in the matter of the application for the approval of …

IN THE MATTER OF THEAPPLICATION FOR THEAPPROVAL OF THE POWERSUPPLY AGREEMENTBETWEEN CAGAYAN IELECTRIC COOPERATIVE,INC. (CAGELCO I) ANDANDA POWERCORPORATION (ANDA)

ERC CASE NO. 2015-182 RC

CAGAYAN I ELECTRICCOOPERATIVE, INC.(CAGELCO I) AND ANDAPOWER CORPORATION(ANDA),

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

DOCKETEJ.). AfZ:R 1 2016Date. _.. _"_"'_

By:- ....._ ...•... _ .. _

ORDER

On 26 October 2015, Cagayan I Electric Cooperative (CAGELCOI) and Anda Power Corporation (Anda) filed an Application for theapproval of their Power Supply Agreement (PSA).

In the said Application, CAGELCO I and Anda alleged, amongothers the following:

1.

2.

CAGELCO I is an electric cooperative duly organized andexisting under the laws of the Republic of the Philippines,with principal office address at Maddarulug, Solana,Cagayan. It was granted an exclusive franchise to operate,construct and maintain an electric distribution system inthe City of Tuguegarao and the Municipalities of Alcala,Amulung,Baggao, Emile, Iguig, Penablanca, Piat, Rizal,Sto. Nino, Solana, and Tuao, all in the Province ofCagayan (Franchise Area).

Anda is a power generation company duly organi~:~ /unde, the laws of ,he Republicof the Philipp"'cs, wi7(

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ERCCASE NO. 2015-182 RCORDER/21 March 2016 of 14

principal office address at TECO Special Economic Zone,Barangay Bundagul, Mabalacat, Pampanga. Copies ofAnda's Certificate of Incorporation, Articles ofIncorporation, and latest General Information Sheet wereattached to the Application as Annexes "A", "B", and "C",respectively.

3. The Parties may be served with orders and otherprocesses through their respective counsels.

4. The Application was filed pursuant to Rule 20(B) of theERC Rules of Practice and Procedure (ERC Rules). Acopy of the PSAwas attached to the Application as Annex"D" .

5. In compliance with Rule 6 of the ERC Rules, Applicantshave furnished the legislative bodies of each localgovernment unit, where they principally operate, a copy ofthe Application with all its annexes and accompanyingdocuments. Proofs of receipt by the legislative bodies ofthe Municipality of Mabalacat, Municipality of Solana, theProvinces of Cagayan, and Pampanga were attached asAnnexes "E", "E-l", "E-2", and "E-3", respectively.

6. Applicants have caused the publication of the presentApplication in its entirety in a newspaper of generalcirculation within CAGELCOI's franchise area. Copies ofthe newspaper and corresponding affidavit of publicationwere attached to the Application as Annexes "F" and "G",respectively.

7. CAGELCO I currently sources its power supply fromGNPower Limited Company under a PSA previouslyapproved by the Energy Regulatory Commission (ERC).The remainder of its power requirement is sourced fromthe Wholesale Electricity Spot Market (WESM).

8. CAGELCOI experienced continuous load growth in recentyears, while its baseload supply with GNPower has notincreased. These factors caused CAGELCOI to procuremore of its power supply requirements from the volatileWESM.

9. To mitigate its WESM exposure and the price volatilitythat comes with it, CAGELCOI prepared a Requests ForProposal (RFP) addressed to various power suppliers. TaI)

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ERC CASE NO. 2015-182 RCORDER/21 March 2016 of 14

RFP is for the supply of lOMW of either baseload poweror peakload power from an existing power generationcompany for a period of at least 5 years. CAGELCOI wasto select a power supplier under a least cost approach,with terms most advantageous to the cooperative.

10. On 21 July 2015, CAGELCOI sent RFPs to the followingcompanies: FDC Utilities, Inc., Anda Power Corporation,AES Philippines, Inc., and SEM-Calaca Power Corp.Copies of the RFPs sent to the said power generationcompanies were attached to the Application as Annexes"H" to "H -3".

11. Of the four potential. suppliers invited to submitproposals, only Applicant Anda responded. A copy ofAnda's proposal dated 05 August 2015 was attached to theApplication as Annex "I".

