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Republic ofthe Philippines l ' Fectf:;,)' :z

ENERGY REGULATORY COMMISSION iwm,- .~;;V~phiSan Miguel Avenue, Pasig City \

IN THE MATTER OF THEJOINT APPLICATION FORAPPROVAL OF THE INTERIMSUPPLY CONTRACT (ISC)ENTERED INTO BY ANDBElWEEN ISABELA . IIELECTRIC COOPERATIVE,INC, (ISELCO II) AND SANMIGUEL ENERGY. CORPORATION (SMEC),~TH PRAYER FORPROVISIONAL AUTHORITYAND CONFIDENTIALTREATMENT OFINFORMATION

ERCCASENO. 2016-111 RC

ISABELA II ELECTRICCOOPERATIVE, INC. (ISELCOI) AND SAN MIGUELENERGY CORPORATION(SMEC),

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

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 29 April 2016, Isabela II ElectricCooperative, Inc. (ISELCO II) and San Miguel Energy Corporation(SMEC) filed with the Commission their Joint Application dated 25April 2016 (Application) for approval of their Interim Supply,Contract(ISC) dated 14 July 2015, with prayer for provisional authority andconfidential treatment of information.

iii\,;_ _

.-

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 2 of IS

In support of said application, ISELCO II and SMEC alleged,the following:

The Joint Applicants

1. ISELCOII is a non-stock, non-profit electric cooperative dulyorganized and existing under the Philippine Laws, withprincipal office address at Barangay Alibagu, Hagan City,Isabela. It holds a franchise to operate light and powerservices in the City of Hagan and in the Municipalities ofAurora, Benito Soliven, Burgos, Cabagan, Delfin Albano(Magsaysay), Divilacan, Gamu, Maconacon, Mallig,Naguilian, Palanan, Quezon, Quirino, Roxas, San Manuel,San Mariano, San Pablo, Santa Maria, Santo Tomas, andTumauini, all in the Province of Isabela (Franchise Area). Itshall also be herein referred to as the "Buyer";

2. SMEC is a domestic corporation organized and existingunder the Philippine laws, with office address at the 2nd

Floor, 808 Building, MERALCO Avenue corner Gen. LimStreet, Barangay San Antonio, Pasig City. It is theIndependent Power Producer (IPP) Administrator of the1,000 Net Contracted Capacity of the Sual Coal-FiredThermal Power Plant located in Barangay Pangascasan, Sual,Pangasinan. It shall also be herein referred to as the "Seller";

3. Applicants may be served with the orders, notices and otherprocesses ofthe Commission through respective counsels;

Nature ofthe Application

4. The Joint Application for approval of the Interim SupplyContract (ISC) dated 14 July 2015 entered into by andbetween ISELCO II and SMEC, is being submitted to theHonorable Commission for its review and approval pursuantto Sections 25 and 45(b) of Republic Act No. 9136, otherwiseknown as the Electric Power Industry Reform Act of 2001 orthe EPIRA, Rules 5, Section 4(e) and 11, Section 5 of itsImplementing Rules and Regulations (IRR), Rule 20(B) of itsRules of Practice and Procedure, and other pertinent rulesand regulations;

Statement of Facts

5. Competitive Selection Process (CSP). ISELCO IIpreviously sources one hundred percent (100%) of itselectricity requirements from SN Aboitiz Power-Magat,Incorporated (SNAP-Magat) pursuant to a five (5)-yearpower supply agreement (PSA), subject of ERC Case No.2012-120 RC;

ERC CASE NO. 2016-111RCNotice of Public Hearing/12 July 2016Page 3 OflS

5.1 On 28 January 2013, the Commission issued an Orderin the aforementioned case provisionally approvingsaid PSA at a rate lower than what was agreedbetween ISELCOII and SNAP-Magat;

5.2 Consequently, SNAP-Magat advised ISELCO II that itcannot implement the provisional approval of theCommission, hence ISELCO II has to commencelooking for another power provider. However, sinceISELCO II is having difficulty in looking for a newpower provider, SNAP-Magat agreed to supply itsbase load requirement;

