erc docs

8/10/2019 ERC DOCS

1/15

j

G \,\V \T O R )'IC

~~ . ~ Q{~~ ~

.f A p p r o t l ~ \ f G r ~

R b'" f h Ph"'" " \ P or tili~

epu IC0 t ellppmes . . ~1.eftgil'~PhENERGY REGULATORY COMMISSION' c;::::;. ,

San Miguel Avenue, Pasig City "

,' .

IN THE MATTER OF THE

APPLICATION FOR APPROVAL

OF POWER PURCHASE

AGREEMENT FOR THE SUPPLY

OF POWER TO SOUTH

COTABATO ELECTRIC

COOPERATIVE INC.

(SOCOTECO-I) , WITH PRAYER

FOR THE. ISSUANCE OFPROVISIONAL AUTHORITY

ERC CASE NO. 2014-048 RC

SOUTH COTABATO I ELECTRIC

COOPERATIVE INC.

(SOCOTECO-I) and nv vogt

PHILIPPINES SOLAR ENERGY

ONE, INC. (SE1),

Applicants.

)(-- - - -- - -- - - - - - -- - - - -- - - -)(

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on April 28, 2014, South Cotabato I

Electric Cooperative, Inc. (SOCOTECO I) and nv vogt Philippines

Solar Energy One, Inc. (SE1), filed an application for approval of their

Power Purchase Agreement (PPA) for the supply of power to

SOCOTECO I, with prayer for the issuance of a provisional authority"

In the said application, SOCOTECO I and SE1 alleged, among

others, the following:

1. SOCOTECO I is a non-stock non-profit electriccooperative duly established and existing under and by

virtue of the Laws of the Republic of the Philippines,

particularly under the provisions of Presidential Decree

No. 269 (PO 269), as amended. It is registered with the

National Electrification Administration (NEA);

8/10/2019 ERC DOCS

2/15

.,. .

~.


NOTICE OF PUBLIC HEARING/June 9, 2014

Page 2 of 15

2. Its principal office is at Barangay Morales, Koronadal City,

South Cotabato, where it may be served with summons

and other legal processes and represented in this

instance by its General Manager, Santiago C. Tudio, of

legal age, Filipino, and with office address also at

Barangay Morales, Koronadal City, South Cotabato;

3. It is the exclusive holder of the franchise issued by the I

NEA to operate electric light and power services in the

City of Koronadal, Municipalities of Banga, Lake Sebu,

Norala, Sto. Nino, Surallah, T'Boli, Tantangan and

Tampakan, all in the Province of South Cotabato and inthe Municipality of Lutayan in the Province of Sultan

Kudarat;

4. SE1 is a corporation duly organized under and by virtue

of the laws of the Philippines, with principal office at U-

2406 The Trade and Financial Tower, ythAvenue cor 32nd

Street, Bonifacio Global City, The Fort, Taguig City 1634,

where it may be served with summons and other legal

processes and represented in this instance by its

President, Reynaldo T. Casas, of legal age, Filipino;

5. The Mindanao Grid for the past several years has been

experiencing a serious power deficit in its power supply

which has affected the economic development in the

region. The existing generating capacity in the Mindanao

Grid is currently insufficient to meet demand, especially

during the day peak period (e.g. gam to 10pm);

6. The situation is further worsened during the summermonths of the year since during this time there is a

substantial reduction in the power supply from the hydro-

electric power plants that primarily supply the Mindanao

Grid due to the resultant lower water levels. More than

half the power supplied to the Mindanao Grid comes from

hydro-electric power sources. For CY2014, it is expected

that the summer months will be especially dry thus further

exacerbating the deficiency in the power supply;

7. The Power Sector Assets and Liabilities ManagementCorporation (PSALM) supplies the bulk of the power

supply requirements in the Mindanao Grid. It has an

existing Contract for the Supply of Electrical Energy

(CSEE) with SOCOTECO I which is set to expire in

December 2016;

8/10/2019 ERC DOCS

3/15

. ,

.'



