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Republic of the Philippines ; Approved for '%ENERGY REGULATORY COMMISSION 1UJ •• • "Z-

San Miguel Avenue, Pasig City \ P()>)tmg\ w rc.gov.ph\

"

IN THE MATTER OF THEJOINT APPLICATION FORAPPROVAL OF THE POWERSUPPLY CONTRACT (PSC)ENTERED INTO BY ANDBETWEEN PENINSULAELECTRIC COOPERATIVE,INC. (PENELCO) AND SMCCONSOLIDATED POWERCORPORATION (SCPC), WITH .PRAYER FOR CONFIDENTIALTREATMENT OFINFORMATION

ERC CASE NO. 2016-137 RC

PENINSULA ELECTRIC .COOPERATIVE, INC.(PENELCO) AND SMCCONSOLIDATED POWERCORPORATION (SCPC),

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

ORDER

On 03 June 2016, the Peninsula Electric Cooperative, Inc.(PENELCO) and SMC Consolidated Power Corporation (SCPC) filed aJoint Application with Prayer. for Confidential Treatment ofInformation (Joint Application) for approval of the Power Supply.Contract (PSC) dated 04 April 2016 between them.

In the said Joint Application,.PENELCO and SCPC alleged thefollowing:

. .1. PENELCOis an electric cooperative duly registered with

the National Electrification Administration (NEA)pursuant to Presidential Decree No. 269, as amended,with principal office address at Roman Superhighway,Tuyo, Balanga City, Bataan. It holds a franchise tooperate light an.dpower services in the City of Balaf.gaand in the Municipalities. of Abucay, Baga,

, .., I.. •

ERCCase No. 2016-137 RCOrder/25 August 2016 of23

Dinalupihan, Hermosa, Limay, Mariveles, Morong,Orani, Orion, Pilar, and Samal, all in the Province ofBataan (Franchise Area). It shall also be herein referredto as the "Buyer";

2. SCPC is a corporation duly created and existing by andunder the laws of the Republic of the Philippines, withbusiness address at the No. 40 San Miguel Avenue,Mandaluyong City. It shall also be herein referred to asthe "Seller".,

3. The Joint Applicants may be served with the orders,notices and other processes of the HonorableCommission through their respective undersignedcounsels at the addresses indicated herein;

Nature ofthe Application

4. The Joint Application for approval of the Power SupplyContract (PSC) dated 6 April 2015 entered into by andbetween PENELCOand SCPC, is being submitted to theHonorable Commission for its review and approvalpursuant to Sections 25 and 45(b) of Republic Act No.9136, otherwise known as the Electric Power IndustryReform Act of 2001 or the EPIRA, Rules 5, Section 4(e)and 11, Section 5 of its Implementing Rules andRegulations (IRR), Rule 20(B) of its Rules of Practiceand Procedure, and other pertinent rules andregulations;

Statement of Facts

5. Competitive Selection Process (CSP). SCPCinitially offered to supply PENELCO's base loadrequirements. After a thorough review on SCPC's offerand subsequent negotiations in good faith, on 6 April2015, PENELCO and SCPC executed a PSC with aContract Capacity of 20,000 kW;

5.1 While PENELCO and SCPC are preparing thenecessary documents for the filing of anapplication for approval of said PSC, theHonorable Commission, on 20 October 2015,issued Resolution No. 13,Series of 2015';

5.2 In compliance with said Resolution, PENELCOdeemed it prudent to subject its PSCwith SCPCtoa Swiss Challenge. It similarly adopted theprocedures undertaken by various distribution

, A Resolution Directing All Distribution Utilities (DDs) to Conduct ,~ C~etitive SelectionProcess (CSP) in the Procurement of Their Supply to the CaptiveMarke/ J

/

ERC Case No. 2016-137 RCOrder/25 August 2016 Of23

utilities which, likewise, resorted to SwissChallenge and obtained favorable Decisions fromthe Honorable Commission;

5.3 Thus, on 19 February 2016 and 12 March 2016,PENELCO's Pre/Post Bids and AwardsCommittee (PBAC) conducted two (2) separatebiddings for the supply of its electricityrequirements, however, both had failedconsidering that only one (1) qualified bidder,SCPC, submitted an offer on both occasions;

5.4 On 5 April 2016, the PBAC issued an endorsementrecommending the Management to award toSCPC the supply of PENELCO's 20 MW base load.power requirements; and

