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IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE POWER SALES AGREEMENT (PSA) BETWEEN ZAMBOANGA DEL SUR I ELECTRIC COOPERATIVE, INC. (ZAMSURECO I) AND SARANGANI ENERGY CORPORATION (SEC), WITH PRAYER FOR PROVISIONAL AUTHORITY

, ___ _

ERC CASE NO. 2014-177 RC

ZAMBOANGA DEL SUR I ELECTRIC COOPERATIVE, INC. (ZAMSURECO I) AND SARANGANI ENERGY CORPORATION (SEC),

Applicants. x------------------~-----x·

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on December 5, 2014, Zamboanga Del Sur I Electric Cooperative, Inc. (ZAMSURECO I) and Sarangani Energy Corporation (SEC) filed a joint application for the approval of their Power Sales Agreement (PSA), with prayer for provisional authority.

In the said application, ZAMSURECO and SEC alleged, among others, the following:

1. ZAMSURECO I is a non-stock, non-profit electric cooperative organized and existing under Presidential

ERC CASE NO. 2014-177 RC NOTICE OF PUBLIC HEARING/March 2, 2015 Page 2 of 27

Decree No. 269, as amended, with office address at Gov. Vicente M. Cerilles St., Pagadian City, Province of Zamboanga Del Sur. It has a franchise to distribute electricity in the City of Pagadian and in the Municipalities of Aurora, Dimataling, Dinas, Don Victoriano, Dumalinao, Dumingag, Guipos, Labangan, Lapuyan, Mahayag, Margosatubig, Midsalip, Malave, Josefina, Pitogo, Ramon Magsaysay, San Miguel, San Pablo, Sominot, Tabina, Tambulig, Tukuran, Tigbao and Vicenzo Sagun, all In the Province of Zamboanga Del Sur.

Copies of its Certificates of Franchise are attached to the joint application as Annexes "A" and "A-1";

2. SEC is a generation company duly authorized and existing under and by virtue of the laws of the Re~ublic of the Philippines, with principal address at 4t Floor, Alphaland Southgate Tower, 2258 Chino Races Avenue corner EDSA, Makati City.

Copies of its Certificate of Incorporation and Certificate of Filing of Amended Articles of Incorporation with the Amended Articles of Incorporation, By-Laws, latest General Information Sheet (GIS) and latest Audited Financial Statements (AFS) are attached to the joint application as Annexes "8" and series;

NATURE OF THE APPLICATION

3. Pursuant to Rule 20 (B) of the ERC Rules of Practice and Procedure, approved by the Commission on June 22, 2006 in Resolution No. 38, Series of 2006, the instant joint application is submitted to the Commission for its review and approval of their PSA dated March 4, 2013, as modified by the Supplement to the PSA dated July 18, 2014 (collectively referred to as the PSA), among ZAMSURECO I, SEC and San Ramon Power, Inc. (SRPI);

Copies of the said agreements are attached to the joint application as Annex "C" and "C-1 ", respectively;


COMPLIANCE WITH PRE-FILING REQUIREMENTS

4. In compliance with Rule 6 of the ERC Rules of Practice and Procedure, they have furnished the legislative bodies of each of the Local Government Units (LGUs) where they principally operate a copy of the joint application with all its annexes and accompanying documents.

The corresponding proofs of receipt are attached to the joint application as Annexes "D" and series;

5. They have caused the publication of the joint application in its entirety, excluding its annexes, in a newspaper of general circulation within ZAMSURECO l's franchise area.

Copies of the newspaper and the corresponding Affidavit of Publication are attached to the joint application as Annexes "E" and "E-1," respectively;

STATEMENT OF FACTS

6. Shortage of Power Supply in the Mindanao Grid. The Mindanao Grid has long been suffering from a deficit in its power supply. The generating capacity in the grid is no longer sufficient to meet the power requirements of Mindanao;

7. As a result, Mindanao, including the franchise area of ZAMSURECO I, has suffered from significant power outages, adversely affecting local businesses and the daily lives of all electricity consumers. The lack of sufficient and reliable power supply has long been a barrier to much needed capital investment that would spur the local economy, not only in the franchise area of ZAMSURECO I but in greater Mindanao as well;

8. Drastic Reduction in the Power Sector Assets and Liabilities Management Corporation's (PSALM) Supply. The main power supplier in Mindanao significantly reduced its allocations to distribution utilities, further aggravating the power shortage.