12. CAGELCO I's Technical Working Group (CAGELCO ITWG) conducted a rigorous evaluation and deliberation ofAnda's proposal to ensure that any procurement of powersupply will be beneficial to its consumers.

13. CAGELCOI TWGfaVorablyrecommended to the Board ofDirectors the approval of Anda's proposal, subject torevisions of certain terms to be agreed upon by theparties. On 11 September 2015, the Board of Directorsapproved Anda's proposal and authorized the execution ofthe PSA.A copy of the Board Resolution was attached tothe Application as Annex "J".

14. After further negotiations, Applicants entered into a PSAon 22 October 2015 whereby Applicant Anda will supplyto Applicant CAGELCO1 12.5 MW of power for ten (10)years.

15. The contracted capacity was based on the projectedincrease in demand and the corresponding supplyscenario for CAGELCOI, as indicated in the DistributionDevelopment Plan (DDP) and Average Daily LoadProfile/Demand-Supply Profile (Historical andProjected). Copies of these documents were attached tothe Application as Annexes "K"and "L", respectively.

16. Salient Features of the PSA - The PSA is a takepay contract where Anda will supply electricity

or

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ERC CASE NO. 2015-182 RCORDER/21 March 2016Page40f14

CAGELCOI at a 12.5MWcontract capacity from the initialDelivery Date up to ten (10) years. The PSA contains aminimum hourly off-take for any 24-hour periodequivalent to or greater than 20% of the contractedcapacity.

17. Allowable Downtime - Anda's allowed downtime doesnot exceed its Maintenance Allowance. Beyond thedowntime allowance, Anda has the obligation to sourcereplacement power to fulfill the Minimum ContractedEnergy. The resulting increase in cost, if any, shall be forAnda's account.

Maintenance Allowance (kWh) = Contracted Capacity(kW) x 40 days x 24 hours

18. The Generation Facility - Anda constructed a coal-fired power plant located at TECO Special EconomicZone, Barangay Bundagul, Mabalacat, Pampanga. It is aone (1) unit generating facility that has an installedcapacity of 82 MW and a dependable capacity of 72 MW.It is projected to have a plant efficiency rate of 89% andan annual capacity of 561,600,000 kWh.

a) The 82 MW coal-fired power plant was previouslyowned by Asia Pacific Energy Corporation (AsiaPacific) to which an Environmental ComplianceCertificate (ECC) was initially issued by theDepartment of Environment and Natural Resources(DENR). The ECCwas subsequently transferred toAnda based on the confirmation letter issued by theDENR dated 18 February 2014. Copies of the ECCissued to Asia Pacific and the Confirmation ofTransfer to Anda were attached to the Applicationas Annexes "M" and "M-l", respectively.

b) Anda was also issued a Certificate of Registration bythe Philippine Economic Zone Authority (PEZA) asan Ecozone Utilities Enterprise. Copy of theCertificate from PEZA was attached to theApplication as Annex "N".

c) Anda also filed an Application for the issuance of aCertificate of Compliance (COC)with ERC. It is alsoin the process of securing a Transmission ServiceAgreement (TSA), Metering Service Agreeme~

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ERC CASE NO. 2015-182 RCORDER/21 March 2016Pages of 14

(MSA), and Connection Agreement (CA), ascertified by the National Grid Corporation of thePhilippines (NGCP). Copies of the Application forCOC and the NGCP Certification were attached tothe Application as Annexes "0" and "P",respectively.

d) The Department of Energy (DOE) also issued aCertificate of Endorsement, which was attached tothe Application as Annex "Q". The Certificate statedamong others, that:

xxx the 82 MW Circulating FluidizedBed Coal Fired Power Plant to be locatedin Mabalacat, Pampanga, owned andoperated by the Anda PowerCorporation is consistent with the PowerDevelopment Plan (PDP) of thegovernment. xxx

e) To be able to dispatch the power it will generate,Anda filed before the ERC an Application for anauthority to develop, own, operate, and maintain alimited point-to-point transmission line to connectits 82 MW Circulating Fluidized Bed Coal PowerPlant to the NGCP's grid, docketed as ERCCase No.2015-061 MC.

