republic ofthephilippines energy regulatory commissi erc case no. 2015... · republic...

Republic of the PhilippinesENERGY REGULATORY COMMISSI

San Miguel Avenue, Pasig City

IN THE MATTER OF THE JOINTAPPLICATION FOR THEAPPROVAL OF THE POWERPURCHASE AGREEMENT (PPA)ENTERED INTO BY ANDBETWEEN BUKIDNON SECONDELECTRIC COOPERATIVE,.INCORPORATED (BUSECO) ANDSURE . ECO ENERGYPHILIPPINES, INCORPORATED(SURE ECO), WITH PRAYER FORTHE IssuANCE OF PROVISIONALAPPROVAL/AUTHORITY ANDMOTION FOR CONFIDENTIALTREATMENT OF INFORMATION, .

BUKIDNON SECOND ELECTRIC•. COOPERATIVE, INCORPORATED(BUSECO) AND SURE ECOENERGY PHILIPPINES,INCORPORATED (SURE ECO),

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

ERC CASE NO. 2015-170 RC

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NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES: '

. Notice is hereby given that on September 28, 2015, BukidnonSecond Electric Cooperative, Incorporated (BUSECO) and Sure EcoEnergy Philippines, Incorporated (SURE ECO) filed an application forapproval .of their Power Purchase Agreement (PPA), with prayer forthe issuance of provisional approval/authority and. motion forconfidential treatment, of information.

ERC Case No. 2015-170 RCNOTICE OF PUBLIC HEARING/October 5,2015Page 2 of 13

In the said application, BUSECO and SURE ECO alleged,among others, that:

The Nature of the Application

1. The application is submitted to the Commission for its dueconsideration and approval of the PPA executed by andbetween BUSECO and SURE ECO dated January 28,2015, as modified by the Addendum dated May 20,2015,pursuant to Rule 20(B) of the Commission's Rules ofPractice and Procedure (the ERC Rules) and otherpertinent rules and regulations. Copies of the said PPAand Addendum are attached to the application asAnnexes "A" and "B", respectively;

The Applicants

2. BUSECO is an electric cooperative created and existingpursuant to the provisions of Presidential Decree No. 269,as amended, serving the power requirements of the Cityof Malaybalay, the Municipalities of Manolo Fortich,Libona, Sumilao, Cabangsalan, Malitbog, Baungan,Impasug-ong, Talakag Lantapan, and the Barangay ofLilingayon, Valencia City, all in the Province of Bukidnon(the Franchise Area). Copies of its Certificates ofFranchise and Registration, and Articles of Incorporationare, likewise, attached to the application as Annexes "0","E" and "F", respectively;

3. SURE ECO is a corporation duly organized andregistered under the Philippine Law, with principal officeaddress at Unit 602, OMM Citra Building, San MiguelAvenue, Ortigas Center, Pasig City. Copies of itsCertificate of Incorporation, Articles of Incorporation,General Information Sheet (GIS) and latest AuditedFinancial Statements (AFS) are attached to theapplication as Annexes "H", "I", "J" and "K", respectively;


Compliance with Pre-filing Requirements

4. In compliance with Rule 6 of the ERC Rules and insupport of the application for approval of the PPA, a copyof the said application together with all its annexes wasfurnished to the respective legislative bodies of theMunicipality of Manolo Fortich and the Province ofBukidnon, where BUSECa principally operates. As proofof receipt of the copies of the application together with allits annexes and accompanying documents, thecertifications issued by the local government units (LGUs)concerned are attached to the application as Annexes "L"and "M'",

5. The entire application, excluding the annexes, waspublished in a newspaper of general circulation within theFranchise Area of BUSECa. A copy of the newspaperand the affidavit of publication are, likewise, attached tothe application as Annexes "N" and "a", respectively;

BUSECO Power Situation

6. BUSECa currently sources the bulk of its electricityrequirements from the Power Sector Assets and LiabilitiesManagement Corporation (PSALM), Therma Marine,Incorporated (TMI) and FDC Misamis Power Corporation(FDC MISAMIS);

