notice of public hearing 2015-251-rc · erccaseno.2015-215 rc noticeofpublichearing/ 07september...

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.;,r.\)\....h.TO.~y,.... Jj "C<O" -041 . ~. ~ . Republic ofthe Philippines '1//'k;i~'C~,. J fri\ ENERGY REGULATORY COMMISS fdN ;0' "1' '. San Miguel Avenue, Pasig City '" . IN THE MATTER OF THE APPLICATION FOR THE APPROVAL OF THE POWER SUPPLY AGREEMENT BETWEEN MASINLOC POWER PARTNERS CO. LTD. AND ILOCOS SUR ELECTRIC COOPERATIVE, INC., WITH PRAYER FOR CONFIDENTIAL TRJ<:ATMENT OF INFORMATION ..ERC CASE NO. 2015-215 RC ELECTRIC INC. AND POWER ILOCOS SUR COOPERATIVE, MASINLOC PARTNERS CO. LTD, Applicants.. . x----------------~------x TO ALL INTERESTED PARTIES: Notice is hereby given that on 21 December 2015, Ilocos Sur Electric Cooperative, Inc. ("ISECO") and Masinloc Power Partners Co. Ltd. ("MPPCL") filed an Application for the Approval of the Power Supply Agreement (PSA) with Prayer for Confidential Treatment of Information. Likewise, on 29 January 2016, ISECO and MPPCL filed their "Compliance" pursuant to the Commission's directives to submit additional documents and information which are necessary for the evaluation of the instant Application. In their Application, ISECO and MPPCL alleged among others, the following: I. THE APPLICANTS

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Page 1: NOTICE OF PUBLIC HEARING 2015-251-RC · ERCCASENO.2015-215 RC NOTICEOFPUBLICHEARING/ 07SEPTEMBER 2016 PAGE20F19 1. ISECD is a non-stock non-profit electric cooperative duly organized

.;,r.\)\....h.TO.~y,....Jj"C<O" -041. ~. ~

. Republic ofthe Philippines '1//'k;i~'C~,. J fri\ENERGY REGULATORYCOMMISS fdN ;0' "1' '.

San Miguel Avenue, Pasig City '" .

IN THE MATTER OF THEAPPLICATION FOR THEAPPROVAL OF THE POWERSUPPLY AGREEMENTBETWEEN MASINLOCPOWER PARTNERS CO. LTD.AND ILOCOS SUR ELECTRICCOOPERATIVE, INC., WITHPRAYER FOR CONFIDENTIALTRJ<:ATMENT OFINFORMATION

..ERC CASE NO. 2015-215 RC

ELECTRICINC. AND

POWER

ILOCOS SURCOOPERATIVE,MASINLOCPARTNERS CO. LTD,

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

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 21 December 2015, Ilocos SurElectric Cooperative, Inc. ("ISECO") and Masinloc Power PartnersCo. Ltd. ("MPPCL") filed an Application for the Approval of the PowerSupply Agreement (PSA) with Prayer for Confidential Treatment ofInformation.

Likewise, on 29 January 2016, ISECO and MPPCL filed their"Compliance" pursuant to the Commission's directives to submitadditional documents and information which are necessary for theevaluation of the instant Application.

In their Application, ISECO and MPPCL alleged among others,the following:

I. THE APPLICANTS

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE20F19

1. ISECD is a non-stock non-profit electric cooperative dulyorganized and existing under Presidential Decree No. 269, asamended, otherwise known as the National ElectrificationAdministration Decree, with principal office address at Bigbiga,Santiago, Ilocos Sur. ISECD has been granted a franchise orauthority to distribute electric service in the cities of Candonand Vigan, and in the municipalities of Alilem, Banayoyo,Bantay, Burgos, Cabugao, Caoayan, Cervantes, G. Del Pilar,Galimuyod, Lidlida, Magsingal, Nagbukel, Narvacan, Quirino,Salcedo, San Ildefonso, San Juan, San Emilio, San Esteban, SanVicente, Santa, Sta. Catalina, Sta. Cruz, Santiago, Sigay, Sinait,Sta. Lucia, Sta. Maria, Sto. Domingo, Sugpon, Suyo andTagudin, all in the province of Ilocos Sur (collectively, the"Franchise Area").

