Republic of the Philippines ENERGY REGULATORY COMMISSIO San Miguel Avenue, Pasig City
IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE INTERIM POWER SUPPLY AGREEMENT (IPSA) BETWEEN MANILA ELECTRIC COMPANY (MERALCO) AND PANASIA ENERGY, INC. (PANASIA)
ERC CASE NO~ 2014-042 RC
MANILA ELECTRIC COMPANY (MERALCO), Applicant. DOCKliTliD x------x Date: .~~!3,f.?~.~.,.~rm. -my: _ ••.ttY.:&llU"-__
ORDER
On April 10, 2014, Manila Electric Company (MERALCO) filed an application for the approval of its Interim Power Supply Agreement (IPSA) with Panasia Energy, Inc. (PANASIA).
In the said application, MERALCO alleged, among others, the following:
1. It is a private corporation existing under the laws of the Republic of the Philippines, with principal office located at Lopez Building, MERALCO Center, Ortigas Avenue, Pasig City;
2. It has a legislative franchise to operate and maintain a distribution system in the Cities/Municipalities of Metro Manila, Bulacan, Cavite and Rizal and certain Cities/Municipalities/Barangays in 8atangas, Laguna, Quezon and Pampanga, pursuant to Republic Act No. 9209, and is authorized to charge all its customers for ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 2 of 19
their electric consumption at the rates approved by the Commission;
3. PANASIA is a corporation duly organized and existing under the laws of the Republic of the Philippines, with office address at E-3204-B Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City. It operates and manages the energy output of the 540 MW diesel-fired combined cycle power plant in Limay, Bataan (Limay Plant);
4. Based on the power supply forecast of the System Operator, National Grid Corporation of the Philippines (NGCP), for the supply period April to June 2014, the reserve capacity will be below the required Contingency Reserves due to scheduled maintenance shutdowns and forced outages of major baseload coal- and gas-fired power plants in Luzon;
5. In view thereof, there is a need for it to source the corresponding deficiency from interim bilateral supply agreements with power suppliers with available uncontracted capacity, to mitigate exposure to the Wholesale Electricity Spot Market (WESM), for the supply period April to June 2014. Under Section 45 (b) of Republic Act No. 9136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA), it is provided that "distribution utilities may enter into bilateral power supply contracts subject to review by the ERG xxx'" ,
6. On April 8, 2014, it executed an IPSA with PANASIA for the purchase of up to 270 MW of electric power on a non- firm basis from trading interval 1000H to 2100H during Mondays to Saturdays from the Limay Plant;
7. The IPSA it executed with PANAS lA, a copy of which is attached to the application as Annex "B" and made an integral part thereof, contains the following salient .features:
"Article 1 Term and Effectivity
1.1 Term of Agreement
1.1.1 This Agreement shall become effective immediately upon issuance of the Final ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 3 of 19
Approval (FA) by the ERC and shall expire on June 30, 2014 ("Term"), unless terminated earlier in accordance with the terms of this Agreement or extended by the Parties.
1.1.2 Parties may extend the Term of the Agreement. Unless otherwise agreed upon by the Parties, the terms and conditions of this Agreement shall continue to apply during any extension of the Tem;
1.2 ERC Approval
1.2.1 Within five (5) days after the date of this Agreement, MERALCO shall file an application with the ERC for the approval of this Agreement (including the Contract Price, as defined in Section 4.1) ("ERC Application"). MERALCO shall be solely responsible for the preparation and filing of the ERC Application.
1.2.2 Power Supplier shall endeavor to cooperate with MERALCO with respect to the ERC Application.
1.2.3 If in connection with the ERC Application, the ERC FA requires any portion of the Contract Price to be adjusted, the parties may agree to renegotiate the terms of this Agreement, within seven (7) days from the issuance thereof. If upon renegotiation, the Power Supplier finds the terms unacceptable, it may, at its option, terminate this Agreement immediately.