6.1 The PSALM and BUSECa executed a Contract forthe Supply of Electric Energy (CSEE) which was inforce from December 26, 2012 to December 25,2016. However, in a certification dated August 22,2014, the PSALM confirmed that it has insufficientcapacity to supply the additional powerrequirements of the Mindanao distribution utilities(DUs) beyond the contracted demand and energy inits existing CSEEs with them. Further, in its letterdated November 5, 2014, the PSALM informedBUSECa of the reduction of its CSEE, from theaverage 8.61 MW, it went down to 6.21 MW orabout thirty percent (30%) reduction on the average.Copies of the PSALM certification and letter areattached to the application as Annexes "P" and "Q",respectively;


6.2 On March 25, 2015, BUSECO and TMI executed aSupplement Agreement extending the term of theirEnergy Supply Agreement (ESA) for an additionalperiod of three (3) years from the expiration of theOriginal Term. The said Supplement Agreementwas provisionally approved by the Commission in itsOrder dated July 13, 2015;

6.3 On January 15, 2013, BUSECO and Therma South,Incorporated (TSI) entered into twenty-five (25) yearESA for the supply of 2 MW baseload. The saidESA was subsequently approved by theCommission in its Decision dated May 8,2014. TheCommercial Operation Date of the power plant isexpected to 'be in 2015;

6.4 On October 31, 2014, BUSECO entered into anElectric Power Purchase Agreement (EPPA) withFDC MISAMIS for a 10 MW contracted capacity, theoperation of which commenced on December 26,2014;

7. It is expected that the baseload requirements ofBUSECO's member-consumers will significantly increasein the next few years as demonstrated by its Actual andForecasted Load Data and Distribution Development Plan(DDP), copies of which are attached to the application asAnnexes "R" and "S", respectively;

8. The expiration of the PSALM CSEE on December 25,2016, will significantly diminish its base load requirementdue to the projected increase in the energy demand ofBUSECO's member-consumers, thus, will inevitably resultin power curtailment;

9. Given its demand growth, BUSECO deems it appropriateto secure stable, reliable and adequate supply ofelectricity. Accordingly, it finds rationale to enter intobilateral agreements with various generation companies.Thus, its electricity requirements are sourced fromdifferent power suppliers in order to mitigate the impact ofsupply deficiency in case one power supplier incurs delay

..ERC Case No. 2015-170 RCNOTICE OF PUBLIC HEARING/October 5,2015Page 5 of 12

10. BUSECO solicited offers from generation companies tosupply the deficiency in its power requirements. Amongthe offers considered and evaluated was from SUREECO which committed to build an embedded BiogasPower Generation Facility located within its FranchiseArea, particularly, at San Vicente, Sumilao, Bukidnon.The power plant is scheduled to be commissioned inJanuary 2015;

11. The power plant will be directly connected to BUSECO'spower distribution network, thus, sparing the latter fromthe payment of transmission and line rental charges;

12. BUSECO has forecasted and simulated the indicative rateimpact on its power charges resulting from the inclusionof the power to be supplied by SURE ECO, to wit:

Particular Rate, PhP/kWhGeneration Rates with SURE ECO 4.6437Existina Generation Rate 4.5825Rate Increment 0.0612

The PPA

13. On January 28, 2015, BUSECO and SURE ECO signedand executed the PPA for a contracted demand of 600kW for one (1) year;

Executive Summary

13.1 The PPA governs the relationship between theSupplier and the Customer for the sale of electricpower. The electric power supply will be drawnfrom the Supplier's 1 x 0.925 MW biogas powergeneration facility. The commencement of theobligation of SURE ECO to deliver of electric powerto BUSECO is subject to the satisfaction ofconditions precedent, including the declaration ofthe commercial operation of the power plant. ThePPA is subject to the Customer's security deposit,assignment and termination;

.'

ERC Case No. 2015-170 RCNOTICE OF PUBLIC HEARING/October 5, 2015Page 6 of 12

Salient Features

13.2 The PPA, as amended, between BUSECO andSURE ECO contains the following salient terms andconditions:

13.2.1 Commercia/ Operation Date - The targetCommercial Operation Date willimmediately take effect after all therequirements (Conditions Precedent toCommercial Operation Date) has beenmet.,

13.2.2 Term - The Term of the PPA shall be one(1) year from the Commercial OperationDate, unless extended or revised by mutualwritten agreement by the Parties. The PPAmay be renewed by written agreementbetween the Parties not later than sixty(60) days prior to the expiration of theTerm;

13.2.3 Service Specificationagreed to thespecifications:

- The Applicantsfollowing service

Contracted Demand 600 kWContracted Energy The Customer will take all

the kWh generated by theSupplier within theContracted Demand

Delivery Point 13.2 kV distribution linesystem of BUSECO'sSumilao Substation Feeder