Copies of relevant documents proving the due incorporation,registration, and permit to operate of ISECD as a distributionutility are attached hereto as follows:

Document AnnexArticles of Incomoration AAmended Bu-laws BCertificate of Registration with the CNational Electrification AdministrationCertificate of Franchise issued by the DNational Electrification Commission

2. MPPCL is a limited partnership established in the Philippines toconstruct, develop, improve, operate, maintain, and hold powerproduction and electric generating facilities in the country, forthe production and sale of electricity. MPPCL's principal officeaddress is located at the Masinloc Coal-Fired Thermal PowerPlant, Bani, Masinloc, Zambales.

3. MPPCL is in the process of expanding its existing powergenerating facility in Zambales through the construction,operation, management and maintenance of a new 300 MWcoal-fired power generating facility (the "Plant") to supply,among others, the aggregated base load requirement of ISECDand other electric cooperatives in Region 1 and CordilleraAdministrative Region ("Rt+CAR ECS")'.

Attached are copies of relevant documents proving MPPCL's dueregistration as a generation company, relevant permits tooperate the Plant and audited financial statements, as follows:

1 Electric cooperatives in Region 1 and the CAR, namely: Abra Electric Cooperative Inc. ("ABREeO"), Benguet ElectricCooperative Inc. ("BENECO"), lIoeDs Norte Electric Cooperative Inc. ("ISECO"), Ilocos Sur Electric Cooperative Inc.("ISECO"), Kalinga - Apayao Electric Cooperative Inc. ("KAELCO"), La Union Electric Cooperative ("LUELCO")Mountain Province Electric Cooperative Inc. ("MOPRECO") and Pangasinan III Electric Cooperative Inc. ("PANELeOIII").

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 3 OF 19

Document AnnexAmended Articles ofLimited Partnership ECertificate of Registration with the FSecurities and Exchanae CommissionBoard of Investments ("BOr') Certificate Gof Registration as a Pioneer EnterpriseNo. 80I 2012-221 dated 12October 2012Environmental Compliance Certificate H("ECC")No. 1111-020,as amended on 23Aoril 2012, for the Masinloc Power PlantCertificate of Endorsement No. DOE COE I2011-09-01 issued by the Department ofEnergy ("DOE")on 8 August 2011Latest Audited Financial Statements J

4. As the Plant will still be constructed, MPPCL has yet to obtainthe Certificate of Compliance ("COC") from this HonorableCommission, which covers the same. MPPCL undertakes toapply for and obtain the COC prior to the Plant's commercialoperations.

5. The Applicants may be served with copies of orders and otherprocesses through their respective undersigned counsels at theiraddresses indicated herein below.

II. NATUREOFTHEAPPLICATION

6. Pursuant to Sections 23,25 and 45 (b) of Republic Act No. 9136or the "Electric Power Industry Reform Act of 2001" ("EPIRA")in relation to Rule 20 (8) of the ERC Rules of Practice andProcedure, approved by the Honorable Commission on 22 June2006 in Resolution No. 38, Series of 2006, this Application issubmitted to the Honorable Commission. for its review andapproval of the Power Supply Agreement ("PSA"), dated 13October 2015, executed by ISECOand MPPCL.

A copy of the PSA is hereto attached and made an integral parthereof asAnnex "K".

Also attached hereto as Annexes "L" and "L-l" are therespective board and partner's resolutions ofISECO and MPPCLapproving the execution of the PSAby the parties.

7. It bears stressing that the instant Application is one of the firstapplications filed before this Honorable Commission for theapproval of a power supply agreement resulting from asuccessful joint competitive selection process undertaken byR1+CAR ECs for procurement of their aggregated long-termbase load power requirements.

III. COMPLIANCEWITH PRE-FILING REOUIREMENTS

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 4 OF 19

8. In compliance with Rule 3, Section 4 (e) of the ImplementingRules and Regulations of the EPIRA and Rule 6 of the ERCRules of Practice and Procedure, Applicants have furnished therespective legislative bodies of the local government units withinthe Franchise Area, and the Sangguniang Panlalawigan ofIIocos Sur with copies of the instant Application and itsaccompanying documents.

