IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE POWER SUPPLY AGREEMENT (PSA) BETWEEN VISAYAN ELECTRIC COMPANY, INCORPORATED (VECO) AND UNIFIED LEYTE GEOTHERMAL ENERGY, INCORPORATED (ULGEI) ERC CASE NO.2015-155 RC VISAYAN ELECTRIC COMPANY, INCORPORATED (VECO) AND UNIFIED LEYTE GEOTHERMAL ENERGY, INCORPORATED (ULGEI), Applicants. x ----- --------- ---- -----x NOTICE OF PUBLIC HEARING TO ALL INTERESTED PARTIES: Notice is hereby given that on August 24, 2015, Visayan Electric Company, Incorporated (VECG) and Unified Leyte Geothermal Energy, Incorporated (ULGEI) filed an application for approval of their Power Supply Agreement (PSA).
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IN THE MATTER OF THEAPPLICATION FOR APPROVALOF THE POWER SUPPLYAGREEMENT (PSA) BETWEENVISAYAN ELECTRIC COMPANY,INCORPORATED (VECO) ANDUNIFIED LEYTE GEOTHERMALENERGY, INCORPORATED(ULGEI)
ERC CASE NO.2015-155 RC
VISAYAN ELECTRIC COMPANY,INCORPORATED (VECO) ANDUNIFIED LEYTE GEOTHERMALENERGY, INCORPORATED(ULGEI),
Applicants.x ----- --------- ---- -----x
NOTICE OF PUBLIC HEARING
TO ALL INTERESTED PARTIES:
Notice is hereby given that on August 24, 2015, VisayanElectric Company, Incorporated (VECG) and Unified LeyteGeothermal Energy, Incorporated (ULGEI) filed an application forapproval of their Power Supply Agreement (PSA).
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In the said application, VECO and ULGEI alleged, amongothers, that:
The Applicants
1. VECO is a corporation duly organized and existing underand by virtue of the laws of the Republic of thePhilippines, with principal office address at J. Panis St.,Banilad, Cebu City. It is a distribution utility dulyauthorized to provide light and power distribution servicein the Municipalities of San Fernando, Minglanilla,Consolacion and Lilo-an, and the Cities of Naga, Talisay,Cebu and Mandaue, all in the Province of Cebu (theFranchise Area) pursuant to its franchise under RepublicAct No. 9339;
2. ULGEI is a corporation duly organized and existing underthe laws of the Republic of the Philippines with principaladdress at One Corporate Center, Julia Vargas cornerMERALCO Avenue, Ortigas Center, Pasig City;
2.1 ULGEI, as a generation company, falls within theambit of Sections 61 and 292 of Republic Act No.
1 SECTION 6. Generation Sector. - Generation of electric power, a businessaffected with public interest, shall be competitive and open.Upon the effectivity of this Act, any new generation company shall, before itoperates, secure from the Energy Regulatory Commission (ERC) a certificateof compliance pursuant to the standards set forth in this Act, as well as health,safety and environmental clearances from the appropriate governmentagencies under existing laws.Any law to the contrary notwithstanding, power generation shall not beconsidered a public utility operation. For this purpose, any person or entityengaged or which shall engage in power generation and supply of electricityshall not be required to secure a national franchise.Upon implementation of retail competition and open access, the prices chargedby a generation company for the supply of electricity shall not be subject toregulation by the ERC except as otherwise provided in this Act.Pursuant to the objective of lowering electricity rates to end-users, sales ofgenerated power by generation companies shall be value added tax zero-rated.The ERC shall, in determining the existence of market power abuse or anti-competitive behavior, require from generation companies the submission oftheir financial statements.
2 SECTION 29. Supply Sector. - The supply sector is a business affectedwith public interest. Except for distribution utilities and electric cooperatives withrespect to their existing franchise areas, all suppliers of electricity to thecontestable market shall require a license from the ERC.
