G\lLATORY C.",'" 0"c;- %f f;.pproved for'

Republic: of the Philippines ( Postir.9ENERGY REGULATORYCOMMISSIO w\~w.erc.gov.ph

San Miguel Ave., Pasig City '/

IN THE MAlTER OF THEAPPLICATION FORAPPROVAL OF THE POWERSUPPLY AGREEMENT (PSA)BETWEEN BUKIDNONSECOND ELECrRICCOOPERATIVE, INC.(BUSECO) AND NORTHBUKIDNON POWERCORPORATION (NBPC),WITH I'RAYER FOR THEISSUANCE OF PROVISIONALAUTHORITY,

ERC Case No. 2017-060 RC

BUKIDNON SECONDEI"ECTRIC COOPERATIVE,INC. (BUSECO) AND NORTHBUKIDNON POWERCORPORATION (NBPC),

Applicants.~----------------------------------------"

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 15 June 2017, Bnkidnol1 SecondElectric Cpoperative, Inc. (BUSECO) and North Bukidnon PowerCorporation (NBPC) jointly filed an Application dated 13 June 2017(Application) for the approval of their Power Supply Agreement(PSA), "vith prayer for the issuance of provisional authority.

In their Application, BUSECO and NBPC alleged the following:

1. That Applicant nUSECO is an electric cooperative dulyorganized and existing under and by viItl1~of the laws of theRepublic of the Philippines, with prineipal ofJ1ce at ManaloPortich, Bukidnon where it may be served with notices .1Il0

other legal processes, represented in this Application by itsBuard President 'EHWIN H. GAl.ICIA and General

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 2 Oft2

Manager, DEITER HOFF P. ARELLANO, anthorized byvirtue of Resolution No. 17-01-05 dated January 12, 2017,copy of which is attached hereto as Annex "A" and made anintegral part hereof. That furthermore, Resolution No. 17-01-06 dated January 12,2017, is hereby attached as Annex "A-1" authorizing BUSECO legal counsel Atty. Eleuterio F.Diao IV to represent BUSECO in the filing of theapplication, expository presentation, jurisdictional andevidentiary hearing, public consultations and otherproceedings relative with this application. However, due tothe change in the juridical name of the power supplier,BUSECO passed a Resolution No. 17-01-12 confirming theassignment of PSA with Bukidnon Power Corporation (BPC)to North Bukidnon Power Corporation (NBPC) with thesame composition of its Board of Directors and Officers, theBoard Resolution is attached as Annex "A-2". Applicanthas the exclusive right and authority to operate an electriclight and power services in the City of Malaybalay and theMunicipalities of Malitbog, Baungon, Talakag, Cabanglasan,Impasug-ong, Libona, Manolo Fortich, Sumilao, Lantapanand Barangay Lilingayon, part of Valencia City, all in theProvince of Bukidnon by virtue of a franchise issued by theNational Electrification Administration (NEA) pursuant toPresidential Decree No. 269 as amended by PresidentialDecree No. 1645.

Copies of BUSECO's Certificate of Franchise and Certificateof Registration, Articles of Incorporation and By-Laws andUpdated List of Board of Directors are hereto attached asAnnexes "B" to "B-3".

2. That joint applicant NORTH BUKIDNON POWERCORPORATION (NBPC) is a domestic corporationorganized and existing under the laws of the Repnblic of thePhilippines with postal address at 2nd Floor, Z-Gas Building,Purok 6 A, South Poblacion, Maramag, Bukidnon andrepresented in this Application by its Vice President forOperations, ZACARIAS FELIPE C. AQUINO VII and itslegal counsel, ATTY. ELEUTERIO F. DIAO IV, whoseauthority to represent NBPC through Board Resolution No.004-2017, Series of 2016 is hereto attached as Annex "C".

Likewise, copies of NBPC's Certificate of Incorporation,Articles of Incorporation, General Information Sheet andlatest Audited Financial Statements are hereto attached asAnnexes "D" to "D-3".

3. That pursuant to Rule 20 (B) of the Commission's Rules ofPractice and Procedure, and other pertinent rules andregulations, the instant Application is filed for its dueconsideration and approval.

