in the matter of the application for approval · pdf fileppa is appended to the application to...

IN THE MATTER OF THEAPPLICATION FOR APPROVALOF THE POWER PURCHASEAGREEMENT (PPA) BETWEENAGUSAN DEL NORTEELECTRIC COOPERATIVE,INCORPORATED (ANECO)AND ASIGA GREEN ENERGYCORPORATION (AGEC), WITHPRAYER FOR THE ISSUANCEOF PROVISIONAL AUTHORITY

ERC CASE NO. 2014-063 RC

AGUSAN DEL NORTEELECTRIC COOPERATIVE,INCORPORATED (ANECO)AND ASIGA GREEN ENERGYCORPORATION (AGEC),

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

NOTICE OF PUBLIC HEARING

TO ALL INTERESTED PARTIES:

Notice is hereby given that on May 23, 2014, Agusan del NorteElectric Cooperative, Incorporated (ANECO) and Asiga Green EnergyCorporation (AGEC) filed an application for approval of their PowerPurchase Agreement (PPA), with prayer for the issuance ofprovisional authority.

In the said application, ANECO and AGEC alleged, amongothers, that:

1. ANECO is an electric cooperative created underPhilippine laws, with office address at Kilometer 2, J.C.Aquino Avenue, Butuan City, Agusan del Norte. It islicensed to operate and maintain an electric distribution

ERC Case No. 2014-063 RCNOTICE OF PUBLIC HEARING/June 9, 2014 of 13

system in the City of Butuan and the Municipalities of ,Buenavista, Cabadbaran, Carmen, Tubay, Jabonga,Kitcharao, Las Nieves, Magallanes, Nasipit, Santiago,and R.T. Romualdez, all in the Province of Agusan delNorte (Franchise Area). A copy of its Certificate ofFranchise is attached to the application to form an integralpart thereof;

2. AGEC is a corporation duly organized and existing underthe laws of the Philippines to, among others, engages inthe exploration, development, utilization, operation, andmaintenance of new and renewable energy resources. Ithas principal office at P-3 Ambangan, Ambago, ButuanCity. It shall install, construct, operate, and maintain the 8MW Asiga Hydro Electric Power Plant (Asiga PowerPlant) in Barangay Pangaylan, Santiago, Agusan delNorte;

3. On June 18, 2013, they entered into a PPA;

4. By and pursuant to Sections 25, 43 (u) and 45 (b) ofRepublic Act No. 9136, otherwise known as the ElectricPower Industry Reform Act of 2001 or the EPIRA, itsImplementing Rules and Regulations (IRR), in relation toRule 20 (B) of the ERC Rules of Practice and Procedure,and other pertinent rules and regulations, they submit theinstant application to the Commission for its dueconsideration and approval of their PPA, particularly, therate structure embodied therein. A copy of the subjectPPA is appended to the application to form an integralpart thereof;

Statement of Facts

5. AGEC shall install, construct, operate, and maintain theAsiga Power Plant with an installed capacity of 8 MW.The proposed development is a run-of-the-river typeproject utilizing two (2) units of Horizontal FrancisHydraulic Turbine Generator Sets. The technicalcharacteristics and aspects of the Asiga Power Plant areattached to the application and made an integral partthereof;


6. Copies of pertinent documents showing AGEC's dueregistration and permit to operate as a generationcompany are appended to the application as follows:

Document AnnexArticles of Incor oration "0"Securities and Exchange Commission (SEC) "E"Certificate of Re istration of said ArticlesGeneral Information Sheet GIS for 2013 "F"Certification from the Board of Investment (BOI) "G"stating that AGEC has shown its intention tore ister therein the 8 MW Asi a Power PlantAmended Environmental Compliance Certificate "H"(ECC) for the 8 MW Asiga Power Plant issuedby the Department of Environment and NaturalResources DENRCertification from the Department of Energy "I"(DOE) upgrading the capacity of AsigaH droelectric Power Pro.ect to 8 MWCertificate of Registration issued by the Bureau "J"of Internal Revenue BIRLatest Audited Financial Statement "K"

7. Meanwhile, ANECO currently sources its energyrequirements from the National Power Corporation(NPC)/Power Sector Assets and Liabilities ManagementCorporation (PSALM) (mix), Abotiz Power Corporation(APC) - Therma Marine, Incorporated (TMI) (diesel), andConal holdings Corporation (CONAL) - Mapalad PowerCorporation (MPC) (diesel). By 2015, it will haveadditional power supply from Sarangani EnergyCorporation (SEC) (coal) and Lake Mainit Hydro - APC(hydropower). A copy of its power suppliers is attached tothe application to form an integral part thereof;

