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ENERGYREGULATORYCOMMISSI N poX;]San Miguel Avenue, Pasig City , ,:iJ._,:,_21;\m_i~h_

IN THE MATTER OF THEAPPLICATION FOR THEAPPROVAL OF THE POWERSUPPLY AGREEMENTBETWEEN MASINLOCPOWER PARTNERS CO. LTD.AND ILOCOS ' NORTEELECTRIC COOPERATIVE,INC., WITH PRAYER FORCONFIDENTIAL TREATMENTOF INFORMATION

ERC CASE NO. 2015"'214 RC

ILOCOS NORTE ELECTRICCOOPERATIVE, INC. ANDMASINLOC POWERPARTNERS CO. LTD,

, Applicants.,,- - - - - - - - - - - - - - -- - - - - - ~-"

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on 21 December 2015, Ilocos NorteElectric Cooperative, Inc. ("INEC") and Masinloc Power Partners Co.Ltd. ("MPPCL") filed an, Application for the Approval of the PowerSupply Agreement (PSA) with Prayer for Confidential Treatment ofInformation. '

Likewise, on 29 January 2016, INEC and MPPCL filed theirCompliance pursuant to the Commission's directives to submitadditional documents containing information necessary for theevaluation of the instant Application.

In their Application, INEC and MPPCLalleged the following:

ERC CASE NO. 2015-214 RCNOTICE OF PUBLIC HEARING/ 08 NOVEMBER 2016PAGE 2 OF 17

1. THE APPLICANTS

1. INEC is a non-stock non-profit electric cooperative duly organizedand existing under Presidential Decree No. 269, as amended,otherwise known as the National Electrification AdministrationDecree, with principal office address at Brgy. Suyo, Dingras, IIocosNorte. INEC has been granted a franchise or authority to distributeelectric service in the municipalities of Adams, Bacarra, Badoc,Bangui, Banna, Burgos, Carasi, Currimao, Dingras, Dumalneg,Marcos, Nueva Era, Pagudpud, Paoay, Pasuquin, Piddig, Pinili, SanNicolas, Sarrat, Solsona and Vintar and to the cities of Laoag andBatac, all in the province of IIocos Norte (collectively, the"Franchise Area").

Copies of relevant documents proving the due incorporation,registration, and permit to operate of INEC as a distribution utilityare attached hereto as follows:

Document AnnexArticles ofIncornoration AAmended Bv-Iaws BCertificate of Registration with the National CElectrification AdministrationCertificate of Franchise issued by the National DElectrification Commission

2. MPPCL is a limited partnership established in the Philippines toconstruct, develop, improve, operate, maintain, and hold powerproduction and electric generating facilities in the country, for theproduction and sale of electricity. MPPCL's principal office addressis located at the Masinloc Coal-Fired Thermal Power Plant, Bani,Masinloc, Zambales.

3. MPPCL is in the process of expanding its existing power generatingfacility in Zambales through the construction, operation,management and maintenance of a new 300 MW coal-fired powergenerating facility (the "Plant") to supply, among others, theaggregated base load requirement of INEC and other electriccooperatives in Region 1 and Cordillera Administrative Region("R1+CARECs")l.

Attached are copies of relevant documents proving MPPCL's dueregistration as a generation company, relevant permits to operatethe Plant and audited financial statements, as follows:

1 Electric cooperatives in Region 1 and the CAR, namely: Abra Electric Cooperative Inc.("ABRECO"),Benguet Electric Cooperative Inc. ("BENECO"), Ilocos Norte Electric CooperativeInc. ("INEC"), Ilocos Sur Electric Cooperative Inc. ("ISECO"), Kalinga - Apayao ElectricCooperative Inc. ("KAELCO"),La Union Electric Cooperative ("LUELCO") Mountain ProvinceElectric Cooperative Inc. ("MOPRECO") and Pangasinan III Electric Cooperative Inc.("PANELCOIII").

'.