13.2.4 Outage Allowance - The Supplier shallhave an Outage Allowance of eighthundred seventy-six (876) hours perContract Year during the term of the PPA;


13.2.5 Generation Charge - BUSECO shall paythe generation charge of PhP6.00/kWh.Any disallowance of the generation chargeor any component thereof, for recoveryfrom end-users, shall be for the soleaccount of the Supplier and shall notprejudice the Customer;

Schedule 3: Generation Charge Computation

Monthly Energy Fee

Where:

Capital Recovery Fee monthFixed O&M ChargemonthVariable O&M ChargemonthLube Oil Chargemonth

And where:

TED

Lube Oil Price

CR

= Capital Recovery Feemonth+Fixed Operation andMaintenance Chargemonth+Variable Operation andMaintenance Charge month+Lube Oil Charge month

= PhP3.7566/kWh * TED= PhPO.5529/kWh * TED= PhP1.4793kWh * TED= ((Lube Oil Price/1000) * CR)

*TED

= Total Energy Delivered tothe Customer by theSupplier in kWh during thecurrent Billing Period.

= Either at PhP264.00/kg orthe actual price, whichever islower

= Consumption rate at 0.8gram/kWh


13.2.6 Other Charges - The Customer shall beliable for the payment of: a) any taxes(including value-added tax, if any), fees,charges, levies (including but not limited toUniversal Charge) and imposts imposed orassessed by any governmental authorityon or in connection with the purchase andsale of electricity and/or payments due toSupplier hereunder; b) any new taxes,fees, charges, levies and imposts(including any increase in the rate oramount thereof after but excluding incometaxes) imposed on the Supplier afterEffective Date. That is if such taxes, fees,charges, levies and imposts are approvedby the Commission ERC as pass oncharges;

13.2.7 Discount for Prompt Payment - TheSupplier agrees to grant the Customer adiscount equivalent to one percent (1%) ofthe billing for a particular month wheneverthe Customer shall have paid the former infull the monthly billing in advance within ten(10) days from receipt of the monthlybilling, provided the Customer has notincurred any delay in the payment of itsbills and posting/replenishment of therequired Security Deposits for the past six(6) Payment Months;

13.2.8 Security Deposit - The Security Depositshall be in an amount equivalent to the costof 400,000 kWh or Two Million TwoHundred Forty Thousand Pesos(PhP2,400,000.00). The Customer shallpost the Security Deposit within thirty (30)days upon written notice of commercialoperation by the Supplier;

13.2.9 Assignment - In all cases of validassignment, the Assignee shall assume allthe rights and obligations of the Assignorunder the PPA;


13.2.10 Notice on Force Majeure - The Partywhose performance is affected by a ForceMajeure Event shall promptly notify theother Party in writing of the occurrence andlikely duration of such event;

Other Related Documents

14. In support of the application, they submit to theCommission the following documents:

AnnexTUVWX

yZ

AABB

CCDDEE

Nature of the DocumentBUSECO's Procurement ProcessBUSECO Rate 1m act Anal sisBUSECO Demand-Su I Scenario 2013-2020BUSECO Load CurveSURE ECO Board of Investment Certificate ofRe istrationSURE ECO Certificate of Non-Covera eThe Department of Energy (DOE) Certificate ofEndorsement No. 2015-06-09SURE ECO General Plant Descri tionSURE ECO Details regarding transmissionprojects necessary to complement the proposedeneration ca acitSURE ECO Financial Model with weightedavera e cost of ca ital WACC and .ustificationSURE ECO Details of Pro.ect CostSURE ECO Pa ment Assi nment A reement

Allegations in Support of the Issuance of ProvisionalApproval/Authority

15. As discussed earlier, the PSALM cannot supply theadditional requirements of BUSECO. As the lack ofsufficient supply has significant adverse effects on thelocal economy, the urgent need for additional generationcapacity is clear. A provisional approval of the PPA willenable BUSECO to draw power from SURE ECO, thusavoiding the further power interruptions which havealready caused irreversible losses on the economicactivity within the former's Franchise Area. Furthermore,the issuance of a provisional authority will allow BUSECOto pass on to its member-consumers the cost as provided


under the PPA. A copy of a sworn statement supportingthe foregoing allegations is attached to the application asAnnex "FF'",