8. PSALM, one of ANECO's current power suppliers,confirmed that it has insufficient capacity to supplyadditional power requirements beyond the contractedenergy and equivalent demand of its existing Contract forthe Supply of Electric Energy (CSEE) with ANECO. Acopy of the letter of Confirmation of Insufficient PowerSupply in Mindanao is, likewise, attached to theapplication to form an integral part thereof;


9. Accordingly, the generating capacity is no longersufficient to meet the required capacity of ANECO. Thus,deficit in power supply in the Province of Agusan delNorte is certain to worsen over time. In view of theforegoing, ANECO deemed it necessary to procureadditional power to address the anticipated shortage insupply;

10. Further, ANECO desires to ensure continuous, reliable,efficient, and affordable supply of power in the Province ofAgusan del Norte with the use of renewable sources ofenergy;

11. By and pursuant to the Commission's Resolution No. 21,Series of 2006, which suspended in the meantime biddingas a method of selecting a power supplier, ANECOdirectly negotiated with AGEC for the construction of 8MW hydropower plant for the supply of electric energythat will complement ANECO's base load capacity fromother suppliers to complete the total energy requirementsthereof as forecasted beginning 2015;

12. After negotiation meetings and a careful evaluation of theterms and conditions of a supply contract, on June 18,2013, they entered into a PPA providing, among others,for AGEC's construction, operation, maintenance, andownership of the 8 MW Asiga Power Plant in Santiago,Agusan del Norte, and for the terms and conditions of thesupply of electricity by AGEC and ANECO's paymenttherefor;

Abstract of the PPA and Other Related Information

13. The following are the salient features of the PPA:

13.1 Term of Contract - The PPA shall remain in fullforce and effect for a period of twenty five (25) yearsfrom the Delivery Period Commencement Date,unless extended or otherwise renewed by ANECOand AGEC in accordance with the PPA;


13.2 Obligations of the Parties - AGEC, subject to theterms and conditions of the PPA and for theduration of the PPA, shall sell and deliver, andANECO shall purchase and receive, the electriccapacity and energy produced by Facility (Product)at the Delivery and Receiving Point, and ANECOshall pay AGEC the Contract Price which isprovided for in the PPA. Further, ANECO agrees toreceive and purchase all the capacity and energyallocated by AGEC to ANECO. AGEC may,however, at its own option, sell and deliver power tothe Wholesale Electricity Spot Market (WESM) orany third party during the term of the contract;

For the avoidance of doubts, AGEC shall not beunder any obligation to sell and deliver the Product,and ANECO shall not be under any obligation toTake and Pay the Product, in the event of forcemajeure as defined in the PPA. Neither shall AGECbe obliged to sell or deliver nor ANECO be obligedto Take and Pay, during scheduled maintenanceperiod which period shall be scheduled by theparties conformably to each party's requirements oras may be mutually agreed upon between theparties;

13.3 Take and Pay Contract - ANECO shall, subject tothe terms and conditions in the PPA, accept alldeliveries allocated by AGEC and ANECO shall payfor the kWh delivered by AGEC as measured byANECO's Billing Meter based on the Contract Price;

13.4 Interconnection - ANECO agrees to interconnectwith AGEC for purposes of delivery and receipt ofthe electric capacity and energy produced by theAsiga Power Plant in accordance with theInterconnection Agreement executed betweenthem, a copy of which is attached to the applicationto form an integral part thereof;

13.5 Delivery and Receiving Point - Power will bedelivered by AGEC and received by ANECO at theformer's substation in Barangay Pangaylan,Santiago, Agusan del Norte. It is the point where


title to, and risk in respect of, the Product shall passfrom AGEC to ANECO;

13.6 Electricity Fees - They agree on the followingfees:

13.6.1 Contract Price - ANECO shall pay for thekWh delivered by AGEC at a rate ofPhP6.50 per kWh, plus all governmentaland WESM charges, where applicable;

13.6.2 Governmental charges - All value-addedtaxes (VAT), sales taxes, goods andservice taxes, excise taxes, import duties,stamp taxes, and similar taxes imposed byany government authority on or withrespect to the Product, or the transactionscontemplated in the PPA, shall be for theaccount of ANECO and shall form part ofthe Contract Price. AGEC's own incometaxes, property taxes, and local businesstaxes are for its own account. In the eventAGEC is required by applicable laws toremit or pay any such governmentalcharges, such amounts will be set forth inthe Invoice for the next subsequent BillingPeriod and shall be due and payable byANECO according to the provisions in thePPA',