ERC CASE NO. 2015-214 RCNOTICE OF PUBLIC HEARING/ 08 NOVEMBER 2016PAGE30F17

Document AnnexAmended Articles of Limited Partnershin ECertificate of Registration with the Securities and FExchanl!:eCommissionBoard of Investments ("BOr") Certificate of GRegistration as a Pioneer Enterprise No. BOI 2012-221 dated 12October 2012Environmental Compliance Certificate ("ECC")No. H1111-020, as amended on 23 April 2012, for theMasinloc Power PlantCertificate of Endorsement No. DOE COE 2011-09- I01 issued by the Department of Energy ("DOE") on8 August 2011Latest Audited Financial Statements J

4. As the Plant will still be constructed, MPPCL has yet to obtain theCertificate of Compliance ("COC") from this HonorableCommission, which covers the same. MPPCL undertakes to applyfor and obtain the COCprior to the Plant's commercial operations.

5. The Applicants may be served with copies of orders and otherprocesses through their respective undersigned counsels at theiraddresses indicated herein below.

II. NATUREOFTHE APPLICATION

6. Pursuant to Sections 23, 25 and 45 (b) of Republic Act No. 9136 orthe "Electric Power Industry Reform Act of 2001" ("EPlRA") inrelation to Rule 20 (B) of the ERC Rules of Practice and Procedure,approved by the Honorable Commission on 22 June 2006 inResolution No. 38, Series of 2006, this Application is submitted tothe Honorable Commission for its review and approval of the PowerSupply Agreement ("PSA"), dated 13 October 2015, executed byINEC and MPPCL.

A copy of the PSA is hereto attached and made an integral parthereof as Annex "K".

Also attached hereto as Annexes "L" and "L-l" are the respectiveboard and partner's resolutions of INEC and MPPCL approving theexecution of the PSAby the parties.

7. It bears stressing that the instant Application is one of the firstapplications filed before this Honorable Commission for theapproval of a power supply agreement resulting from a successfuljoint competitive selection process undertaken by R1+CARECs forprocurement of their aggregated long-term base load powerrequirements.

III. COMPLIANCEWITH PRE-FILING REQUIREMENTS

8. In compliance with Rule 3, Section 4 (e) ofthe Implementing Rulesand Regulations of the EPlRA and Rule 6 of the ERC Rules ofPractice and Procedure, Applicants have furnished the respectivelegislative bodies ofthe local government units within the Franchise


Area, and the Sangguniang Panlalawigan of I1ocos Norte withcopies of the instant Application and its accompanying documents.

Certifications from the Presiding Officer or Secretary of thelegislative bodies of the Franchise Area, the SangguniangPanlalawigan of I1ocos Norte, or their duly authorizedrepresentatives, attesting to the fact of such service will be attachedhereto as follows:

Certification ofPresiding

Officer/Duly AnnexAuthorized

Representative

Adams MBacarra M-1Badoc M-2Bangui M-3Banna M-4Batac City M-5Burgos M-6Carasi M-7Currimao M-8Dingras M-9Dumalneg M-lO

Laoag City M-ll

Certification ofPresiding

Officer/Duly AnnexAuthorized

Representative

Marcos M-12Nueva Era M-13Pagudpud M-14Paoay M-15Pasuquin M-16Piddig M-17Pinili M-18San Nicolas M-19Sarrat M-20Solsona M-21Vintar M-22SangguniangPanlalawigan of M-23I1ocos Norte

9. Furthermore, Applicants have caused the publication of the presentApplication in its entirety in a newspaper of general circulation inINEC's Franchise Area.

The Affidavit of Publication and the newspaper issue containing thepublished Application will be attached hereto as follows:

AnnexNN-1

IV. STATEMENT OF FACTS

10. The EPlRA mandates that a distribution utility shall have theobligation to supply electricity in the least cost manner to its captivemarket, subject to the collection of retail rate duly approved by thisHonorable Commission.2 Towards this end, the EPlRA expresslyallows distribution utilities to enter into bilateral power supplycontracts, subject to review by this Honorable Commission.3

2 Cj EPlRA, Sec. 23, par. 3.3 Cj EPlRA, Sec. 45(b).


11. In furtherance of the State policy to ensure the quality, reliability,security and affordability of the supply of electric power and toprotect public interest affected by the rates and services of theelectric utilities and other providers of electric power, thisHonorable Commission issued Resolution No. 21, Series of 2005which directed all distribution utilities to enter into future bilateralpower supply contract with power producers to be subjected to areview by the ERC.

