\ IN THE MATTER OF THE APPLICATION FOR APPROVAL OF AUTHORITY TO SECURE LOAN FROM THE NATIONAL ELECTRIFICATION ADMINISTRATION (NEA) TO FINANCE APPROVED ·CAPITAL EXPENDITURE (CAPEX) PROJECTS WITH PRAYER FOR PROVISIONAL AUTHORITY

ERC CASE NO. 2013-050 MC

OCCIDENTAL ELECTRIC COOPERATIVE, INC. (OMECO), · Applicant. )(------)(

DECISION

· . Before the Commission for resolution is the application filed on April 17, 2013 by Electric Cooperative, Inc. (OMECO) for the approval of its authority to secure loan from the National Electrification Administration (NEA) to finance its approved capital expenditure (CAPEX) projects, with prayer for provisional authority. · ,

In the said application, OMECO alleged, among others, that:

1. It is an electric cooperative (EC) duly organized and existing under and by virtue of the laws of the Republic of the , with principal offices at San Jose Occidental Mindoro;

2. It is the holder of an exclusive franchise, issued by the National Electrification Commission (NEC), to operate an electric light and power distribution system in the Municipalities of Abra de llog, Calantaan, Magsaysay, Maburao, , Rizal, , San Jose, and Santa Cruz Mindoro, all in the Province of Occidental Mindoro. The '. ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 2 of 10

distribution service in the Municipality of Paluan 1s being provided by its Municipal Government;

3. On June 25, 2009, it filed an application for the approval of its capital expenditure (CAPEX) projects docketed as ERC Case No. 2009-058 MC entitled, "In the Matter of the Application for Approval of Capital Projects - Re: Acquisition, Installation and Construction of 5 MVA Substation in Mompong, Sablayan, Reconductoring!Upgrading and Conversion of Primary Lines and Meter Clustering, with Prayer for Provisional Authority;

4. On December 12, 2011, the Commission issued a Decision approving its proposed CAPEX projects with modifications amounting to One Hundred Seventy-Three Million Nine Hundred Ten Thousand Four Hundred and Fifty-Five Pesos (PhP173,91 0,455.00), broken down, as follows:

PROJECT COST (PhP) PROJECT TITLE 2011 2012 2013 2014 2015 Construction of Mompong 5 MVA Substation for 18,000,000.00 Sablayan & Calintaan - - - - Upgrading of Lines - MAPSAArea 1 222,286.00 447,033.00 479,128.00 284,362.00 325,487.00 Upgrading of Lines - Sablayan Area 1 - 1,728,116.00 1,031,613.00 1,237,183.00 1,581,116.00 Upgrading lines - San Jose Area 1 614,947.00 - - 7,414,331.00 - Upgrading and conversion of Lines - OMECO Areas - 3,463,049.00 617,684.00 2,774,947.00 980,984.00 Upgrading of Lines - MAPSAArea 2 - 41,298.00 298,442.00 919,969.00 2,806,241.00 Upgrading of Lines - Sablayan Area 2 3,703,036.00 - 295,958.00 - 7,817,706.00 Upgrading of Lines - Rizai/Calintaan/ - 1 ,260,611.00 4,382,791.00 1,467,774.00 2,125,094.00 Maqsavsay Upgrading of Lines -San Jose Area 2 and Construction of tie-line from San Jose Switchyard 7,337,686.00 - - - - to Magbay NPC 20 MVA Substation Rehab/Upgrading of Facilities 8,721,070.00 8,847,140.00 10,044,715.00 10,884,915.00 11,711,937.00 Logistics 7,135,821.00 9,234,603.00 2,758,603.00 4,306,341.00 334,372.00 Add-ons 4,000,134.00 3,980,999.00 4,321,068.00 - 5,103,138.00 General Account 1,700,000.00 - - - - Others 7,167,000.00 - - - - TOTAL COST (PhP) 58,601,980.00 29,002,576.00 24,230,002.00 29,289,822.00 32,786,075.00

5. Based on the Decision of the Commission, it applied for a loan accommodation to NEA to finance its CAPEX projects. NEA, on the other hand, granted the loan in the amount of One Hundred Seventy-Three Million Nine Hundred Ten Thousand Four Hundred Fifty-Six Pesos and Forty-Four Centavos (PhP173,91 0,456.44 ); ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 3 of 10

6. In view of the foregoing, it now seeks authority from the Commission to secure loan in the amount applied for or granted by NEA in order to finance its approved CAPEX projects;

7. In support of the instant application, the following documents were attached and were made as an integral part thereof;

a. Audited Financial Statement (AFS) for years 2009-2012;

b. Letter of Approval of NEA;

c. Summary of Projects and/or Equipment Cost Estimate;

d. Details of Specifications of Project and/or Equipments;

e. Bases/Reasonableness of the estimate cost per project/equipment;

f. Loan Amortization Schedules;

g. Commission's Decision dated December 12, 2011 1n ERC Case No. 2009-58 MC;

h. Annual Reinvestment Fund Utilization;

1. Computation of Impact to Rates;

J. Computation of Financial Ratios;

k. Cost Benefit Analysis (Justification, study, computation and benefits resulting from securing the loans); and

I. Loan Profile with NEA (2009- 2012);

8. It prays that, upon filing and initial evaluation of the instant application and pending trial on the merits, a provisional authority be issued, allowing it to secure loans from NEA and upon due notice and hearing, that the same be approved accordingly.