13.6.3 WESM Charges - Except for market fees,all other fees and charges imposed by theWESM, where applicable, on or withrespect to the Product that are approved tobe collected from the end-users shall be forthe account of ANECO and shall form partof the Contract Price. Market fees shall befor the sole account of AGEC and shall notbe charged to ANECO as part of theContract Price; and

13.6.4 The Contract Price shall be subject toadjustments to allow the pass-through oflocal inflation rate variations as reflected in


the Consumer Price Index (CPI). Theadjustment, however, shall only apply tothe operations and maintenance (O&M)cost component of the Contract Price usingthe following formula:

Price Adjustment

Where:

Base O&M

PhP CPI Current

PhP CPI Base

= Base O&M x (PhP CPICurrentlPhP CPI Base)

= PhP1.71

= Philippine CPI for all items forthe current month, as publishedby the National Statistics Office(NSO)

= Philippine CPI for all items forthe Month applicable to theDelivery Period

13.7 Prompt Payment Discount - ANECO shall beentitled to a discount equivalent to 2.5% of thebilling for a particular month whenever ANECO paysAGEC the monthly invoice in full within ten (10)days from receipt of such billing;

Commercial Advantages of the Electricity Fees andImpact on ANECO's Overall Rates

14. ANECO's franchise area, like most of Mindanao, hasbeen suffering from insufficient power supply resulting infrequent power outages to the detriment of its customersand local businesses;

15. ANECO desires to guarantee its member-consumers thedelivery of reliable but inexpensive electric power that willsupplement the increasing electricity requirement in itsfranchise area;


16. The PPA is in line with their commitment of providingsafe, quality, efficient, and reliable electric services to themember-consumers of ANECO;

17. Likewise, the cost of electricity generated by the AsigaPower Plant, being a renewable energy source, is lessthan the electricity produced from fossil fuels. Hence,putting up of the Asiga Power Plant will safeguard themember-consumers from the rising petroleum prices;

18. Further, AGEC is embedded to ANECO's sub-transmission system, which means that ANECO'smember-consumers will not be paying the National GridCorporation of the Philippines (NGCP) transmissioncharges, that is at an average of PhP1.20/kWh;

19. Moreover, pursuant to Republic Act No. 9513 or theRenewable Energy Act of 2008 and its IRR, AGEC, beinga developer of renewable energy facilities, is entitled toseveral tax incentives and/or other privileges which willultimately redound to the benefit of ANECO in terms oflower generation rates;

20. To show the effect of the proposed PhP6.50/kWh to thegeneration component of the retail rate of ANECO, a rateimpact simulation is shown below using ANECO'sprojected late 2015 load profile and projected mix ofsuppliers. The tables below show the average generationrate of ANECO if additional supply is procured from an oil-based plant, which is the next readily available powersource absent AGEC, vis-a-vis its rate when AGEC isincluded in its generation mix:

Projected late Weighted

Suppliers 2015 Average Percent Average AverageMonthly Quantity Share Rate Rate

kWh % PhP/kWh PhP/kWhOil-Based 2,102,400.00 7.10 9.29Su lier 1 2,956,500.00 9.99 9.29Su lier 2 4,025,765.00 13.60 9.12 5.2152Su lier 3 6,570,000.004 22.20 4.79Su lier 4 13,938,911.67 47.10 3.01


Suppliers

AGECSu Iier 1Su lier2Su lier3Su Iier 4

Projected late2015 Average

Monthly QuantitykWh

2,102,400.002,956,500.004,025,765.006,570,000.00413,938,911.67

PercentShare%7.109.9913.6022.2047.10

AverageRate

PhP/kWh6.509.299.124.793.01

WeightedAverageRate

PhP/kWh

5.2143

Effective Rate Reduction (PhPO.0009/kWh)

21. A Rate Impact Simulation is attached to the application toform an integral part thereof;

22. In support of the application for approval of the PPA, theyattach the following documents to form integral partsthereof:

Document AnnexANECO's Load Forecast Projections "P"Details of the PPA including Executive Summary, "Q"Sources of Funds and Financial Plans,Breakdown of the base prices of Operation andMaintenance, and Sample Computation of PowerRatesANECO's Distribution Development Program "R"(DDP)Computation of AGEC's Weighted Average Cost "5"of Capital (WACC)ANECO Board Resolution No. 011 Series of "T"2014 authorizing the Board of Directors (BOD)President Dioscoro P. Boco and GeneralManager Horacio T. Santos to filing before the