8.1 PSALM, which took over all the power generation assets of the National Power Corporation (NPC) pursuant to Republic Act No. 9136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA}, supplies the bulk of the power requirements of Mindanao. PSALM, likewise, supplies majority of ZAMSURECO l's current power supply;

8.2 Recently, PSALM reduced its firm supply commitments to distribution utilities in Mindanao, including ZAMSURECO I, by about one-third (1/3). This has resulted in further widespread power shortages; and

8.3 In March 2014, ZAMSURECO l's power allocation was significantly reduced by PSALM, resulting in daily rotating brownouts lasting six (6) to eight (8) hours;

8.4 PSALM Certification. PSALM has certified that it has insufficient capacity to supply ZAMSURECO l's additional power requirements beyond the contracted energy and equivalent demand of its existing Contract for the Supply of Electric Energy (CSEE).

A copy of the relevant certification is attached to the joint application as Annex "F";

9. Necessity for Long-term Power Supply. In order to ensure sufficient power supply to its customers, the power requirements within ZAMSURECO l's franchise area should be adequately covered by supply contracts;

10. In addition to the expected reduction in supply from PSALM, the power demand in ZAMSURECO l's franchise area is expected to steadily increase at an annual average growth rate of 7. 75°/o.


Copies of ZAMSURECO l's Supply-Demand Scenario and Distribution Development Plan (DDP) showing its load forecast projections are attached to the joint application as Annexes "G" and "H", respectively;

11. Hence, there is a need for ZAMSURECO I to procure sufficient long-term power supply so that the long-term power requirements of its customers are adequately addressed;

12. Thus, ZAMSURECO I exerted efforts to procure power supply contracts with generation companies. It received offers from various power suppliers and evaluated their proposals;

13. ZAMSURECO l's Power Suppliers. Besides PSALM, ZAMSURECO I has entered into contracts for the supply of power with other generation companies. A summary showing its power providers, with their corresponding contracted capacities and terms of supply, is shown in the table below:

Nature Supplier Contracted of Effectivity Expiration

Capacity Supply (MW)

PSALM 12.67 Baseload 2012 2016 Therma Marine, Inc. (TMI) 5 Peak 2012 2014 Mapa lad Power Corp. (MPC) 5 Peak 2013 2016 GN Power Ltd. 24.24 Base load 2018 2038 King Energy 5 Peaking 2014 2024 Therma South, Inc. (TSI)_ 5 Baseload 2014 2039

14. Procurement Process for Supply. Seeing the need for additional long-term supply for the coming years, ZAMSURECO I entered into a PSA with SRPI, an affiliate of SEC, for the supply of power;


15. Subsequently, it was determined that the supply of power would be more expeditious if it was sourced from the second unit of SEC's power station in Maasim, Sarangani;

16. Among the factors considered by ZAMSURECO I in selecting SEC as a supplier are: (a) the competitiveness of the rate offered by SEC; (b) timeliness of the availability of supply; and (c) reliability and clean technology used in SEC's power supply.

An affidavit supporting the foregoing is attached to the joint application as Annex "I";

17. Hence, SRPI, SEC and ZAMSURECO I executed a Supplement to the PSA on July 18, 2014 wherein SRPI assigned, and SEC acceded, to the rights, obligations and interests of SRPI under the said agreement;

18. Under the law, no contract for the supply of power can become legally effective unless approved by the Commission. Hence, the instant joint application;

ABSTRACT OF THE POWER SALES AGREEMENT AND RELATED INFORMATION

19. The Generation Facilities. To supply power under the PSA, SEC shall construct, own, operate, manage and maintain a 2x120 MW Circulating Fluidized Bed Combustion Boiler Coal-Fired Power Plant in the Municipality of Maasim, Sarangani (SEC Power Station);

19.1 The SEC Power Station is being implemented in two (2) phases, each for one (1) unit with a net generating capacity of 105 MW. The power to be supplied under the subject PSA shall be sourced from the second phase of the SEC Power Station (SEC Phase II Plant).