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9136, otherwise known as the Electric PowerIndustry Reform Act of 20010r the EPIRA;
2.2 While it is a co-applicant, it manifests that this jointapplication shall neither modify, diminish orconstitute a waiver of its rights nor expand itsobligations and responsibilities as a generationcompany under the EPIRA; and
2.3 It has joined in the application as a co-applicant, asrequired by the Commission;
Nature of the Application
3. Pursuant to Section 45(b) of the EPIRA and Rule 20 (8)of the Commission's Rules of Practice and Procedure (theERC Rules), the application is being submitted to theCommission for its due consideration and approval oftheir PSA executed on March 27, 2015
Statement of the Facts
4. VECa previously sourced approximately 120 MW, orabout thirty percent (30%), of its electricity requirementsfor distribution to its customers from the National PowerCorporation (NPC) under a Contract for Supply of Electric
For this purpose, the ERG shall promulgate rules and regulations prescribingthe qualifications of electricity suppliers which shall include, among otherrequirements, a demonstration of their technical capability, financial capability,and creditworthiness: Provided, That the ERG shall have authority to requireelectricity suppliers to furnish a bond or other evidence of the ability of asupplier to withstand market disturbances or other events that may increase thecost of providing service.Any law to the contrary notwithstanding, supply of electricity to the contestablemarket shall not be considered a public utility operation. For this purpose, anyperson or entity which shall engage in the supply of electricity to thecontestable market shall not be required to secure a national franchise.The prices to be charged by suppliers for the supply of electricity to thecontestable market shall not be subject to regulation by the ERG.Electricity suppliers shall be subject to the rules and regulations concerningabuse of market power, cartelization, and other anti-competitive ordiscriminatory behavior to be promulgated by the ERG.In its billings to end-users, every supplier shall identify and segregate thecomponents of its supplier's charge, as defined herein.
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Energy (CSEE) which was subsequently assigned to thePower Sector Assets and Liabilities ManagementCorporation (PSALM). The said CSEE expired onDecember 25,2014 and was not extended;
5. Previously, under the CSEE, NPC/PSALM suppliedpower to VECa from the Unified Leyte Geothermal PowerPlant (the ULGPP and/or the Power Plant) located inarmoc and Kananga, Western Leyte. The PSALMhowever, initiated the selection and appointment ofIndependent Power Producer Administrators (IPPAs) forstrips of energy output of the ULGPP in accordance withthe EPIRA. It issued invitations to bid for the selectionand appointment of IPPAs which shall manage andcontrol the auctioned strips with each strip correspondingto the equivalent and associated energy of 1 MW of theULGPP;
6. an July 29, 2014, VEca submitted a letter-request to thePSALM requesting that the un-awarded bulk power of theULGPP be awarded pro-rata to all existing ULGPP off-takers, including VECa. Such an allocation will have atleast maintained some portion of the supply beingsourced by VECa from the PSALM;
7. However, in a letter dated August 8, 2014, the PSALMinformed VECa that it could not accommodate suchrequest since the bulk power of the ULGPP wasscheduled to be subsequently bid out. Instead, thePSALM advised VEca to consider negotiating its energyrequirements with the winning bidder of the bulk energy,in case of successful privatization, or with the winningbidders of the strips of energy, which were scheduled forturn-over in November 2014;
8. an December 26, 2014, the Independent Power ProducerAdministration (IPPA) Agreement (the AdministrationAgreement) between the PSALM and ULGEI becameeffective whereby the former transferred to the latter themanagement and control over strips of energy associatedwith 40 MW of the capacity of the ULGPP (the strips ofenergy);
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9. In order to ensure sufficiency of supply in its FranchiseArea with the expiration of its CSEE and the privatizationof the ULGPP, VECO solicited offers from the winningbidders of the strips of energy of the ULGPP and receivedproposals from several parties, namely: Vivant EnergyCorporation (VEC), Aboitiz Energy Solutions,Incorporated (AESI), Energy Development Corporation(EDC), Filinvest Development Corporation Utilities,Incorporated (FDCUI), Trans-Asia Oil and EnergyDevelopment Corporation (TA-OIL), and ULGEI. VECO,after evaluation, accepted several proposals, one ofwhich is from ULGEI;