Page 3 of 15

The CSEE already reflects PSALM's reduction of its

committed available power supply to SOCOTECO I byaround 37% of its current maximum demand

requirements of 34 MW. This reduction has left

SOCOTECO I with a supply deficit of around 12 MW for

CY2014 up to CY2016, when the CSEE is set to expire.

There is also no guarantee that PSALM will not make

further reductions to its commitment to supply power to

SOCOTECO I upon the expiration of the CSEE in 2016

for the following years;

8. The reduction of the power supplied by PSALM has

resulted in brownouts for the consumers of SOCOTECO I

lasting up to six (6) hours in the past year;

9. PSALM has already certified to SOCOTECO I that it has

insufficient capacity to supply the same with additional

power beyond the amounts already being supplied under

the current CSEE;

10. The power supply of SOCOTECO I is currently sourced

from: a) PSALM; b) Therma Marine, Incorporated (TMI);

and c) Mapalad Power Corporation (MPC). TMI and MPC

are diesel type power plants.

Its average generation charge from its current power

suppliers is 4.5295 PhP/kWh. However, the average

generation charge (for CY2014) coming from diesel type

power plants is 9.1216PhP/kWh for TMI and 10.2999

PhP/kwh MPC;

11. Based on the SOCOTECO I 2013-2023 Forecasted

Demand, its demand requirements are expected to grow

every year, from 36.64 MW in 2013 to 79.66 MW in 2023.

It has also forecasted that its number of customers will

continue to grow from 82,801 in 2013 to around 95,170 in

2017.

Given its constant growth in demand as well as number of

customers, it has endeavored to obtain a secure and

adequate supply of electricity for its consumers in the

coming years. It sought out other generation companies

and sources of electricity in the Mindanao Grid and

solicited offers and/or expressions of interest from these

8/10/2019 ERC DOCS

4/15

. ,

"



Page 4 of 15

power suppliers to supply its growing power

requirements;

12. Among the offers to supply SOCOTECO I's power

requirements was one from SE 1. The latter is committed

to construct 5MW AC (6MWp) Solar Plant in the

Barangay Centrala in the Municipality of Surallah, which

is within the franchise area of the former. The power plant

is scheduled to be commissioned in the first half of 2014.

This will help the former's current power requirements,

especially during the peak hours;

13. Since the power plant will be commissioned within the

first half of 2014, the power it will be supplying toSOCOTECO I will immediately help reduce and/or

prevent the brownouts currently being experienced by the

same;

14. SOCOTECO I thoroughly evaluated the offer of SE1 and

determined said to be advantageous to its consumers;

15. After extensive negotiations with SE 1, SOCOTECO I

signed on 26th of June 2013, a Power Purchase

Agreement (PPA) with SE1 for a contracted demand of

5MW AC (6MWp) for 20 years. They also executed an

Amendment Agreement in March 2014 to amend, modify

and supersede particular provisions of the PPA;

16. Over the period of the PPA, the average generation

charge of SOCOTECO I will be going down which will

translate into significant savings for the same and its

consumers during the term of the PPA;

17. The salient features of the PPA as amended are

summarized below:

18.1 Executive Summary

SE1 has entered into a 20 year Power Purchase (PPA)

to provide Solar Power to be generated by its proposed

plant in Barangay Centrala, Municipality of Surallah,

Koronadal, South Cotabato to SOCOTECO I. The plant

will have a capacity of 5 MW AC (6MWp).

The proposed Solar Plant is expected to supply about

8.80 million kWh to SOCOTECO I in the first year of its

operation and a total of 162 million kWh over the 20 year

PPA. This power will be supplied during the day in order

8/10/2019 ERC DOCS

5/15

, ,. -


NOTICE OF PUBLIC HEARING/Jun e 9, 2014

Page 5 of 15

to supplement its peak daytime demand which is currently

being met through Diesel generators. Solar power will

replace a part of this peak daytime diesel consumption.