Having found said application sufficient in form and in substance, with the required fees having been paid, an Order and a Notice of Public Hearing, both dated May 27, 2013, were issued setting the case for initial hearing on June 20, 2013. ERC CASE NO. 2013-050 M'c DECISION/December 1, 2014 Page 4 of 10

In the same Order, OMECO was directed to cause the publication of the Notice of Public Hearing, at its own expense, once (1x) in a newspaper of general circulation in the Philippines, with the date of the publication to be made not later than ten (1 0) days before the scheduled date of the initial hearing. It was also directed to inform the consumers within its franchise area, by any other means available and appropriate, of the filing of the instant application, its reasons therefor and of the scheduled hearing thereon.

The Office of the Solicitor General (OSG), the Commission on Audit (COA) and the Committees on Energy of both Houses of Congress were furnished with copies of the Order and the Notice of Public Hearing and were requested to have their respective duly authorized representatives present at the initial hearing.

Likewise, the Offices of the Provincial Governor of Occidental Mindoro and Mayors of the Municipalities within OMECO's franchise area were furnished with copies of the Order and the Notice of Public Hearing for the appropriate posting thereof on their respective bulletin boards.

On June 13, 2013, OMECO filed its "Pre-Trial Brief."

During the June 20, 2013 hearing, only OMECO appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered.

At the said hearing, OMECO presented its proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "A" to "D-1", inclusive. Thereafter, it conducted an expository presentation of its application.

At the termination of the expository presentation, OMECO presented Engr. Celso D. Garcia, its Corporate Plan[ling Section's Officer-in-Charge (OIC), who testified in support of the instant application.

In the course of his direct examination, additional documents were identified and marked as exhibits. The direct examination having been terminated, the Commission propounded clarificatory · questions on the said witness. ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 5 of 10

Thereafter, OMECO made an oral formal offer of evidence.

On November 24, 2014, the Commission issued an Order admitting OMECO's formal offer of evidence and declaring the case submitted for resolution.

DISCUSSION

The Commission's Decision in ERC Case No. 2009-058 MC, dated December 12, 2011, approved OMECO's 2011 to 2015 CAPEX projects requiring a total capital investment of One Hundred Seventy­ Three Million Nine Hundred Ten Thousand Four Hundred Fifty-Five Pesos (PhP173,91 0,455.00).

The said amount will be financed through loans from NEA, subject to the following conditions: a) submission of a progress report with an indication of any variance in the implementation of the projects and time schedule; b) conduct of a competitive bidding for the purchase of major materials in the implementation of the proposed projects, and c) filing an application for the approval of its authority to secure loans and exert efforts in negotiating terms and condition affording longer loan amortization.

The details of OMECO's aforementioned Approved Capital Expenditure (CAPEX) projects for the period 2011 to 2015 are as follows:

Approved Project Cost Source of Project Description (PhP) Financing a) Construction of Mom pong 5 MVA Substation for Sablayan & Calintaan 18,000,000.00 NEA b) Upgrading of Lines-MAP SA Area 1 1,758,296.00 NEA c) Upgrading of Lines-Sablayan Area 1 5,578,028.00 NEA d) Upgrading of Lines-San Jose Area 1 8,029,278.00 NEA e) Upgrading and Conversion of Lines-OMECO Areas 7,836,664.00 NEA f) Upgrading of Lines-MAP SA Area 2 4,065,950.00 NEA g) Upgrading of Lines-Sablayan Area 2 11,816,700.00 NEA h) Upgrading of Lines-Rizai/Calintaan/Magsaysay 9,236,270.00 NEA i) Upgrading of Lines-San Jose Area 2 and Construction of tie-line from San Jose switch yard to Magbay NPC 20 MVA Substation 7,337,686.00 NEA j) Rehab/Upgrading of Facilities 50,209,777.00 NEA k) Logistics 23,769,467.00 NEA I) Add-ons 17,405,339.00 NEA m) General Account 1,700,000.00 NEA n) Others 7,167,000.00 NEA TOTAL 173,910,455.00 ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 6 of 10