4. That in Compliance with Rule 6 of the said Rules, ApplicantBUSECO served copies of the Application together with allof its Annexes to the legislative bodies of the province of

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE30ft2

Bukidnon, the City of Malaybalay and the Municipalities ofMalitbog, Baungon, Talakag, Cabanglasan, Impasug-ong,Libona, Manolo Fortich, Sumilao, Lantapan and BarangayLilingayon, part of Valencia City, all in the Province ofBukidnon where it principally operates. These are attachedherein as Annexes "E" to "E-12."

5. That it likewise caused the publication of the entireApplication in Goldstar Daily, a newspaper of generalcirculation within Applicants' franchise area. The Affidavit ofPublication and the newspaper where and when saidApplication was published is attached herein as Annexes"F" and "F-l."

STATEMENT OF FACTS

6. Shortage of peaking power supply of BUSECO.BUSECO has a Power Supply Contracting Team (PSCT)which it utilizes as a technical working group tasked to study,evaluate and recommend power supply strategies for itsbaseload and peaking load. The PSCT has found thatBUSECO's existing and future peaking load requirement isincreasing and that the current supply is inadequate.BUSECO, through its PSCT, is therefore looking for anadditional power supplier which can satisfy its peaking loaddeficiency.

7. Power Suppliers of BUSECO. The franchise area ofBUSECO had a total peak power requirement of 29.70 MWin the year 2016. Currently, BUSECO sources its electricpower requirements from the following suppliers:

a. 5 MW from the Power Sector Asset andLiabilities Management Corp. (PSALM)/National Power Corporation (NPC) under aContract for the Supply of Electric Energy (CSEE)as amended by a Letter of Agreement (LOA) untilDecember 25, 2017, attached herein as Annexes"G" and "G-1".

b. 5 MW from the Thenna Marine Inc., (TMI)under an Energy Supply Agreement (ESA) untilMay 18, 2018.

c. 2MW from the Thenna South Inc. (TSI) underan Energy Supply Agreement (ESA) untilSeptember 18, 2040.

d. 10 MW from the FDC Misamis PowerCorporation (FDCMISAMIS) from the outputof geothermal of Mt. Apo I and II which iscurrently managed by the later until 26 December2017.

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE40ft2

e. 8 MW from Coal-Fired Power Plant of FDCMISAMIS under an Electric Power PurchaseAgreement (EPPA) until October '4, 2031.

f. 220 KWfrom the Gerphil Renewable Energy,Inc. (GREI) under a Power Supply Agreement(PSA)until June 25, 2021.

In addition, BUSECO contracted 10 MW from PeakpowerBukidnon, Inc. for peaking load requirement and 18.18MW from GN Power LTD, Co. for its baseloadrequirement which expected to be operational by the year2017 and 2019, respectively.

8. PSALM Certification. PSALM has certified that it hasinsufficient capacity to supply BUSECO's additional powerrequirements beyond the contracted energy and equivalentdemand in their current power supply contract. A copy of therelevant certification is hereto attached as Annex "H".

9. Power Demand. The Capacity and Energy Demand ofBUSECO for 2017 to 2040 is projected as follows (all inMegawatts hours-MWH), attached hereto as Annex "/":

YEAR DEMAND (KW) ENERGY (MWH)2017 32,347 200,9692018 33,853 209,4992019 35,358 218,°932020 36,864 226,7552021 38,369 235,4922022 39,875 244,3072023 41,381 253,2062024 42,886 262,1952025 44,392 271,2792026 45,897 280,4642027 47,403 289,7562028 48,908 299,1622029 50,414 308,6872030 5',920 318,2132031 53,425 327,7382032 54,93'

337,2642033 56,436 346,7892034 57,942 356,3152035 59,447 365,8402036 60,953 375,3662037 62,459 384,8922038 63,964 394,4172039 65,470 403,9432040 66,975 413,468

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGEsof12

Additionally, BUSECO's Distribution Development Plan(DDP), covering the years 2012 to 2026, Annex ~tJ" isattached to this Joint Application.

Finally, a copy of the Supply and Demand Scenario, bothhistorical and forecasted 2015 to 2026 is attached herein asAnnex uK."

10. Load Profile. Profile of latest average daily load curve ofBUSECO for the last twelve (12) months from May 2016up to April 2017. are attached hereto asAnnex "L".