A copy of the Certification on the Plant's Heat Rate is attached to the joint application as Annex "J"; and


19.2 Scheduled Commercial Operations. The SEC Phase II Plant is scheduled to commence commercial operations within thirty-six (36) months from the effectiveness of the PSA, as discussed below, or such later date as may be agreed by the Parties;

20. Salient Features of the PSA:

20.1 Contracted Capacity. Under the PSA, SEC shall supply or cause to supply to ZAMSURECO I the latter's baseload electric power requirements of five (5) MW and the Dispatchable Energy as indicated in and subject to the terms and conditions of the PSA;

20.2 Term. The term of supply and purchase under the PSA shall be for twenty-five (25) years commencing on the date the SEC Phase II Plant is ready to commence commercial operations; and

20.3 Effectiveness. The Parties' obligations under the .PSA shall become effective upon, among other conditions, the Commission's approval of the PSA and the pricing structure therein, and the attainment or waiver of financial close for the project;

21. Stages of Supply. SEC shall supply power to ZAMSURECO I during the commissioning of the SEC Phase II Plant and thereafter, during the full commercial operations of the Plant. As discussed below, ZAMSURECO I shall pay a lower rate during commissioning;

22. Tariff Lower than Appropriate Tariff. SEC understands that it may be allowed to charge an appropriate tariff that will enable it to recover allowable costs to build and operate the SEC Phase II Plant at an approved rate of return consistent with recent rulings of the Commission;

23. However, due to the request of its customers for lower rates and for parity of pricing for its customers, SEC

'-------------------------------·-··-


agreed to a tariff that is lower than the tariff that it would have been allowed to charge;

24. A comparison between the tariff in the subject PSA and the appropriate tariff is summarized in the table below. The difference represents a reduction in revenue, which SEC has agreed to absorb for the benefit of its customers:

PSA Tariff Appropriate Difference Tariff

Particulars Foreign Local Foreign Local Foreign Local (USD) (PhP) (USD) (PhP) (USD) (PhP)

CRF (kW/mo) Year1 20.32 427.32 23.57 495.69 3.25 68.37 Year2 23.33 490.56 27.06 569.05 3.73 78.49 Year3 28.69 490.56 33.28 569.05 4.59 78.49 Year 4 and onwards 28.69 603.37 33.28 699.91 4.59 96.54 FOMF (PhP/kW/mo) 333.23 333.23 -VOMF _{PhP/kWh) Fuel Cost

0.3170 0.3170 -Pass-through Pass-through -

A detailed explanation of the comparison is attached to the joint application as Annex "K";

25. In view of the foregoing, SEC submits that the evaluation of the present application should be based on the appropriate tariff, and not on the tariff in the PSA;

26. Purchased Power Rate. The rates to be paid by ZAMSURECO I to SEC depend on whether the power is delivered during commissioning or during commercial operations of the SEC Phase II Plant. These rates and their corresponding adjustments are reflected in the formulas below:


1. Monthly Payments

The Monthly Payments shall be paid to the Seller on a monthly basis in accordance with the following formula:

Monthly Payments= CRF + FOM.F + VOMF + AFC + SC + RCEC +BCEC +Taxes

Where:

CRF = Capital Recovery Fees

FOMF = Fixed Operation and Maintenance Fee

VOMF = Variable Operation and Maintenance Fee

AFC = Actual Fuel Cost

sc = Start-up Costs

RCEC = Replacement Capacity and Energy Costs

BCEC = Backup Capacity and Energy Costs

Taxes = Value-Added Tax, other applicable taxes and Government impositions, if any

1.1 CRF

The CRF shall be computed as follows:

1.1.1 During the First Contract Year:

Where:

= Capital Recovery Fee for the First Contract Year


FCRF1

DCRF1

cc

F

Where:

ED

TMED

F

=

=

=

=

=

=

=

$20.32 per kW per month which shall be converted to Philippine Pesos on the Commercial Operation Date at the weighted average US Dollar to Philippine Peso exchange rate provided in Schedule I (Power Plant Foreign Capital Recovery Fee Conversion)

PhP427.32 per kW per month

Contracted Capacity

ED

TMED

Electricity delivered during the billing period in kWh

Theoretical Maximum Energy Delivered being the Contracted Capacity multiplied by the hours in the relevant month, less any adjustments made for Allowed Outage, limitation due to dispatch order, Force Majeure of SEC Power Plant, and allowable start-up time due to period of non-generation due to a Buyer dispatch order or an Allowed Outage, and any other hours as a consequence of Buyer's failure to perform any of its obligations

1 if the foregoing formula results in F being greater than 1

1.1.2 During the Second Contract Year

CRF2 = (FCRF2 + DCRF2 ) X CC X F


Where:

=

=

=

cc =

F =

Where:

ED =

TMED =

F =

Capital Recovery Fee for the Second Contract Year

$23.33 per kW per month which shall be converted to Philippine Pesos on the Commercial Operation Date at the weighted average US Dollar to Philippine Peso exchange rate provided 1n Schedule I (Power Plant Foreign Capital Recovery Fee Conversion)


Contracted Capacity

ED

TMED




1.1.3 During the Third Contract Year

CRF3 = (FCRF3 + DCRF3 ) X CCX F


Where:

=

=

=

cc =

F =

Where:

ED =

TMED =

F =

Capital Recovery Fee for the third Contract Year

$28.69 per kW per month which shall be converted to Philippine Pesos on the Commercial Operation Date at the weighted average US Dollar to Philippine Peso exchange rate provided in Schedule (Power Plant Foreign Capital Recovery Fee Conversion)


Contracted Capacity

ED

TM.ED





1.1.4 From the Fourth Contract Year up to the End of the Term

CRF = (FCRF + DCRF) X CC X F

Where:

CRF

FCRF

DCRF

cc

F

Where:

ED

TMED

F

=

=

=

=

=

=

=

=

Capital Recovery Fee for the Fourth Contract Year up to the end of the Term

$28.69 per kW per month which shall be converted to Philippine Pesos on Commercial Operation Date at the weighted average US Dollar to Philippine Peso exchange rate provided in Schedule I (Power Plant Foreign Capital Recovery Fee Conversion)


Contracted Capacity

ED

TMED




ERC CASE NO. 2014-177RC NOTICE OF PUBLIC HEARING/March 2, 2015 Page 14 of 27

1.2 Fixed Operation and Maintenance Fee

The Fixed Operation and Maintenance (O&M) Fee covers the operating and maintenance costs of the SEC Power Plant. It shall be computed according to the following formula:

{[( FCP. ) FXn) ·[ LCP. ]'} FOMF = OMR X •. 0.44 X __ n X-. -·

1 +. 0.56 .X-. _n .. X CC XF

FCP0 Fx0 LCP0 ··

Where:

FOMF =

OMR = cc =

F =

Where:

ED =

TMED =

Fixed Operation and Maintenance Fee in Philippine Pesos


Contracted Capacity

ED

TMED


Theoretical Maximum Energy Delivered being the Contracted Capacity multiplied by the hours in the relevant month, less any adjustments made for Allowed Outage, limitation due to dispatch order, Force Majeure of SEC Power Plant, and allowable startup ·time due to period of nongeneration due to a Buyer dispatch order or an Allowed Outage, and any other hours as a consequence of Buyer's failure to perform any of its obligations


F

FCPn

FCPo

LCPn

LCPo

= 1 if the foregoing formula results in F being greater than 1

= The arithmetic average of the values of the United States Consumer Price Index for all Items, as last published on or before the last day of such billing month by the International Monetary Fund; provided that if the International Monetary Fund ceases to publish such indices, the relevant indices as published by the U.S. Department of Labor Bureau of Labor Statistics shall apply.

