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ENERGY REGULATORY COMMISSI N rUi",,~t~ .San Miguel Avenue, Pasig City Wif~~;1Ujlt.gcv,ph

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IN THE MATTER OF THEAPPLICATION FOR APPROVALOF THE POWER SALESAGREEMENT (PSA) BETWEENZAMBOANGA DEL SUR IELECTRIC COOPERATIVE, INC.(ZAMSURECO, I) ANDSARANGANI ENERGYCORPORATION (SEC), WITHPRAYER FOR PROVISIONALAUTHORITY

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ERC CASE NO. 2014-177 RC

ZAMBOANGA DEL SUR IELECTRIC COOPERATIVE, INC.(ZAMSURECO I) ANDSARANGANI ENERGYCORPORATION (SEC),

Applicants.)(- - - - - - - - - - - - - - - - - - - - - - - - )(

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NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on December 5, 2014, ZamboangaDel Sur I Electric Cooperative, Inc. (ZAMSURECO I) and SaranganiEnergy Corporation (SEC) filed a joint application for the approval oftheir Power Sales Agreement (PSA), with prayer for provisionalauthority.

In the said application, ZAMSURECq I and SEC alleged,among others, the following:

1. ZAMSURECO I is a non-stock, non-profit electriccooperative organized and existing under Presidential

..ERC CASE NO. 2014-177 RCNOTICE OF PUBLIC HEARING/February 16, 2015 of 27

Decree No. 269, as amended, with office address at Gov.Vicente M. Cerilles St., Pagadian City, Province ofZamboanga Del Sur. It has a franchise to distributeelectricity in the City of Pagadian and in the Municipalitiesof Aurora, Dimataling, Dinas, Don Victoriano, Dumalinao,Dumingag, Guipos, Labangan, Lapuyan, Mahayag,Margosatubig, Midsalip, Molave, Josefina, Pitogo, RamonMagsaysay, San Miguel, San Pablo, Sominot, Tabina,Tambulig, Tukuran, Tigbao and Vicenzo Sagun, all In theProvince of Zamboanga Del Sur.

Copies of its Certificates of Franchise are attached to thejoint application as Annexes "A" and "A-1";

2. SEC is a generation company duly authorized andexisting under and by virtue of the laws of the Re~ublic ofthe Philippines, with principal address at 4t Floor,Alphaland Southgate Tower, 2258 Chino Roces Avenuecorner EDSA, Makati City.

Copies of its Certificate of Incorporation and Certificate ofFiling of Amended Articles of Incorporation with theAmended Articles of Incorporation, By-Laws, latestGeneral Information Sheet (GIS) and latest AuditedFinancial Statements (AFS) are attached to the jointapplication as Annexes "B" and series;

NATURE OF THE APPLICATION

3. Pursuant to Rule 20 (B) of the ERC Rules of Practice andProcedure, approved by the Commission on June 22,2006 in Resolution No. 38, Series of 2006, the instantjoint application is submitted to the Commission for itsreview and approval of their PSA dated March 4, 2013, asmodified by the Supplement to the PSA dated July 18,2014 (collectively referred to as the PSA), amongZAMSURECO I, SEC and San Ramon Power, Inc.(SRPI);

Copies of the said agreements are attached to the jointapplication as Annex "C" and "C-1", respectively;

ERC CASE NO. 2014-177 RCNOTICE OF PUBLIC HEARING/February 16, 2015 of 27

COMPLIANCE WITH PRE-FILING REQUIREMENTS

4. In compliance with Rule 6 of the ERC Rules of Practiceand Procedure, they have furnished the legislative bodiesof each of the Local Government Units (LGUs) wherethey principally operate a copy of the joint application withall its annexes and accompanying documents.

The corresponding proofs of receipt are attached to thejoint application as Annexes "0" and series;

5. They have caused the publication of the joint applicationin its entirety, excluding its annexes, in a newspaper ofgeneral circulation within ZAMSURECO I's franchisearea.