12.Consistent with these policies and regulations, the Rl+CAR ECs,which includes INEC, entered into a Memorandum of Agreementfor the joint procurement of their aggregated long-term (20-year)uncontracted base load power supply requirement equivalent to106 MW ("Transaction"). Notwithstanding the aggregation of theirbase load power requirements, however, each of the R1+CARECshas agreed to individually sign a contract with the winning bidderfor its respective committed demand, as indicated in the tablebelow.

Committed Demand of Rl+CARECs

Electric Cooperative Committed Demand(MW)

ABRECO 7BENECO 14INEC SIISECO 7KAELCO sMOPRECO 4LUELCO 8PANELCOIII 10TOTAL 106

13.The Power Supply and Demand Situation in INEC's Franchise Area.INEC contracted its 5-year power supply requirement to the SanMiguel Energy Corporation (SMEC) totaling to 1,005,751 MWh ofenergy that commented in December 26, 2011 and will end inDecember 25, 2016. The cooperative is also in the process ofprocuring its short-term demand requirement for years 2017-2018to fill-in the gap left by this 2019-2038 long-term power supplycontract application. Demand requirement that is not covered bythe contracted supply, including peaking load requirements, is/willbe supplied by its mini-hydro power plant and is/will be procuredfrom the WESM. Annex "0" shows INEC's historical demand andsupply scenario from January 2008 to October 2015.

Annex "0-1" shows INEC's forecasted demand and supply scenariofor the years 2015 to 2038. Based on the total forecasted demand,the uncontracted base and peaking demands will both be increasingfrom 36-45 MW in 2015 to 79.91 MW in 2038 and 10.31 MW in2015 to 22.61 MW in 2038, respectively.

Annex "0-2" shows the yearly supply and demand scenario as wellas the average daily load curves.


14.The Competitive Procurement Process. On account of theforegoing, the R1+CAR ECs decided to pursue the jointprocurement of their aggregated long-term uncontracted base loadpower supply requirement in accordance with Section 234 of theEPIRA, through the conduct of a transparent, clear and faircompetitive selection process, with the assistance of transactionadvisors engaged by the R1+CARECs, and adhering strictly withthe procedures and guidelines approved by the R1+CAREC JointBids and Awards Committee ("JBAC").

14.1 The plan of the R1+CARECs, including INEC, to procurepower commenced with the preparation by the JointTechnical Working Group ("JTWG") of a least-cost powersupply plan for each EC and for the aggregated demand ofthe R1+CARECs. The power supply plan includes the short-term and long-term peak demand and annual energy thatwas projected based on scientifically formulated loadforecast models that were subjected to validity and accuracytests.

14.2 Following the determination of the least-cost power supplyplan for each EC, the R1+CAR ECs published onNovember 23 and 24, 2014 in a newspaper of general andnational circulation the Invitation to Bid for the Transaction.Prospective bidders from the generation sector were likewiseindividually invited to participate in the bidding processthrough letters and electronic mail. In addition thereto,INEC also posted at a public bulletin board within itsfranchise area, a copy of the Invitation to Bid.

14.3 In response to the Invitation to Bid, seven differentgeneration companies, including MPPCL, GN Power Ltd.Co., SoEnergy International Philippines, Inc., GlobalBusiness Power Corporation, MERALCO PowerGenCorporation, Trans-Asia Oil and Energy DevelopmentCorporation and First Gen Corporation, expressed theirinterest and qualified to participate in the bid conducted bythe R1+CARJBAC.

14-4 As part of the bidding process, pre-bid conferences were heldby the JBAC where the bidders were given opportunity tosubmit their comments and raise clarificatory questions onthe Transaction.