Certifications from the Presiding Officer or Secretary of thelegislative bodies of the Franchise Area, the SangguniangPanlalawigan of IIocos Sur, or their duly authorizedrepresentatives, attesting to the fact of such service will beattached hereto as follows:

Certification of Annex Certification of AnnexPresiding Presiding

Officer/Duly Officer/DulyAuthorized Authorized

Representative RepresentativeCandon M San Esteban M-18Vigan M-1 San IIdefonso M -19Alilem M-2 SanJuan M-20Banavovo M-3 San Vicente M-21Bantav M-4 Santa M-22Burgos M-5 Santial!o M-23Cabugao M-6 Sta. Catalina M-24Caoavan M-7 Sta. Cruz M-25Cervantes M-8 Sta. Lucia M-26G. Del Pilar M-9 Sta. Maria M-27Galimuvod M-lO Sigav M-28Lidlida M-ll Sinait M-29Magsingal M-12 Sto. Domingo M-30Nagbukel M-1'l Sugoon M-31Narvacan M-14 Suvo M-32Quirino M-15 Tal!udin M-33Salcedo M-16 Sangguniang M-34

Panlalawigan ofIIocos Sur

San Emilio M-17

9. Furthermore, Applicants have caused the publication of thepresent Application in its entirety in a newspaper of generalcirculation in ISECO's Franchise Area.

The Affidavit of Publication and the newspaper issue containingthe published Application will be attached hereto as follows:

AnnexNN-1

,

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 5 OF 19

N. STATEMENTOFFACTS

10. The EPlRA mandates that a distribution utility shall have theobligation to supply electricity in the least cost manner to itscaptive market, subject to the collection of retail rate dulyapproved by this Honorable Commission.2 Towards this end, theEPlRA expressly allows distribution utilities to enter intobilateral power supply contracts, subject to review by thisHonorable Commission.3

11. In furtherance of the State policy to ensure the quality,reliability, security and affordability of the supply of electricpower and to protect public interest affected by the rates andservices of the electric utilities and other providers of electricpower, this Honorable Commission issued Resolution No. 21,Series of 2005 which directed all distribution utilities to enterinto future bilateral power supply contract with powerproducers to be subjected to a review by the ERC.

12. Consistent with these policies and regulations, the Rl+CARECs,which includes ISECO, entered into a Memorandum ofAgreement for the joint procurement of their aggregated long-term (20-year) uncontracted base load power supplyrequirement equivalent to 106 MW ("Transaction").Notwithstanding the aggregation of their base load powerrequirements, however, each of the R1+CARECs has agreed toindividually sign a contract with the winning bidder for itsrespective committed demand, as indicated in the table below.

Committed Demand of Rl +CAR ECs

Electric Cooperative Committed Demand(MW)

ABRECO 7BENECO 14ISECO 51ISECO 7KAELCO 5MOPRECO 4LUELCO 8PANELCOIII 10TOTAL 106

13. The Power Supply and Demand Situation in ISECO's FranchiseArea. Annex "0" shows ISECO's Historical Demand and SupplyScenario from January 2008 to November 2015. ISECOcurrently procures its baseload power requirements of 32MWfrom GNPower, and San Miguel Energy Corporation until 2027

2 Cf. EPlRA, Sec. 23. par. 3.3q[. EPlRA, Sec. 45(b).

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE60F19

and another 3MW, ramped up every three years, fromGNPower. ISECO's demand that is not covered by thecontracted supply, including peaking load requirements, is/willbe procured from the WESM.

Annex "0-1" shows ISECO's Forecasted Demand and SupplyScenario for the years 2015 to 2038. The total forecasteddemand for 2015 to 2038 is evidently increasing. The table inAnnex "0-1" shows that the uncontracted base and peakingdemand will both be increasing from 35.77MW in 2015 to 99-45MW in 2038 and 12.69 MW in 2015 to 35.29 MW in 2038,respectively.

Annex "0-2" shows the yearly supply and demand scenario aswell as the average daily load curves.

14. The Competitive Procurement Process. On account of theforegoing, the R1+CAR ECs decided to pursue the jointprocurement of their aggregated long-term uncontracted baseload power supply requirement in accordance with Section 234of the EPIRA, through the conduct of a transparent, clear andfair competitive selection process, with the assistance oftransaction advisors engaged by the R1+CARECs, and adheringstrictly with the procedures and guidelines approved by theR1+CARECJoint Bids and Awards Committee ("JBAC").

14.1 The plan of the R1+CAR ECs, including ISECO, toprocure power commenced with the preparation by theJoint Technical Working Group ("JTWG") of a least-costpower supply plan for each EC and for the aggregateddemand of the R1+CAR ECs. The power supply planincludes the short-term and long-term peak demand andannual energy that was projected based on scientificallyformulated load forecast models that were subjected tovalidity and accuracy tests.