Copies of the newspaper and the corresponding Affidavitof Publication are attached to the joint application asAnnexes "E" and "E-1," respectively;

STATEMENT OF FACTS

6. Shortage of Power Supply in the Mindanao Grid. TheMindanao Grid has long been suffering from a deficit in itspower supply. The generating capacity in the grid is nolonger sufficient to meet the power requirements ofMindanao;

7. As a result, Mindanao, including the franchise area ofZAMSURECO I, has suffered from significant poweroutages, adversely affecting local businesses and thedaily lives of all electricity consumers. The lack ofsufficient and reliable power supply has long been abarrier to much needed capital investment that would spurthe local economy, not only in the franchise area ofZAMSURECO I but in greater Mindanao as well;

8. Drastic Reduction in the Power Sector Assets andLiabilities Management Corporation's (PSALM)Supply. The main power supplier in Mindanaosignificantly reduced its allocations to distribution utilities,further aggravating the power shortage.

ERC CASE NO. 2014-177 RCNOTICE OF PUBLIC HEARING/February 16,2015 of 27

8.1 PSALM, which took over all the power generationassets of the National Power Corporation (NPC)pursuant to Republic Act No. 9136, otherwiseknown as the "Electric Power Industry Reform Act of2001" (EPIRA), supplies the bulk of the powerrequirements of Mindanao. PSALM, likewise,supplies majority of ZAMSURECO I's current powersupply;

8.2 Recently, PSALM reduced its firm supplycommitments to distribution utilities in ,Mindanao,including ZAMSURECO I, by about one-third (1/3).This has resulted in further widespread powershortages; and

8.3 In March 2014, ZAMSURECO I's power allocationwas significantly reduced by PSALM I resulting indaily rotating brownouts lasting six (6) to eight (8)hours;

8.4 PSALM Certification. PSALM has certified that ithas insufficient capacity to supply ZAMSURECO I'sadditional power requirements beyond thecontracted energy and equivalent demand of itsexisting Contract for the Supply of Electric Energy(CSEE).

A copy of the relevant certification is attached to thejoint application as Annex "F";

9. Necessity for Long-term Power Supply. In order toensure sufficient power supply to its customers, the powerrequirements within ZAMSURECO I's franchise areashould be adequately covered by supply contracts;

10. In addition to the expected reduction in supply fromPSALM, the power demand in ZAMSURECO I's franchisearea is expected to steadily increase at an annualaverage growth rate of 7.75%.


Copies of ZAMSURECO I's Supply-Demand Scenarioand Distribution Development Plan (DDP) showing itsload forecast projections are attached to the jointapplication as Annexes "G" and "H", respectively;

11. Hence, there is a need for ZAMSURECO I to procuresufficient long-term power supply so that the long-termpower requirements of its customers are adequatelyaddressed;

12. Thus, ZAMSURECO I exerted efforts to procure powersupply contracts with generation companies. It receivedoffers from various power suppliers and evaluated theirproposals;

13. ZAMSURECO I's Power Suppliers. Besides PSALM,ZAMSURECO I has entered into contracts for the supplyof power with other generation companies. A summaryshowing its power providers, with their correspondingcontracted capacities and terms of supply, is shown in thetable below:

NatureSupplier Contracted of Effectivity Expiration

Capacity Supply(MW)

PSALM 12.67 Baseload 2012 2016Therma Marine,Inc. (TMI) 5 Peak 2012 2014Mapalad PowerCorp. (MPC) 5 Peak 2013 2016GN Power Ltd. 24.24 Baseload 2018 2038King Energy 5 Peaking 2014 2024Therma South,Inc. (TSI) 5 Baseload 2014 2039

14. Procurement Process for Supply. Seeing the need foradditional long-term supply for the coming years,ZAMSURECO I entered into a PSA with SRPI, an affiliateof SEC, for the supply of power;


15. Subsequently, it was determined that the supply of powerwould be more expeditious if it was sourced from thesecond unit of SEC's power station in Maasim,Sarangani;

16. Among the factors considered by ZAMSURECO I inselecting SEC as a supplier are: (a) the competitivenessof the rate offered by SEC; (b) timeliness of theavailability of supply; and (c) reliability and cleantechnology used in SEC's power supply.