Since the proposed solar plant will be constructed in 3-6

months, SE 1 will be able to immediately address the

growing demand and current power shortage of

SOCOTECO L

18.2 Amendments

The amendments to the PPA as set forth in the

Amendment Agreement in March 2014 are as follows:

(i) Determination of the power deemed generated and

supplied

The provision on Deemed Generation in the PPA

originally read as follows:

:x x x To determine the power deemedgenerated and supplied, the average

generation of the 7 (seven) days prior to thedate that the Facility is unable to evacuate thepower shall be utilized. x x x"

This provision was amended in the Amended

Agreement to read as follows:

"x x x To determine the power deemedgenerated and supplied, the average generation ofthe 7 (seven).days on which the Facility operated at

its full capacity and supplied power to the Customershall be utilized. x x x"

The parties believed that the change was essential

to generate a more equitable formulation of Deemed

Generation.

(ii) Compensation by Seller (SE1) in relation to the

Seller Generation Guaranty

Article 2.4.2 of the PPA originally read as follows:

"In case the Project energy generation (asmetered) falls below the Minimum Energy GenerationGuaranty, the Seller shall be liable to recompense theCustomer x x x.1I

8/10/2019 ERC DOCS

6/15

',--



Page 6 of 15

This provIsIon was amended in the Amended

Agreement to read as follows:

"In case the Project energy generation (as

metered) falls below the Minimum Energy Generation

Guaranty, caused by the Seller's gross negligence,

willful misconduct or malicious intent, the Seller shall

be liable to recompense the Customer x x x"

The original wording of the provision seems to imply that

the Seller is and will be penalized even if the falling of the

Project energy generation below the Minimum Energy

Generation Guaranty is not through the fault of the Seller.

To correct this, paragraph 2 of the AmendmentAgreement makes the Seller liable only if there is fault on

its part (i.e. gross negligence, willful misconduct or

malicious intent).

(iii) Change of degredation rate

Schedule III (Seller Generation Guaranty) of the

PPA sets forth the Performance Ratios and Annual

Decrease from years 1 to 25. The annual decrease wasat 1.00% for the first 2 years and decreased to 0.5% for

the years thereafter. This was amended by paragraph 3

of the Amendment Agreement showing a fixed

degredation rate of 0.7% annually beginning year 2. The

parties believed that this would be a more equitable

formula, considering that this conforms to and/or is

consistent with the manufacturer's performance

guarantees and is in accordance with international

standards for Tier-1 solar panels.

(iv) Termination of the PPA for Customer Event of

Default

Paragraph 4 of the Amendment Agreement

amended Article 14.1.1 of the PPA by removing the

penalty clause or the right of the Seller to liquidated

damages in case the PPA is terminated on account of a

Customer Event of Default. This amendment was made

in consideration of the fact that SOCOTECO I is rated as

AAA Cooperative and for being listed as among the top

10 electric cooperatives in the country.

8/10/2019 ERC DOCS

7/15

. .

ERC CASE NO. 2014-048 "Re


Page 7 of 15

18.3 Salient Features

In addition to the above, the PPA as amended also

contains the following salient terms and conditions:

"2.2 Project Capacity

2.2.1 At the Commercial Operations Date, the Project

Capacity of the Facility shall be 6 MWp +/- 10% which is

expected to generate approximately 8.5 million +/-10%

KWh per year.

2.3 Deemed Generation

Without prejudice to the Customer's obligation under

Article 2.1.1, if due to unavailability of the Grid

Interconnection Facilities, the Facility is unable to

evacuate the power generated by the Facility from the

Delivery Point to the Customer, the Facility shall be

deemed to have been operating during the power non-

evacuation period and the Seller shall bill the Customer

for the power that would have been supplied during such

period. To determine the power deemed generated and

supplied, the average generation of the last 7 (seven)

days on which the Facility operated at its full capacity and

supplied power to the Customer shall be utilized. This

Article 2.3 shall not be applicable if the reason for the

failure to evacuate power is due to a Force Majeure

Event, or due to scheduled preventive maintenance of up

to a maximum cumulative permitted time of 80 hours per

year during daytime hours of 7am to 7pm of the

Grid Interconnection Facilities.

2.4 Seller Generation Guaranty

2.4.1 The Seller guarantees a minimum average annual

Performance Ratio ("PR") as mentioned in Schedule III.

Performance Ratio would be measured as per the

provisions of IEC 61724 (Photovoltaic system

performance monitoring - guidelines for measurement,

data exchange and analysis).