14.2 Following the determination of the least-cost powersupply plan for each EC, the R1+CARECs published onNovember 23 and 24, 2014 in a newspaper of general andnational circulation the Invitation to Bid for theTransaction. Prospective bidders from the generationsector were likewise individually invited to participate inthe bidding process through letters and electronic mail.In addition thereto, ISECO also posted at a publicbulletin board within its franchise area, a copy of theInvitation to Bid.

4 Section 23 provides that "to achieve economies of scale in utility operations, distribution utilities may, after due noticeand public hearing, pursue structural and operational reforms such as but not limited to, joint actions between or amongthe distribution utilities, subject to the guidelines issued by the ERe. Such joint actions shall result in improvedefficiencies, reliability of service, reduction of costs and compliance to the performance standards prescribed in the IRR ofthis Act."

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE70F19

14.3 In response to the Invitation to Bid, seven differentgeneration companies, including MPPCL, GN Power Ltd.Co., SoEnergy International Philippines, Inc., GlobalBusiness Power Corporation, MERALCO PowerGenCorporation, Trans-Asia Oil and Energy DevelopmentCorporation and First Gen Corporation, expressed theirinterest and qualified to participate in the bid conductedby the R1+CARJBAC.

14.4 As part of the bidding process, pre-bid conferences wereheld by the JBAC where the bidders were givenopportunity to submit their comments and raiseclarificatory questions on the Transaction.

14.5 For the bid submission, the interested bidders wererequired to submit their bids in two (2) separateenvelopes. The first envelope contains the legalrequirements and proof of technical and financialcapability of the bidder to finance, build, operate andmaintain power plants. The second envelope contains thecommercial offer, consisting of the technical and financialoffers, of the bidder.

14.6 On 30 April 2015, the R1+CARECs' JBAC received fromGN Power Ltd. Co. and MPPCL their respective bids forthe Transaction.

14.7 The JBAC evaluated the submitted bids based on anEvaluation Framework and Evaluation Methodologypreviously released to the bidders. After thoroughevaluation of the bids, the R1+CAREC JBAC issued on 11May 2015 the Notice of Lowest Calculated Bid to MPPCLinforming MPPCL that it submitted the LowestCalculated Bid for the Transaction. MPPCL tendered theLowest Calculated Bid with a base price of PhP3.749S/kWh and a long-term levelized price of PhPS.4967/kWh.

14.8 After complying with the Post-Qualification Process forthe Transaction, on 25 May 2015, the JBAC of theR1+CAR ECs issued a Notice of Award to MPPCL,informing MPPCL of its selection as the winning bidderfor the supply of power to R1+CARECs.

14.9 On 1 June 2015, MPPCL and the R1+CAR ECscommenced negotiations for the other commercial andtechnical terms and conditions of the PSA, except for thepower rate which is equivalent to MPPCL's LowestCalculated Bid.

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 8 OF 19

14.10 On 13 October 2015, MPPCL and the member ECs of theR1+CAR ECs executed individual PSAs covering theirrespective committed demand.

Attached are copies of the relevant documents proving MPPCL'sselection and qualification as the winning bidder in the jointcompetitive selection process undertaken by R1+CAR ECs forthe supply of their aggregated base load demand for the contractyear 2019 up to 2038.

Document Annex Document AnnexInvitation to P Minutes of P-4Bid MeetingsInformation P-l Bidding Tally Sheet P-5Memorandum

Instruction Notice of Lowest

to Bidders P-2 Calculated Bid P-6dated 11Mav 2015Notice of Award of

Bid Bulletins P-3 Contract P-7dated 25 Mav 2015

15. It bears stressing that the competitive selection processconducted by the JBAC was well-structured, fair, andtransparent, and thus resulted in a highly attractive price for theR1+CARECs. In Department Circular No. DC2015-06-008, theDepartment of Energy ("DOE") cited with approval, the resultsof the Rl +CARECs' competitive bidding process as evidence forachieving greater efficiencies through the conduct of competitiveselection process in the aggregation of the uncontracted demandof distribution utilities.

16. It is also worthy to note that the transparent competitiveselection process led to good faith negotiations between MPPCLand the R1+CARECs for the terms and conditions ofthe PSAs.All actions taken by MPPCL and ISECO leading to and inconnection with the execution of the ISECO PSA are compliantwith all applicable laws, including the U.S. Foreign CorruptPractices Act and the Philippine Anti-Graft and CorruptPractices. ISECO and MPPCL hereby certify that they, or theirrespective employees, officers, directors, affiliates, agents andrepresentatives did not, at any time, directly or indirectly offer,give, make, promise, payor authorize the payment of anymoney, gift or anything of value to any employee, officer ordirector of the other party to induce such other party to sign orenter into the ISECO PSA.