5.3 In November and December 2013, ISECO II wasexposed to high prices in the spot market resulting tohigher generation rates in its Franchise Area.Parenthetically, SNAP-Magat agreed to execute aninterim agreement with ISELCO II until 25 December2014 at the rate provisionally approved by theCommission;

5-4 Considering the impending expiration of its interimagreement with SNAP-Magat, ISELCO II explored forother generation companies that can supply its powerrequirements. However, only SMEC has availablecapacity to supply the same; and

5.5 ISELCO II negotiated with SMEC for the supply of itsentire power requirements. Thus, on 14 July 2015,ISELCO II and SMEC executed an ISC, subject of theJoint Application;

6. Salient Features ofthe ISC.

6.1 Contract Capacity. The Contracted Capacity for theduration of the ISC shall be 23,000 kW. The Buyershall maintain a minimum hourly nomination of atleast thirty-five percent (35%) of the Contract Capacityfor the duration of the said ISC. The Contract Capacityshall be subject to a separate Nomination Protocol;

6.2 Contract Term. The ISC shall take effect betweenthe Parties on the date of signing (Execution Date) andshall remain effective until the Commercial OperationsDate (COD) of SCPC'sPower Plant in Limay, Bataan;

6.3 Capacity and Energy Fees. Under the ISC, ISELCOII shall pay the following Capacity and Energy Fees toSMEC:

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 4 Of1S

Period Covered Capacity Fees (PhP /kW-month) Ener2" Fees (PhP/kWh)

Dollar Local Fixed Fuel Variable VariableContract Year 2015 Portion Portion O&M Rate O&M O&M

(Dollar) (Local)From To A1 A2 B C D1 D2

26-Dec-14 - 25-Jan-15 435.7443 1,030.7261 106.3830 1.9943 0.0626 0.008326-Jan-15 - 25-Feb-15 436.5275 1,032.1557 106.3830 1.9943 0.0626 0.008326-Feb-15 - 25-Mar-15 437.3133 1,016-4105 106.3830 1.9943 0.0626 0.008326-Mar-15 - 25-Anr-15 438.1017 1,035.0286 106.3830 1.9943 0.0626 0.008326-Anr-15 - 2<;-Mav-15 438.8928 1,030.7446 106.3830 1.994~ 0.0626 0.008326-Mav-15 - 25-Jun-15 439.6864 1,037.Q1Q7 106.3830 1.9943 0.0626 0.008326-Jun-15 - 25-Jul-15 440-4828 1,033.6480 106.3830 1.9943 0.0626 0.008326-Jul-15 - 25-AUg-15 441.2818 1,040.8312 106.3830 1.9943 0.0626 0.008326-Aug-15 - 25-Sep-15 442.0834 1,042.2948 106.3830 1.9943 0.0626 0.008326-Sep-15 - 25-0ct-15 442.8877 1,038.0360 106.3830 1.9943 0.0626 0.008326-0ct-15 - 25-Nov-15 443.6947 1,045.2361 106.3830 1.9943 0.0626 0.008326-Nov-1<; - 25-Dec-15 444.5044 1,040.Q858 106.3830 1.9943 0.0626 0.008'\Contract Year 2016

26-Dec-15 - 25-Jan-16 445.3168 1,048.7765 106.3830 2.0145 0.0626 0.008326-Jan-16 - 25-Feb-16 446.1319 1,050.2653 106.3830 2.0145 0.0626 0.008326-Feb-16 - 25-Mar-16 446.9497 1,040.2622 106.3830 2.0145 0.0626 0.008326-Mar-16 - 25-Anr-16 447.7703 1,053.2533 106.3830 2.0145 0.0626 0.008326-Anr-16 - 25-Mav-16 448.5935 1,049.0088 106.3830 2.0145 0.0626 0.008326-Mav-16 - 25-Jun-16 449.41Q5 1,0<;6.2642 106.3830 2.0145 0.0626 0.008326-Jun-16 - 2<;-Jul-16 450.2484 1,052.0284 106.3830 2.0145 0.0626 0.008326-Jul-16 - 25-Aug-16 451.0799 1,059.2942 106.3830 2.0145 0.0626 0.008326-Aug-16 - 25-Sen-16 451.9142 1,060.8165 106.3830 2.0145 0.0626 0.008326-Sep-16 - 25-0ct-16 452.7512 1,056.5957 106.3830 2.0145 0.0626 0.008326-0ct-16 - 25-Nov-16 453.5912 1,063.8756 106.3830 2.0145 0.0626 0.008326-Nov-16 - 25-Dec-16 454-4338 1,059.6655 106.3830 2.0145 0.0626 0.0083