Shown below are OMECO's Audited Financial Statements (AFS) and the actual financial indicators for the period 2009 to 2012:

AUDITED II PROJECTED II I Particulars I ~009 I ~010 I ~011 I ~01~ I ~013 I ~014 I Total Assets 33~,614A27 321,242,~66 m,212,2~4 443,~o2,o~~ o77}~1,~1o o76,31M14

Totalliabiliues 3~~}23,~3~ 4n214,6oo 436,~~~~~~2 o26}14,1~1 64~,3~1}7~ o14A1o,~32 1 I ~mbe~s E~uizy (o~,1~~,o11) (1~1,~71,6~~) (107}67}~~) (~2,~61,611) (62,o9~,~64) 61,~~M~2 I Current Assets ~9,621,69~ 1~1,~23,62~ 11o,63~}67 10 1,~61,33~ 167,~0~,1~6 216,9~4M~ Quic~ Assets ~2,o73}29 ~6,277,~6~ 1~3,~3~,~2~ 123,777}~2 1o~,8~6,o66 13M17,3~4 1

Current liabiliues 193,332A43 2~1,oo6}o3 m}o6A~~ 24o,69o,3~~ 337A~2,3~1 2~1,91~,1~3 i O~erann~ Revenues 3~~,9o6A41 4o1}1o,~~~ o~M~1A~o o7~,314,o~6 o7~,~~~~~7~ 6o~,9~~}o2 O~erann~ E)\Oenses 4~U6am~ 4o3,~3~}23 o1~,~37}3~ 0~2}1~,212 o7 4,262,~71 6o4,~22,o~2 Net lncome(loss) (4~A28,1~7) (2~,3~4,3~0) (24,6o3,o44) (24M7,947) (33A4o,2~~) (23,~o~,1~o) Net Income belore Interest &ae~r. (1M9,o69) 1~,1o7.~4o 11,017,~16 12,~48,~~~ 11,374,16~ 23A~~.3~2 • I I Pro~sions lor Reinvestment 3,~0~,067 2,o81A71 2~3,~33 ~,62o,284 M74}~o ~,4~~}0~ Net Uulizy Plant 22~,~n}2~ 21M1~,346 212,o72,o27 2~~~~~1,20~ 392,~o7,8o2 30~,31~,974 I I RnanciaiAna~sis Ratio I 2009 I 2010 I 2011 I 2012 II 2013 II 2014 I

Debt Ratio 1.1788 1.3174 1.3274 1.1867 1.1084 0.8926 I Debito Equi~ ratio (6.5933) (4.1503) (4.0548) (6.3566) (10.2285) 8.3106

Current Ratio 0.5153 0.5052 0.6506 0.6181 0.4974 1.07 47 i I Quick Ratio 0.4788 0.4281 0.5797 0.5038 0.4471 0.6875 I Sales to Net Utili~ Plant Ratio 1.6912 2.0681 2.3926 1.9908 1.4512 1.8417 Net Profit Margin (0.1039) (0.0628) (0.0485) (0.0425) (0.0587) (0.0363) Retum on Assets (0.0031) 0.0316 0.0350 0.0271 0.0197 0.0406 Retum on Equi~ 0.0171 (0.0996) (0.1069) (0.1454) (0.1817) 0.3782 !

Based on the above tables, OMECO's financial condition can be summarized as follows:

a) The projection for the year 2014 in its plant property and equipment is attributed to the increase in the assets to be acquired from the loan. The accumulated depreciation will ERG CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 7 of 10

increase due to the depreciation expenses at a rate of nine percent (9%) per year;

b) The increases in its non-current liabilities are based on the cost of the projects to be loaned from NEA;

c) The increase in its current and quick ratio for the year 2014 is due to the increase in its projected net cash and accounts receivables;

d) Its sales to asset ratio in the year 2014 are 1.93:1. The increase in its average total assets is due to the projected utility of its plant and cash; and

e) Its net loss for the year 2014 is projected to be Twenty-Three Million Nine Hundred Fifty-Eight Thousand One Hundred Five Pesos (PhP23,958, 105.00) of a net profit margin of (3.5366%) due to the interest expense related to additional loans while the project is still on-going.

The implementation of OMECO's approved CAPEX projects, benefits will come in the form of Technical Loss Reduction and subsequent Non-Technical Loss Reduction. The tangible benefits from its reliability projects will be realized from the avoided losses of revenue due to power interruptions.

A perusal of the evidence presented herein showed that the approval of OMECO's application for authority to secure loan is in accordance with the provisions of R.A. 9136 and Section 20 (e)1 of Commonwealth Act No. 146 (C.A. 146), as amended or the "Public Service Act", and will redound to the benefit of the electricity consumers in terms of continuous, reliable and efficient power supply as mandated by Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (Section 2. Declaration of Policy - (b) "to ensure the quality, reliability, security and affordability of the supply of electric power'}.