Last 12 Months from the Time ofApplicationAverage Daily Load Curve (May2016 to April 2017)'0

2S

20

10

,

_FDCCoal-MWOEMAND

FOC GEO_PSAlM

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 W 21 22 23 24Hourly Interval

_GREI ~TS'_1M! _OERCIENCY

Latest Billing PeriodAverage Daily Load Curve (April 2017)

'02S

20

~ 15

10

,1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hourly InlefVa!IFDCGEO _GREI ~TSI _Foe Coal

_PSAlM _1MI _OEACIENCY -MWOEMANO

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE60f12

2018 Forecasted Average Daily Lond Curve

.,"""

~ n,.",.,

1 2 3 <I 5 IS 7 8 9 10 11 12 13 14 15 1(\ 17 18 19 20 21 22 23 24

Hourlv Intt!rv ••'

_ "FOCGeo_TSt_ peel< PoWCO'"

_GREI_I"DCCo»l_NBPe

_Supplier 1_PSAl,.M_OEACIENcY

_SMCPC_SunAsI.!1__ 2018 DEMAND REo..

11. That due to the sustained and increasing peak loadrequirement for applicant BUSECO, coupled with theexpiration of one of its power supplier for peak load,Therma Marine Inc. (TMI) 5 MW contracted capacity onMay 18, 2018, BUSECO was compelled to bid out for itspeaking power requirements. BUSECO followed theCommission's competitive selection process in awarding thePSA.

12. Competitive Seleetion Process. BUSECO invitedinterested bidders to supply its 5 MW peaking powerrequirements for the 2ndquarter of the year 2018 pursuant toEnergy Regulatory Commission Resolution No. 13, Series of2015 directing all Distribution Utilities (DUs) to conduct aCompetitive Selection Process (CSP) in the procurement oftheir supply to the captive market and in accordance toBUSECO's duly approved Competitive Selection ProcessGuidelines through Board Resolution No. 2016-013. Thepublic bidding was participated by two (2) interestedbidders, namely, Bukidnon Power Corporation (BPC) (nowassigned to NBPCwith consent of BUSECO)and Solar EagleRenewable Energy Corporation.

'3. Based on BUSECO's evalnation, it was concluded that theproposal of NBPC complied with all the specified terms setfor an embedded power plant, it has also the lowestresponsive bid. Moreover. given that it is adjacent toBUSECO's Substation. it avoids transmission costs. Moreimportantly, BUSECO will obtain ownership of the PowerPlant after 15 years from commercial operation without anyfinancial outlay.

14. Considering that the NBPC is the lowest responsive bid andpassed the technical and financial specifications required byBUSECO, the Bids and Awards Committee (BAC)recommended the awarding of the 5 MW supply to NBPC.Thereafter, during the regular meeting of BUSECO's Boardof Directors, such awarding was then confirmed.

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 7 of12

On '9 January 2017, BUSECO and NBPC sigued the PowerSupply Agreement (PSA). Further details on BPC'sprocurement process is attached asAnnex ~'M".

THEPfuUaNGPO~RP~

'5. Peaking power plant description. The Power Plant hasa total installed capacity of 6.2 MW, with 5 MW operatingcapacity. The entire operating capacity of the plant is to beallocated to BUSECO for its peaking power requirements.There are two (2) units of Pielstick 6PC2-6L engines with aninstalled capacity of 3,100 kW each. The plant is located inBrgy. Bugcaon, Lantapan, Bukidnon. These engines will runon diesel/bunker LFO/HFO combination.

The power plant will be embedded to BUSECO with anoutput of '3.2 kVwhich will be directly injected to the latter'sdistribution line system.

16. Project Cost. The project cost for a net of 5 MW capacityNBPC Power Plant is Php 349,999,666.88. The majorcost components are electro-mechanical, civil works,building and fencing, permits and licenses, and consultancycosts. A detailed breakdown is hereto attached as ANNEX"N"o,

'7. Annual Operating & Maintenance Expenses-Fixedand Variable. These costs consist of the incrementaloperating and maintenance (O&M) expenses associated withthe operation of the power plant. A breakdown of theprojected annual operation and maintenance expenses forthe NBPC is hereto attached as ANNEX "0";

18. Generation rate and financial ratios. In adopting thegeneration rate applied for, the following assumptions weremade: (1) 6% interest rate; (2) 70-30 debt - equity ratio; (3)10 years amortization with 3 quarter grace period; (4) 2.5%inflation rate; (5) Minimal 0.5% cpr escalation rate only onthe local civil works cost.