6-4 Adjustment Formula. The Capacity and EnergyFees are subject to monthly adjustments based on thefollowingformula and indices (Annex II-A ofthe ISC):

Capacity Fees

Monthly Capacity Payment (Dollar Portion convertedto PhP):

PhPjkW-month x FOREXcFOREXB

Where:

FOREXc

FOREXB

=

=

Average of the daily exchange rate of thePhilippine Peso to the US Dollar, asposted by the Bangko Sentral ngPilipinas (BSP) for the calendar monthwithin which the start of the currentBillingPeriod occurs

41.749PhPjUSD

ERCCASENO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 5 of 18

Monthly Capacity Payment (Local Portion in PhP):

PhPjkW-Month = No Indexation

Monthly Fixed Operations and Maintenance:

PhPjkW-month X PHIL CPI cPHIL CPI B

Where:

PHILCPIc =

PHILCPIB =

Energy Fees

Fuel Rate:

Consumer Price Index (CPI) for AllIncome Households in the Philippines -All Items (2006 = 100), as posted by thePhilippine National Statistics Office(NSO) for the calendar month withinwhich the start of the current BillingPeriod occurs

PhPjkWh x

Where:

Global Coal Newcastle cGlobal Coal Newcastle B

FOREXcx-----

FOREXB

Global Coal Newcastle c

Global Newcastle B

FOREXc

= Fuel Cost Index in USD/MTbased on the Global CoalNewcastle postingrepresenting the averageindex for the calendarmonth within which thestart of the current billingPeriod occurs

= 89-41 USD/MT

= Average of the dailyexchange rate of thePhilippine Peso to the USDollar, as posted by theBSP for the calendar month

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 6 OflS

within which the start ofthe current Billing Periodoccurs

FOREXB = 41.749 PhPjUSD

Variable O&M (Dollar Portion):

PhPjkWh x FOREXc x EPIAVEFOREXB

Where:

FOREXc

FOREXB

EPIAVE

=

=

=

Average of the daily exchange rate of thePhilippine Peso to the US Dollar, asposted by the BSP for the calendar monthwithin which the start of the currentBilling Period occurs

41.749 PhPjUSD

Average Export Price Index (EPI) for US,Japan and Europe

Where:

= Jlc j JIB)+ (USlc jUSIB) + (Elc JEIB)lI3

JIc

JIB

USIc

USIB

EIc

=

=

=

=

=

Japan EPI six (6) months immediatelypreceding the adjustment date, takenfrom the International FinancialStatistics (IFS) published by theInternational Monetary Fund (IMF)

93.93

US EPI six (6) months immediatelypreceding the adjustment date, takenfrom the IFS published by the IMF

91.70

EPI of a European country agreedbetween the IPP Counter Party and theIPP and notified to the Administrator six(6) months immediately preceding the

ERC CASENO. 2016-111 RCNotice of Public Hearingj12 July 2016Page 70f18

adjustment date, taken from the IFSpublished by the IMF

EIB = 120.57

Variable O&M(Local Portion):

PhP /kWh x RPI cRPIB

Where:

RPIc

RPIB

=

=

Retail Price Index for All Items(2000=100) in Metropolitan Manila six(6) months immediately preceding theadjustment date, as published by theNSO

75.90

Base Indices:

Particulars September 2012

Global Coal Newcastle Price Index USD/MT 89-41FOREXRate PhP/USD 41.749US CPI (1982-84=100) Fixed 231.407Philippine CPI (2006=100) Fixed 131.40