2.4.2 In case the Project energy generation (as metered)

falls below the Minimum Energy Generation Guaranty,

caused by the Seller's gross negligence, willful

misconduct or malicious intent, the Seller shall be liable to

recompense the Customer for the differential between

8/10/2019 ERC DOCS

8/15



Page 8 of 15

Contracted Capacity and the volume of power actually

delivered, multiplied by the difference between the Tariff

and the price of the replacement energy.

3.1 Term of Agreement

3.1.1 This Agreement shall commence on the Execution

Date and shall continue for a period of 20 (twenty)

Contract Years from the Commercial Operations Date

unless extended for a 5-year period (as described in

Schedule II), or earlier terminated.

xxx

8. TARIFF

8.1 The Seller agrees to sell at the Delivery Point and

the Customer agrees to purchase the Contracted

Capacity at the Delivery Point at the Tariff specified in

SCHEDULE" during the Term.

8.2 The Customer shall solely be responsible and shall

bear any and all electricity related costs, expenses and

charges including any on account of wheeling,

transmission, wheeling and transmission losses,

scheduling, system operating, Grid connectivity or use of

or access to the Grid Interconnection Facilities or any

other charges or costs as may be applicable for

evacuation of the Power Supplied. It is clarified that the

Seller shall be entitled to raise invoices for the Power

Supplied in the manner set out in Article 9 irrespective of

whether or not the Customer is able to evacuate the

Power Supplied from the Delivery Point to its destination

of use. Provided however that, in the event the Customeris not able to evacuate the Power Supplied from the

Delivery Point to its destination of use for any reason

whatsoever and the Seller is able to supply such

electricity to any third party, the Customer will continue to

be liable to pay the Seller for the electricity supplied by

the Seller at the Delivery Point at the Tariff specified in

SCHEDULE II as adjusted by the amount received by the

Seller from any third party against electricity supplied to

such third party.

8.3 The Customer shall solely be responsible for and

shall bear and promptly pay all statutory taxes, duties,

imposts, levies and cess, including surcharges, penalties

or any other charges, at such rates as are assessed or

levied under Applicable Law as at the Execution Date, on

8/10/2019 ERC DOCS

9/15



Page 9 of 15

or in connection with the supply or sale of electricity under

the terms of this Agreement.

For the avoidance of doubt, it is clarified that the

Customer shall be solely responsible for and shall bear all

taxes, duties, imposts, and levies, including surcharges,

penalties or any other charges, assessed or levied under

the Applicable Law at all times, on or in connection with

the evacuation or supply of electricity from the Delivery

Point to its destination of use.

Schedule"

TARIFF

1. Tariff

1.1 The Tariff shall consist of two components, one that

is fixed in Pesos, and the second that shall be Dollar

indexed.

1.2 The fixed component of the Tariff shall be 15% of

the Nominal Peso Tariff ("NPT"). The Dollar indexed

component shall be 850/0of the Nominal Peso Tariff.

1.3 The NPT for the first 15 (fifteen) years shall be as

follows:

Php/kWh Php/kWh Php/kWh

Year

Year 1 9.79 Year 6 9.54 11 9.29

Year

Year 2 9.74 . Year 7 9.49 12 9.24

Year

Year 3 9.69 Year 8 9.44 13 9.19

Year

Year 4 9.64 Year 9 9.39 14 9.14

Year Year

Year 5 9.59 10 9.34 15 9.09

1.4 The NPT for years 16 (sixteen) to 20 (twenty) shall

be PHP 7.50/kWh.

1.5 The Tariff in PHP for any given Billing Period shallbe computed as follows, rounded to the nearest centavo:

Tariff = NPT * 15% + (NPT * 85%) * (FXB/FXR)

8/10/2019 ERC DOCS

10/15



Page 10 of 15

1.6 In the event that this Agreement is extended for the

Five Year Extension, the NPT applicable for the Five Year

Extension, i.e., years 21 (twenty one) to 25 (twenty five),

shall be PHP 7.50/kWh.

1.7 Invoices raised by the Seller shall be denominated

in PHP.

