in the matter of the application for approval of

IN THE MATTER OF THEAPPLICATION FORAPPROVAL OF ADJUSTMENT

. IN RATES, PURSUANT TOTHE TARIFF GLIDE PATHRULES, WITH PRAYER FORPROVISIONAL AUTHORITY

ERC CASE NO. 2016-035 RC

DAVAO DEL SUR ELECTRICCOOPERATIVE, INC.(DASURECO),

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

ORDER

On 31 March 2016, the Davao del Sur Electric Cooperative, Inc.(DASURECO) filed an Application for approval of adjustment inrates, pursuant to the tariff glide path rules, with prayer forprovisional authority.

•In the said Application, DASURECO alleged the following:

1. Applicant is an electric. cooperative duly organized andexisting under and by virtue of the laws of the Republic of thePhilippines, with principal offices at l3rgy. Cogon, Digos City,Davao del Sur;

2. It holds an exclusive franchise issued by the National.Electrification Commission to operate an electric light andpower distribution service in the City of Digos and all themunicipalities in the Province of Davao del Sur, namely:Bansalan, I-Iagonoy, Kiblawan, Magsaysay, Malalag, Matanao,Padada, Sta. Cruz, andSulop, aswell as all the municipalities.in the Province of Davao Occidental, namely: Don Marcelino,.JoseAbad Santos, Malita, Sarangani, and Sta. M~

ERC Case No. 2016-035 RCOrder/26 April 2016 Of12

THE ANTECEDENT RULES AND FACTS

3. In 2009, the Honorable Commission promulgated theRules for Setting the Electric Cooperatives' Wheeling Rates(RSEC-WR);

4. The RSEC-WR envisioned a regulatory frameworkwhereby an Initial Tariff and a Tariff Glide Path shall bedeveloped for each Electric Cooperative (EC) Group for aRegulatory Period;

5. Pursuant to the RSEC-WR, in 2009, DASURECO filedwith the Honorable Commission an application for approval ofproposed adjustment in its rates, docketed as ERC Case No.2009-137 RC;

6. The Honorable Commission approved the application,granting the cooperative at the end of the transition period thefollowing initial tariffs on its Distribution, Supply, andMetering (DSM) Charges, among others, to wit:

CUSTOMER TYPECHARGES UNITS Residential Low Higher

Voltage VoltageDistributionCharges:Demand Charge PhP/kW 219.68DistributionSystem Charge PhP/kWh 0.5782 0.7595

Supply Charges:Retail CustomerCharge PhP /Customer/Mo 42.92 42.92Supply System

PhP/kWhCharge 0.6001

Metering Charges:Retail CustomerCharge PhP jMeter /Mo 5.00 35.94 35.94Metering System

PhP/kWhCharge 0-4326

7. It is provided under Article 7 of the RSEC-WR thatduring the regulatory period, the rate of the ECs per groupshall be adjusted using the following formula, to wit:

Tariff x (1 + index ''1''-Efficiency Factor "X" +Performance Incentive "S")

The Index "1", shall be an escalation factor to be used inadjusting the rates to reflect the combined impact of inflationand load factor. There shall be an efficiency factor "X" toaccount for the operational efficiency of the ECs in settingtheir rates. There shall be a performance incentive "S" whichshall reward or penalize the EC for above or below standardperformance, respectively. ~

1


The TGP is intended as a cap and the EC may move upto the cap, if it is a positive adjustment. If the cap is lower thanthe current average tariff, a reduction may be implemented.

LEGAL BASIS FOR THE APPLICATION

8. On May 2, 2011, the Honorable Commissionpromulgated the Tariff Glide Path (TGP) Rules pursuant toArticle 7 of the R8EC-WR;

9. The TGP is a rate adjustment mechanism whichprovides an opportunity for the ECs to adjust their rates onceevery three (3) years. The rate adjustments may occur at thestart of the fourth year of the first Regulatory Period and everythree years thereafter;

10.Under the TGP, the regulatory period is six (6) years foreach entry group. For the Third Entrant Group, the firstregulatory period is from January 1, 2013 to December 31,2018. DA8URECO belongs to the Third Entrant Group;

11. Further under the TGP Rules, the concerned EC shalluse the following formula in determining the TGP for the firstto third years of the Regulatory Period, to wit:

TGPA= TGPn + TGPn+1TGPn+2whereTGPn= In - Xn+ SnN = the first year of their Regulatory Period and

succeeding Regulatory Periods

Except that for the first two years of the First RegulatoryPeriod, "X" will be equal to zero and thereafter shall not be lessthan zero. The TGP calculated for each of the three years will besummed to determine the possible rate adjustment starting on theFourth Year of the current Regulatory Period.