16. Further, a provisional approval of the application isnecessary for SURE ECO to deliver power to BUSECOcoming from an embedded renewable energy and tocharge and collect the fees as provided under the PPA. Acopy of a sworn statement supporting the foregoingallegation is, likewise, attached to the application asAnnex "GG'",

17. Pursuant to its Rules of Practice and Procedure, theCommission may exercise its discretion by grantingprovisional approval or interim relief prior to a finalDecision;

18. They understand that the interim relief, which may begranted by the Commission, shall be subject toadjustments and other conditions that it may impose afterhearing and final determination;

Motion for Confidential Treatment of Information

19. Under Sections 15.9, 15.9.1, and 15.9.2 of the PPA, theCustomer undertook to ensure that no confidentialinformation is disclosed to third parties and shall employits utmost effort and diligence to prevent unauthorizeddisclosure of such confidential information;

20. Under Rule 4 of the ERC Rules, the Commission may,upon request of a party and determination of theexistence of conditions which would warrant suchremedy, treat certain information submitted to it asconfidential. Pursuant to such undertaking, they movethat Annexes "CC" "DO" and "EE" not be disclosed and,be treated as confidential documents in accordance withthe said Rule and, accordingly, not to be disclosed topersons other than the officers and staff of theCommission, as necessary. These documents containcertain non-public information, data and calculationsinvolving business operations and financial trade secretsreflecting SURE ECO's investment and businesscalculations;

','.ERC Case No. 2015-170 RCNOTICE OF PUBLIC HEARING/October 5,2015Page 11 of 12

21. They submit one (1) copy of Annexes "CC", "DO" and"EE" in a sealed envelope, with the envelope and eachpage of the documents stamped with the word"Confidential'" ,

Prayer

22, Thus, they pray, that the Commission:

22.1 Approve the PPA;

22.2 A provisional approval/authority of the PPA beissued, in order to allow SURE ECO to supply theneeded power of BUSECO, thereby authorizingBUSECO to accept such power supply and pass onthe full amount of the fees and charges under thesaid PPA to its member-consumers as may bebilled by SURE ECO;

22.3 Issue an Order treating Annexes "CC", "DO" and"EE" and the information contained therein asconfidential, directing their non-disclosure topersons other than officers and staff of theCommission, as necessary, pursuant to Rule 4 ofthe ERC Rules, and prescribing the guidelines forthe protection thereof;

23, They further pray, that after trial on the merits, theCommission issue a permanent approval of the PPAwhich would permanently authorize BUSECO to chargeand collect the fees under the said PPA to its member-consumers,

The Commission has set the application for jurisdictionalhearing, expository presentation, pre-trial conference and evidentiaryhearing on November 11, 2015 (Wednesday) at ten-thirty in themorning (10:30 A.M.) at BUSECO's Main Office, Manolo Fortich,Bukidnon.

't

•i ERC Case No. 2015-170 RCNOTICE OF PUBLIC HEARING/October 5,2015Page 12 of 12

All persons who have an interest in the subject matter of theproceeding may become a party by filing, at least five (5) days prior tothe initial hearing and subject to the requirements in the ERC's Rulesof Practice and Procedure, a verified petition with the Commissiongiving the docket number and title of the proceeding and stating: (1)the petitioner's name and address; (2) the nature of petitioner'sinterest in the subject matter of the proceeding, and the way andmanner in which such interest is affected by the issues involved in theproceeding; and (3) a statement of the relief desired,

All other persons who may want their views known to theCommission with respect to the subject matter of the proceeding mayfile their opposition to the application or comment thereon at anystage of the proceeding before the 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 theapplication may request the applicants, prior to the date of the initialhearing, that they be furnished with a copy of the application. Theapplicants are hereby directed to furnish all those making suchrequest with copies of the application and its attachments, subject toreimbursement of reasonable photocopying costs. Likewise, anysuch person may examine the application and other pertinent recordsfiled with the Commission during the usual office hours.

WITNESS, the Honorable Chairman, JOSE VICENTE B.SALAZAR, and the Honorable Commissioners, ALFREDO J. NON,GLORIA VICTORIA C. YAP-TARUC, JOSEFINA PATRICIA A.MAGPALE-ASIRIT, and GERONIMO D. STA. ANA, EnergyRegulatory Commission, this 5th day of October, 2015 at Pasig City.

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