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 9 OF 19

V. ABSTRACf OF THE PSAAND RELATEDINFORMATION

17. The following are the salient features of the ISECO PSA:

17.1 Term. The PSAshall commence on the date of signing ofthe PSA by MPPCL and ISECO and shall expire at 24:00hours on the final Day of the 240th Billing Period after theStart of Supply Deliverys, subject to extensions of suchterm pursuant to the PSA provisions governing ExcusedDelay Event6 and Force Majeure during Supply Delivery,?unless earlier terminated upon the occurrence of certainconditions for Termination Date.8

17.2 Volume. Under the PSA, MPPCL shall supply ISECO aContract Capacity of 7,000 kW which shall be themaximum kW demand that ISECO may nominate asBilateral Contract Quantity in a Wholesale ElectricitySpot Market Trading Interval, without prejudice toadjustments that may be made on the Contract Capacityand Associated Energy pursuant to the terms of the PSA.

17.3 Commissioning Energy. During commissioning priorto the Start of Supply Delivery, MPPCL may offer to sellto ISECO the Commissioning Energy at a rate equivalentto the Contract Price and Associated Charges less theCapital Recovery Fee and Fixed O&MFees.

17-4 Outages. The supply obligation of MPPCL shall besubject to an Outage Allowance of Twenty-One (21) daysfor Scheduled Outages and Fifteen (15) days for ForcedOutages per Contract Year. During Scheduled and ForcedOutages, MPPCL may provide reduced or no supply ofthe Contract Capacity to ISECO, provided that MPPCLhas not exceeded the relevant Outage Allowance for agiven Contract Year.

17.5 Contract Price. For electricity supplied by MPPCL,ISECO shall pay MPPCL a Monthly Power Bill which iscomposed of the Contract Price, the Associated Charges9and necessary adjustments resulting from foreigncurrency conversion of the Dollar Payables component ofthe Contract Price to Philippine Peso, if any.

17.5.1 The Contract Price shall be composed of the sumof the Capacity Payment and the Energy Payment.

5 Under the PSA, the Start of Supply Delivery or the obligation of MPPCL to supply ISECO the Contract Capacity andAssociated Energy and provisions related thereto shall commence not later than the start of a Billing Period thirty six (36)months from the Commencement Date, unless extended in accordance with the PSA.6 Cf. Section 2.6 of Annex "K," hereof.7 Ibid., Section 13.3.2(b).8 Ibid. Section 14.10.9 Means the Governmental Charges, WESM Charges, and NGCP and Ancillary Services Charges identified in the PSA

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 10 OF 19

17.5.1.1 The Capacity Payment shall becomposed of the Capital Recovery Charge,the Dollar Fixed O&M Charge and thePeso Fixed O&MCharge.

a. Capital Recovery Charge: The CapitalRecovery Charge shall be calculated as theproduct of the Capital Recovery Fee and theAssociated Energy for the Billing Period.

The Capital Recovery Fee shall be determinedusing the tariff schedule below:

Capital RecoveryCapacity Utilization Fee

Factor US$/kWh

100% 0.039399% 0.039698% 0.040097% 0.040496% 0.040895% 0.041294% 0.041693% 0.042092% 0.042491% 0.042990% 0.043389% 0.043788% 0.044287% 0.044786% 0.045285% 0.045784% 0.046283% 0.046782% 0.047281% 0.047880% 0.048379% 0.048978% 0.049577% 0.050176% 0.050775% 0.051474% 0.052073% 0.0527

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 11OF 19

72% 0.053471% 0.054170% 0.0548

The Capacity Utilization Factor shall becalculated in accordance with the formulabelow:

CUF = AE / { CCx ( HT- EHTO) }

Where

CUF

AE

CC

EHTO

Capacity Utilization Factor

Associated Energy, which shall bethe sum of the Bilateral ContractQuantities declared by the Sellerfor the Buyer in the WESMduring the Billing Period,provided that the AssociatedEnergy shall not be less than thequantity which is 70% multipliedby the Contract Capacitymultiplied by the factor ( HT -EHro).