THE PROPOSED RATE ADJUSTMENT

12.Applying the methodology embodied in the TGP Rules,DASURECO calculated the values of the "I", "X", and "8" andcame up with the following results, to wit:

TGPAIII" "X" "8" TGPA (Excludine: "8")

Year 2013 0.00% 0.00% 3.30% 3.30% 0.00%Year 2014 0.00% 0.00% 3.30% 3.30% 0.00%Year 2015 0.00% 0.00% 2.90% 2.90% 0.00%Net Results 9.50% 0.00%

13.Application of the above values resulted in adjustmentson DASURECQ's DSM Rates, as follows: ~

ERCCase No. 2016-035 RCOrder/26 April 2016 Of12

A. WITlI PERFO~ANCE INCENTIVE "S"

CUSTOMER TYPE

LOw HigherUNITS Residential Voltal?:e Voltal?:e

Distribution Charl?:es:Demand Charge PhP/kW 240.55Distribution SystemCharge PhP/kWh 0.6331 0.8317

Supply Charges:Retail Customer

PhP /Customer/MoCharl?:e 47.00 47.00Supply System

PhP/kWhCharge 0.6571Metering Charges:Retail CustomerCharge PhP /Meter /Mo 5-48 39.35 39.35Metering System

PhP/kWhCharge 0.4737

B. EXCLUDING PERFORMANCE INCENTIVE "S"

CUSTOMER TYPE

Low HigherUNITS Residential Voltal?:e Voltage

Distribution Charges:Demand Charge PhP/kW 219.68Distribution System

PhP/kWhCharl?:e 0.5782 0.7595Supply Charges:Retail CustomerCharge PhP/Customer/Mo 42.92 42.92Supply System

PhP/kWhCharge 0.6001Metering Charges:Retail CustomerCharge PhP /Meter /Mo 5.00 35.94 35.94Metering System

PhP/kWhCharge 0-4326

14.Consequently, applicant respectfully prays of theHonorable Commission for the approval of either of theforegoing calculated DSM rates.

SUPPORTING DATA AND DOCUMENTS

15. In support of the foregoing computations, thecooperative is submitting herewith the following data anddocuments, which are being made integral parts hereof, to wit:

Annex Nature of DocumentProposed TGP Calculation and supportingdocuments using the prescribed templates:

A Index "I" CalculationA-I Efficiency Factor "X"CalculationA-2 Performance Incentive "S" Calculation

ERCCase No. 2016-035 RCOrder/26 April 2016: of 12

13 Monthly Financial and Statistical Report(MFSR) - Sections Band E (2010-2014)

C Billing Determinants Template (kWh Sales,Number of Customers, kW Demand) (2010 -2104)

D Sample Bills (per customer type) (2010 -2014)

E Regional cpr (2011 -2014)F RFSCjReinvestment Fund Utilization (2012-

2014)G Consumer Complaints (Summary or Tracking

Form) (2012- 2014)H Audited Financial Statements (2010 -2014)

ALLEGATIONS IN SUPPORT OF THE PRAYERFOR PROVISIONAL AUTHORITY

16.Applicant repleads the foregoing allegations as may bematerial herein;

17.Applicant's current DSM rates were granted by theHonorable Commission way back in January 2010 by virtue ofthe RSEC-WR;

18.Over the years, the cost of its operations hassignificantly increased, not only as a logical effect of inflationas well as certain governmental requirements, but likewise dueto the inevitable expansion of its distribution network broughtabout by the extension of its services to remote areas. Moresignificantly, the cooperative has been implementing the SitioEnergization Program (SEP) of the Aquino government, suchthat the massive expansion of its distribution lines up to theremotest areas has considerably increased its operational andmaintenance costs, not to mention the increased system losswhich the cooperative is likely to absorb. All these costs werenot duly provided for in its current rates and the general fundsbeing generated from its DSM revenues as granted under theRSEC-WR are no longer sufficient to cover these inevitablecosts;

19. Thus, the cooperative urgently needs additional fundsto be able to cope with the rising costs of its operations;

20. Further, based on the provisions of the TGP Rules, forcooperatives belonging to the Third Entrant Group, theirinitial tariff shall be adjusted at the start of the fourthregulatory year of the First Regulatory Period, which isJanuary 1, 2016;

21. Considering the foregoing, applicant respectfully praysthat while the instant application is pending, it be grant~

ERC Case No. 2016-035 RCOrder /26 April 2016of12

provisional authority to implem~nt either of the two (2)proposed rates effective January 1, 2016.