5.5 On 8 April 2016, PENELCO's Board issued two(2) separate Resolutions awarding the PSC toSCPC and authorizing, among others, Mr.Fernando P. Manalili, its Board President, to signsaid PSC with SCPC;

6. Salient Features of the PSC.

6.1

6.2

Contract Capacity. The Contracted Capacityfor the duration of the PSC shall be 20,000 kW.The Buyer shall maintain a minimum hourlynomination of at least forty percent (40%) of theContract Capacity for the duration of the saidPSC. The Contract Capacity shall be subject to aseparate Nomination Protocol;

Generation Source. SCPC is constructing a 2 x150 MW Circulating Fluidized Bed Coal-FiredThermal Power Plant (the Plant) located inBarangay Lamao, Limay, Bataan, which isexpected to be commercially operational by the3rdquarter of calendar year 2016;

Contract Term. The PSC shall take effectbetween the Parties on the date of signing(Execution Date) and shall remain effective for aperiod of ten (10) years from CommercialOperations Date (COD). The supply of electricpower by the Seller shall commence on COD andshall continue until the end of the Contract Term;

Contract Charges. Under the PSC, the Buyer//shall pay the following Contract Charges for tIri

ERC Case No. 2016-137 RCOrderf25 August 2016Page40f23

duration of the Contract, subject to the applicablevalue-added tax (VAT),and computed as follows:

Unit Amount

PhP kW-month 1 1.2 20PhP kW-month 383.80 9

1,755.0999

PhP kWh 0.2831PhP kWh 1.6566

1.939

6.5 Other Charges. The Buyer shall bear all othercosts and charges including but not limited totransmission line losses, line rental, site specificloss adjustments, and adjustments for must-rununits, among others;

6.6 Adjustment Formula. The Contract Chargesare adjusted on a monthly basis in accordancewith the following Adjustment Formula (AnnexII-B of the PSC):

MONTHLY CONTRACT CHARGES = CapacityChargesmonth + Energy Chargesmonth

Where:

Capacity Charges = Capital Recovery Fee(CRF) + Fixed Operationand Maintenance Fee(FOM)

Energy Charges = Variable Operation andMaintenance Fee (VOM)+ Fuel Fee + Start-upCharge

I. CAPITAL RECOVERY FEE (CRFmonth)

CRFmonth = CRFadjusted x CC

Where:

CRFadjusted= (CRF(base)X 0.30) + (CRF(base)XFX0.70 x ----!!!. )FXo

CRFbase = Capital Recovery Fee in PhPjkW-month ~0~1red in Annex II-A ofthepsc/

1

ERC Case No. 2016-137 RCOrder/25 August 2016 of 23

FXm = The simple average of the dailyexchange rate of the PhilippinePeso to the US Dollar, as posted bythe Bangko Sentral ng Pilipinas(BSP) for the calendar monthwithin which the start of thecurrent Billing Period occurs

FXo = Exchange rate of the PhilippinePeso to the US Dollar, Base =PhP44.00

CC = Contract Capacity in kW

II. FIXED OPERATION ANDMAINTENANCE FEE (FOMmonth)

FOMmonth= FOM x

Where:

PHCPlmPHCPlo

x CC

FOM

PHCPlm

PHCPlo

CC

= Fixed Operation and MaintenanceFee in PhPjkW-month containedin Annex II-A of the PSC

= Philippine Consumer Price Index(CPI) for All Income HouseholdsIII the Philippines - All Items(2006=100), as posted by thePhilippine National StatisticsOffice (NSO) for the calendarmonth within which the start ofthe current Billing Period occurs

= Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month of the COD

= Contract Capacity in kW

III. VARIABLE OPERATION ANDMAINTENANCE FEE (VOMmonth)

VOM = [(0.85 x YOM X USCPlm X FXm) +month USCPlo FXo

(0.15 x YOM X PHCPlm)] X AE/1PHCPlo /' r

ERCCase No. 2016-137 RCOrder/25 August 2016 Of23

Where:

VOM = Variable Operation andMaintenance Fee III PhP/kWhcontained in Annex II-Aof the PSC

USCPIm = United States (US) CPI for AllUrban Consumers - All Items(1982-84=100), as posted by theUnites States Bureau of LaborStatistics (USBLS)for the calendarmonth within which the start ofthe current Billing Period occurs