Contract Capacity, stated in kW

Total number of hours in theBilling Period

The Equivalent Hours ofScheduled Outages and ForcedOutages in such Billing Period

The CUF shall be calculated up to the 4thdecimal place. When the calculation resultsin a CUF lower than 70%, the CUF shall bedeemed to equal 70%. When the CUFcalculation does not result in a wholepercentage point, the corresponding CapitalRecovery Fee shall be determined using theformula below:

CRF = 0.0608 x CUF2 -0.1547 x CUF +0.1332

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 12OF 19

If the Commencement Date occurs laterthan December 26, 2015, the Seller shallhave the right to increase the CapitalRecovery Fee in the foregoing table basedon the percentage increase, if any, in theUnited States Producers Prices CapitalEquipment Index [2010=100] reported inthe International Financial Statisticspublished by the International MonetaryFund immediately before theCommencement Date vis a vis the sameindex published on April 2015 (Le.,106.982)

b. Dollar Fixed O&M Charge: The DollarFixed O&M Charge shall be calculated as theproduct of the Dollar Fixed O&M Fee and theAssociated Energy for the Billing Period.

The Dollar Fixed O&MFee shall be determinedusing the formula below:

Dollar FOM = US$ O.0021/kWh xUSIndex / CUF

Where,

DollarFOM Dollar Fixed O&MFee

CUF as defined above

USIndex = USCPIn / USCPIo

USCPIn the average US Consumer PriceIndex CityAverage for All UrbanConsumers - All Items for thelast three calendar months priorto the start of the Billing Periodfor which the invoice is beingprepared.

USCPIo the US Consumer Price IndexCity Average for All UrbanConsumers - All Items (1982-84=100) for September 2014 aspublished by the US Bureau ofLabor Statistics.

c. Peso Fixed O&M Charge: The Peso FixedO&MCharge shall be calculated as the product

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 13 OF 19

of the Peso Fixed O&MFee and the AssociatedEnergy for the Billing Period.

The Peso Fixed O&M Fee shall be determinedusing the formula below:

Peso FOM = PhP O.2330/kWh xRPlndex / CUF

Where,

Peso FOM Peso Fixed O&MFee

CUF as defined above

RPlndex = RPCPln /

RPCPlo

RPCPIn the average PhilippineConsumer Price Index for AllIncome Households in thePhilippines - All Items for thelast three calendar months priorto the start of the Billing Periodfor which the invoice is beingprepared.

RPCPIo the Philippine Consumer PriceIndex for All IncomeHouseholds in the Philippines -All Items (2006=100) forSeptember 2014 as publishedby the Bangko Sentral ngPilipinas.

17.5.1.2 The Energy Payment shall consist ofthe Dollar Variable O&MCharge and FuelCharge.

a. Dollar Variable O&M Charge: The DollarVariable O&MCharge shall be calculated as theproduct of the Dollar Variable O&M Fee, andthe Associated Energy for the Billing Period.

The Dollar Variable O&M Fee shall bedetermined using the formula below:

Dollar VOM = US$ o.oo18/kWh xUSlndex

I. ,

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ERC CASE NO. 2015-215 RCNOTICE OF PUBLIC HEARING/ 07 SEPTEMBER 2016PAGE 14 OF 19

Where,

DollarVOM

USlndex

Dollar Variable O&MFee

as defined above

b. Fuel Charge. Fuel Charge shall be calculatedas the product of the Fuel Rate and theAssociated Energy for the Billing Period.

The Fuel Rate shall be calculated in accordancewith the formula below:

FR = US$ O.0271/kWh x FuelIndex

Where

FRFuel Rate

FuelIndex = CIFn / CIFo

CIFn CIF Cost of Fuel for the BillingPeriod

CIFo Base CIF Cost of Fuel equal toUS$ 11.0617/Million kcal

18. MPPCL's foregoing Contract Price was the Lowest CalculatedBid with a base price of PhP 3.749S/kWh based on theparameters of the procurement process. The Contract Pricecalculated above does not yet include the relevant Value-AddedTax ("VAT"), and ISECOundertakes to pay in full the invoicedVAT and any applicable local government unit Tax on theContract Price, except real property tax.

It bears stressing that the Contract Price discovered by thissuccessful competitive selection process is lower than those inall the other PSAs with newbuild generators filed with theHonorable Commission in the recent past. Attached as AnnexQ is a comparison of these power rates.

Attached as Annex "R" hereof is a summary of themethodology used by MPPCL to arrive at the Contract Priceunder the PSA. It also contains information regarding the debtor equity ratio, capital costs, weighted average cost of capital,and fuel cost, among other information.