COMPLIANCE WITH PRE-FILINGREQUIREMENTS

22. Finally, in compliance with the ERC Rules of Practiceand Procedure, applicant is likewise submitting herewith thefollowing documents, which are being made integral partshereof, to wit:

Annex

I

J to J-1

K and series

Nature of DocumentAffidavit in Support of the Prayer forProvisional AuthorityProof of furnishing copies of the Applicationto the Sangguniang Panglungsod of Digos andSan unian Panlalawi an of Davao del SurProof of publication of the Application in anewspaper of general circulation inDASURECO's franchise area or where itrinci all 0 erates

PRAYER

WHEREFORE, premises considered, it is mostrespectfully prayed of this Honorable Commission thatpending evaluation of the instant application or after duenotice and hearing, as the case may be, DASURECO beallowed to implement either of the following two (2)alternative proposed new rates for its Distribution, Supply,and Metering (DSM) Charges, effective January 1, 2016, towit:

A. WITH PERFORMANCE INCENTIVE "S"

CUSTOMER TYPE

Low HigherUNITS Residential Voltage Voltage

Distribution Charges:Demand Charge PhP/kW 240.55Distribution System

PhP/kWhCharge 0.6331 0.8317Supply Charges:

Retail CustomerCharge PhP /Customer/Mo 47.00 47.00Supply System

PhP/kWhCharge 0.6571Metering Charges:

Retail CustomerCharge PhP /Meter /Mo. 5-48 39.35 39.35Metering SystemCharge PhP/kWh 0-4737

ERCCase No. 2016-035 RCOrder/26 April 2016Page7of12

B) EXCLUDING PERFORMANCE INCENTIVE "8"

CUSTOMER TYPE

Low HigherUNITS Residential Voltae:e Voltae:e

Distribution Charges:Demand Charge PhP/kW 219.68DistributionSystem Charge PhP/kWh 0.5782 0.7595

Supply Charges:Retail CustomerCharge PhP /Customer/Mo 42.92 42.92Supply System

PhP/kWhCharge 0.6001Metering Charges:

Retail CustomerCharge PhP/Meter/Mo 5.00 35.94 35.94Metering SystemCharge PhP/kWh 0-4326

Other reliefs, just and equitable in the premises arelikewise prayed for.

Finding the said Application sufficient in form and substancewith the required fees having been paid, the same is hereby set fordetermination of compliance with the jurisdictional requirements,Expository Presentation, Pre-trial Conference, and presentation ofevidence on 23 June 2016 (Thursday) at ten o'clock in themorning (10:00 A.M.) at the DASURECO'sprincipal officeat Brgy. Cogon, Digos City, Davao del Sur.

DASURECO is hereby directed to cause the publication of theattached Notice of Public Hearing in two (2) newspapers of generalcirculation in the Philippines at its own expense, twice (2X) withintwo (2) successive weeks, the dates of publication not being less thanseven (7) days apart, with the date of last publication made not laterthan ten (10) days before the date of the scheduled initial hearing. Itis also directed to inform the consumers within the franchise area ofDASURECO, by any other means available and appropriate, of thefiling of the instant Application, its reasons therefor, and of thescheduled hearing thereon.

Let copies of the Application, this Order and the attachedNotice of Public Hearing be furnished the Office of the SolicitorGeneral (OSG), the Commission on Audit (COA), and the Committeeson Energy of both Houses of Congress. They are hereby requested, ifthey so desire, to send their duly authorized representatives at thescheduledheari/f

ERC Case No. 2016-035 RCOrder /26 April 2016 of 12

Likewise, let copies of this Order and the attached Notice ofPublic Hearing be furnished the Offices of the Provincial Governors,the City and Municipal Mayors, and the Local Government LegislativeBodies within DASURECO's franchise area for the appropriateposting thereof on their respective bulletin boards.

DASURECO is hereby directed to furnish all those makingrequests therefor with copies of the Application and its attachments,subject to reimbursement of reasonable photocopying costs.

On the date of the initial hearing and Pre-trial Conference,DASURECOmust submit to the Commission its written Compliancewith the jurisdictional requirements attaching therewith,methodically arranged and duly marked, the evidence of the actualposting and publication of the Notice of Public Hearing consisting ofcertifications issued to that effect, signed by the aforementionedGovernors, Mayors, and Local Government Legislative Bodies, ortheir duly authorized representatives, bearing the seals of theiroffices, and the affidavit of the Editors or Business Managers of thenewspapers where said Notice of Public Hearing were published,together with the complete issues of the said newspapers, and suchother proofs of compliance with the requirements of the Commission.

