized Bed Coal-Fired ThermalPower Plant Proiect of SMCPC

F PSC entered into by and between COTELCO-PPALMAand SMCPC

Gand Details of the PSC:Series

a. Executive Summaryb. Sources of Funds/Financial Plans

• Debt/Equity Ratio• Project Cost• Computation of Return on

Investment (ROI)/WeightedAverage Cost of Capital (WACC)

• Certification from theBank/Lending Institutionspecifying the principalamortization, term and interestduring the cooperation period ofthe loan agreement

c. Purchased Power Rate• Breakdown of the base prices• Sample Computation of Power

Rates with the supportingdocuments on the assumptionstaken

• Rate Impact Study/Simulation• Statement of impact on the overall


rates of COTELCO-PPALMA oncethe contract is approved

• Basis/Rationale of indexation andlevel of indexation

d. Cash Flow• Initial Costs• Breakdown of Operating and

Maintenance expenses• Minimum Energy Off-take (MEOT)

H Details of the Power Rate Calculations andFinancial Model (Confidential)

1,1-1 Contracts for the Supply, Construction andand 1- Supervision for the Power Plant

2 (Confidential)J Details of the Fuel Procurement ProcessK Transmission Service Agreement (TSA)

between NGCP and COTELCO-PPALMA

Land Acknowledgment receipts bySeries theSangguniang Pambayan of

Midsayap, the SangguniangPanlalawigan of North Cotabato, andthe Sangguniang Panlungsod ofMandaluyong City, of copies of theJoint Application (including annexes)

Mand Affidavit of Publication and complete issue ofS the newspaper where the Jointe Application was published (excludingr annexes)1

es

23. Further, in compliance with Article VI, Sections 1 and 2 ofthe Honorable Commission's Guidelines for the Recovery ofCosts for the Generation Component of the DistributionUtilities' (DU) Rates, copies of the foregoing are, likewise,attached to the Joint Application as annexes and madeintegral parts hereof:

AnnexN

o

PandSeries

Documents InformationRelevant technical and economic

characteristics of the generationcapacity, installed capacity, mode ofo eration, and de endable ca ad

Costs analysis of the proposed pricingrovisions of the PSC

Details of the Competitive Selection Process(CSP) undertaken by COTELCO-PPALMA leading to the selection ofSMCPC as its supplier, includinginvitations to artici ate and submit


proposals, Terms of Reference (TOR),proposals and/or tender offersreceived by COTELCO-PPALMA,COTELCO-PPALMA's Special Bidsand Awards Committee (SBAC)Evaluation Report; COTELCO-PPALMA's Board Resolutionconfirming the said SBAC EvaluationReport, and the Notice of Award toSMCPC

Qand Details of the interconnection facility of theSeries SMCPC Power PlantR COTELCO-PPALMA's latest Distribution

Development Plan (DDP) and LoadForecast Proiections

S Demand Side Management (DSM) Programthat could be implemented byCOTELCO-PPALMA if approved bythe Honorable Commission

T SMCPC's latest Audited FinancialStatements (AFS), Balance Sheet,Income Statement, and Statement ofCash Flows

T-l Bank Certification of Long-term Loans,including Schedule of Original Loan(principal amount, interest payableand term of the loan) and UpdatedBalances (principal amount, interestpayable and penalties, if any andremaining term of the loan)

T-2 Operating Expenses for the Power Plant andGeneral and Administrative Expense

T-3 Certification from the engine manufactureror SMCPC of the net heat rate in litersper kWh

T-4 Simulation on the number of operating unitsnecessary to meet the MEOT and/oradditional energy/demandrequirements of COTELCO-PPALMA

T-5 Potential Cost (absolute amounts andPhP /kWh) of Ancillary Services asand when SMCPC or COTELCO-PPALMA is connected to the main.grid

24. Furthermore, the Joint Application is consistent and inaccordance with the first (1st) and fifth (5th) "Whereasclauses" of the DOE Circular No. 2003-12-11 which arequoted hereunder:

"WHEREAS, Section 2 of Republic Act No.9136, also known as the Electric Power IndustryReform Act of 2001 or EPIRA, declared as a policy ofthe State, among others, [to ensure the quality,


reliability, security and affordability of the supply ofelectric power;" (first "whereas clause", Departmentof Energy Circular No. 2003-12-11.Underscoringsupplied.)