Janual"''' 1C)C)4Japan EPI (2010=100) Fixed 93.93US EPI (2010=100) Fixed 91.70Europe EPI (2005=100) Fixed 120.57Retail Price Index - Metro Manila (2000=100) Fixed 75.90

6.5 Other Charges. The Buyer shall bear all other costsand charges occurring after the Deliver Point includingbut not limited to transmission line losses, site specificloss adjustments, among others;

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

a) PPD. The Buyer may avail of the PPD equivalentto three percent (3%) of the total of the Capacityand Energy Fees components of the current powerbill, provided that:

ERCCASENO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 8 of 18

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

11. The Buyer has submitted all necessary Bureauof Internal Revenue (BIR) Tax Certificates forall taxes withheld;

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

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

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

Collection Efficiency Discount,Levels PhP/kWh

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

06% and above 0.20

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

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

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

6.7 Outages.

6.7.1 Forced and Scheduled OutagesAllowance. During the term of the PSC, theSeller is allowed Scheduled Outages not toexceed seven hundred twenty (720) hourscumulative hours (Scheduled Outage

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 9 OflS

Allowance) for each Contract Year, duringwhich times the Seller is not obligated todeliver any energy from the Plant;

During the term of the PSC, the Seller isallowed Forced Outages not to exceed sevenhundred twenty (720) cumulative hours(Forced Outage Allowance) for each ContractYear, during which times reduced or no supplyof Contract Capacity or Associated Energy willbe available to the Buyer;

6.7.2 Major Maintenance Outage. The Sellershall be allowed an additional outage allowanceof seven hundred twenty (720) cumulativeoutage hours (Major Maintenance OutageAllowance) in case of Major Maintenance of thePlant which is five (5) years counted from themost recent Major Maintenance of the Plant.The Seller is not obligated to deliver any energyfrom the Plant during Major MaintenanceOutage. The Seller must notify the Buyer atleast one hundred eighty (180) days prior to thestart of the Major Maintenance;

6.7.3 During Scheduled Outages within theScheduled Outage Allowance, or during ForcedOutages with the Forced Outage Allowance, orduring Major Maintenance Outages within theMajor Maintenance hours, the Seller shall notbe required supply the Buyer with ContractCapacity and Associated Energy. In suchcircumstances, the Buyer, at its own cost, shallsource the Replacement Power. The Seller mayalso exert its best effort to source ReplacementPower and offer it to the Buyer, and if suchoffer if acceptable, the Buyer shall be billed thecost of such Replacement Power;

6.7.4 If during any Contract Year, the ScheduledOutages exceed the Scheduled OutageAllowance, or the Forced Outages exceed theForced Outage Allowance, or the MajorMaintenance Outages exceed the MajorMaintenance hours, the Seller shall procure atits 0':"11 cost, such supply of Contract Capacityand Associated Energy from third parties(including the WESM) to satisfy the relevantday-ahead nominations of the Buyer. Duringsuch period, the Buyer shall pay the Seller theContract Charges; and

6.7.5 Unutilized Scheduled Outage hours, ForcedOutage hours, and Major Maintenance Outages

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 10 OflS

hours shall not be carried forward to anysubsequent Contract Year;

Rate Impact on ISELCO II's Overall Generation Rate

7. The indicative rate impact on ISELCO II's overall generationrate with and without the supply from SMEC are as follows:

SUMMARY Of RAm fOR 2015 IPe505/~WI1IBIWIIGMONTH

Janua~ februa~ March April May June Ju~ Augu~ 5eptember October November DecemberTOTAL

5MECRate 6.2151 6.2101 6.0645 5,4821 5.1~ 4.1088 4.8910 4,93iK1 5J148 6.2611 65310 6.6164 5,6560

WESMRate In~irectMember 15,9952 1.4501 10,5696 12,5669 9,8132 1,4064 3.4581 1.3425 3.1006 1.2935 13763