An affidavit supporting the foregoing is attached to thejoint application as Annex "I";

17. Hence, SRPI, SEC and ZAMSURECO I executed aSupplement to the PSA on July 18, 2014 wherein SRPIassigned, and SEC acceded, to the rights, obligations andinterests of SRPI under the said agreement;

18. Under the law, no contract for the supply of power canbecome legally effective unless approved by theCommission. Hence, the instant joint application;

ABSTRACT OF THE POWER SALES AGREEMENTAND RELATED INFORMATION

19. The Generation Facilities. To supply power under thePSA, SEC shall construct, own, operate, manage andmaintain a 2x120 MW Circulating Fluidized BedCombustion Boiler Coal-Fired Power Plant in theMunicipality of Maasim, Sarangani (SEC Power Station);

19.1 The SEC Power Station is being implemented intwo (2) phases, each for one (1) unit with a netgenerating capacity of 105 MW. The power to besupplied under the subject PSA shall be sourcedfrom the second phase of the SEC Power Station(SEC Phase II Plant).

A copy of the Certification on the Plant's Heat Rateis attached to the joint application as Annex "J"; and


19.2 Scheduled Commercial Operations. The SECPhase II Plant is scheduled to commencecommercial operations within thirty-six (36) monthsfrom the effectiveness of the PSA, as discussedbelow, or such later date as may be agreed by theParties;

20. Salient Features of the PSA:

20.1 Contracted Capacity. Under the PSA, SEC shallsupply or cause to supply to ZAMSURECO I thelatter's base load electric power requirements of five.(5) MW and the Dispatchable Energy as indicated inand subject to the terms and conditions of the PSA;

20.2 Term. The term of supply and purchase under thePSA shall be for twenty-five (25) years commencingon the date the SEC Phase II Plant is ready tocommence commercial operations; and

20.3 Effectiveness. The Parties' obligations under thePSA shall become effective upon, among otherconditions, the Commission's approval of the PSAand the pricing structure therein, and the attainmentor waiver of financial close for the project;

21. Stages of Supply. SEC shall supply power toZAMSURECO I during the commissioning of the SECPhase II Plant and thereafter, during the full commercialoperations of the Plant. As discussed below,ZAMSURECO I shall pay a lower rate duringcommissioning;

22. Tariff Lower than Appropriate Tariff. SEC understandsthat it may be allowed to charge an appropriate tariff thatwill enable it to recover allowable costs to build andoperate the SEC Phase II Plant at an approved rate ofreturn consistent with recent rulings of the Commission;

23. However, due to the request of its customers for lowerrates and for parity of pricing for its customers, SEC


agreed to a tariff that is lower, than the tariff that it wouldhave been allowed to charge;

24. A comparison between the tariff in the subject PSA andthe appropriate tariff is summarized in the table below.The difference represents a reduction in revenue, whichSEC has agreed to absorb for the benefit of itscustomers:

PSA Tariff Appropriate DifferenceTariff

Particulars Foreign Local Foreign Local Foreign Local(USD) (PhP) (USD) (PhP) (USD) (PhP)

CRF (kW/mo)Year 1 20.32 427.32 23.57 495.69 3.25 68.37Year 2 23.33 490.56 27.06 569.05 3.73 78.49Year 3 28.69 490.56 33.28 569.05 4.59 78.49Year 4 andonwards 28.69 603.37 33.28 699.91 4.59 96.54FOMF(PhP/kW/mo) 333.23 333.23 -VOMF(PhP/kWh) 0.3170 0.3170 -Fuel Cost Pass-through Pass-through -

A detailed explanation of the comparison is attached tothe joint application as Annex uK";

25. In view of the foregoing, SEC submits that the evaluationof the present application should be based on theappropriate tariff, and not on the tariff in the PSA;

26. Purchased Power Rate. The rates to be paid byZAMSURECO I to SEC depend on whether the power isdelivered during commissioning or during commercialoperations of the SEC Phase II Plant. These rates andtheir corresponding adjustments are reflected in theformulas below:


1. Monthly Payments

The Monthly Payments shall be paid to the Seller on a monthlybasis in accordance with the following formula:

Monthly Payme.nts = CRE +FOME +VOME + AEC + SC+RCEC + BCEC + Taxes

Where:

CRF = Capital Recovery Fees

FOMF = Fixed Operation and Maintenance Fee

VOMF = Variable Operation and Maintenance Fee

AFC = Actual Fuel Cost

SC = Start-up Costs

RCEC = Replacement Capacity and Energy Costs

BCEC = Backup Capacity and Energy Costs

Taxes = Value-Added Tax, other applicable taxes andGovernment impositions, if any