"WHEREAS, pursuant to Section 23 of EPIRA,all distribution utilities, as defined in the law, SHALLHAVE THE OBLIGATION TO SUPPLYELECTRICITY IN THE LEAST COST MANNER TOITS CAPTIVE MARKET subject to the collection ofretail rate duly approved by the Energy RegulatoryCommission;" (fifth "whereas clause", ibid.Underscoring supplied.)

25. The Joint Application is, likewise, consistent with Section 1of the same Department Circular which declares as Statepolicy, that:

"All distribution utilities must henceforth takecognizance and assume full responsibility to forecast,assure and contract for the supply of electric power inthe respective franchise areas to meet theirobligations as a distribution utility." (Underscoringsupplied.)

26. By way of emphasis, Resolution No. 21, Series of 2005 of theHonorable Commission dated 19 October 2005 had directedall Distribution Utilities (DUs) "to enter into future bilateralpower supply contract with power producers to be subjectedto a review by the Commission." (Underscoring supplied.)

27. The PSC with SMCPC was made to ensure the continuoussupply of power to COTELCO-PPALMA. SMCPC'scompetitive pricing structure and other favorable terms of itscontract, will redound to the benefit of COTELCO-PPALMAand its end-consumers in terms of reliable and affordablepower supply;

Allegations in Support of the Confidential Treatment ofAnnexes "H", and "I", "1-1", and "1-2"

28. Rule 4 of the Honorable Commission's Rules of Practice andProcedure provides that COTELCO-PPALMA and SMCPCmay request that information may not be disclosed;

29. SMCPC prays for the confidential treatment of theinformation contained in the following annexes, and notdisclosed except to the officers and staff of the HonorableCommission and its staff:


Annex Documents and/or InformationH Details of the Power Rate Calculations

and Financial Model(Confidential)

I, I-I Contracts for the Supply, Constructionand 1-2 and Supervision for the Power

Plant (Confidential)

30. Annex "H" contains the details of SMCPC's power ratecalculations and financial model as well as the manner bywhich these were derived. These information are proprietaryin nature and should be protected as trade secrets ascontemplated by law and jurisprudence. In the case of AirPhilippines Corporation vs. Pennswell, Inc.2, the SupremeCourt defined a trade secret, as follows:

"A trade secret may consist of any formula,pattern, device, or compilation of information that:U}is used in one's business: and (2) gives the employeran opportunity to obtain an advantage overcompetitors who do not possess the information.Generally, a trade secret is a process or deviceintended for continuous use in the operation of thebusiness, for example, a machine or formula, but canbe a price list or catalogue or specialized customerlist. It is indubitable that trade secrets constituteproprietary rights. The inventor, discoverer, orpossessor of a trade secret or similar innovation hasrights therein which may be treated as property, andordinarily an injunction will be granted to prevent thedisclosure of the trade secret by one who obtained theinformation "in confidence" or through a "confidentialrelationship". American jurisprudence has utilizedthe following factors to determine if an information isa trade secret, to wit:

(1) the extent to which the information isknown outside of the employer's business;

(2) the extent to which the information isknown by employees and others involvedin the business;

(3) the extent of measures taken by theemployer to guard the secrecy of theinformation;

2 G.R. No. 172835, December 13, 2007


(4) the value of the information to theemployer and to competitors;

(5) the amount of effort or money expendedby the company in developing theinformation; and

(6) the extent to which the information couldbe easily or readily obtained through anindependent source."(citanons omitted,emphasis supplied)

31. The interest of the consuming public is sufficiently protectedby the review and evaluation of the rates under the PSC bythe Honorable Commission, without the need to disclose thecontents of Annex "H". The reasonableness andtransparency of the prices of electricity is to be assured bythe Honorable Commission through its own review andverification of SMCPC'soperating costs and expenses;