The computation of the cost of capital for the equity and debtand the weighted cost of capital, the annualized cost ofcapital, the Present Value factors is summarized under theheading Financial Computations which is attached hereto asANNEX "P";

The overall generation rate with its major components forCapital Recovery Fee, Fixed and Variable 0 & M, is alsoattached as ANNEX "Q."

ABSTRACT OF THE PO~R SUPPLY AGREEMENT (PSA)AND OTHER RELEVANT INFORMATION

19. Executive Summary. The Power Supply Agreement ishereto attached as Annex "R". This is a Build Operate

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 8 of12

Maintain and Transfer (BOMT) scheme whereby theownership of the power plant will be transferred toBUSECO at the end of the contract term, which is for aperiod of fifteen (15) years. The Contract Capacity to bemade available by NBPC to BUSECO shall be the totalenergy generated by its 5 MW bunker-fired power plant for aperiod of fifteen (15) years, The PSA provides thatBUSECO and NBPC shall be excused from their respectiveobligation to deliver and receive energy during theoccurrence of scheduled due to maintenance or unscheduledoutages/interruptions beyond their control.

The original PSA is with Bukidnon Power Corporation (BPC)but this was assigned to North Bukidnon Power Corporation(NBPC) which is a joint applicant in this case. The Deed ofAssignment and the conformity of BUSECO are attached aspart and parcel ofthe PSA.

20. Salient Features of the PSA.

a. Term. The PSA shall have a term or contractperiod of fifteen (15) years from effectivecommercial date.

b. Contract Energy. NBPC shall deliver thenominated capacity of its 5 MW diesel/bunkerpower plant to BUSECO for its peakingrequirements. However, BUSECO shall have theright to market and/or sell to the WESM theexcess capacity of the power plant aftersatisfaction of its peaking needs.

c. Rates Schedule.

Electricity Fees ~ Fixed Fees +Variable Fees + A.ctual FuelCost + Actual Lube Costs

Where:

•

•

Fixed Fees

Capacity Fees

Fixed O&M Fees

ifFOM

Variable Fees

=

~

=

Capacity Fees + FixedO&MFees

Php 720.00 /kW /month xContract Capacity

(Php 51O.00/kW /month xifFOM) x ContractCapacity

1X ( PhCPlm / PhCPlb )

(Php 0.50/kWh x ifVF) x E

ERC CASENO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE90f12

E = Total electricity deliveredfor the billing month inkWh

itVF = 1- [(PhFOREXb-PhFOREXm)/PhFOREXb]

• Actual Fuel Costs = E x Fuel ConsumptionRate x Price of Fuel

Fuel Consumption Rate = 0.26 liters per kwh oractual consumption,whichever is lower

• Actual Lube Costs = E x LubricantConsumption Rate x Priceof lubricant

Lube Consumption Rate = 0.002 liter per kWh oractual consumption,whichever is lower

IMPACT ON APPLICANT BUSECO's OVERALLGENERATION RATE

2l. The determination of the generation rate impact is based onthe blended generatiou rates of Applicant BUSECO's ,Annex "S," to wit:

2018 BUSECO's Generation Rate with BPC Php S.7382/kWh2018 BUSECO's Generation Rate without BPC S-49"7/kWhRate Increment Php 0.246S/kWh

OTHER RELATED DOCUMENTS

22. In support of the instant application, Applicants mostrespectfully submit to the Honorable Commission thefollowing documents.

ANNEX NATURE OF DOCUMENTST Environmental Comnliance Certificate (ECC)U Letter of Request for Certificate of Endorsement

V Certification of Net Heat RateX Financial Model (in a sealed envelope)y ProDosal from the Bank (in a sealed envelone)Z EPC Contract (in a sealed envelone)AA Sworn Statement on the Fuel Procurement ProcessBB Technical and Economic Characteristics of the Generation Caoacitv

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 10 Of12

CCDD

Order Approving the Rules to Govern the Interruptible LoadPrOllramAffidavit of Exnlanation and Undertakin'

ALLEGATIONS IN SUPPORT OF THE MOTION FORISSUANCE OF A PROVISIONAL AUTHORITY

23. As discussed, the demand for power supply of BUSECO'sfranchise area is steadily increasing. Furthermore,NPC/PSALM, the supplier of the bulk of BUSECO'srequirement has significantly reduced its supplycommitments to BUSECO by about thirty (30%) percent.With supply constraints and considering that the powersource will be approaching critical level by the secondquarter of 2018, there is an urgent need that the PowerSupply Agreement be provisionally approved. This isrequired for the processing of various permits and licenses aswell as for financial closure purposes.