Mixe~Rate NotAppUle 6.6598 5,5884 5.fII88 5.6992 5o4M5 5,2132 5,0531 5,6321 6.3032 6,6561 5~019

IfWBMOn~ NOIApplkable 5.5913 1.0563 ' 4,%38 6,6514 UJ1I 3.9110 2.3182 1.6424 3.4136 2.1913 35114

OlffER[NCI Not Appliclble 11.06251 (153201 (0,64501 0,9522 10,49141 11.15211 12.1349) 12,m31 12.81961 13.86541 11,1855j

SUMMARYOf (N(RGY fOR 20151~WI11BilliNGMONTH TOTAL

Janua~ februa~ March Apnl May June Ju~ Augu~ September October November December

5M[C 12)01,210 12,141~54 12,829~13 14,912,369 15~52,463 16,101,131 15,526,343 15,842,418 15,411,005 14~38,198 15,240,169 13~19,408 114)00,5iK1

WESM In~irectMember 818,161 851,183 1,546,8iK1 1~31,301 1,181,125 2~1,1J5 2,134,192 2,m,1l1 1,369,132 642~24 16,211,619

M~[o Not Applitlble 13,641,984 15,163,552 16,899,353 18,544,531 11,l1l,568 11,lM,153 18,211,191 16,4f11~35 16,fII9,iKIi 14,161,932 19O,4n,269

IfWBMOn~ NotApplitlble 13,641,984 15,163,552 16,899~53 18,144,532 l1,l1l,568 l1,lM,153 18,211,191 16,4f11~35 16,fII9,iKIi 14,161,931 190,412,269

SUMMARYOf Bill AMOUNT fOR 2015 (PesoslBilliNGMONTH

Janua~ februa~ March Apnl May Ju~ Augu~ september October November DecemberTOTAL

June

5M[C 15~15,929 19,162,831 11,806,585 81,150,943 18,435,536 16~16,612 16,032,061 18)46,341 82,566,619 89~6J,981 99,628,216 89,584,923 985)14,643

WESM In~irectMember 13,086,624 6,341~09 16~50,024 29,312,116 11,538,328 15,214,5f11 9,458,150 2,848,9\5 5,066,545 4,686)11 120P14,281

MriEO N01App~tlb~ 90,893,210 88,092,452 94,185~fII 105,689,389 93,510,389 93,510,iKIO 92,015,369 92,116,936 1M,694,161 94,211,199 1,105,198,930

IfWBMOn~ NotApplitlble 16,391,110 48,118,462 83,884,181 123,341)43 84,959,142 11,099,881 42,218,026 43,495,118 56,865,115 39~29,935 669,910,141

OImRnICE Nol Appfrtlble 114,501,4391 139~13,9rj)1 110,iKIO,1121 11,651,854 (8,611,2411 (12,421,0181 149,801,343) (49,221,1511 141,829,M6) 154,141,2651 1435,318,788)

8. Environmental Compliance Certificate (ECC). On 8November 2004, the Department of Environment andNatural Resources (DENR) issued an ECC with ReferenceNo. 9406-003-206 to Pangasinan Electric Corporation (PEC)for the 1,200 MW Sual Coal-fired Power Project located atSitios Bangayao, Buyog and Pao of Barangay Pangascasan,Sual, Pangasinan covering 280 hectares land area;

9. Board of Investments (BOI) Certificate. On 26January 2011, the Power Plant Project was registered withthe BOI which issued Certificate of Registration No. 2011-024;

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 11 of IS

10. Certificate of Compliance (COC). On 20 April 2009, theCommission issued a COC registered under the name ofTeam Sual for its 1,294 MW Coal-Fired Thermal Power Plant.The said COC was a renewal of the previously issued COC on17 December 2003 under the name of the power plant'sformer owner, Mirant Sual Corporation.