USCPIo = US CPI for All Urban Consumers -All Items (1982-84=100) for thecalendar month of the COD

FXm = The average daily exchange rate ofthe Philippine Peso to the USDollar, as posted by the BSP forthe calendar month within whichthe start of the current BillingPeriod occurs

FXo = Exchange rate ofPeso to theBase=PhP44.00

the PhilippineUS Dollar,

PHCPIm = Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month within which thestart of the current Billing Periodoccurs

PHCPIo = Philippine CPI for All IncomeHouseholds in the Philippines -All Items (2006=100), as postedby the Philippine NSO for thecalendar month ofthe COD

AE = Associated Energy III kWhdelivered to the Buyer by the Sellerduring the current Billing Period atthe Delive~~~stated in AnnexIII of the Ps;f (

ERCCase No. 2016-137 RCOrder/25 August 2016Page70f23

The Parties agree to adopt changes in any of theinflationary indices subject to prior notificationby the Seller to the Buyer for the occurrence ofany of the following events: a) shift made in thebase year and other adjustments to such inflationindex made by the relevant authorized entity; orb) the inflation index: i) becomes unavailable, ii)is replaced by a new benchmark rate asdetermined by the relevant authorized entity orits successor-in-interest, iii) ceases to exist, or iv)in the reasonable determination of either Party,fails to reflect the real costs and forms an integralpart of this price adjustment formula;

IV. FUEL FEE (Fuelmonth)

FUelmonth = [(FUelcost+FreightCost).XCRxFXm] xAE1,000

Where:

Fuel Cost = Base Fuel Cost, inUSD/MTxNewcaStiem

Newcastleo

Newcastiem = Average monthly coal price indexin USD/MT as posted by globalcoal on the websitewww.globalcoal.com for thecalendar month within which thestart of the current Billing Periodoccurs

Newcastleo = Coal price index equivalent toUSD74.oo/MT

Base Fuel Cost = Blended Cost equivalent toUSD62,69/MT

Freight Cost = Actual Transport Costs inUSD/MT which includes but notlimited to port charges, fuelinsurance, wharfage fees, excisetax, handling, customs brokeragefees, custom duties, stevedores andarrastre costs, tuggage costs,survey fee, towage, pilotage, lightdues, mooring and unmooring,berthing and de-berthing, andtonnage dues and sundries on thecoal used during the currenV/Billing Period. Freight costs Sh'i

http://www.globalcoal.com

ERC Case No. 2016-137 RCOrderJ25 August 2016 of 23

include all other existing andfuture taxes, fees, imposts andother charges that may be imposedon the transport of coal

CR = Consumption rate at 0.70kg/kWhescalated annually by one and ahalf percent (1.5%) or the actualplant fuel consumption rate,vvhicheveris lovver

FXm = The average daily exchange rate ofthe Philippine Peso to the USDollar, as posted by the BSP forthe calendar month vvithin vvhichthe start of the current BillingPeriod occurs

FXo = Exchange rate ofPeso to theBase=PhP44.00

the PhilippineUS Dollar,

AE = Associated Energy in kWhdelivered to the Buyer by the Sellerduring the current Billing Period atthe Delivery Points stated in AnnexIII ofthe PSC

The Parties further agree that vvhen any or all ofthe above components of the Fuel Cost no longerreflect the Seller's actual cost of coal (includingthe FOB price, coal indexation, premiums, amongothers), the Fuel Cost shall be computed based onthe Seller's actual cost of fuel subject to theSeller's prior notification to the Buyer;

V. Start-up Charge (per Unit and perStart-up) - to be added on top ofVOM&Fuel charges

Cold Start-up - downtime of eight (8)hours and above

Start Up Charge = 130,000 liters x LFOm x ccTPC

Warm Start-up - downtime of less thaneight (8) hours

Start Up Charge = 36,000 lite~xLFOm x'y

ERCCase No. 2016-137 RCOrder/25 August 2016 Of23

Where:

LFOm

CCTPC

= The actual price of diesel oil inPhP/liter as billed by supplier ofdiesel oil applicable for the BillingPeriod

= Contract Capacity in kW

= Total plant capacity (net) per unitinkW

6.7 Sources of Funds. SMC Global PowerHoldings Corporation, SCPC's parent company,advances the funds allowing for the on-goingconstruction of the Plant. SCPC is working onhaving a financial close by March 30, 2015 with atarget Debt to Equity ratio of 70%:30%;