1.8 Illustrative Example: Assume FXR is 42. For Billing

Period A, assume FXB is 46. For Billing Period B,

assume FXB is 38. Assume NPT is 10.00 for both Billing

Periods A and B. Then, Tariff shall be computed is as

follows:

Tariff for Billing Period A = 10.00 * 15% + (10.00 * 85%) *

(46/42) = PHP 10.81

Tariff for Billing Period B = 10.00 * 15% + (10.00 * 85%) *

(38/42) = PHP 9.19

18. SOCOTECO I has forecasted and simulated the effect of

the inclusion of the power supplied by SE1 on its

generation costs upon the commercial operation of the

solar power plant, taking into consideration the reduced

supply from PSALM and the use of the cheaper solar

power during the peak hours.

The simulation will show that the entry of SE1 will provide

cheaper power to SOCOTECO lover the term of the

PPA.

Rate Impact Computation

Year 1 Year 2 Year 3 Year 4

4.5615

4.5295

0.0320

4.9921 6.1340 8.1330

For purposes of illustration, the expanded table for the

Average Impact on Generation Rate for Years 1 to 4 is

provided below:

8/10/2019 ERC DOCS

11/15


NOTICE OF PUBLIC HEARING/June 9,2014

Page 11 of 15

Average Impact on Generation Rate

(With or without NVOGT)

Year 1

Cost of Average

Power Suppliers Power Kwh Generation

Purchased Rate(PhP)

(PhP/kWh)

NVOGT 85,781,540 8,762,159 IPSALM 521,413,035 177,596,380 ITMI 124,681,705 12,352,157

IMapalad 188,798,652 3,123,174 ITotal 920,674,931 201,833,871 4.5615 IGeneration Rate Without NVOGT 4.5295 IIncrease (Decrease) in Generation

tRate (PhP IkWh) 0.0320

Year 2 .

Cost of Average


Purchased Rate(PhP)

(PhP/kWh)

NVOGT 84,481,377 8,673,653 IPSALM 487,996,066 166,239,194 ITMI 150,310,641 16,135,584

Mapalad 284,782,887 10,785,989 ITotal 1,007,570,971 201,834,421 4.9921 IGeneration Rate Without NVOGT 5.0127 IIncrease (Decrease) in Generation

(0.0206)Rate (PhP IkWh)

8/10/2019 ERC DOCS

12/15



Page 12 of 15

Year 3

Cost of Average


Purchased Rate(PhP)

(PhP/kWh)

NVOGT 83,618,879 8,629,399 1

PSALM 396,064,528 136,399,106 iTMI 204,157,195 24,084,588 IMapalad 549,096,191 31,887,204

ITotal 1,232,936,793 201,000,298 6.1340 IGeneration Rate Without NVOGT 6.1803 IIncrease (Decrease) in Generation

Rate (PhP IkWh) (0.0463)

Year 4

Cost of Average


Purchased Rate(PhP)

(PhP/kWh)

NVOGT 82,760,807 8,585,146

PSALM 257,333,100 87,600,000

TMI 278,369,154 35,040,000

Mapalad 1,002,586,276 68,091,178

Total 1,621,049,338 199,316,324 8.1330

Generation Rate Without NVOGT 8.2099

Increase (Decrease) in Generation(0.0769) _Rate (PhP IkWh)

It will be clearly seen from the foregoing that SE1 will

have a significant effect on the power supplied to

SOCOTECO I during the peak hours when power

demand/consumption is highest through the combination

of providing cheaper rates as compared to the current

diesel power supply and replacing diesel power sources

during the peak hours;

8/10/2019 ERC DOCS

13/15



Page 13 of 15

19. The construction and eventual commissioning of the

power plant depends on several conditions, one of which

is the financial closing with the creditor-bank and other

investors. On the other hand, one of the prerequisites to

the financial closing is a provisional authority from the

Commission to implement the PPA, as amended. In short,

the plant will. only be commissioned if a provisional

authority has been secured;

20. There is already a power shortage being experienced by

SOCOTECO I and that PSALM has stated, through a

letter, that it has insufficient capacity to supply the

former's additional power requirements. Thecommissioning of the solar power plant of SE1 in the first

half of 2014 and the setting of the date of commercial

operations on May 31, 2014 upon agreement by the

parties will immediately alleviate the current state of

affairs of SOCOTECO I's customers as it will help cope

with the worsening power situation in the Mindanao Grid;