19. Basic Energy Charge (BEC)for the 82MW Coal-Fired Power Plant - The Computation of the BEC,which was attached to the PSAas Annex "D", is as follows:

ENERGYFEEANDADJUSTMENTS

Energy Fee = [CRF + Fixed O&M + Variable O&M + FuelFee] xE

Load Factor of 100%

Fixed O&M = [Fixed O&MUSD X US_CPIActual X Forex ] +US_CPIBase

Phil_CPIActual ][Fixed OMph x Phil CPI •P _ Base

V . bl C [V. bl C Phil_CPIActual ]ana e ost = ana e ost x --==Phil_CPl Base

ERC CASE NO. 2015-182 RCORDERf21 March 2016 of 14

F 1F [(COalPrice+Freight cost)x Forex)+Transport cost]ue ee = 1000[ Coal Consumed in kg ]

x Total Generation in kWh

Where:

CRF = Capacity Recovery = PhP1839.5000Fee per kW-month

Fixed O&MphP = Peso-based O&M = PhP153-491OFee perkW-

month

Fixed O&MUSD = USD-based O&M = $5.2620 perFee kW-month

Variable = Variable Fee = PhPo.1200O&M per kWh

Fuel Fee = Actual Fuel Cost

PhiLCPIActual = PhilippineConsumer PriceIndex (CPI) for allitems for theCurrent Month asPublished by theNational StatisticsOffice

US_CPIActual = Current Month asPublished by theBureau of LaborStatistics, USDepartment ofLabor

PhiLCPIBas = Base Philippine = 140-40CPI (2006=100)

July 2014

US_CPIBase = Base US CPI = 238.25

JillY/;!


Forex = Referenceexchange rate onthe meter readingdate, as publishedby the BangkoSentral ngPilipinas. (Php perUSD)

E = Contacted Energyor EnergyDelivered,whichever IS

higher

Freight Cost = Actual FreightCost in USD permetric ton

Transport = Actual TransportCost Cost in USD per

metric ton

20. Prompt Payment Discount - CAGELCOI is entitledto a discount at the rate of 3%of the Capital Recovery Fee.The discount will be reflected as a rebate in a creditmemo, provided that such payment is made in full on orbefore the 10th day from receipt of the billing invoice;provided further, that CAGELCO I does not have anyoverdue payment of any applicable amount under theAgreement; and provided finally, that the ERC hasapproved the Agreement including the fees and pricingstructure contained herein.

21. Rate Derivation - Applicants point out that the energyrate and its components are reasonable since they aremuch lower than Anda's true cost of generation.

22. Anda's True Cost of Generation - Anda reiteratesthat its true cost of generation is higher than thenegotiated energy fee and its adjustments under the PSA.A copy of the computation was attached to the Application.sAnnex"R/f


a) Capital Recovery Fee (CRF) - Capital RecoveryFee (CRF) will be paid to Anda for the recovery oftheir capital investment over the 25-year economiclife of the project. The capital cost of the 82MWCoal-Fired Power Plant is estimated atUSD199,895,856.37, equivalent toPhP8,990,940,936.74. The project will be fundedby loans and equity with a debt-equity ratio of 67.5to 32.5. Based on the desired equity internal rate ofreturn, Anda proposed a CRF in the amount of PhP2.62/kWh.

b) Fixed Operations and Maintenance (Fixed 0&M) - Fixed Operations and Maintenance (Fixedo & M) Fee has both Peso and Dollar components,covering the fixed expenses for operations andmaintenance of the plant. The Peso component isPhP2,915/kWh and 0 & M Dollar component isUSDo.00723/kWh.

c) Variable Costs - Variable costs are composed ofconsumables, such as limestone, sands, and thePhPO.01/kWh benefit to the host community, whichamounts to PhP 1,654/kWh.

23. Fuel Cost - Fuel is a total pass through cost. The powerplant has a guaranteed coal consumption of 0.7kg/kWhwith an escalation rate of 1.5%per year. Coal is expectedto be sourced from both domestic and foreign suppliers. Acopy of the summary of Anda's Coal Supply Plan wasattached to the Application as Annex "S".