6.8 Discounts. The Seller provides for both PromptPayment Discount (PPD) and CollectionEfficiencyDiscount (CED);

a) PPD. The Buyer may avail of the PPDequivalent to one percent (1%) of the total ofthe Capacity and Energy Charges and othercomponents of the current power bill, exceptthe Wholesale Electricity Spot Market(WESM) Charges and Replacement PowerCost, if any, provided that:

I. The Buyer has no arrears from previouspower billings including the SecurityDeposit or any unpaid charges or penaltiesincluding VAT;

n. The Buyer has submitted all necessaryBureau of Internal Revenue (BIR) TaxCertificates for all taxes withheld as well asfor all zero (o)-rated VATend-consumers;

Ill. 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 theSeller, subject to prior notification by theSclIe' to the BUY";~

ERCCase No. 2016-137 RCOrder/25 August 2016 of 23

b) CED. The Buyer shall be entitled to thefollowing CED:

Collection Efficiency Disconnt,Levels PhP/kWh

Below 65% None66% to 7.".% O.os76% to 8s% 0.1086% to 95% 0.15

q6% and above 0.20

In order for the Buyer to avail of the CED, itmust comply with the following conditions:

1. The Buyer has no outstanding obligationsto the Seller from previous power billsincluding VAT;and

n. The Buyer shall submit to the Seller: a dulyaccomplished CEDAvailment Form; a copyof its Monthly Financial and StatisticalReport (MFSR)/Collection EfficiencyReport signed by its Finance Manager andGeneral Manager, stamped "received" bythe NEA; Audited Financial Statements(AFS) stamped "received" by the BIR (to besubmitted to the Seller within three (3)calendar days from receipt of the BIR; andzero (a)-rated VAT certificates as updatedmonthly; and

6.9 Outages. The Seller shall not be obligated todeliver energy to the Buyer during the AnnualOutage Allowance of: seven hundred twenty(720) cumulative outage hours for each ContractYear for each Unit of the Power Plant forScheduled Outages, and four hundred thirty eight(438) cumulative outage hours for each ContractYear for each Unit of the Power Plant for ForcedOutages;

The Seller shall be allowed an additional MajorMaintenance Outage Allowance of seven hundredtwenty (720) cumulative outage hours once everyfive (5) years from the first Major Maintenance ofeach Unit of the Power Plant. The Seller is notobligated to deliver ~n~ during the said MajorMaintenance outage/ I

ERC Case No. 2016-137 RCOrderJ25 August 2016of 23

Unutilized Outage Allowance or MajorMaintenance Outage hours shall not be carriedforward to any subsequent Contract Year; and

6.10 Replacement Power. During the AnnualOutage Allowance or Major Maintenance Outagehours, the Seller may procure Replacement Powerfrom other sources, the cost of which shall bepassed-on to the Buyer. The Buyer may requestthe Seller to procure Replacement Power.Thereupon, the Seller shall exert its best efforts tosecure Replacement Power at prices closest aspossible to the Contract Price. If the Seller is ableto secure such Replacement Power, the Buyershall take the same, provided that, if the Buyerdoes not take it, the Seller will no longer have theobligation to procure said Replacement Power;

Rate Impact on PENELCO's Overall GenerationRate

7. The indicative rate impact on PENELCO's overallgeneration rate with and without the supply from SCPCare as follows:

Simulation of Generation Mix Rate \VITII SCPC for the Year 2016

Weighted WeightedAverage Average

Supplier Contracted Forecasted Resulting Rate, VAT, Rate, Rate,Capacity, Quantity, kWh Amount, Percentage Capacity GRNct, PhP/kWh PbP/k PhP/k PhP/kWhMW PhP Share Factor PhP/kWh (VATex) Wh Wh (VATin)

GMCP 8 1,9 2, 80.00 1 2,2 8,16 . 6.80% % .259 o. 0 . 6SCPC '" 1 ,880,000.00 6 ,9 9,66 .8 31.59% 100% ., 0 4.2564 o. 0 . "' 4.7639WESM 286, 12. 1 ',0 ,61 .0 0.61% 6.8 I o. , . 110Total ,0 ,. , 224, 7 ,442.51 100.00%

Simulation of Genera don Mix Rate WTIHOur SCPC for theYear 2016

Weighted Average Weighted AverageSupplier Contracted Forecasted Resulting Rate, PbP/kWh Rate, PhP/kWh

Capacity, Quantity, Anlount, Percentage Capacity GRNet, (VATex)Ph~~:Wh Ph~~~~

(VATin)MW kWh PhP Share Factor PhP/kWh

GMCP 8 6,6 ,200.00 16 ,268, 01. 5 .88% 8 % o. 8 ,SCPC '" - - 0.00% 0% 0.0000 4.6206 0.0000 0.0000 5.0839WESM 10, 20,1 2. 1 6,181, 08. 0 22.12% 6.8 1 o. , . lt~Total ,0 ,392. 1 , , 50,60 .85 100.00% .08

8.