14.5 For the bid submission, the interested bidders were requiredto submit their bids in two (2) separate envelopes. The firstenvelope contains the legal requirements and proof oftechnical and financial capability of the bidder to finance,

4 Section 23 provides that "to achieve economies of scale in utility operations, distribution utilitiesmay, after due notice and public hearing, pursue structural and operational reforms such as butnot limited to, joint actions between or among the distribution utilities, subject to the guidelinesissued by the ERe. Such joint actions shall result in improved efficiencies, reliability of service,reduction of costs and compliance to the performance standards prescribed in the IRR of thisAct.JJ


build, operate and maintain power plants. The secondenvelope contains the commercial offer, consisting of thetechnical and financial offers, of the bidder.

14.6 On 30 April 2015, the R1+CARECs' JBAC received from GNPower Ltd. Co. and MPPCL their respective bids for theTransaction.

14.7 The JBAC evaluated the submitted bids based on anEvaluation Framework and Evaluation Methodologypreviously released to the bidders. After thorough evaluationof the bids, the R1+CAREC JBAC issued on 11May 2015 theNotice of Lowest Calculated Bid to MPPCL informingMPPCL that it submitted the Lowest Calculated Bid for theTransaction. MPPCL tendered the Lowest Calculated Bidwith a base price of PhP 3.7495/kWh and a long-termlevelized price of PhP 5-4967/kWh.

14.8 After complying with the Post-Qualification Process for theTransaction, on 25 May 2015, the JBAC ofthe R1+CARECsissued a Notice of Award to MPPCL, informing MPPCL of itsselection as the winning bidder for the supply of power toR1+CARECs.

14.9 On 1 June 2015, MPPCL and the R1+CARECs commencednegotiations for the other commercial and technical termsand conditions of the PSA, except for the power rate which isequivalent to MPPCL's Lowest Calculated Bid.

14.10 On 13 October 2015, MPPCL and the member ECs of theRl +CAR ECs executed individual PSAs covering theirrespective committed demand.

Attached are copies of the relevant documents proving MPPCL'sselection and qualification as the winning bidder in the jointcompetitive selection process undertaken by Rl +CAR ECs for thesupply of their aggregated base load demand for the contract year2019 up to 2038.

Document Annex Document AnnexInvitation to Bid P Minutes of Meetine:s P-4Information P-l Bidding Tally Sheet P-5MemorandumInstruction to Bidders P-2 Notice of Lowest Calculated P-6

Bid dated 11Mav 201.'>Bid Bulletins P-3 Notice of Award of Contract P-7

dated 25 Mav 201<:;

15. It bears stressing that the competitive selection process conductedby the JBAC was well-structured, fair, and transparent, and thusresulted in a highly attractive price for the R1+CAR ECs. InDepartment Circular No. DC2015-06-008, the Department ofEnergy ("DOE") cited with approval, the results of the Rl +CARECs'competitive bidding process as evidence for achieving greaterefficiencies through the conduct of competitive selection process in


the aggregation of the uncontracted demand of distributionutilities.

16. It is also worthy to note that the transparent competitive selectionprocess led to good faith negotiations between MPPCL and theRl+CAR ECs for the terms and conditions of the PSAs. All actionstaken by MPPCL and INEC leading to and in connection with theexecution of the INEC PSA are compliant with all applicable laws,including the U.S. Foreign Corrupt Practices Act and the PhilippineAnti-Graft and Corrupt Practices. INEC and MPPCL hereby certifythat they, or their respective employees, officers, directors,affiliates, agents and representatives did not, at any time, directly orindirectly offer, give, make, promise, payor authorize the paymentof any money, gift or anything of value to any employee, officer ordirector of the other party to induce such other party to sign orenter into the INEC PSA. .

V. ABSTRACTOF THE PSAAND RELATEDINFORMATION

17. The following are the salient features ofthe INEC PSA:

17.1 Term. The PSA shall commence on the date of signing of thePSA by MPPCL and INEC and shall expire at 24:00 hours onthe final Day of the 240th Billing Period after the Start ofSupply Deliverys, subject to extensions of such termpursuant to the PSA provisions governing Excused DelayEvent6 and Force Majeure during Supply Delivery,? unlessearlier terminated upon the occurrence of certain conditionsfor Termination Date.8

17.2 Volume. Under the PSA, MPPCL shall supply INEC aContract Capacity of 51,000 kW which shall be the maximumkW demand that INEC may nominate as Bilateral ContractQuantity in a Wholesale Electricity Spot Market TradingInterval, without prejudice to adjustments that may be madeon the Contract Capacity and Associated Energy pursuant tothe terms of the PSA.