1.1 CRF

The CRF shall be computed as follows:

1.1.1 During the First Contract Year:

Where:

= Capital Recovery Fee for the FirstContract Year


FCRF1

CCF

Where:

ED

TMED

F

=

=

=

=

=

=

=

$20.32 per kW per month which shall beconverted to Philippine Pesos on theCommercial Operation Date at theweighted average US Dollar toPhilippine Peso exchange rate providedin Schedule I (Power Plant ForeignCapital Recovery Fee Conversion)

PhP427.32 per kWper month

Contracted Capacity

EDTMED

Electricity delivered during the billingperiod in kWh

Theoretical Maximum Energy Deliveredbeing the Contracted Capacity multipliedby the hours in the relevant month, lessany adjustments made for AllowedOutage, limitation due to dispatch order,Force Majeure of SEC Power Plant, andallowable start-up time due to period ofnon-generation due to a Buyer dispatchorder or an Allowed Outage, and anyother hours as a consequence ofBuyer's failure to perform any of itsobligations

1 if the foregoing formula results in Fbeing greater than 1

1.1.2 During the Second Contract Year


Where:

CC

F

Where:

ED

TMED

F

=

=

=

=

=

=

=

=

Capital Recovery Fee for the SecondContract Year

$23.33 per kW per month which shall beconverted to Philippine Pesos on theCommercial Operation Date at theweighted average US Dollar toPhilippine Peso exchange rate providedin Schedule I (Power Plant ForeignCapital Recovery Fee Conversion)

PhP490.56 per kW per month

Contracted Capacity

EDTMED




1.1.3 During the Third Contract Year

. CRFa = (FCRFa +DCRFa) x CC x F


Where:

CC

F

Where:

ED

TMED

F

=

=

=

=

=

=

=

=

Capital Recovery Fee for the thirdContract Year

$28.69 per kW per month which shall beconverted to Philippine Pesos on theCommercial Operation Date at theweighted average US Dollar toPhilippine Peso exchange rate providedin Schedule (Power Plant ForeignCapital Recovery Fee Conversion)


Contracted Capacity

ED

TMED



1if the foregoing formula results in Fbeing greater than 1

ERC CASE NO. 2014-177RCNOTICE OF PUBLIC HEARING/February 16, 2015 of 27

1.1.4 From the Fourth Contract Year up to the End of the Term

CRF = (FeRF + DCRF) X CCXF

Where:

CRF

FCRF

DCRF

CCF

Where:

ED

TMED

F

=

=

==

=

=

=

=

Capital Recovery Fee for the FourthContract Year up to the end of the Term

$28.69 per kW per month which shall beconverted to Philippine Pesos onCommercial Operation Date at theweighted average US Dollar toPhilippine Peso exchange rate providedin Schedule I (Power Plant ForeignCapital Recovery Fee Conversion)


Contracted Capacity

ED

TMED




ERC CASE NO. 2014-177 RCNOTICE OF PUBLIC HEARING/February 16,2015 of 27

1.2 Fixed Operation and Maintenance Fee

The Fixed Operation and Maintenance (O&M) Fee covers theoperating and maintenance costs of the SEC Power Plant. It shall becomputed according to the following formula:

. {.[(. . FCP.) FX]I [ LCP. ]}FOMF= OMR x ••0.44.x -. _R x~: + 0.56 x _ .._n .. X CC .x F. FC~o Fxo I LCPo

Where:

FOMF = Fixed Operation and Maintenance Feein Philippine Pesos

OMR = PhP333.23 per kW per month

CC = Contracted Capacity

l!.D

F = TMED

Where:

ED = Electricity delivered during thebilling period in kWh

TMED = Theoretical Maximum EnergyDelivered being the ContractedCapacity multiplied by the hours inthe relevant month, less anyadjustments made for AllowedOutage, limitation due to dispatchorder, Force Majeure of SECPower Plant, and allowable start- .up time due to period of non-generation due to a Buyerdispatch order or an AllowedOutage, and any other hours as aconsequence of Buyer's failure toperform any of its obligations


FCPn

FCPo

LCPn

LCPo

F = 1 if the foregoing formula results inF being greater than 1

= The arithmetic average of the values ofthe United States Consumer Price Indexfor all Items, as last published on orbefore the last day of such billing monthby the International Monetary Fund;provided that if the InternationalMonetary Fund ceases to publish suchindices, the relevant indices aspublished by the U.S. Department ofLabor Bureau of Labor Statistics shallapply.