I

Commission an application for approval of thePPAANECO Board Resolution No. 091 Series of "U"2013 authorizing BOD President Dioscoro P.Boco and General Manager Horacio T. Santos toenter into an Interconnection Agreement andPPA with AGEC


ANECO Board Resolution No. 012 Series of "V"2014 authorizing BOD President Dioscoro P.Boco and General Manager Horacio T. Santos tosign the Verification and Certification of Non-Forum Sho inAGEC Board Resolution 2014-02-0006 "W"authorizing its President, Ronnie Vicente C.Lagnada, to enter into and sign the PPA withANECOAGEC Board Resolution 2014-02-0005 "X"authorizing its President, Ronnie VicenteLagnada to file an application for approval of thePPA with the Commission and to be representedb Diccion Law Firm in such filin

23. They are reserving the right to submit other documents insupport of the approval of the instant application, either inthe course of the hearing or as may be required by theCommission;

Compliance with Pre-Filing Requirements

24. They manifest compliance with the pre-filing requirementsmandated under the IRR of the EPIRA and Rule 6 of theERC Rules of Practice and Procedure, as established bythe following:

24.1 Certificates acknowledging receipt of the instantapplication with annexes to be issued by theLegislative Bodies of the City of Butuan and theProvince of Agusan del Norte;

24.2 Notarized Affidavit of Publication stating that theinstant application had been published in anewspaper of general circulation within .thefranchise area of ANECO; and

24.3 A copy of the complete newspaper issue where theapplication as published, appeared;


Issuance of Provisional Authority

25. All the foregoing allegations are repleaded by reference insupport of the prayer for the issuance of provisionalauthority, pending hearing on the merits;

26. Continuous and stable power supply is indispensable tothe growth and development of a community and vital tothe provision of needed services to the people. ANECO'sexperience of having power supply shortages for the lastfour (4) years has resulted in revenue losses for ANECO,lost business opportunities within its franchise area, andhalted delivery of basic and social services to its member-consumers;

27. Meanwhile, a provisional approval of the subject PPA willenable AGEC to obtain the necessary capitalrequirements to immediately commence the constructionand installation of the Asiga Power Plant, ensuring thatthe project will be implemented as scheduled and theneeded contracted capacity is delivered to ANECO ontime;

28. The basis by which they pray for the issuance of aprovisional authority or interim relief prior to a finaldecision, is anchored on Rule 15 of the ERC Rules of'Practice and Procedure, to wit:

"Section 3. Action on the Motion.-Motions for provisional authority or interimrelief may be acted upon with or withouthearing. The Commission shall act on themotion on the basis of the allegations ofthe application or petition and supportingdocuments and other evidences thatapplicant or petitioner has submitted and thecomments or opposition filed by anyinterested person, if there be any. 11 [Emphasisours.];

29. To further support the grant of a provisional authority, ajudicial affidavit emphasizing the necessity thereof, isattached to the application to form an integral part thereof;

..ERC Case No. 2014-063 RCNOTICE OF PUBLIC HEARING/June 9, 2014 of 13

30. In light of the foregoing and in recognition of the fact thatsubstantial amount of time will be spent in evaluating thedocumentary evidence attached to the instant application,they seek the kind indulgence of the Commission toapprove the instant application, immediately, albeitprovisionally, at the soonest opportune time; and

Prayer

31. Thus, they pray that pending hearing on the merits, aprovisional authority be duly issued for the immediateimplementation of the their PPA, and that after due noticeand hearing, the instant application be duly approved,subject to retroactivity to the date when AGEC startsactual delivery of power to ANECO, in the event that thefinal approval of the PPA be issued after said actualdelivery.

The Commission has set the application for jurisdictionalhearing, expository presentation, pre-trial conference, and evidentiaryhearing on July 10, 2014 (Thursday) at nine o'clock in themorning (9:00 A.M.) at ANECO's Main Office, Km 2, J.C. AquinoAvenue, Butuan City, Agusan del 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 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 Chairperson, ZENAIDA G. CRUZ-DUCUT, and the Honorable Commissioners, GLORIA VICTORIA C.YAP-TARUC, and JOSEFINA PATRICIA A. MAGPALE-ASIRIT,Energy Regulatory Commission, this 9th day of June, 2014 at PasigCity.

ATTY. FRA S SATURNINO C. JUANE ecutive Director III

,\1m/AN CO and AGEC PPN2014-063 RC/nph

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