17.3 Commissioning Energy. During commissioning prior to theStart of Supply Delivery, MPPCL may offer to sell to INECthe Commissioning Energy at a rate equivalent to theContract Price and Associated Charges less the CapitalRecovery Fee and Fixed O&MFees.

17.4 Outages. The supply obligation of MPPCL shall be subject toan Outage Allowance of Twenty-One (21) days for ScheduledOutages and Fifteen (15) days for Forced Outages perContract Year. During Scheduled and Forced Outages,

5 Under the PSA, the Start of Supply Delivery or the obligation of MPPCL to supply INEC theContract Capacity and Associated Energy and provisions related thereto shall commence not laterthan the start of a Billing Period thirty six (36) months from the Commencement Date, unlessextended in accordance with the PSA.6 Cj Section 2.6 of Annex "K," hereof.7 Ibid., Section 13.3.2(b).B Ibid. Section 14.10.


MPPCL may provide reduced or no supply of the ContractCapacity to INEC, provided that MPPCL has not exceededthe relevant Outage Allowance for a given Contract Year.

17.5 Contract Price. For electricity supplied by MPPCL, INECshall pay MPPCL a Monthly Power Billwhich is composed ofthe Contract Price, the Associated Charges9 and necessaryadjustments resulting from foreign currency conversion ofthe Dollar Payables component of the Contract Price toPhilippine Peso, if any.

17.5.1 The Contract Price shall be composed of the sum of theCapacity Payment and the Energy Payment.

17.5.1.1The Capacity Payment shall be composed of theCapital Recovery Charge, the Dollar Fixed O&MCharge and the Peso Fixed O&MCharge.

a. Capital Recovery Charge: The Capital RecoveryCharge shall be calculated as the product of theCapital Recovery Fee and the Associated Energy forthe Billing Period.

The Capital Recovery Fee shall be determined usingthe tariff schedule below:

Capital RecoveryCapacity Utilization Fee

FactorUS$/kWh

100% 0.039399% 0.039698% 0.040097% 0.040496% 0.040895% 0.041294% 0.041693% 0.042092% 0.042491% 0.042990% 0.043389% 0.043788% 0.044287% 0.044786% 0.045285% 0.045784% 0.0462

9 Means the Governmental Charges, WESM Charges, and NGCP and Ancillary Services Chargesidentified in the PSA.

ERCCASE NO. 2015-214 RCNOTICE OF PUBLIC HEARING/ 08 NOVEMBER 2016PAGE100F17

83% 0.046782% 0.047281% 0.047880% 0.048379% 0.048978% 0.049577% 0.050176% 0.050775% 0.051474% 0.052073% 0.052772% 0.053471% 0.054170% 0.0548

The Capacity Utilization Factor shall be calculated inaccordance with the formula below:

CUF = AE I {CC x (HT - EHTO)}

Where

CUF

AE

CC

Capacity Utilization Factor

Associated Energy, which shall be thesum of the Bilateral Contract Quantitiesdeclared by the Seller for the Buyer in theWESM during the Billing Period,provided that the Associated Energyshall not be less than the quantity whichis 70% multiplied by the ContractCapacity multiplied by the factor (HT -EHTO).

Contract Capacity, stated in kW

Total number of hours in the BillingPeriod

EHTO The Equivalent Hours of ScheduledOutages and Forced Outages in suchBilling Period

The CUF shall be calculated up to the 4th decimalplace. When the calculation resuits in a CUF lowerthan 70%, the CUF shall be deemed to equal 70%.When the CUF calculation does not result in awhole percentage point, the corresponding CapitalRecovery Fee shall be determined using theformula below:

ERC CASE NO. 2015-214 RCNOTICE OF PUBLIC HEARING/ 08 NOVEMBER 2016PAGE 11OF 17

CRF = 0.0608 x CUP -0.1547 x CUF + 0.1332

If the Commencement Date occurs later thanDecember 26, 2015, the Seller shall have the rightto increase the Capital Recovery Fee in theforegoing table based on the percentage increase, ifany, in the United States Producers Prices CapitalEquipment Index [2010=100] reported in theInternational Financial Statistics published by theInternational Monetary Fund immediately beforethe Commencement Date vis a vis the same indexpublished on April 2015 (i.e., 106.982)

b. Dollar Fixed O&M Charge: The Dollar Fixed O&MCharge shall be calculated as the product of theDollar Fixed O&M Fee and the Associated Energyfor the Billing Period.