DASURECOand all interested parties are directed to submit, atleast five (5) days before the date of initial hearing and Pre-trialConference, their respective Pre-trial Briefs containing, amongothers:

a) A summary of admitted facts and proposed stipulation offacts;

b) The issues to be tried or resolved;

c) The documents or exhibits to be presented, stating thepurposes and proposed markings therefore; and

d) The number and names of the witnesses, with their writtentestimonies in an individual affidavit form, to be attached tothe Pre-trial Brief.

Failure of DASURECO to submit the required Pre-trial Briefand Judicial Affidavits of their witnesses within the prescribed periodshall be a ground for cancellation of the scheduled hearing, a~

ERCCase No. 2016-035 RCOrder/26 April 2016 Of12

resetting of which shall b~ SIX (6) months from said date ofcancellation.

As part of the Pre-trial Conference, DASURECO must also beprepared to make an Expository Presentation of its Application, aidedby whatever communication medium it may deem appropriate for thepurpose, in order to put in plain words and explain, for the benefit ofthe consumers and other concerned parties, what the Application isall about and the reasons and justifications being cited in supportthereof.

SO ORDERED.

Pasig City, 26 April 2016.

FOR AND BYAUTHORITYOF THE COMMISSION:


Copy furnished:

1. Atty. Nelson V. EvangelistaCounselfor Applicant DASURECODechavez & Evangelista Law OfficesUnits 1609-1610, Tycoon Centre, Pearl DriveOrtigas Center, Pasig City

2. Davao del Sur Electric Cooperative, Inc. (DASURECO)Brgy. Cogon, Digos CityDavao del Sur

3. Office of the Solicitor General134 Amorsolo Street, Legaspi VillageMakati City, Metro Manila

4. Commission on AuditCommonwealth AvenueQuezon City, Metro Manila

5. Senate Committee on EnergyGSIS Building, Roxas BoulevardPasay City, Metro Manila

6. House Committee on EnergyBatasan HillsQuezon City, Metro Manila

7. PresidentPhilippine Chamber of Commerce and Industry (PCCI)McKinley Hill, Fort BonifacioTaguig

8. Office of the Provincial GovernorProvince of Davao del Sur

9. Office ofthe Local Government Legislative BodyProvince of Davao del Sur

10.Office of the Provincial GovernorProvince of Davao Occidental

11. Office of the Local Government Legislative BodyProvince of Davao Occidental

12. Office of the City MayorCity of Digos, Davao del Sur

13.Office of the Local Government Legislative BodyCity of Digos, Davao del Sur

14.Office of the Municipal MayorBansalan, Davao del Sur

ERC Case No. 2016-035 RCOrder/26 April 2016Of12

15.Office of the Local Government Legislative BodyBansalan, Davao del Sur

16.Office of the Municipal MayorHagonoy, Davao del Sur

17.Office of the Local Government Legislative BodyHagonoy, Davao del Sur

18.Office of the Municipal MayorKiblawan, Davao del Sur

19.Office of the Local Government Legislative BodyKiblawan, Davao del Sur

2o.0ffice of the Municipal MayorMagsaysay, Davao del Sur

21.Office of the Local Government Legislative BodyMagsaysay, Davao del Sur

22.Office of the Municipal MayorMalalag, Davao del Sur

23.Office of the Local Government Legislative BodyMalalag, Davao del Sur

24.Office of the Municipal MayorMatanao, Davao del Sur

25.Office of the Local Government Legislative BodyMatanao, Davao del Sur

26.Office of the Municipal MayorPadada, Davao del Sur

27.Office ofthe Local Government Legislative BodyPadada, Davao del Sur

28.Office of the Municipal MayorSta. Cruz, Davao del Sur

29.Office of the Local Government Legislative BodySta. Cruz, Davao del Sur

30.0ffice of the Municipal MayorSulop, Davaodel Sur

31.Office of the Local Government Legislative BodySulop, Davao del Sur

32.Office of the Municipal MayorDon Marcelino, Davao Occidental

ERC Case No. 2016-035 RCOrder/26 April 2016Of12

33.Office of the Local Government Legislative BodyDon Marcelino, Davao Occidental

34.Office of the Municipal MayorJose Abad Santos, Davao Occidental

35.Office of the Local Government Legislative BodyJose Abad Santos, Davao Occidental

36.Office of the Municipal MayorMalita, Davao Occidental

37.Office of the Local Government Legislative BodyMalita, Davao Occidental

38.Office of the Municipal MayorSarangani, Davao Occidental

39.Office of the Local Government Legislative BodySarangani, Davao Occidental

40.Office of the Municipal MayorSta. Maria, Davao Occidental

41. Office of the Local Government Legislative BodySta. Maria, Davao Occidental

42.ROSEnergy Regulatory CommissionPasig City

in the matter of the application for approval of

Documents