= The arithmetic average of the values as of May 31, 2011 of the United States Consumer Price Index for all Items; as published by the International Monetary Fund, provided that if the International Monetary Fund ceases to publish such indices, the relevant indices as published by the U.S. Department of Labor Bureau of Labor Statistics shall apply.

= The arithmetic average of the values of the Consumer Price Index in the Philippines for all items and General Wholesale Price Index in Metro Manila for mineral fuels, lubricants and related materials, both as last published on or before the last day of such Billing Month by the National Statistics Office.

= The arithmetic average of the values as of May 31, 2011 of the Consumer Price Index in the Philippines for all items and General Wholesale Price Index in Metro Manila for mineral fuels, lubricants and related materials, both as published by the National Statistics Office.

= Actual Philippine Peso to US Dollar exchange rate on the meter reading


Fxo =

date as published by the Bangko Sentral ng Pilipinas, www.bsp.gov.ph

Actual Philippine Peso to US Dollar exchange rate on May 31, 2011 as published by the Bangko Sentral ng Pilipinas, www.bsp.gov.ph.

1.3 Variable Operation and Maintenance Fee

The Variable Operation and Maintenance (O&M) Fee covers the cost of the use of, among other items, chemicals, lubricants, spare parts, that are directly related to the generation of the SEC Power Plant. It shall be computed according to the following formula:

VOMF = VOMR xff(o.35 x .Pp_P'!). x fx"]+(0.65x f_(;P")}. xED 11_ PPPo Fxo LCJ'o

Where:

VOMF

VOMR

ED

PPPn

PPPo

= Variable Operation and Maintenance Fee in Pesos

= PhP0.3170 per kWh

= Electricity delivered during the billing period in kWh

= The arithmetic average of the values of the United States Producers' Price Index for industrial goods; as last published on or before the last day of such billing month by the International Monetary Fund; provided that if the International Monetary Fund ceases to publish such indices, the relevant indices as published by the U.S. Department of Labor Bureau of Labor Statistics shall apply.

= The arithmetic average of the values as of May 31, 2011 of the United States Producers' Price Index for industrial goods; as published by the International Monetary Fund, provided


that if the International Monetary Fund ceases to publish such indices, the relevant indices as published by the U.S. Department of Labor Bureau of Labor Statistics shall apply.

LCP n = The arithmetic average of the values of the Consumer Price Index in the Philippines for all items and General Wholesale Price Index in Metro Manila for mineral fuels, lubricants and related materials, both as last published on or before the last day of such Billing Month by the National Statistics Office.

LCP0 = The arithmetic average of the values as of May 31, 2011 of the Consumer Price Index in the Philippines for all items and General Wholesale Price Index in Metro Manila for mineral fuels, lubricants and related materials, both as published by the National Statistics Office.

Fxn = Actual Philippine Peso to US Dollar exchange rate on the meter reading date as published by the Bangko Sentral ng Pilipinas, www.bsp.gov.ph.

Fx0 = Actual Philippine Peso to US Dollar exchange rate on May 31, 2011 as published by the Bangko Sentral ng Pilipinas, www.bsp.gov.ph.

1.4 Actual Fuel Cost

The Actual Fuel Cost is the fee paid to the Seller as payment for the procurement and delivery of the coal used in the operation of the SEC Power Plant. The Actual Fuel Cost shall be computed as follows:

(

FOB Coal Price+ TC +Other Charges) Actual Fuel Cost=

1 OOOk . X Consumption Rate x Forex x 'ED

I g ton

,.


Where:

Fo. i8 B .1~ , Calorific Value.. ;o. . . ac;c . ·ucc x x .1:

FOB Coal Price = GCN Calorific Value

Where:

FOB Base Price = The price expressed in US Dollars applicable for all Shipments for which the Bill of Lading Date falls within the period from and including the date of this Agreement until and including the last day of the Quarter in which the date of this Agreement occurs (the "FOB Base Price"), shall be equal to the globaiCOAL Newcastle Index (which is the coal price per ton, FOB Newcastle, stated in USD, as published by globaiCOAL on www.globalcoal.com under the heading "Weekly Index; NEWC Index" (or under such other replacement heading under which such prices are published by globaiCOAL) with calorific value basis of 6,000 kcal/kg net as received) for the week immediately preceding the week in which the date of signing of this Agreement occurs. The FOB Base Price shall be reset every Quarter following the Quarter in which the date of this Agreement occurs, and such FOB Base Price applicable for all Shipments for which the B/L Date falls within and including the first day and the last day of such Quarter shall be equal to the arithmetic average of the globaiCOAL Newcastle Index for the immediately preceding Quarter.