= The arithmetic average of the values asof May 31, 2011 of the United StatesConsumer Price Index for all Items; aspublished by the International MonetaryFund, provided that if the InternationalMonetary Fund ceases to publish suchindices, the relevant indices aspublished by the U.S. Department ofLabor Bureau of Labor Statistics shallapply.

= The arithmetic average of the values ofthe Consumer Price Index in thePhilippines for all items and GeneralWholesale Price Index in Metro Manilafor mineral fuels, lubricants and relatedmaterials, both as last published on orbefore the last day of such Billing Monthby the National Statistics Office.

= The arithmetic average of the values asof May 31, 2011 of the Consumer PriceIndex in the Philippines for all items andGeneral Wholesale Price Index in MetroManila for mineral fuels, lubricants andrelated materials, both as published bythe National Statistics Office.

= Actual Philippine Peso to' US Dollarexchange rate on the meter reading


date as published by the Bangko Sentralng Pilipinas, www.bsp.gov.ph

Fxo = Actual Philippine Peso to US Dollarexchange rate on May 31, 2011 aspublished by the Bangko Sentral ngPilipinas, www.bsp.gov.ph.

1.3 Variable Operation and Maintenance Fee

The Variable Operation and Maintenance (O&M) Fee coversthe cost of the use of, among other items, chemicals, lubricants,spare parts, that are directly related to the generation of the SECPower Plant. It shall be computed according to the following formula:

VOMF :::VOMRX[ ..(035xP.-T!:n. ).xExn]+(O.65X L.CPn). }XED. PPPo Fxo LCl'o

Where:

VOMF

VOMR

ED

PPPn

PPPo

= Variable Operation and Maintenance Fee inPesos

= PhPO.3170 per kWh

= Electricity delivered during the billing period inkWh

= The arithmetic average of the values of theUnited States Producers' Price Index forindustrial goods; as last published on orbefore the last day of such billing month bythe International Monetary Fund; provided thatif the International Monetary Fund ceases topublish such indices, the relevant indices aspublished by the U.S. Department of LaborBurea.u of Labor Statistics shall apply.

= The arithmetic average of the values as ofMay 31, 2011 of the United States Producers'Price Index for industrial goods; as publishedby the International Monetary Fund, provided

http://www.bsp.gov.ph

http://www.bsp.gov.ph.


that if the International Monetary Fund ceasesto publish such indices, the relevant indices aspublished by the U.S. Department of LaborBureau of Labor Statistics shall apply.

LCP n = The arithmetic average of the values of theConsumer Price Index in the Philippines for allitems and General Wholesale Price Index inMetro Manila for mineral fuels, lubricants andrelated materials, both as last published on orbefore the last day of such Billing Month bythe National Statistics Office.

LCPo = The arithmetic average of the values as ofMay 31, 2011 of the Consumer Price Index inthe Philippines for all items and GeneralWholesale Price Index in Metro Manila formineral fuels, lubricants and related materials,both as published by the National StatisticsOffice.

FXn = Actual Philippine Peso to US Dollar exchangerate on the meter reading date as publishedby the Bangko Sentral ng Pilipinas,www.bsp.gov.ph.

Fxo = Actual Philippine Peso to US Dollar exchangerate on May 31, 2011 as published by theBangko Sentral ng Pilipinas, www.bsp.gov.ph.