21. In support of the instant Application, the applicants

attached the following supporting documents:

Schedule Information provided

Power Purchase Agreement between SOCOTECO I and nv

A Vogt Philippines Solar Energy One, Inc. (SE1) and the

Amendment Agreement between SOCOTECO I and SE1

A.1 Executive Summary/Rate Impact Analvsis

Sources of Funds/Financial Plans;

Debt/Equity Ratio;A.2

Project Cost; and

Computation of Return on InvestmentNVACC

B Constitutive Documents8.1 nv vogt PHILIPPINES SOLAR ENERGY ONE, INC. (SE1)

B.1.a Latest Articles of Incorporation and Bv-Laws

B.1.b Securities and Exchange Commission (SEC) Certificate of

ReQistration and latest Certificate of Amendment

B.2 SOCOTECO-I

B.2.a Certificate of Franchise

8/10/2019 ERC DOCS

14/15



Page 14 of 15

C.

C.1

C.2

C.3

C.4

Other Information

SOCOTECO-I

Distribution Development Plan (2013-2016)

- Customer Load Profile- Demand and Ener Forecast

PSALM Letter to SOCOTECO Idated September 4, 2013

confirmin insufficient ower su I in Mindanao

Rate 1m act

Letter from SE1 to SOCOTECO I dated December 11, 2013

re: adjustment of the milestone schedule of the PPA and the

Secretary's Certificate from SOCOTECO I containing the

Board Resolution approving the extension of the commercial

o eration of the solar ower lant

22. Thus, the Applicants pray that pending hearing on the

merits, the Commission grant the following:

a) A provisional approval of the PPA between them as

well as a provisional authority authorizing SOCOTECO

I to pass on the full amount of the fees and charges I

under the PPA to its consumers;

b) Permanent approval of the PPA, as amended,

between them which would authorize SOCOTECO I tocharge and collect the fees under the PPA as well as

authorize the same to pass on the full amount to its

consumers.

c) Other reliefs and equitable under the premises are

likewise prayed for.

The Commission has set the said application for jurisdictional

hearing, pre-trial conference, expository presentation and evidentiary

hearing on July 1, 2014 (Tuesday) at nine-thirty in the morning

(9:30 A.M.) at 2nd Floor SOCOTECO I Central Office, Barangay

Morales, City of Koronadal, South Cotabato.

All persons who have an interest in the subject matter of the

proceeding may become a party by filing, at least five (5) days prior to

the initial hearing and subject to the requirements in the ERC's Rules

of Practice and Procedure, a verified petition with the Commission

giving the docket number and title of the proceeding and stating: (1)

the petitioner's name and address; (2) the nature of petitioner's I '

interest in the subject matter of the proceeding, and the way and I

manner in which such interest is affected by the issues involved in the

proceeding; and (3) a statement of the relief desired.

8/10/2019 ERC DOCS

15/15

." , . .

..



Page 15 of 15

All other persons who may want their views known to the

Commission with respect to the subject matter of the proceeding may

file their opposition to the application or comment thereon at anystage of the proceeding before the applicants conclude the

presentation of their evidence. No particular form of opposition or

comment is required, but the document, letter or writing should

contain the name and address of such person and a concise

statement of the opposition or comment and the grounds relied upon.

All such persons who may wish to have a copy of the

application may request the applicants, prior to the date of the initial

hearing, that they be furnished with a copy of the application. Theapplicants are hereby directed to furnish all those making a request

with copies of the application and its attachments, subject to

reimbursement of reasonable photocopying costs. Likewise, any

such person may examine the application and other pertinent records

filed with the Commission during the usual office hours.

WITNESS, the Honorable Chairperson, ZENAIDA G. CRUZ-

DUCUT, and the Honorable Commissioners, GLORIA VICTORIA C.

YAP-TARUC, and JOSEFINA PATRICIA A. MAGPALE-ASIRIT,Energy Regulatory Commission, this 9th day of June, 2014 at Pasig

City.

ATT