9.

Generation Rate Impact,PhP/kWh

Environmental Compliance Certificate (ECC).On 17September 2013, the Department of Environmentand Natural Resources (DENR) has issued ECC No.ECC-CO-130S-0019in favor of SCPC;

Board of Investments (BOI) Certificate. On 20September 2013, the Power Plant Project was registeredwith the BOl which issued Certificate of RegistrationNo. 2013-194;

(0.3201)

10. Certificate of Compliance (COC). The Power Pla)~/is still under construction and the target/estimated COil


is sometime in August 2016. Hence, it is not yet coveredby a COC. Nonetheless, SCPC undertakes to file thenecessary application for a COC at least three (3)

. months before the target COD;

11. Further, SCPC's Power Plant is considered as acommitted project, and is in the process of securing acertification from the Department of Energy (DOE) thatthe same is consistent with the Power Development Plan(PDP). It undertakes to submit the certification as soonas the same becomes available;

12. Furthermore, SCPC undertakes to submit a certificationfrom the National Power Corporation (NPC) on theinsufficiency of supply within the Luzon Region duringthe term ofthe PSC;

Compliance with the Pre-filing Requirements

13. Copies of the foregoing documents and/or informationare attached to the Joint Application as annexes andmade integral parts hereof:

I

AnnexAB

C

D

E

F

GandSeries

Documents/InformationSCPC'sArticles of IncorporationSCPC's Certificate of Registration issued bythe Securities and Exchange Commission(SEC)SCPC's Latest General Information Sheet(GIS)SCPC's Certificate of Registration with theBO!ECC issued by the DENR to the CirculatingFluidized Bed Coal-Fired Thermal PowerPlant Project of SCPCPSC entered into by and between PENELCOandSCPCDetails of the PSC:

a. Executive Summary

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

Investment (ROO/WeightedAverage Cost of Capital (WACC)

• Certification from theBank/Lending Institution specifyingthe principal amortization, term an:J/in'",,' durin, the <ooP'''tiO) 5

ERCCase No. 2016-137 RCOrderf25 August 2016 of 23

period ofthe loan agreement

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

Rates with the supportingdocuments on the assumptionstaken

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

rates of PENELCOonce the contractis approved

• Basis/Rationale of indexation andlevel of indexation

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

Maintenance expenses• Minimum Energy Off-take (MEOT)

H Details of the Power Rate Calculations andFinancial Model (Confidential)

1,1-1 Contracts for the Supply, Construction andand 1- Supervision for the Power Plant2 (Confidential)J Details of the Fuel Procurement ProcessK Transmission Service Agreement (TSA)

between the National Grid Corporation ofthePhilippines (NGCP) and PENELCO

Land Acknowledgment receipts by theSeries Sangguniang Panlalawigan of Bataan, and the

Sangguniang Panlungsod of Balanga City andMandaluyong City, of copies of the JointApplication (including annexes)

14. Further, in compliance with Article VI, Sections 1 and 2of the Honorable Commission's Guidelines for theRecovery of Casts for the Generation Component af theDistribution Utilities' (DU) Rates, copies of theforegoing are, likewise, attached to the Joint Applicationas annexes and made integral parts hereof:

AnnexN

oPandSeries

Documents InformationRelevant technical and economiccharacteristics of the generation capacity,installed capacity, mode of operation, andde endable ca acityCosts analysis of the proposed pricingrovisions of the PSCDetails of the Competitive Selection Proces~14'(CSP) undertaken b PENELCO leadin t7(

ERCCase No. 2016-137 RCOrder/25 August 20160f23

the selection of SCPC as its supplier,including invitations to participate andsubmit proposals, Terms of Reference (TOR),proposals and/or tender offers received byPENELCO, PENELCO's Special Bids andAwards Committee (SBAC) EvaluationReport; PENELCO's Board Resolutionconfirming the said SBACEvaluation Report,and the Notice of Award to SCPC