10. On March 27, 2015, they entered into a PSA, subject ofthe application, for the sale and delivery to VECO of therights and obligations of ULGEI in the strips of energy,corresponding to 5 MW;
11. On May 28, 2015, the parties entered into an AmendedPSA (the Amended PSA) reflecting the rebasing of theUnited States (US) Price Index for Capital Equipment andUS Consumer Price Index (CPI) for the AdministrationAgreement of the IPPs for the Strips of the Power Plant.All other terms and conditions of the original PSA wereretained;
12. In entering into the PSA, VECO considered the urgencyof its supply requirements inasmuch as the CSEE hasexpired and could not be extended;
Abstract of the PSA and Other Relevant Information
Salient Features of the PSA. Their PSA contains thefollowing salient terms and conditions:
13. Term. The PSA shall take effect immediately fromEffective Date 3. The obligation of ULGEI to deliverContract Energy and of VECO to purchase the same,shall commence on Operations Effective Date and shallremain in force and effect for seven (7) years after the
3 March 27, 2015 as per Schedule 1.1 of the PSA
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Operations Effective Date, unless sooner terminated inaccordance with the PSA4;
13.1 The obligation of ULGEI with respect to the sale anddelivery of the Contract Energy shall commence,when and upon: (a) the execution of theAdministration Agreement between ULGEI and thePSALM, with conformity of the NPC; (b) theturnover of the management and control of thestrips to the IPPA; (c) all governmentalauthorizations which are required to have beenobtained in connection with the execution, delivery.and commencement of performance of the PSAshall have been obtained and be in full force andeffect; (d) the receipt by both parties of theCommission's approval; and (e) the representationsand warranties of ULGEI contained in the PSA shallbe true and correct in all material respects on andas of Operations Effective Date5;
14. Contract Energy. ULGEI shall supply and deliverContract Energy, whether from the capacity of the PowerPlant or other power plants owned or operated by any ofits affiliates, the WESM or other administrator, to VECO tobe delivered in accordance with Contract EnergySchedule6 at the Delivery Poine specified under the PSA.In case of Force Majeure affecting ULGEI, it shall beVECO's obligation to secure back-up power from thirdparties, at no cost to ULGEI8;
15. Contract Price. VECO shall pay for Contract Energywhich is the sum of the Generation Payment Rate and theAdministration Fee where:
4 Schedule 3.1 of the PSA5 Article 5 of the PSA
6 Schedule 7.1 of the PSA
7 Schedule 7.1.2 of the PSA
8 Article 12.5 of the PSA
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The Generation Payment Rate is PhP4.6629/kWh,subject to the movement of the following indices from theMay 2013 base, for every billing month:
a) The PhP/USD exchange rate published by theBangko Sentral ng Pilipinas (BSP)
b) the US Price Index for Capital Equipment, line 63bb, International Financial Statistics (2010=100)
c) the US CPI, All items, line 64, International FinancialStatistics (2010=100)
d) the CPI for the National Capital Region (NCR), AllItems, (2006=100) as published by the NationalStatistics Office (NSO)
e) the Manufactured Goods Classified Chiefly byMaterials Component of the General WholesalePrice Index for the NCR (1998=100) as published bythe NSO
f) Machinery and Transport Equipment component ofthe General Price Index for the NCR (1998=100) aspublished by the NSO
The Administration Fee is equivalent to PhPO.3200/kWh,subject to the annual escalation or de-escalation of theCPI from the base of the index average in 2013:
a) the CPI shall be the Philippine CPI, (2006=100) aspublished by the NSO, or its succeeding entity, forthe year
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Sample Computation:
Administration Fee Escalation/De-Escalation Formula
Administration Feen_1 = Administration Fee for year nminus 1 (in Peso per kWh)
A
Where:
CPIAverage(n-1)
CPIAverage(n-2)
= average CPI of year n minus 1,as published by the NSO
= average CPI year n minus 2, aspublished by the NSO
Illustrative Example for the Determination of AdjustedAdministration Fee with Base CPI of Average 2013:
Year n 2015 2016Previous Year Administration Fee, 0.3200 0.3298PhP/kWhCPln-1 138.1 142.2
CPln-2 134.0 138.1Adjusted Administration Fee, 0.3298 0.3396PhP/kWhApplicable to Billing Periods January to January to
December 2015 December 2016
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16. Penalty. Any amount in the Billing Statement not paid byVECa on Payment Date shall bear interest, calculated atthe Benchmark Rate plus three percent (3%) per annumfrom the date upon which such amount should have beenpaid to ULGEI;
17. Termination Fee. In the event that the PSA is terminateddue to: (a) the failure of either Party to make any paymentdue under the PSA and such failure shall continue forfifteen (15) days from due date; (b) the bankruptcy ofeither Party; (c) the breach of any of the materialobligations under the PSA which is not cured within thirty(30) days; or (d) the termination of the AdministrationAgreement between the PSALM and ULGEI due tobreach of the latter, or by convenience, by ULGEI, thedefaulting party shall immediately pay to the non-defaulting party the Termination Fee;
17.1 The Termination Fee is computed based on thefollowing:
P = ~ [Ajx (1+ i/12ri]j= 1
Where:
P= Termination Fee
Aj= The product of the Contract Energy for monthj and the Basic Energy Charge prevailing priorto termination
1= Discount rate equivalent to the prevailingninety-one (91)-day treasury bill rate as of thedate of the early termination of the PSA
J= months 1 to n
N= Total number of months remaining under thePSA as of the date of the early termination ofthe said PSA
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18. In support of the application and in compliance with Rule20(B) of the ERC Rules, they attached the followingdocuments as annexes and made integral parts thereof:
AnnexA
B
B-1
C
DEFG
HIJK
DocumentLetter of the PSALM to VECa dated August 8,2014The PSA dated March 27, 2015 between VECaand ULGEIAmendment to the PSA dated May 28, 2015between VECa and ULGEIThe Securities and Exchange CommissionSEC Certificate of Re istration of ULGEIArticles of Incor oration of ULGEI .General Information Sheet GIS of ULGEICertificate of EffectivitThe Transmission Service Agreement (TSA)between the National Transmission CorporationTRANSCa and VECaDistribution Develo ment PlanIPPA A reementRate 1m act Anal sisCD-RaM containing the softcopy of theA lication and the Annexes
19. Rate Implication. An analysis was conducted todetermine the impact of the implementation of the PSA onVECa's generation costs, a copy of which is attached tothe application as Annex "J". The following table showsthe expected rate impact in the event that VECa procurespower from ULGEI under the PSA:
Particular Generation Rate*Billing Period With Reduced With ULGEI
PSALM and no PSALMFour (4)-month averaqe 5.4086 5.7579
Note * Using Base Rate of ULGEI
Average rate using the actual load profile of VECafrom April to July 2014
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Motion for Confidential Treatment of Information
20. ULGEI submits that Annex "I" is subject to certainconfidentiality provisions contained therein, specifically,Clause 25;
21. In view of the foregoing and pursuant to Rule 4 of theERC Rules of Practice and Procedure, ULGEI requeststhat the Commission treat Annex "I" and the informationcontained therein as confidential and not to be disclosedto persons other than the officers and staff of theCommission, as necessary;
22. ULGEI submits one (1) copy of Annex "I" in a sealedenvelope, with the said envelope and each page of thedocument stamped with the word "Confidential";
Prayer
23. Thus, they pray, that the Commission:
a. Issue an Order treating Annex "I" and the informationcontained therein as confidential, and directing theirnon-disclosure to persons other than the officers andstaff of the Commission, as necessary, pursuant toRule 4 of the ERC Rules as well as prescribingguidelines for the protection thereof; and
b. After hearing on the merits, approve with finality thePSA dated March 27, 2015, as amended, betweenVECO and ULGEI, including the rates and fees agreedupon therein.
The Commission has set the application for jurisdictionalhearing, expository presentation, pre-trial conference and evidentiaryhearing on October 29, 2015 (Thursday) at two-thirty in theafternoon (2:30 P.M.) at the ERC Visayas Field Office, st. Mary'sDrive, Banilad, Cebu City.
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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 28th day of September, 2015 at PasigCity.