24. Rate Impact - A Rate Impact Simulation (RIS),attached to the Application as Annex "T", based onCAGELCOI's actual generation charge for the February2015 and March 2015 power bills show a decrease in thegeneration charge for CAGELCOI's consume~

f

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ACTUAl. GENERATIOl'f OiAflGE

GNP,,,,,.,,W(SMTOTA~

I£SS 1'1'0 1"NE'TGENCosr

.GENERATION RATE

'"'82,307733.19 . 14,509,670 ~O<»I 5.67..Il,3117,733.19 14:509,670.00

,82,307,7J3,1!J

5.ti7

GNPc>',"""WBM

TOTAL

11,741,40).00 . 2,638,160 '16~ 4..8381.928.236.-45 ,13.~78r6S0 "4" 6..03.94.669,&39.45 111,216,810.22

1111, .•t':;.OJl94,Sc442l:.A2

S.&~

SIMLJLATlON WITH ANOAFEBRUAilV201$ POWHl Bill

~ ' ~. ~ x 'e.u.eikiwMARCH It!15 POWER Bltl

SUPPLIERS AMOUNT. iN.t.I\9:i.

tESSPPO C807.814.U~1NETG[~COST '. $3,188,961.24

GNl'owe.rANOA

M'"T01'Al

tCSSPPD 1~NnGENCOST

GENERATION RAT(

IN(fl:£AS£fOECREASE

44.229,600.00 11,000,000 62% t,9131,754.122.07 s~,1l10 38% 5.S77S,4n,an,07. 14,500,610.llfI

({;Il0,400.OOl74 80J,42J ,m

5.16

GNPower"HiM' .WE<MT01AL

GENERAtION lATE

12,741.'103.00 2,6~.100 IG" 4.83.U~.600.00 9,000,000 55% ,un

~,n4.21 . 4,5';8,650 28'€o 5.ClJ8~.596.n7.27 16.216.810.22

5.11

25. Applicant Anda also prayed for the confidential treatmentof its proprietary information, even after the conclusion ofthe instant case, based on the following grounds:

a) The Engineering Procurement and Construction(EPC) contracts which Anda executed with itssuppliers contain confidential arrangements.

b) Anda also executed a Loan Agreement at preferredrates and Anda wishes to preserve this businessadvantage relative to its competitors.

c) Furthermore, the computation of the WACC,Breakdown of Project Cost, and Financial Model notonly make reference to the aforementionedconfidential contracts, they also detail Anda'sbusiness model and other proprietary informationthat constitute trade secrets and hence shouldremain confidential.

26. Anda, thus, submitted to the ERC one copy of thefollowing documents containing the information soughtto be treated as confidential, placed in a sealed envelope:

ANNEX DOCUMENTU Essential Details of EPCContracts

V Essential Details of Loan Agreement

W Executive Summary includinl! the

ERCCASENO. 2015-182 RCORDER/21 March 2016 of 14

computation of WACC and Breakdown ofProject Cost

X Financial Model

27. Applicants CAGELCO I and Anda pray that theCommission will:

a) Issue an Order granting confidential treatment toAnnexes "T", "U", "Y", "W", and "X" pursuant toRule 4 of the ERCRules of Practice and Procedure;

b) After hearing on the merits, render a decisionissuing a PERMANENT APPROYAL of theimplementation of the provisions of the PSAbetween CAGELCOI and Anda, including the ratesset forth therein; and

c) Grant other just and equitable reliefs.

Finding the said Application sufficient in form and substancewith the required fees having been paid, the same is hereby set fordetermination of compliance with the jurisdictional requirements,expository presentation, Pre-trial Conference, and presentation ofevidence on 16 June 2016 (Thursday) at two o'clock in theafternoon (2:00 P.M.) at CAGELCOI Main Office, BarangayMaddarulug, Solana, Cagayan.

Applicants CAGELCOI.and Anda are hereby directed to causethe publication 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 and the date ofthe last publication to be made not later than ten (10) days before thedate of the scheduled initial hearing. They are also directed to informthe consumers within the franchise area of CAGELCOI, by any othermeans available and appropriate, of the filing of the Application, itsreasons therefor, and ofthe scheduled hearing thereon.