The Dollar Fixed O&M Fee shall be determinedusing the formula below:

Dollar FOM = US$ 0.0021/kWh x USIndex/CUF

Where,

DollarFOM

CUF

Dollar Fixed O&MFee

as defined above

USIndex = USCPIn / USCPIo

USCPIn

USCPIo

the average US Consumer PriceIndex City Average for All UrbanConsumers - All Items for thelast three calendar months priorto the start of the Billing Periodfor which the invoice is beingprepared.

the US Consumer Price IndexCity Average for All UrbanConsumers - All Items (1982-84=100) for September 2014 aspublished by the US Bureau ofLabor Statistics.

c. Peso Fixed O&M Charge: The Peso Fixed O&MCharge shall be calculated as the product of the PesoFixed O&M Fee and the Associated Energy for theBilling Period.

ERC CASE NO. 2015-214 RCNOTICE OF PUBLIC HEARING/ 08 NOVEMBER 2016PAGE 12OF 17

The Peso Fixed O&MFee shall be determined usingthe formula below:

Peso FOM = PhP 0.2330/kWh x RPIndex / CUF

Where,

Peso FOM

CUF

Peso Fixed O&MFee

as defined above

RPIndex = RPCPIn / RPCPIo

RPCPIn

RPCPIo

the average Philippine ConsumerPrice Index for All IncomeHouseholds in the Philippines -All Items for the last threecalendar months prior to the startofthe Billing Period for which theinvoice is being prepared.

the Philippine Consumer PriceIndex for All Income Householdsin the Philippines - All Items(2006=100) for September 2014as published by the BangkoSentral ng Pilipinas.

17.5.1.2 The Energy Payment shall consist of the DollarVariable O&MCharge and Fuel Charge.

a. Dollar Variable O&M Charge: The Dollar VariableO&M Charge shall be calculated as the product ofthe Dollar Variable O&M Fee, and the AssociatedEnergy for the Billing Period.

The Dollar Variable O&M Fee shall be determinedusing the formula below:

Dollar VOM = US$ 0.0018/kWh x USIndex

Where,

DollarVOM

USIndex

Dollar Variable O&MFee

as defined above

b. Fuel Charge. Fuel Charge shall be calculated as theproduct of the Fuel Rate and the Associated Energyfor the Billing Period.


The Fuel Rate shall be calculated in accordance withthe formula below:

FR = US$ 0.0271/kWh x FuelIndex

Where

FR Fuel Rate

FuelIndex = CIFn / CIFo

CIFn CIF Cost of Fuel for the Billing Period

CIFo Base CIF Cost of Fuel equal to US$11.0617/Million kcal

18.MPPCL's foregoing Contract Price was the Lowest CalculatedBid with a base price of PhP 3.749S/kWh based on theparameters of the procurement process. The Contract Pricecalculated above does not yet include the relevant Value-AddedTax ("VAT"), and INEC undertakes to pay in full the invoicedVAT and any applicable local government unit Tax on theContract Price, except real property tax.

It bears stressing that the Contract Price discovered by thissuccessful competitive selection process is lower than those inall the other PSAs with newbuild generators filed with theHonorable Commission in the recent past. Attached as Annex Qis a comparison of these power rates.

Attached as Annex "R" hereof is a summary of the methodologyused by MPPCL to arrive at the Contract Price under the PSA. Italso contains information regarding the debt or equity ratio,capital costs, weighted average cost of capital, and fuel cost,among other information.

Also attached as Annex "R-1"hereof is a certification by MPPCLregarding the principal amortization, term and interest of itslong-term loans.