Qand Details of the interconnection facility of theSeries SCPCPower PlantR PENELCO's latest Distribution Development

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

that could be implemented by PENELCO ifapproved by the Honorable Commission

T SCPC's latest Audited Financial Statements(AFS), Balance Sheet, Income Statement, andStatement of Cash Flows

T-l Bank Certification of Long-term Loans,including Schedule of Original Loan(principal amount, interest payable and termof the loan) and Updated Balances (principalamount, interest payable and penalties, if anyand remaining term of the loan)

T-2 Operating Expenses for the Power Plant andGeneral and Administrative Expense

T-3 Certification from the engine manufacturer orSCPCofthe net heat rate in liters per kWh

T-4 Simulation on the number of operating unitsnecessary to meet the MEOT and/oradditional energy/demand requirements ofPENELCO

T-S Potential Cost (absolute amounts andPhP/kWh) of Ancillary Services as and whenSCPC or PENELCO is connected to the maingrid

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

"WHEREAS, Section 2 of Republic Act No.9136, also known as the Electric Power IndustryReform Act of 2001 or EPIRA, declared as a policyof the State, among others, [to ensure the quality,reliability, security and affordability of the supplyof electric power;" (first "whereas clause",Department of Energy Circular No. 2003-12-n.Und~"o,;ng 'UPPlied1


"WHEREAS, pursuant to Section 23 ofEPIRA, all distribution utilities, as defined in thelaw, SHALL HAVE THE OBLIGATION TOSUPPLY ELECTRICITY IN THE LEAST COSTMANNERTO ITS CAPTIVEMARKETsubject tothe collection of retail rate duly approved by theEnergy Regulatory Commission;" (fifth "whereasclause", ibid. Underscoring supplied.)

16. The Joint Application is, likewise, consistent withSection 1 of the same Department Circular whichdeclares as State policy, that:

"All distribution utilities must henceforthtake cognizance and assume full responsibility toforecast, assure and contract for the supply ofelectric power in the respective franchise areas tomeet their obligations as a distribution utility."(Underscoring supplied.)

17. By way of emphasis, Resolution No. 21, Series of 2005of the Honorable Commission dated 19 October 2005had directed all Distribution Utilities (DUs) "to enterinto future bilateral power supply contract with powerproducers to be subjected to a review by theCommission." (Underscoring supplied.)

18. The PSCwith SCPCwas made to ensure the continuoussupply of power to PENELCO and due to the former'scompetitive pricing structure and other favorable termsof its contract, which will redound to the benefit of thelatter and its end-consumers in terms of reliable andaffordable power supply;

Allegations in Support ofthe Confidential TreatmentofAnnexes "H", and "I", "I-I", and "1-2"

19. Rule 4 of the Honorable Commission's Rules of Practiceand Procedure provides that PENELCO and SCPCmayrequest that information may not be disclosed;

20. SCPC prays for the confidential treatment of theinformation contained in the following annexes, and notdisclosed except to the officers and staff of theHonorable Commission and its staff:

AnnexH

1,1-1

Documents and or InformationDetails of the Power Rate Calculations andFinancial Model (Con dential) m1 /"Contracts for the Su I, constructi7/

r------------------------------------------."

ERC Case No. 2016-137 RCOrder/25 August 2016 of 23

and 1-2 and Supervision for the Power Plant(Con}idential)

21. Annex "H" contains the details of SCPC's power ratecalculations and financial model as well as the mannerby which these were derived. These information areproprietary in nature and should be protected as tradesecrets as contemplated by law and jurisprudence. Inthe case of Air Philippines Corporation vs. Pennswell,Inc.2, the Supreme Court defined a trade secret, asfollows:

"Atrade secret may consist of any formula,pattern, device, or compilation of informationthat: h) is used in one's business; and (2)gives the employer an opportunity toobtain an advantage over competitors whodo not possess the information. Generally, atrade secret is a process or device intended forcontinuous use in the operation of the business,for example, a machine or formula, but can be aprice list or catalogue or specializedcustomer list. It is indubitable that tradesecrets constitute proprietary rights. Theinventor, discoverer, or possessor of a trade secretor similar innovation has rights therein whichmay be treated as property, and ordinarily aninjunction will be granted to prevent thedisclosure of the trade secret by one who obtainedthe information "in confidence" or through a"confidential relationship". Americanjurisprudence has utilized the following factors todetermine if an information is a trade secret, towit:

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

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

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

(4) the value of the informayt'on to theemployer and to competitors;

----------2 G.R. No. 172835, December 13, 2007

ERC Case No. 2016-137 RCOrderJ25 August 2016of 23

(5) the amount of effort or moneyexpended by the company indeveloping the information; and

(6) the extent to which the informationcould be easily or readily obtainedthrough an independentsource." (citations omitted, emphasissupplied)

22.