Let copies of the 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 Honses of Congre". They ace h",ehy reQueste1

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ERC CASE NO. 2015-182 RCORDER/21 March 2016Page u of 14

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 Governorand the Mayors of the Cities and Municipalities within CAGELCOI'sfranchise area for the appropriate posting thereof on their respectivebulletin boards.

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

On the date of the initial hearing, CAGELCOI and Anda mustsubmit to the Commission their written Compliance with thejurisdictional requirements attaching therewith, methodicallyarranged and duly marked, the evidences on the actual posting andpublication of the Notice of Public Hearing consisting of certificationsissued to that effect, signed by the afore-mentioned Governor andMayors or their duly authorized representatives, bearing the seals oftheir offices, and the affidavits of the Editors or Business Managers ofthe newspapers where the said Notice of Public Hearing werepublished together with the complete issues of the said newspapers,and such other proofs of compliance with the requirements of theCommission.

CAGELCO I, Anda, 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 therefore; and

d. The number and names of the witnesses, with theirwritten testimonies in an in~ivi,al affidavit form, to beattachedto the Pre-trialBrief/ i

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Failure of CAGELCOI and Anda to submit the required Pre-trial Brief and Judicial Mfidavits of their witnesses within theprescribed period shall be a ground for cancellation of the scheduledhearing, and the resetting of which shall be six (6) months from saiddate of cancellation.

As part of the Pre-trial Conference, CAGELCOI and Anda mustalso be prepared to make an expository presentation of theirApplication, aided by whatever communication medium that theymay deem appropriate for the purpose, in order to put in plainwords and explain, for the benefit of the consumers and otherconcerned parties, what the Application is all about and the reasonsand justifications being cited in support thereof.

SOORDERED.

Pasig City, 21 March 2016.

FORAND BYAUTHORITYOFTHE COMMISSION:

-- c ~ •.......~ •• ~JOSEV1CENTEB.S~

Chairmanand CE~

ERe'Office of the Chairman

I . 1~~IIII,I~I~~,llli~II~I~llllllilll,!I~~II~lij,~1:! C-2016-01-0C-01627,

,•

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Copy Furnished:

1.

2.

3.

4.

5.

6.

8.

9.

10.

11.

12.

14.

15.

Attys. Cecilia R. Layug, Rio Q. Balaba, Marcelino C. Arce, IVCounsels for CAGELCO 1and Anda2904, One San Miguel Building, San Miguel Avenue corner ShawBoulevard, Ortigas Center, Pasig City, Metro Manila

Cagayan 1Electric Cooperative, Inc. (CAGELCO1)Maddarulug, Solana, Cagayan

Anda Power CorporationTECO Special Economic Zone, Barangay Bundagul, Mabalacat, Pampanga

Philippine Chamber of Commerce and Industry (PCCI)3rd Floor, Chamber and Industry Plaza (CIP)1030 Campus Avenue corner Park AvenueMcKinley Town Center, Fort Bonifacio, Taguig City

The Office ofthe Solicitor General234 Amorsolo Street, Legaspi Village, Makati City

The Commission on AuditDon Mariano Marcos AvenueDiliman, Quezon City, Metro Manila

The Senate Committee on EnergySenate of the PhilippinesGSIS Building, Roxas Blvd., Pasay City, Metro Manila

The House Committee on EnergyHouse of RepresentativesBatasan Hills, Quezon City, Metro Manila

Office of the GovernorProvince of Cagayan

Office of the City MayorTuguegarao City

Office of the Municipal MayorAlcala, Cagayan

Office of the Municipal MayorAmulung,Cagayan

Office ofthe Municipal MayorBaggao,Cagayan

Office ofthe Municipal MayorEnrile, Cagayan

Office of the Municipal May00Iguig, Cagayan / JA

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16.

17.

18.

20.

21.

Office of the Municipal MayorPefiablanca,Cagayan

Office of the Municipal MayorPiat, Cagayan

Office of the Municipal MayorRizal, Cagayan

Office of the Municipal MayorSto. Nino, Cagayan

Office of the Municipal MayorSolana, Cagayan

Office of the Municipal Mayor~ /Tuao, Cagayan / 1

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