Calorific Valuen =

F =

TC =

Other Charges =

Consumption Rate

Forex

ED

=

=

=

Average calorific value of the coal used in the billing period

Discount or prem1um applied to the coal used during the billing period

Actual transport cost, including transshipment cost of the coal used during the billing period in USD per metric ton

Actual insurance cost and port charges (all charges incurred by· a vessel at a loading port and discharge port including towage, pilotage, light dues, moor or unmoor, berthing and deberthing, assist tugs, wharfage, tonnage dues and sundries, including agent's fees, communications charges and other miscellaneous expenses customarily regarded as port charges) and applicable customs duties and import taxes of the coal used during the billing period

0. ?kg/kWh, escalated at 0.5o/o annually

Actual Philippine Peso to US Dollar exchange rate on the date the Seller makes payment to the fuel supplier


Note: In the event that the Seller procures coal from multiple suppliers, the weighted average of the relevant values above shall be used.


1.5 Start-Up Costs

The Buyer shall pay the Seller Start-Up Costs for the cost of starting up the SEC Power Plant after a period of shutdown due to any reason attributable to the Buyer. The Start-Up Costs shall be paid in accordance with the following schedule:

Cost per Event Type of Synchronization (PhP)

Cold Start-up to Synchronization 4,209,906.00 Warm Start-up to Synchronization 2,872,221.00 Hot Start-up to Synchronization 1,227,515.00

1.6 Replacement Capacity and Energy Cost

The Buyer shall pay the Seller Replacement Capacity and Energy Cost in accordance with the invoice provided by the supplier of Replacement Capacity and Energy.

1. 7 Backup Capacity and Energy Cost

The Buyer shall pay the Seller Backup Capacity and Energy Cost equivalent to the Monthly Payment had there been no Forced Outage.

2. Commissioning Output Charge

The Buyer shall pay the Seller the Commissioning Output Charge for electricity supplied prior to the Commercial Operation Date. The Commissioning Output Charge shall be computed as follows:

COG = FOMF + VOMF + ACF +Taxes


Where:

coc = Commissioning Output Charge

FOMF = Fixed Operation and Maintenance Fee computed in accordance with Item 1.2 of this Schedule 8

VOMF = Variable Operation and Maintenance Fee computed in accordance with Item 1.3 of this Schedule 8

ACF = Actual Cost of Fuel computed in accordance with Item 1.4 of this Schedule B

For reference, a sample computation of the generation rate is contained in Schedule C of the PSA.

26.1 Basis for Indexation. As indicated in the formulae above, the monthly fees to be paid by ZAMSURECO I are subject to adjustments based on various indices or factors;

26.2 The Foreign CRF component is fixed and is subject only to a one-time conversion to Philippine Pesos on Commercial Operation Date at the weighted average exchange rate as computed in accordance with the PSA. This will ensure that ZAMSURECO I does not carry a long-term foreign exchange exposure on the CRF component; and

26.3 The components of the O&M Fees representing dollar-denominated costs are adjusted based on the foreign exchange rate and the US Consumer Price and Producer Price indices. Those representing local costs are adjusted based on the local Consumer Price Index. The Actual Fuel Costs vary based on actual costs as well as the foreign exchange rate and on the Global Coal Newcastle index;


27. Sources of Funds/Financial Plans. The project will be financed through loans and equity, with an indicative debt-equity ratio of 70:30.