1.4 Actual Fuel Cost

The Actual Fuel Cost is the fee paid to the Seller as paymentfor the procurement and delivery of the coal used in the operation ofthe SEC Power Plant. The Actual Fuel Cost shall be computed asfollows:

(FOB Coal Price +TC + Other Cha7'0es)

Actual Fuel Cost = .• 1,OOOkg ..• x Consumption Rate X Forexx EDton




Where:

FOB Coal Price =

Where:

Calorific Valllo,FOR BascPrire x ----- x FGCN Calorific Value

FOB Base Price = The price expressed in US Dollarsapplicable for all Shipments forwhich the Bill of Lading Date fallswithin the period from andincluding the date of thisAgreement until and including thelast day of the Quarter in whichthe date of this Agreement occurs(the "FOB Base 'Price"), shall beequal to the globalCOALNewcastle Index (which is the coalprice per ton, FOB Newcastle,stated in USD, as published byglobalCOAL onwww.globalcoal.com under theheading "Weekly Index; NEWCIndex" (or under such otherreplacement heading under whichsuch prices are published byglobalCOAL) with calorific valuebasis of 6,000 kcallkg net asreceived) for the weekimmediately preceding the week inwhich the date of signing of thisAgreement occurs. The FOB BasePrice shall be reset every Quarterfollowing the Quarter in which thedate of this Agreement occurs,and such FOB Base Priceapplicable for all Shipments forwhich the BtL Date falls within andincluding the first day and the lastday of such Quarter shall be equalto the arithmetic average of theglobalCOAL Newcastle Index for,the immediately precedingQuarter.

http://www.globalcoal.com

ERC CASE NO. 2014-177 RCNOTICE OF PUBLICHEARING/February 16, 2015 of 27

Calorific Valuen = Average calorific value of the coalused in the billing period

F

TC

=

=

Discount or premium applied tothe coal used during the billingperiod

Actual transport cost, includingtransshipment cost of the coalused during the billing period inUSD per metric ton

Other Charges = Actual insurance cost and portcharges (all charges incurred by avessel at a loading port anddischarge port including towage,pilotage, light dues, moor orunmoor, berthing and deberthing,assist tugs, wharfage, tonnagedues and sundries, includingagent's fees, communicationscharges and other miscellaneousexpenses customarily regarded asport charges) and applicablecustoms duties and import taxesof the coal used during the billingperiod

ConsumptionRate

Forex

ED

=

=

=

0.7kg/kWh, escalated at 0.50/0annually

Actual Philippine Peso to USDollar exchange rate on the datethe Seller makes payment to thefuel supplier

Electricity delivered during thebilling period in kWh

Note: In the event that the Seller procures coal from multiplesuppliers, the weighted average of the relevant values above shall beused.


1.5 Start-Up Costs

The Buyer shall pay the Seller Start-Up Costs for the cost ofstarting up the SEC Power Plant after a period of shutdown due toany reason attributable to the Buyer. The Start-Up Costs shall bepaid in accordance with the following schedule:

Cost per EventPhP

4,209,906.002,872,221.001,227,515.00

1.6 Replacement Capacity and Energy Cost

The Buyer shall pay the Seller Replacement Capacity andEnergy Cost in accordance with the invoice provided by the supplierof Replacement Capacity and Energy.

1.7 Backup Capacity and Energy Cost

The Buyer shall pay the Seller Backup Capacity and EnergyCost equivalent to the Monthly Payment had there been no ForcedOutage.

2. Commissioning Output Charge

The Buyer shall pay the Seller the Commissioning OutputCharge for electricity supplied prior to the Commercial OperationDate. The Commissioning Output Charge shall be computed asfollows:

coe = FOMF + VOMF + ACF + Taxes

ERC CASE NO. 2014-177RCNOTICE OF PUBLIC HEARING/February 16, 2015 of 27

Where:

COC

FOMF

VOMF

ACF

=

=

=

=

Commissioning Output Charge

Fixed Operation and Maintenance Feecomputed in accordance with Item 1.2 of thisSchedule 8

Variable Operation and Maintenance Feecomputed in accordance with Item 1.3 of thisSchedule 8

Actual Cost of Fuel computed in accordancewith Item 1.4 of this Schedule 8

For reference, a sample computation of the generationrate is contained in Schedule C of the PSA.

26.1 Basis for Indexation. As indicated in the formulaeabove, the monthly fees to be paid byZAMSURECO I are subject to adjustments basedon various indices or factors;

26.2 The Foreign CRF component is fixed and is subjectonly to a one-time conversion to Philippine Pesoson Commercial Operation Date at the weightedaverage exchange rate as computed in accordancewith the PSA. This will ensure that ZAMSURECO Idoes not carry a long-term foreign exchangeexposure on the CRF component; and

26.3 The components of the O&M Fees representingdollar-denominated costs are adjusted based on theforeign exchange rate and the US Consumer Priceand Producer Price indices. Those representinglocal costs are adjusted based on the localConsumer Price Index. The Actual Fuel Costs varybased on actual costs as well as the foreignexchange rate and on the Global Coal Newcastleindex;


27. Sources of Funds/Financial Plans. The project will befinanced through loans and equity, with an indicativedebt-equity ratio of 70:30.