32. More importantly, SMCPC's competitors, should they obtainthe information in Annex "H", will gain undue advantagethereon and have the opportunity to use the same in theiroperations. The negotiating power of SMCPC with parties itplans to contract with or who it is currently doing businesswith, will clearly be thwarted if it is compelled to disclosesuch information;

33. Further, Annexes "I", "1-1", and "I-2"pertain to the Supply,Construction, and Supervision Contracts, respectively, forthe Power Plant. These contracts have counter-parties whoare not parties to the Joint Application. They contain highlytechnical designs, drawings and other information which arethe intellectual property and trade secrets of the counter-parties, and therefore should not be disclosed to the public.COTELCO-PPALMA and SMCPC, likewise, pray for theconfidential treatment of Annexes "I", "I-1", and "1-2", underthe same premises above; and

34. Accordingly, COTELCO-PPALMAand SMCPC submit one(1) copy each of Annexes "H", "I", "1-1",and "1-2", in a sealedenvelope, with the said envelope and each page of thedocuments and/or information stamped with the word"Confidential".

Prayer

WHEREFORE, the foregoing premises considered, the JointApplicants Cotabato Electric Cooperative, IncorporatedPPALMA(COTELCO-PPALMA) and San Miguel Consolidated

ERCCASENO. 2016-103 RCNOTICEOF PUBLICHEARING/ 01 DECEMBER2016PAGE24 OF 25

Power Corporation (SMCPC) most respectfully pray that after duenotice and hearing, the Honorable Commission:

1. ISSUE an Order treating Annexes "H", "I", "I-I", and "1-2",and all the information contained therein as confidential,directing their non-disclosure to persons other than theofficers and staff of the Honorable Commission,continuously protecting the said information from publicdisclosure by maintaining the same separate and apart fromthe records of the case, and ensuring that these are notdivulged to unauthorized persons, pursuant to Rule 4 of itsRules of Practice and Procedure; and

2. ISSUE a Decision approving the Joint Application and thePSC between COTELCO-PPALMA and SMCPC, andauthorizing COTELCO-PPALMA to charge and collect thefees therein from its member-consumers.

Other reliefs just and equitable under the premises are,likewise, prayed for.

The Commission has set the Joint Application fordetermination of compliance with the jurisdictional requirements,expository presentation, Pre-trial Conference, and presentation ofevidence on 05 January 2017 at two o'clock in the afternoon(2:00 P.M.), at the Energy Regulatory CommissionMindanao Field Office, Mintrade Building, MonteverdeAvenue corner Sales Street, Davao City.

All persons who have an interest in the subject matter of theinstant case may become a party by filing with the Commission averified Petition to Intervene at least five (5) days prior to the initialhearing and subject to the requirements under Rule 9 of the 2006Rules of Practice and Procedure, indicating therein the docketnumber and title of the case and stating the following:

i. The petitioner's name and address;

11. The nature of petitioner's interest in the subject matter ofthe proceeding and the way and manner in which suchinterest is affected by the issues involved in the proceeding;and

111. 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 case may file


their Opposition or Comment thereon at any stage of the proceedingbefore Applicants rest their case, subject to the requirements underRule 9 of the 2006 Rules of Practice and Procedure. No particularform of Opposition or Comment is required, but the document, letter,or writing should contain the following:

1) The name and address of such person;

2) A concise statement of the Opposition or Comment; and

3) The grounds relied upon.

All such persons who wish to have a copy of the JointApplication may request from Applicants that they be furnished withthe same, prior to the date of the initial hearing. Applicants arehereby directed to furnish all those making such request with copiesof the Joint Application and its attachments, subject to thereimbursement of reasonable photocopYing costs. Any such personmay likewise examine the Joint Application and other pertinentrecords filed with the Commission during the standard officehours.

WITNESS, the Honorable Chairman JOSE VICENTE B.SALAZAR, and the Honorable Commissioners ALFREDO J. NON,GLORIA VICTORIA C. YAP-TARUC, JOSEFINA PATRICIAA.MAGPALE-ASIRIT, and GERONIMO D. STA. ANA, EnergyRegulatory Commission, this 1st day of December 2016 at PasigCity. /

ATTY. NAT~ J. MARASIGANChief of Staff

Officeof the Chairman and CEO

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