Considering the confidential nature of Annexes "R" and "R-1" asthe numbers, methodology, and calculations contained thereinwould provide valuable information reflecting the biddingstrategy of MPPCL, not only for distribution utilitiesundertaking competitive process for their power supplyrequirements, but also for MPPCL's trading in the WESM,MPPCL respectfully requests that Annexes "R" and "R-l" betreated as a confidential document. In accordance with Sectionl(b), Rule 4 of the ERC Rules of Practice and Procedure,Applicant MPPCL hereby submits one (1) copy of Annexes "R"and "R-l" in a sealed envelope, with each page of the documentstamped with the word "Confidential."

19. Characteristics of the power capability and connection facility.The Plant will be a coal-fired power generating facility with a


capacity of 300 MW. The Plant's generation capacity isconsistent with the DOE's Philippine Development Plan asshown by Certificate of Endorsement No. DOE COE 2011-09-01issued by the DOE on 8 August 2011.10

MPPCL will expand or modify its existing switchyard to connectthe Plant to the 230kV grid system of the National GridCorporation of the Philippines ("NGCP"). INEC is likewiseconnected to the Luzon grid.

All relevant technical and economic characteristics of the Plantare described in Annex "S". The relevant technical specificationsof the transmission and delivery facilities are likewisespecifically described in Annex "S-1."

20.Rate Impact. An analysis was conducted to determine theimpact of the implementation of the PSA on INEC's generationcosts once the PSA is approved. Without the PSAby 2019, INECmay be exposed to the WESM, whose average price in 2014 wasPhP 4.55/kwh. The PSA Contract Price enables INEC to reduceits generation cost by about PhP 0.76/kWh to PhP 0.94/kWh inthe first five (5) years as shown in the table "Average GenerationRate".

Avera e Generation Rate

Year w/oMPPCL w/MPCCL Rate Reduction

2015201

2020202120222023

0.600.60.800.80.890.9

I

A copy of the foregoing analysis is attached hereto and made anintegral part hereof as Annex "T."

21. Other Documents. In compliance with the ERC Rules of Practiceand Procedure, the following documents are likewise submitted:

Document AnnexTransmission Service Agreement between NGCP and INEC UProcurement nrocess of coal VDistribution Development Plan of INEC W

MPPCL and NGCP are in the process of negotiating theirConnection Agreement, Transmission Services Agreement andMetering Services Agreement for the Plant. MPPCL undertakesto submit copies of these documents once it has signed theseagreements with NGCP.

>0 Cf Annex "I," hereof.


VI. CONFIDENTIALTREATMENTOFANNEX"R" and "R-l"

22.As earlier mentioned, Annex "R-l" contains numbers,methodology, and calculations which provide valuableinformation and insight on how MPPCL arrives at the ContractPrice and would accordingly reflect MPPCL's bidding strategyfor distribution utilities undertaking competitive process for theselection of their power suppliers and MPPCL's trading in theWESM.

Pursuant to MPPCL's agreement with its lenders, Annex "R-l"likewise contains certain non-public information involving itslenders' financial trade secrets. The information contained inAnnex "R-l", when disclosed together with Annex "R" wouldprovide an indication of MPPCL's bidding strategy fordistribution utilities undertaking competitive process for theselection of their power suppliers and MPPCL's trading in theWESM.

It is submitted therefore that Annexes "R" and "R-l" fall withinthe bounds of proprietary "trade secrets" which are entitled toprotection under the Constitution, statutes, and rules andregulations of this Honorable Commission.

23.Under Rule 4 of the ERC Rules of Practice and Procedure, theHonorable Commission may, upon request of a party anddetermination of the existence of conditions, which wouldwarrant such remedy, treat certain information submitted to itas confidential. Pursuant to such provision, Applicant MPPCLrespectfully requests for the issuance of a protective orderdeclaring Annexes "R" and "R-l" as confidential information, asthe Applicants intend to present it as evidence in the instantApplication.

24. Even though it will be treated as a confidential document and aprotective order will be issued, the rules do not preclude theparties of record or their lawyers access to such confidentialinformation after agreeing to be bound by the terms of theprotective order.