27.1 Project Cost. The total estimated project cost forthe SEC Phase II Plant is US$ 303.8 Million.

A breakdown of the project cost, including the costof interconnection facilities, is attached to the jointapplication as Annex "l";

27.2 Annual Interest. SEC is currently discussing withprospective lenders the terms and conditions of theproject financing; and

27.3 Computation of Weighted Average Cost ofCapital (WACC).. Consistent with previous rulingsof the Commission, the nominal pre-tax WACC is13.590/0.

A computation of the WACC is shown in Annex "M"of the joint application;

28. Cash Flow.

28.1 Breakdown of Operating and MaintenanceExpenses. A breakdown of the operating expenseswhich form the basis of the tariff is attached to thejoint application as Annex "N";

28.2 Offtake Arrangement. Under the PSA, SEC shallmake available, reserve, guarantee, and deliver toZAMSURECO I the Contracted Capacity, andZAMSURECO I shall pay for such quantity ofelectric power. SEC shall utilize such ContractedCapacity to generate energy for ZAMSURECO I;and

28.3 There is no minimum energy offtake under the PSA.As SEC will dedicate capacity to ZAMSURECO I,the Capital Recovery and the Fixed Operations and


Maintenance Fees are computed based thecontracted capacity, and on the proportion of actual. energy delivered to the energy that could have beendelivered;

29. Prompt Payment Discount (PPD). ZAMSURECO I shallbe entitled to discount of 1.5% of the amount paid for theCRF in case of prompt payment;

30. Fuel Procurement. An international public tender wasconducted for the purpose of procuring fuel for the SECPhase II Plant. The conduct of the tender and the fuelprocurement process is summarized in Annex uO" of thejoint application;

31. The conduct of an international public tender assuresZAMSURECO I of the best available cost of fuel supply.It must be stressed that SEC derives no revenuewhatsoever from the fuel supply;

32. Environmental Compliance Certificate (ECC). TheDepartment of Environment and Natural Resources(DENR) has issued ECC Ref. No. 0901-001-4021 for theSEC Power Station.

A copy of the said ECC is attached to the joint applicationas An nex uP'" ,

33. DOE Certification. On February 25, 2014, the DOEissued Certificate of Endorsement No. 2014-02-004,certifying that the SEC Phase II Plant is consistent withthe Power Development Plan (PDP) of the Government.

A copy of the said certificate is attached to the jointapplication as Annex uQ";

34. Certificate of Compliance (COC). As the SEC Phase IIPlant is still to be constructed, it is not yet covered by aCOCo In accordance with ERC Resolution NO.9, Seriesof 2010, SEC shall file the necessary application for aCOC no later than three (3) months before thecommencement of commercial operations;


RATE IMPLICATIONS OF THEPOWER SALES AGREEMENT

35. In order to determine the impact of the implementation ofthe PSA on ZAMSURECO I's generation costs, ananalysis was conducted taking into consideration itsforecast power requirements and the expected supplyfrom its contracted suppliers;

36. The analysis covers the years 2016 to 2019 andconsiders two scenarios: one without supply from SECand another with SEC supply. It is assumed thatZAMSURECO I's kWh requirements are fully met by itssuppliers. It is also assumed that supply from SEC andTSI will commence in 2016 while the supply fromGNPower, Ltd. will commence in 2018;

37. The analysis also assumes that no adjustment ofgeneration costs due to changes in fuel costs and invarious indices, such as the foreign exchange rate andthe Consumer Price Index (CPI), as these are notpossible to predict.