23.

24.

25.

The interest of the consuming public is sufficientlyprotected by the review and evaluation of the ratesunder the PSC by the Honorable Commission, withoutthe need to disclose the contents of Annex "H". Thereasonableness and transparency of the prices ofelectricity is to be assured by the HonorableCommission through its own review and verification ofSCPC's operating costs and expenses;

More importantly, SCPC's competitors, should theyobtain the information in Annex "H", will gain undueadvantage thereon and have the opportunity to use thesame in their operations. The negotiating power ofSCPC with parties it plans to contract with or who it iscurrently doing business with, will clearly be thwarted ifit is compelled to disclose such information;

Further Annexes "I" "1-1" and "1-2" pertain to the, "Supply, Construction, and Supervision Contracts,respectively, for the Power Plant. These contracts havecounter-parties who are not parties to the JointApplication. They contain highly technical designs,drawings and other information which are theintellectual property and trade secrets of the counter-parties, and therefore should not be disclosed to thepublic. PENELCO and SCPC, likewise, pray for theconfidential treatment of Annexes "I", "1-1", and "1-2", under the same premises above; and

Accordingly, PENELCO and SCPC submit one (1) copyeach of Annexes "H", "I", "1-1", and "1-2", in asealed envelope, with the said envelope and each page ofthe documents and/or information stamped with theword "Confidential".

Prayer

WHEREFORE, the foregoing premises considered,the Joint Applicants Peninsula Electric cooperati~:; /'Incorporated (PENELCO) and SMC Consolidated pow/!

ERC Case No. 2016-137 RCOrderJ25 August 2016 of 23

Corporation (SCPC)most respectfully pray that after duenoticeand hearing, the HonorableCommission:

1. ISSUE an Order treatingAnnexes "H", "I", "I-I", and "1-2", and all the information contained therein asconfidential, directing their non-disclosure to persons otherthan the officers and staff of the Honorable Commission,continuously protecting the said information frompublic disclosure by maintaining the same separateand apart from the records of the case, and ensuringthat these are not divulgedto unauthorizedpersons, pursuantto Rule4 of its RulesofPracticeand Procedure;and

2. ISSUE a Decision approving the JointApplication and the PSCbetween PENELCOand SCPC,andauthorizing PENELCOto charge and collect the fees thereinfrom its member-consumers.

Other reliefsjust and equitableunder the premises are,likewise,prayedfor.

Finding the said Joint Application to be sufficient in form andsubstance with the required fees having been paid, the same is herebyset for determination of compliance with the jurisdictionalrequirements, Expository Presentation, Pre-trial Conference, andpresentation of evidence on 10 November 2016 (Thursday) atten o'clock in the morning (10:00 A.M.) at PENELCO'sprincipal office in Roman Superhighway, Tuyo, Balanga,Bataan.

PENELCO and SCPC are hereby directed to cause thepublication of the attached Notice of Public Hearing in two (2)newspapers of general circulation in the Philippines at their ownexpense, twice (2X) within two (2) successive weeks, the dates ofpublication not being less than seven (7) days apart, with the date oflast publication made not later than ten (10) days before the date ofthe scheduled initial hearing. They are also directed to inform theconsumers within the franchise area of PENELCO, by any othermeans available and appropriate, of the filing of the instantApplication, its reasons therefor, and of the scheduled hearingthereon.

Let copies of the Joint 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, if

ERCCase No. 2016-137 RCOrderf25 August 2016 of 23

they so desire, to send their duly authorized representatives at thescheduled hearing.

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

PENELCO and SCPC are hereby directed to furnish all thosemaking requests therefor with copies of the Joint Application and itsattachments, subject to reimbursement of reasonable photocopyingcosts.