Compliance with the Pre-filing Reguirements

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

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

Securities and Exchange Commission (SEC)C SMEC's Latest General Information Sheet (GIS)D SMEC's Certificate of Registration with the BOIE ECC issued by the DENR for the Sual Coal-Fired

Thermal Power PlantF ISCs entered into by and between ISELCO II and

SMECGand Details of the ISC:Series

a. Executive Summary

b. Sources of Funds/Financial Plans• Debt/Equity Ratio• Project Cost• Computation of Return on Investment

(ROI)/Weighted Average Cost of Capital(WACC)

• Certification from the Bank/LendingInstitution specifying the principalamortization, term and interest during thecooperation period of the loan agreement

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

the supporting documents on theassumptions taken

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

ISELCO II once the contract is approved• Basis/Rationale of indexation and level of

indexation

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

expenses

ERC CASE NO. 2016-111 RCNotice of Public Hearingj12 July 2016Page 12 Of1S

H

I, 1-1and 1-2JK

LandSeries

• Minimum Ener Off-take (MEOT)Details of the Power Rate Calculations and FinancialModel (Con dential)Contracts for the Supply, Construction andSu ervision for the Power Plant (Con dential)Details of the Fuel Procurement ProcessTransmission Service Agreement (TSA) between theNational Grid Corporation of the Philippines (NGCP)and ISELCOIIAcknowledgment receipts by the SangguniangPanlungsod of Hagan City, SangguniangPanlalawigan of Isabela, and the SangguniangPanlungsod of Mandaluyong City, of copies of theJointA lication (includin annexes)

12. Further, in compliance with Article VI, Sections 1 and 2 ofthe Commission's Guidelines for the Recovery of Costs forthe Generation Component of the Distribution Utilities' (DU)Rates, copies of the foregoing are, likewise, attached to theJoint Application as annexes and made integral partsthereof:

Annex Documents/InformationN Relevant technical and economic characteristics of the

generation capacity, installed capacity, mode ofoperation, and dependable capacity

0 Costs analysis of the proposed pricing provisions of. the ISC

Pand Details of the Competitive Selection Process (CSP)Series undertaken by ISELCO II leading to the selection of

SMEC as its supplier, including invitations toparticipate and submit proposals, Terms of Reference(TOR), proposals and/or tender offers received byISELCO II, ISELCO II's Special Bids and AwardsCommittee (SBAC) Evaluation Report; ISELCO II'sBoard Resolution confirming the said SBACEvaluation Report, and the Notice of Award to SMEC

Qand Details of the interconnection facility of the Sual Coal-Series Fired Thermal Power PlantR ISELCO II's latest Distribution Development Plan

(DDP) and Load Forecast ProjectionsS Demand Side Management (DSM) Program that

could be implemented by ISELCO II if approved bythe Commission

T SMEC's latest Audited Financial Statements (AFS),Balance Sheet, Income Statement, and Statement ofCash Flows

T-1 Bank Certification of Long-term Loans, includingSchedule of Original Loan (principal amount, interestpayable and term of the loan) and Updated Balances(principal amount, interest payable and penalties, ifany and remaining term of the loan)

T-2 Operating Exnenses for the Power Plant and General

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 13 Of18

and Administrative E enseT -3 Certification from the engine manufacturer or SMEC

of the net heat rate in liters er kWhT -4 Simulation on the number of operating units

necessary to meet the MEOT and/or additionalener demand re uirements of ISELCO II

T-5 Potential Cost (absolute amounts and PhP/kWh) ofAncillary Services as and when SMEC or ISELCO II isconnected to the main grid

U Judicial Affidavit in support of the motion forrovisional authori

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

"WHEREAS, Section 2 of Republic ActNo. 9136, also known as the Electric PowerIndustry Reform Act of 2001 or EPIRA,declared as a policy of the State, among others,[to ensure the quality, reliability, security andaffordability of the supply of electric power;"(first "whereas clause", Department of EnergyCircular No. 2003-12-11. Underscoringsupplied.)

"WHEREAS, pursuant to Section 23 ofEPIRA, all distribution utilities, as defined inthe law, SHALLHAVETHE OBLIGATIONTOSUPPLYELECTRICITYIN THE LEASTCOSTMANNER TO ITS CAPTIVEMARKET subjectto the collection of retail rate duly approved bythe Energy Regulatory Commission;" (fifth"whereas clause", ibid. Underscoringsupplied.)