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Also attached as Annex "R-l" hereof is a certification by MPPCLregarding the principal amortization, term and interest of itslong-term loans.

Considering the confidential nature of Annexes "R" and "R-I" as the numbers, methodology, and calculations containedtherein would provide valuable information reflecting thebidding strategy of MPPCL, not only for distribution utilitiesundertaking competitive process for their power supplyrequirements, but also for MPPCL's trading in the WESM,MPPCL respectfully requests that Annexes "R" and "R-l" betreated as a confidential document. In accordance with Section1(b), Rule 4 of the ERC Rules of Practice and Procedure,Applicant MPPCLhereby submits one (1) copy of Annexes "R"and "R-l" in a sealed envelope, with each page of the documentstamped with the word "Confidential."

19. Characteristics of the power capability and connectionfacility. The Plant will be a coal-fired power generating facilitywith a capacity of 300 MW. The Plant's generation capacity isconsistent with the DOE's Philippine Development Plan asshown by Certificate of Endorsement No. DOE COE 2011-09-01issued by the DOEon 8 August 2011.10

MPPCLwill expand or modify its existing switchyard to connectthe Plant to the 230kV grid system of the National GridCorporation of the Philippines ("NGCP"). ISECO is likewiseconnected to the Luzon grid.

All relevant technical and economic characteristics of the Plantare described in Annex "8". The relevant technicalspecifications of the transmission and delivery facilities arelikewise specifically described in Annex "8-1."

20. Rate Impact. An analysis was conducted to determine theimpact of the implementation of the PSAon ISECO's generationcosts once the PSA is approved. Without the PSA by 2019,ISECO may be exposed to the WESM, whose average price in2014 was PhP 4.5456/kwh. The PSA Contract Price enablesISECO to reduce its generation cost by about PhP 0.20/kWh toPhP 0.06/kWh in the first five (5) years as shown in the tablebelow.

Average Generation Rate

WITHOUT WITHYEAR MPPCL MPPCL REDUCTION/(INCREASE)2015 3.8538 3.6533 0.2005* 2019 3.QQ18 4.0050 -0.013~* 2020 4.0426 4.0932 -0.0505

10 Cf. Annex "I," hereof.

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2021 4.1354 4.0726 0.06282022 4.2221 4.1263 0.09582023 4.2805 4.2160 0.0645

* to sellback WESM with 6,900,000 kWh with at least Php3.5/kWh to offset rate increase

A copy of the foregoing analysis is attached hereto and made anintegral part hereof as Annex "T."

21. Other Documents. In compliance with the ERC Rules ofPractice and Procedure, the following documents are likewisesubmitted:

Document AnnexTransmission ServiceAgreement between UNGCPand ISECOProcurement process of coal VDistribution Development Plan of ISECO W

MPPCL and NGCP are in the process of negotiating theirConnection Agreement, Transmission Services Agreement andMetering Services Agreement for the Plant. MPPCL undertakesto submit copies of these documents once it has signed theseagreements with NGCP.

VI. CONFIDENTIAL TREATMENT OF ANNEX "R"and "R-1"

22. As earlier mentioned, Annex "R-1" contains numbers,methodology, and calculations which provide valuableinformation and insight on how MPPCL arrives at the ContractPrice and would accordingly reflect MPPCL's bidding strategyfor distribution utilities undertaking competitive process for theselection of their power suppliers and MPPCL's trading in theWESM.

Pursuant to MPPCL's agreement with its lenders, Annex "R-1"likewise contains certain non-public information involving itslenders' financial trade secrets. The information contained inAnnex "R-l", when disclosed together with Annex "R" wouldprovide an indication of MPPCL's bidding strategy fordistribution utilities undertaking competitive process for theselection of their power suppliers and MPPCL's trading in theWESM.

It is submitted therefore that Annexes "R" and "R-1" fallwithin the bounds of proprietary "trade secrets" which areentitled to protection under the Constitution, statutes, and rulesand regulations ofthis Honorable Commission.

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23. Under Rule 4 of the ERC Rules of Practice and Procedure, theHonorable Commission may, upon request of a party anddetermination of the existence of conditions, which wouldwarrant such remedy, treat certain information submitted to itas confidential. Pursuant to such provision, Applicant MPPCLrespectfully requests for the issuance of a protective orderdeclaring Annexes "ROOand "R-l" as confidential information,as the Applicants intend to present it as evidence in the instantApplication.