On the date of the initial hearing and Pre-trial Conference,PENELCO and SCPC must submit to the Commission their writtenCompliance with 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 aforementionedGovernor, Mayors, and Local Government Legislative Bodies, or theirduly authorized representatives, bearing the seals of their offices, andthe affidavit of the Editors or Business Managers of the newspaperswhere said Notice of Public Hearing was published, together with thecomplete issues of the said newspapers, and such other proofs ofcompliance with the requirements of the Commission.

PENELCO, SCPC, and all interested parties are directed tosubmit, at least five (5) days before the date of initial hearing and Pre-trial Conference, 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 therefor; and

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

ERC Case No. 2016-137 RCOrderf25 August 2016 of23

Failure of PENELCO and SCPCto submit the required Pre-trialBrief and Judicial Affidavits of their witnesses within the prescribedperiod shall be a ground for cancellation of the scheduled hearing,and the resetting of which shall be six (6) months from said date ofcancellation.

As part of the Pre-trial Conference, PENELCO and SCPC mustalso be prepared to make an Expository Presentation of their JointApplication, aided by whatever communication medium they maydeem appropriate for the purpose, in order to put in plain words andexplain, for the benefit of the consumers and other concerned parties,what the Joint Application is all about and the reasons andjustifications being cited in support thereof.

SO ORDERED.

Pasig City, 25 August 2016.

FORAND BYAUTHORITYOF THE COMMISSION:

----- ~--. -.-._,=," /

JOSivICENTE B.-s~' . Chairman an~ CEOERe '

I Office of the Chairman

LS:~t::E ; 11~1111111111~111111111~11111111~~III~II~~I~IIII~~Jo20160013o0C=0480S


Copy furnished:

1. Dechavez & Evangelista Law OfficesCounsel for Applicant PENELCOUnit 1609-1610, Tycoon CentrePearl Drive, Ortigas Center, Pasig City

2. Atty. Jupiter M. Cabaguio and Atty. Avelino G. Cedo IIICounsels for Applicant SCPC23rd Floor, San Miguel Properties CentreNO.7 St. Francis Street, Mandaluyong City

3. Penelco Electric Cooperative, Inc. (PENELCO)Roman Super Highway, TuyoBalanga City, Bataan

4. SMC Consolidated Power Corporation (SCPC)No. 40 San Miguel Avenue, Mandaluyong City

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

6. Commission on AuditCommonwealth AvenueQuezon City, Metro Manila

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

8. House Committee on EnergyBatasan HillsQuezon City, Metro Manila

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

10.Office of the Provincial GovernorProvince of Bataan

11. Office of the Local Government Legislative BodyProvince of Bataan

12. Office of the City MayorPasig City

13.Office of the Local Government Legislative BodyPasig City

14.Office of the CityM77'Balanga, Bataan / f


15.Office of the Local Government Legislative BodyBalanga, Bataan

16.Office of the Municipal MayorAbucay, Bataan

17.Office of the Local Government Legislative BodyAbucay, Bataan

18.Office of the Municipal MayorBagac, Bataan

19.Office of the Local Government Legislative BodyBagac, Bataan

2D.Office of the Municipal MayorDinalupihan, Bataan

21.Office of the Local Government Legislative BodyDinalupihan, Bataan

22. Office of the Municipal MayorHermosa, Bataan

23.Office of the Local Government Legislative BodyHermosa, Bataan

24.Office of the Municipal MayorLimay, Bataan

25.Office of the Local Government Legislative BodyLimay, Bataan

26.Office of the Municipal MayorMariveles, Bataim

27.Office of the Local Government Legislative BodyMariveles, Bataan

28.0ffice of the Municipal MayorMorang, Bataan

29.Office of the Local Government Legislative BodyMorong, Bataan

3D. Office of the Municipal MayorOrani, Bataan

31.Office of the Local Government Legislative BodyOrani, Bataan

32.Office of the M~al MayorOrion, Bataan / ~

ERC Case No. 2016-137 RCOrderJ25 August 2016 Of23

33. Office of the Local Government Legislative BodyOrion, Bataan

34.Office of the Municipal MayorPilar, Bataan

35.Office of the Local Government Legislative BodyPilar, Bataan

36.Office of the Municipal MayorSamal, Bataan

37. Office ofthe Local Government Legislative BodySamal, Bataan

38. PSA-TWGGroup 1Energy Regulatory Commission14th Floor, Pacific Center BUil~~YSan Miguel Avenue, Pasig Cit/I