25.The data contained in Annexes "R" and "R-l" constitute "tradesecrets" of Applicant MPPCL; thus, MPPCL has actual andvaluable proprietary interest to protect with respect to suchinformation. The Supreme Court, in the recent case of AirPhilippines Corporation vs. Pennswell, Inc.", had theopportunity to discuss the definition of "trade secrets" and thegreat extent to which the same are protected under our laws. Inother instances, the Supreme Court has held that theconfidential nature of trade secrets protects such fromdisclosure even in the face of the right of inspection given tostockholders12 or the constitutional right to information'3.

u 540 SCRA 215 [2007].12 Philpotts vs. Philippine Manufacturing Company, 40 Phil. 471 (1919).'3 Garcia vs. Board ofInvestments, G.R. 88637 (1989).

ERCCASENO. 2015-214 RCNOTICEOFPUBLICHEARINGJ 08 NOVEMBER2016PAGE160F17

26.In ERC Case No 2008-030, the National Power Corporation's("NPC") application for revised basic generation rates, theHonorable Commission had an occasion to rule on theconfidentiality of NPC's results of operation per power plant forcalendar years 2005 to 2007. The Honorable Commissiondeclared such information as confidential, in this wise:

"Upon review of the documents submitted by NPC, the Commissionfound that the results of operation per plant of NPC for years 2005to 2007 contain vital information necessary in the calculation of itsproduction costs in P/kWh per plant and the correspondingrevenues. This information will serve as initial inputs to NPC'sdecision-making. As such, disclosure of this information will givethe other parties, particularly the other generation companies(Gencos) and the distribution utilities (DUs) with Gencocounterparts, undue advantage in the pricing of electricity in themarket over NPC and other Gencos by using its production costs asbenchmark. Thus, the Commission deems the information asconfidential, which may not be made public, as it may affectadversely the competitive position of NPC and other generationcompanies." .

27. Information which falls within the definition of a trade secret asdefined by jurisprudence is clearly information which merits theconfidential treatment provided for under Rule 4 of the ERCRules of Practice and Procedure. Annexes "R" and "R-l" shouldtherefore be entitled to the protection of confidentialinformation provided under Rule 4 of the ERC Rules of Practiceand Procedure.

28.In view of all the foregoing, Applicants respectfully submit theinstant Application for the approval of the Power SupplyAgreement between MPPCL and INEC for the HonorableCommission's urgent and utmost consideration.

PRAYER

WHEREFORE, premises considered, the Applicants mostrespectfully pray that this Honorable Commission:

1. Issue an Order treating Annexes "R" and "R-1" as confidentialinformation pursuant to Rule 4, Section 1 of the ERC Rules ofPractice and Procedure and prescribing the guidelines for theprotection thereof; and

2. After, due notice and hearing, issue a final approval of the PSAdated 13October 2015 entered into between INEC and MPPCL.

Other reliefs just and equitable are likewise prayed for.

The Commission has set the Application for determination ofcompliance with the jurisdictional requirements, expositorypresentation, pre-trial conference, and evidentiary hearing on26 January 2017 (Thursday) at one thirty in the afternoon(1:30 P.M.) at INEC's Principal Office at Brgy. Suyo,Dingras, Ilocos Norte.


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 concise statementofthe opposition or comment and the grounds relied upon.

All such persons who wish to have a copy of the Applicationmay request from the Applicants that they be furnished with thesame, prior to the date of the initial hearing. The Applicants arehereby directed to furnish all those making such request with copiesof the Application and its attachments, subject to the reimbursementof reasonable photocopying costs. Any such person may likewiseexamine the Application and other pertinent records filed with theCommission during the standard office hours.

WITNESS, the Honorable Chairman JOSE VICENTE B.SALAZAR, and the Honorable Commissioners ALFREDO J. NON,GLORIAVlCTORIAC. YAP-TARUC, JOSEFINAPATRICIAA.MAGPALE-ASIRIT, and GERONIMO D. STA. ANA, EnergyRegulatory Commission, this 8th day of November 2016 at PasigCity.

ATIY. NAT J. MARASIGANC 'ef of Staff

Office of the Chairman and CEO

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