27.1 Project Cost. The total estimated project cost for the SEC Phase II Plant is US$ 303.8 Million.

A breakdown of the project cost, including the cost of interconnection facilities, is attached to the joint application as Annex "L";

27.2 Annual Interest. SEC is currently discussing with prospective lenders the terms and conditions of the project financing; and

27.3 Computation of Weighted Average Cost of Capital (WACC). Consistent with previous rulings of the Commission, the nominal pre-tax WACC is 13.59°/o.

A computation of the WACC is shown in Annex "M" of the joint application;

28. Cash Flow.

28.1 Breakdown of Operating and Maintenance Expenses. A breakdown of the operating expenses which form the basis of the tariff is attached to the joint application as Annex "N";

28.2 Offtake Arrangement. Under the PSA, SEC shall make available, reserve, guarantee, and deliver to ZAMSURECO I the Contracted Capacity, and ZAMSURECO I shall pay for such quantity of electric power. SEC shall utilize such Contracted Capacity to generate energy for ZAMSURECO I; and

28.3 There is no minimum energy offtake under the PSA. As SEC will dedicate capacity to ZAMSURECO I, the Capital Recovery and the Fixed Operations and


Maintenance Fees are computed based the contracted capacity, and on the proportion of actual energy delivered to the energy that could have been delivered;

29. Prompt Payment Discount (PPD). ZAMSURECO I shall be entitled to discount of 1.5°/o of the amount paid for the CRF in case of prompt payment;

30. Fuel Procurement. An international public tender was conducted for the purpose of procuring fuel for the SEC Phase II Plant. The conduct of the tender and the fuel procurement process is summarized in Annex "0" of the joint application;

31. The conduct of an international public tender assures ZAMSURECO I of the best available cost of fuel supply. It must be stressed that SEC derives no revenue whatsoever from the fuel supply;

32. Environmental Compliance Certificate (ECC). The Department of Environment and Natural Resources (DENR) has issued ECC Ref. No. 0901-001-4021 for the SEC Power Station.

A copy of the said ECC is attached to the joint application as Annex "P"·

'

33. DOE Certification. On February 25, 2014, the DOE issued Certificate of Endorsement No. 2014-02-004, certifying that the SEC Phase II Plant is consistent with the Power Development Plan (PDP) of the Government.

A copy of the said certificate is attached to the joint application as Annex "Q";

34. Certificate of Compliance (COC). As the SEC Phase II Plant is still to be constructed, it is not yet covered by a COC. In accordance with ERC Resolution No. 9, Series of 2010, SEC shall file the necessary application for a COC no later than three (3) months before the commencement of commercial operations;


RATE IMPLICATIONS OF THE POWER SALES AGREEMENT

35. In order to determine the impact of the implementation of the PSA on ZAMSURECO l's generation costs, an analysis was conducted taking into consideration its forecast power requirements and the expected supply from its contracted suppliers;

36. The analysis covers the years 2016 to 2019 and considers two scenarios: one without supply from SEC and another with SEC supply. It is assumed that ZAMSURECO l's kWh requirements are fully met by its suppliers. It is also assumed that supply from SEC and TSI will commence in 2016 while the supply from GNPower, Ltd. will commence in 2018;

37. The analysis also assumes that no adjustment of generation costs due to changes in fuel costs and in various indices, such as the foreign exchange rate and the Consumer Price Index (CPI), as these are not possible to predict.

A copy of the said analysis is attached to the joint application as Annex "R";

38. The results of the said analysis are summarized in the table below:

Blended Generation Cost Year 2016 2017 2018 2019

PhP/kWh Without SEC 4.4312 5.1637 5.4815 5.5753 With SEC 4.4312 4.7642 5.1137 5.0441 Rate Impact (0.0081) (0.3995) (0.3678) (0.5312)

39. The supply from SEC under the OSA will not only provide additional stable and reliable baseload power supply but will also serve to reduce the power costs of ZAMSURECO I, to the benefit of its customers;


4 7. Thus, the issuance of a provisional approval will enable SEC to complete the project and consequently, provide the power needed by ZAMSURECO I under the PSA in a timely manner;

48. They move for the provisional approval of the instant joint application pursuant to Rule 14 of the ERC Rules of Practice and Procedure.