1 "Sec. 20 Acts requiring the approval of the Commission. Subject to established limitations and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had- xxx

(e) Hereafter to issue any stock or stock certificates representing an increase of capital; or issue any share of stock without par value; or issue any bonds or other evidence of indebtedness payable in more than one year from the date of issuance thereof, provided that it shall be the duty of the Commission after hearing, to approve any such issue maturing in more than one year from the date thereof, when satisfied that the same is to be made in accordance with law, and the purpose of such issue be approved by the Commission." ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 8 of 10

WHEREFORE, the foregoing premises considered, the application filed by Occidental Mindoro Electric Cooperative, Inc. (OMECO) for the approval of its authority to secure loan from the National Electrification Administration (NEA) to finance its approved capital expenditure (CAPEX) projects, with prayer for provisional authority is hereby APPROVED, subject to the following conditions:

1) The total loan amount shall be One Hundred Seventy­ Three Million Nine Hundred Ten Thousand Four Hundred Fifty-Five Pesos (PhP173,91 0,455.00);

2) The proceeds of the loan shall not be used, even temporarily, for any purpose other than the purpose stated in the application;

3) The proceeds of the loan and corresponding CAPEX shall be recorded in a separate book of accounts;

4) The interest on the loan shall not be utilized or charged to fixed assets procured from the proceeds of the said loan;

5) In the event that OMECO incurs penalty charges due to default in payment or arrearages, the same shall not be allowed to be recovered by OMECO from its consumers;

6) OMECO shall ensure that the implementation of its approved CAPEX programs shall be financed by long-term loans commensurate with the life of the project subject for financing;

7) Upon completion of the projects, an ocular inspection will be conducted to validate the recording of the subject assets and corresponding expenditures in OMECO's books of accounts;

8) OMECO is required to submit a progress report of the projects funded from the proceeds of the loan after the receipt of this Decision, as long as the loan has not been fully paid or a portion thereof remains outstanding for proper monitoring of its compliance (accompanied by a sworn statement), which includes the following:

8.1 The actual loan availment and annual amortization schedule showing the principal and the interest ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 9 of 10

payment of the loan and exchange rate at the time of the payment (detailed per loan); and

8.2 The actual CAPEX fund implementation showing the following:

a) Accumulated Reinvestment Fund from previous year's collection;

b) Current collection from Reinvestment Fund and other sources, such as subsidy;

c) Amortization of old loans associated with CAP EX;

d) Amortization of new loans associated with CAP EX;

e) Permit fees; and

f) Excess fund or shortfall.

SO ORDERED.

Pasig City, December 1, 2014.

. t1r~ ENAIDA G. CRUZ-D~}CUT Chairperson ~

aA _. fl~£7j_ G~~~TOR~A ·. YAP-TARUC Commissioner · Comm1ss ner

JOSEFINA PATR® MAGPALE-ASIRIT C~~~~~ioner tag/glo/n~ ERC CASE NO. 2013-050 MC DECISION/December 1, 2014 Page 10 of 10

Copy Furnished:

1. Lerios-Amboy and Delos Reyes Law Office Atty. Ditas A. Lerios-Amboy, Atty. Precious Ellen L. Pingol and Atty. Marvey Jay A. Gonzales Counsel for OMECO Units 1609-1610, Tycoon Centre Pearl Drive, Ortigas Center, Pasig City 1605

2. Occidental Mindoro Electric Cooperative, Inc. (OMECO) San Jose, Occidental Mindoro

3. Office of the Solicitor General 134 Amorsolo Street, Legaspi Village Makati City, Metro Manila

4. Commission on Audit Commonwealth Avenue Quezon City, Metro Manila

5. Senate Committee on Energy GSIS Bldg. Roxas Blvd., Pasay City Metro Manila

6. House Committee on Energy Batasan Hills, Quezon City, Metro Manila

7. Office of the Governor Province of Occidental Mindoro

8. Office of the Municipal Mayor Abrade llog, Occidental Mindoro

9. Office of the Municipal Mayor Calantaan, Occidental Mindoro

10. Office of the Municipal Mayor Magsaysay, Occidental Mindoro

11. Office of the Municipal Mayor Maburao, Occidental Mindoro

12. Office of the Municipal Mayor Paluan, Occidental Mindoro

13. Office of the Municipal Mayor Rizal, Occidental Mindoro

14. Office of the Municipal Mayor Sablayan, Occidental Mindoro

15. Office of the Municipal Mayor San Jose, Occidental Mindoro

16. Office of the Municipal Mayor Santa Cruz, Occidental Mindoro