24. Even though it will be treated as a confidential document and aprotective order will be issued, the rules do not preclude theparties of record or their lawyers access to such confidentialinformation after agreeing to be bound by the terms of theprotective order.

25. The data contained in Annexes "ROO and "R-l" constitute"trade secrets" of Applicant MPPCL; thus, MPPCL has actualand valuable proprietary interest to protect with respect to suchinformation. The Supreme Court, in the recent case of AirPhilippines Corporation us. Pennswell, Inc.", had theopportunity to discuss the definition of "trade secrets" and thegreat extent to which the same are protected under our laws. Inother instances, the Supreme Court has held that theconfidential nature of trade secrets protects such fromdisclosure even in the face of the right of inspection given tostockholders12 or the constitutional right to information'3•

26. In ERC Case No 2008-030, the National Power Corporation's("NPC") application for revised basic generation rates, theHonorable Commission had an occasion to rule on theconfidentiality of NPC's results of operation per power plant forcalendar years 2005 to 2007. The Honorable Commissiondeclared such information as confidential, in this wise:

"Upon review of the documents submitted by NPC,the Commission found that the results of operationper plant of NPC for years 2005 to 2007 contain vitalinformation necessary in the calculation of itsproduction costs in P/kWh per plant and thecorresponding revenues. This information will serveas initial inputs to NPC's decision-making. As such,disclosure of this information will give the otherparties, particularly the other generation companies(Gencos) and the distribution utilities (DUs) withGenco counterparts, undue advantage in the pricing ofelectricity in the market over NPC and other Gencosby using its production costs as benchmark. Thus, theCommission deems the information as confidential,which may not be made public, as it may affect

11540seRA 215 [2007].12 Philpotts vs. Philippine Manufacturing Company, 40 Phil. 471 (1919).13Garcia VB. Board of Investments, G.R. 88637 (1989).

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adversely the competitive position of NPC and othergeneration companies."

27. Information which falls within the definition of a trade secret asdefined by jurisprudence is clearly information which merits theconfidential treatment provided for under Rule 4 of the ERCRules of Practice and Procedure. Annexes "R" and "R-1"should therefore be entitled to the protection of confidentialinformation provided under Rule 4 of the ERC Rules of Practiceand Procedure.

28. In view of all the foregoing, Applicants respectfully submit theinstant Application for the approval of the Power SupplyAgreement between MPPCL and ISECO for the HonorableCommission's urgent and utmost consideration.

29. ISECO and MPPCLprayed that the Commission will:

a. Issue an Order treating Annexes "R" and "R-1" asconfidential information pursuant to Rule 4, Section 1ofthe ERC Rules of Practice and Procedure and prescribingthe guidelines for the protection thereof; and

b. After, due notice and hearing, issue a final approval of thePSA dated 13 October 2015 entered into between ISECOand MPPCL.

c. Grant such other just and equitable reliefs.

The Commission has set the Application for initial hearing,expository presentation, pre-trial conference and evidentiary hearingon 25 October 2016 at nine o'clock in the morning (9:00A.M.) at ISECO's Principal Office at Bigbiga, Santiago,Ilocos Sur.

All persons who have an interest in the subject matter of theproceeding may become a party by filing, at least five (5) days prior tothe initial hearing and subject to the requirements in the ERC's Rulesof Practice and Procedure, a verified petition with the Commissiongiving the docket number and title of the proceeding and stating: (1)the petitioner's name and address; (2) the nature of petitioner'sinterest in the subject matter of the proceeding, and the way andmanner in which such interest is affected by the issues involved in theproceeding; and (3) 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 proceeding may

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file their opposition to the Application or comment thereon at anystage of the proceeding before the Applicants conclude thepresentation of their evidence. No particular form of opposition orcomment is required, but the document, letter or writing shouldcontain the name and address of such person and a concise statementof the opposition or comment and the grounds relied upon.

All such persons who wish to have a copy of the Applicationmay request from the Applicants that they be furnished with thesame, prior to the date of the initial hearing. The Applicants arehereby directed to furnish all those making such request with copiesof the Application and its attachments, subject to the reimbursementof reasonable photocopying costs. Any such person may likewiseexamine the Application and other pertinent records filed with theCommission during the standard office hours.

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 '1h day of September 2016 at PasigCity.

.MARASIGANCh oIStaff

Office of the Chairman and CEO

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