Copies of the Sworn Statements supporting the said motion are attached to the joint application as Annexes "S" and "T"· ,

49. They pray that the Commission:

a. Immediately issue an Order provisionally approving the PSA and the Supplement to the PSA, subject of the instant joint application as well as the generation rate and adjustment mechanisms indicated therein; and

b. After due hearing, render judgment making such provisional approval permanent.

The Commission has set the said joint application for jurisdictional hearing, expository presentation, pre-trial conference and evidentiary hearing on March 25, 2015 (Wednesday) at nine o' clock in the morning (9:00 A.M.) at ZAMSURECO l's Main Office, Gov. Vicente M. Cerilles St., Pagadian City, Zamboanga Del Sur.

All persons who have an interest in the subject matter of the proceeding may become a party by filing, at least five (5) days prior to the initial hearing and subject to the requirements in the ERG's Rules of Practice and Procedure, a verified petition with the Commission giving the docket number and the title of the proceeding and stating: (1) the petitioner's name and address; (2) the nature of petitioner's interest in the subject matter of the proceeding, and the way and manner in which such interest is affected by the issues involved in the proceeding; and (3) a statement of the relief desired.


ALLEGATIONS IN SUPPORT OF THE MOTION FOR PROVISIONAL AUTHORITY

40. The demand for power supply in ZAMSURECO l's franchise area is steadily increasing. Furthermore, NPC/PSALM, the supplier of the bulk of ZAMSURECO l's requirements, has significantly reduced its supply commitments to ZAMSURECO I by about one-third; ·

41. ZAMSURECO l's forecasted . demand is expected to increase steadily in the coming years;

42. Moreover, PSALM, which supplies the majority of ZAMSURECO l's current power requirements, has recently reduced its firm supply commitments to ZAMSURECO I by about one-third (1/3). This has rendered the overall power supply of ZAMSURECO I inadequate, resulting in power outages;

43. ZAMSURECO I can no longer source additional power from PSALM since the latter is mandated by law to privatize its generation facilities and is also prohibited from investing in new generation capacity;

44. Hence, the greater need for ZAMSURECO I to secure additional long-term power supply. Otherwise, it will not have sufficient power supply to the detriment of the residents and enterprises in its franchise area;

45. Thus, it is imperative that ZAMSURECO I contracts for additional power in order to adequately address its longterm power requirements. The additional power supply should also be made available in a timely manner;

46. The provisional approval of the instant application is necessary for SEC to secure, in a timely manner, the necessary financing needed for the SEC Phase II Plant. The project of developing, constructing and operating the Plant is capital-intensive. Consequently, obtaining financing· in a timely manner is critical to complete the Plant;


All other persons who may want their views known to the Commission with respect to the subject matter of the proceeding may file their opposition to the joint application or comment thereon at any stage of the proceeding before the applicants conclude the presentation of their evidence. No particular form of opposition or comment is required, but the document, letter or writing should contain the name and address of such person and a concise statement of the opposition or comment and the grounds relied upon.

All such persons who may wish to have a copy of the joint application may request the applicants, prior to the date of the initial hearing, that they be furnished with a copy of the joint application. The applicants are hereby directed to furnish all those making such request with copies of the joint application and its attachments, subject to reimbursement of reasonable photocopying costs. Likewise, any such person may examine the joint application and other pertinent records filed with the Commission during the usual office hours.

WITNESS, the Honorable Chairperson, ZENAIDA G. CRUZDUCUT, and the Honorable Commissioners, ALFREDO J. NON, GLORIA VICTORIA C. YAP-TARUC, and JOSEFINA PATRICIA A. MAGPALE-ASIRIT, Energy Regulatory Commission, this 2nd day of March, 2015 at Pasig City.

ATTY. FR NCIS SATURNINO C. JUAN xecutive Director Ill

Documents

U r .. li ENERGY REGULATORY COMMISSION. ERC Case No...maintain a 2x120 MW Circulating Fluidized Bed Combustion Boiler Coal-Fired Power Plant in the Municipality of Maasim, Sarangani