14. The Joint Application is, likewise, consistent with Section 1ofthe same Department Circular which declares as State policy,that:

"All distribution utilities musthenceforth take cognizance and assume fullresponsibility to forecast, assure and contractfor the supply of electric power in therespective franchise areas to meet theirobligations as a distribution utility."(Underscoring supplied.)

15. Byway of emphasis, Resolution No. 21, Series of 2005 of theCommission dated 19 October 2005 had directed all

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 14of18

Distribution Utilities (DUs) "to enter into future bilateralpower supply contract with power producers to be subjectedto a review by the Commission." (Underscoring supplied.)

16. The ISC with SMEC was made to ensure the continuoussupply of power to ISELCO II and due to the former'scompetitive pricing structure and other favorable terms of itscontract, which will redound to the benefit of the latter andits end-consumers in terms of reliable and affordable powersupply;

Allegations in Support of the Motion for ProvisionalAuthority

17. ISELCO II and SMEC replead the foregoing allegations insupport of their prayer for the immediate issuance ofprovisional authority, anchored on the following grounds:

17.1 Considering the current limitations on the availablecapacity in the Luzon Grid, ISELCO II must sourcepower from SMEC immediately to avoid power outagein its franchise area. As such, it was constrained toimplement the ISC under the belief that it willredound to the benefit of its member-consumersconsidering that the rates therein are lower than theCommission-approved National Power Corporation -Time-of-Use (NPC-TOU) rates;

17.2 Per its Actual/Forecasted Load Data and DDP,ISELCO II is undergoing a significant increase and isexpecting a further increase in its energyrequirements due to a growth in the total demand ofits member-consumers; and

17.3 Without the supply of SMEC, ISELCO II will beexposed to the unpredictable and expectedly higherprices in the WESM or worse, be unable to supply therequired energy to its franchise area resulting in totalblackout;

18. In the interest of the public, there is a necessity for theimmediate and provisional approval of the Joint Applicationin order that there will be no undue disruption in the powersupply to ISELCO II's member-consumers;

19. It bears stressing that pursuant to Rule 14, Section 3 of theCommission's Rules of Practice and Procedure, theCommission may issue a provisional authority pendingapproval of the Joint Application, to wit:

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 15 Of1S

"Section 3. Action on the Motion.- Motions for provisional authority orinterim relief may be acted upon withor without hearing. The Commissionshall act on the motion on the basis ofthe allegations of the application orpetition and supporting documents andother evidences that applicant or petitionerhas submitted and the comments or oppositionfiled by any interested person, if there be any."(Emphasis provided.)

20. To emphasize the necessity of the foregoing allegations, ajudicial affidavit in support of the motion for provisionalauthority is attached to the Joint Application as Annex "U"and made an integral part thereof;

Allegations in Support of the ConfidentialTreatment of Annexes "H", and "I". "1-1", and "1-2"

21. Rule 4 of the Commission's Rules of Practice and Procedureprovides that ISELCO II and SMEC may request thatinformation may not be disclosed;

22. SMECprays for the confidential treatment of the informationcontained in the following annexes, and not disclosed exceptto the officers and staff of the Commission and its staff:

AnnexH

1,1-1 and 1-2

Documents and or InformationDetails of the Power Rate Calculationsand Financial Model (Con dential)Contracts for the Supply, Constructionand Supervision for the Power Plant(Con dential)

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

"A trade secret may consist of anyformula, pattern, device, or compilation ofinformation that: (1) is used in one'sbusiness; and (2) gives the employer anopportunity to obtain an advantage overcompetitors who do not possess the

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

ERC CASE NO. 2016-111 RCNotice of Public Hearing/12 July 2016Page 16 of 18 (

information. Generally, a trade secret is aprocess or device intended for continuous usein the operation of the business, for example, amachine or formula, but can be a price listor catalogue or specialized customerlist. It is indubitable that trade secretsconstitute proprietary rights. The inventor,'discoverer, or possessor of a trade secret orsimilar innovation has rights therein whichmay be treated as property, and ordinarily aninjunction will be granted to prevent thedisclosure of the trade secret by one whoobtained the information "in confidence" orthrough a "confidential relationship".American jurisprudence has utilized thefollowing factors to determine if aninformation is a trade secret, to wit:

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

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

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

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

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

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

24. The interest of the consuming public is sufficiently protectedby the review and evaluation of the rates under the ISCby theCommission, without the need to disclose the contents ofAnnex "H". The reasonableness and transparency of theprices of electricity is to be assured by the Commissionthrough its own review and verification of SMEC's operatingcosts and expenses;

25. More importantly, SMEC's competitors, should they obtainthe information in Annex "H", will gain undue advantagethereon and have the opportunity to use the same in theiroperations. The negotiating power of SMECwith parties it

ERCCASENO. 2016-111RCNotice of Public Hearing/12 July 2016Page 170f18

plans to contract with or who it is currently doing businesswith, will clearly be thwarted if it is compelled to disclosesuch information;

26. Further, Annexes "I", "1-1", and "1-2" pertain to theSupply, Construction, and Supervision Contracts,respectively, for the Power Plant. These contracts havecounter-parties who are not parties to the Joint Application.They contain highly technical designs, drawings and otherinformation which are the intellectual property and tradesecrets of the counter-parties, and therefore should not bedisclosed to the public. ISELCO II and SMEC, likewise, prayfor the confidential treatment of Annexes "I", "1-1", and"I -2", under the same premises above;

27. Accordingly, ISELCO II and SMEC submit one (1) copy eachof Annexes "H", "I", "1-1", and "1-2", in a sealedenvelope, with the said envelope and each page of thedocuments and/or information stamped with the word"Confidential"; and

PRAYER

28. Joint Applicants ISELCO II and SMEC pray before theCommission that:

1. Pending hearing, ISSUE an Order provisionallyapproving the Joint Application and the ISC therebyauthorizing ISELCO II and SMEC to immediatelyimplement the rate structures therein;

n. ISSUE an Order treating Annexes "H", "I", "1-1",and "1-2", and all the information contained therein asconfidential, directing their non-disclosure to personsother than the officers and staff of the Commission,continuously protecting the said informationfrom public disclosure by maintaining the sameseparate and apart from the records of the case,and ensuring that these are not divulged tounauthorized persons, pursuant to Rule 4 of its Rules ofPractice and Procedure; and

lll. After due notice and hearing, ISSUE a Decisionapproving the Joint Application and the ISC betweenISELCO II and SMEC, and authorizing ISELCO II tocharge and collect the fees therein from its member-consumers.

The Commission has. set the application for initial hearing,expository presentation, Pre-trial Conference and evidentiary hearingon 1 December 2016 (Thursday) at nine o'clock in the

ERC CASENO. 2016-111RCNotice of Public Hearing/12 July 2016Page 18 Of18

morning (9:00 A.M.) at ISELCO II's Main Office, BarangayAlibagu, Hagan City, Isabela.

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 mayfile their opposition to the application or comment thereon at anystage of the proceeding before the applicant concludes thepresentation of its 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 application mayrequest from the applicant that they be furnished with the same, priorto the date of the initial hearing. The applicant is hereby directed tofurnish all those making such request with copies of the applicationand its attachments; subject to the reimbursement of reasonablephotocopying costs. Any such person may likewise examine theapplication and other pertinent records filed with the Commissionduring the standard office hours.

WITNESS, the Honorable Chairman, JOSE VICENTE B.SALAZAR, and the Honorable Commissioners, ALFREDO J.NON, GLORIA VICTORIA C. YAP-TARDC, JOSEFINAPATRICIA A. MAGPALE-ASIRIT, and GERONIMO D. STA.ANA, Energy Regulatory Commission, this 12th day of July,2016 at Pasig City.

J. MARASIGANiefofStaff

Office of the Chairman and CEO

~CVBjfjAPV JERC CASE NO. 20'6-111 RC ISELCO II & SMEC NPH.doo.