24. In view of the foregoing, Joint Applicants respectfully movefor the provisional approval of the instant Applicationpursuant to Rule 14 of this Honorable Commission's Rules ofPractice and Procedure.

Copy of the sworn statement/Affidavit of Merit executed byits OlC General Manager DEITER HOFF ARELLANO,supporting the petition for the issuance of the ProvisionalAuthority is attached hereto asAnnex nEE".

MOTION FOR CONFIDENTIAL TREATMENT OFINFORMATION

25. Under Article 9 of the PSA,NBPC undertook to ensure thatno confidential information is disclosed to third parties andshall employ its utmost effort and diligence to preventunauthorized disclosure of such Confidential Information.

26. Under Rule 4 of the ERC Rules, the Honorable Commissionmay, upon request of a party and determination of theexistence of conditions which would warrant such remedy,treat certain information submitted to it as confidential.Pursuant to its undertaking, Applicants respectfully movethat Annexes nx", tty' and nZ" not be disclosed and betreated as confidential documents in accordance with Rule 4of the ERC Rules and, accordingly, not to be disclosed topersons other than the officers and staff of the HonorableCommission, as necessary. These documents contain certainnon-public information, data and calculations involvingbusiness operations and financial trade secrets reflectingNBPC's investment and business calculations.

27. The Applicants hereby submits one (1) copy of Annexesnx", ny' and nZ" in a sealed envelope, with the envelope

ERCCASENO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 11of 12

and each page of the document stamped with the word"Confidential."

PRAYERWHEREFORE, foregoing premises considered, it is most

respectfully prayed of this Honourable Commission, to approveprovisionally the Power Supply Agreement (PSA) entered into byApplicant BUSECO and supplier NBPC upou the filing of thisApplication,

The prayer for the issuance of a Provisional Authority isnecessitated in order that joint applicant NBPC can immediatelyproceed with tbe development stage of the project and BUSECO tobe assured of this supply.

Issue an Order treating Annexes "X", "Y" and "z" and theinformation contained therein as confidential, directing their non-disclosure to persons other than officers and staff of the HonorableCommission, as necessary, pursuant to Rule 4 of the ERe Rules,and prescribing the guidelines for the protection thereof;

It is finally prayed that after due notice, publication andhearing, the proposed generation rate subject matter of thisApplication.

The Commission has set the Application for determination ofcompliance with jurisdictional requirements, expository presentation,Pre-Trial Conference, and presentation of evidence on 06September 2017 (Wednesday) at two o'clock in theafternoon (2:00 P.M.) at the BUSECO's Main Office inManolo Fortich, Bukidnon.

All persons who have 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 of theproceeding and the way and manner in which such interest isaffected by the issues involved in the proceeding; and

lll. A statement of the relief desired.

ERC CASE NO. 2017-060 RCNOTICE OF PUBLIC HEARING/ 11JULY 2017PAGE 12Of12

All other persons who may want their views known to theCommission with respect to the subject matter of the case may filetheir 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 Applicationmay request from Applicants that they be furnished with the same,prior to the date of the initial hearing. Applicants are hereby directedto furnish all those making such request with copies of theApplication and its attachments, subject to the reimbursement ofreasonable photocopying costs. Any such person may likewiseexamine the Application and other pertinent records filed with theCommission during the standard officehours.

WITNESS, the Honorable Officer-in-Charge of the ERCALFREDO J. NON, and Commissioners GLORIA VICTORIA C.YAP-TARUC and GERONIMO D. STA. ANA, Energy RegulatoryCommission, this nth day of July 2017 at Pasig City.

FORAND BY AUTHORITYOFTHE COMMISSION:

JOSEFINA PATRICOversight Com

LS: x!1~~a~.2017-060RC BUSECO-NBPC

. MAGPALE-ASIRIT'onerfor Legal

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