A copy of the said analysis IS attached to the jointapplication as Annex uR";

38. The results of the said analysis are summarized in thetable below:

Year

Without SECWith SECRate 1m act

2016

4.43124.4312(0.0081

Blended Generation Cost2017 2018

PhP/kWh5.1637 5.48154.7642 5.1137(0.3995 (0.3678

2019

39. The supply from SEC under the OSA will not only provideadditional stable and reliable baseload power supply butwill also serve to reduce the power costs ofZAMSURECO I, to the benefit of its customers;


ALLEGATIONS IN SUPPORT OFTHE MOTION FOR PROVISIONAL AUTHORITY

40. The demand for power supply in ZAMSURECO I'sfranchise area is steadily increasing. Furthermore,NPC/PSALM, the supplier of the bulk of ZAMSURECO I'srequirements, has significantly reduced its supplycommitments to ZAMSURECO I by about one-third;

41. ZAMSURECO I's forecasted demand is expected toincrease steadily in the coming years;

42. Moreover, PSALM, which supplies the majority ofZAMSURECO l's current power requirements, hasrecently reduced its firm supply commitments toZAMSURECO I by about one-third (1/3). This hasrendered the overall power supply of ZAMSURECO Iinadequate, resulting in power outages;

43. ZAMSURECO I can no longer source additional powerfrom PSALM since the latter is mandated by law toprivatize its generation facilities and is also prohibitedfrom investing in new generation capacity;

44. Hence, the greater need for ZAMSURECO I to secureadditional long-term power supply. Otherwise, it will nothave sufficient power supply to the detriment of theresidents and enterprises in its franchise area;

45. Thus, it is imperative that ZAMSURECO I contracts foradditional power in order to adequately address its long-term power requirements. The additional power supplyshould also be made available in a timely manner;

46. The provisional approval of the instant application isnecessary for SEC to secure, in a timely manner, thenecessary financing needed for the SEC Phase IIPlant. The project of developing, constructing andoperating the Plant is capital-intensive. Consequently,obtaining financing in a timely manner is critical tocomplete the Plant;


47. Thus, the issuance of a provisional approval will enableSEC to complete the project and consequently,. providethe power needed by ZAMSURECO I under the PSA in atimely manner;

48. They move for the provisional approval of the instant jointapplication pursuant to Rule 14 of the ERC Rules ofPractice and Procedure.

Copies of the Sworn Statements supporting the saidmotion are attached to the joint application as Annexes"S" and "T'",

49. They pray that the Commission:

a. Immediately issue an Order provisionally approvingthe PSA and the Supplement to the PSA, subject ofthe instant joint application as well as the generationrate and adjustment mechanisms indicated therein;and

b. After due hearing, render judgment making suchprovisional approval permanent.

The Commission has set the said joint application forjurisdictional hearing, expository presentation, pre-trial conferenceand evidentiary hearing on March 10, 2015 (Tuesday) at two 0'clock in the afternoon (2:00 P.M.) at ZAMSURECO I's MainOffice, Gov. Vicente M. Cerilles St., Pagadian City, ZamboangaDel Sur.

All persons who have an interest in the subject matter of theproceeding may become a party by filing, at least five (5) days prior tothe initial hearing and subject to the requirements in the ERC's Rulesof Practice and Procedure, a verified petition with the Commissiongiving the docket number and the 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 joint application or comment thereon at anystage of the proceeding before the applicants conclude thepresentation of their evidence. No particular form of opposition orcomment is required, but the document, letter or writing shouldcontain the name and address of such person and a concisestatement of the opposition or comment and the grounds relied upon.

All such persons who may wish to have a copy of the jointapplication may request the applicants, prior to the date of the initialhearing, that they be furnished with a copy of the joint application.The applicants are hereby directed to furnish all those making suchrequest with copies of the joint application and its attachments,subject to reimbursement of reasonable photocopying costs.Likewise, any such person may examine the joint application andother pertinent records filed with the Commission during the usualoffice hours.

WITNESS, the Honorable Chairperson, ZENAIDA G. CRUZ-DUCUT, and the Honorable Commissioners, ALFREDO J. NON,GLORIA VICTORIA C. YAP-TARUC, and JOSEFINA PATRICIA A.MAGPALE-ASIRIT, Energy Regulatory Commission, this 16th dayof February, 2015 at Pasig City.

ATTY. FRA ~ SATURNINO C. JUANecutive Director III

p~~f?~.,:~~ energy regulatory commissi n erc case no. 2014-177 rc.… · erccase no.2014-177 rc...

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