Article 2. Sale and Purchase of Contract Energy
2.1 Supply of Power
Subject to the terms and conditions of this Agreement:
2.1.1 Immediately upon effectivity of this Agreement p'ursuant to Section 1.1.1, Power Supplier shall make available, sell ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 4 of 19
and deliver to MERALCO and MERALCO shall purchase from Power Supplier the Contract Energy at the Contract Price.
2.1.2 Power Supplier shall not, without MERALCO's prior written consent, sell, divert, transfer, dedicate, reserve or assign all or any portion of the Contract Energy to any Person other than MERALCO.
2.1.3 Power Supplier shall not be entitled to any planned/scheduled outage allowances.
2.1.4 Power Supplier shall not be obliged to deliver any energy from the Plant during instances of force majeure, outages which are considered as "forced or unplanned outage" in nature, or other reasons similar to the foregoing. Moreover, in case of any force majeure, forced or unplanned outage or deration, or any other similar reason which results in the available capacity falling below the Contract Energy, Power Supplier shall not be obliged to provide for the corresponding shortfall. In such a case, MERALCO shall procure replacement power from the WESM.
xxx
Article 4. Contract Price, Billing and Payment
4.1 Contract Price
The Contract Price is the straight energy price of PhP13.26/kWh (Value-Added Tax [VAT] exclusive ).
xxx
4.3 Payments
4.3.1 Provided that MERALCO receives the Final Invoice within the time set forth in Section 4.2, each Final Invoice shall be due and payable not later than the last day of the calendar month following the month in ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 5 of 19
which the end of the Billing Period for such Final Invoice relates; provided that if such day is not a business day, then the Final Invoice shall be due and payable on the .next succeeding business day (each such date, a "Payment Date"); provided further that MERALCO shall not be required to make payment on any Final Invoice that is manifestly in error, apparently invalid or not in the form or substance contemplated by this Agreement.
4.3.2 If MERALCO disputes all or any portion of a Final Invoice for a reason other thana manifest error in, or the patent invalidity of, such Final Invoice, MERALCO shall, nonetheless, pay the full amount of such Invoice. Any payment by MERALCO under this Section is without prejudice to MERALCO's right at a later date to dispute, protest or question any amount so paid.
xxx
Article 5. Taxes, Fees and Costs
5.1 Responsibility for Taxes, Fees and Costs
5.1.1 Power Supplier shall be responsible for and shall make timely payment of the following amounts:
(a) WESM Costs attributable to Power Supplier;
(b) Benefits to Host Communities Charges; and
(c) VAT on the foregoing amounts, if any.
Power Supplier shall also be liable for the payment of all other existing taxes, fees, charges and costs (including penalties) arising from this Agreement that properly pertain to the business of Power Supplier. ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 6 of 19
5.1.2 MERALCO shall be responsible for and shall make payment of the following amounts in connection with the purchase of Contract Energy:
(a) VAT on Contract Energy in accordance with SIR Memorandum Circular No. 61-2005 and ERC Resolution No. 20-2005, except in respect of any portion thereof that applies to VAT zero-rated and VAT- exempt customers of MERALCO;
(b) WESM line rental charges for the transmission of Contract Energy from the Plant to the Delivery Point;
(c) NGCP Charges with respect to the Contract Energy; and
(d) WESM Costs attributable to MERALCO.
Notwithstanding this Section, "MERALCO shall, at all times, be liable for payment of all other existing taxes, fees, charges and costs (including penalties) arising from this Agreement that properly pertain to the business of MERALCO.
xxx
Article 9. Termination
9.1 Either Party shaH have the right to terminate this Agreement by serving thirty (30)-day advance written notice to the other due to violation of any of the provisions hereof or any of the grounds provided for herein, without prejudice to Section 1.2.3 whenever applicable; Provided, that the termination under this Section shall not prejudice the right of the aggrieved Party to seek reimbursement or indemnification from the Party at fault, for any damages or losses that may be incurred as a result of the termination.
9.2 This Agreement is deemed terminated if: ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 7 of 19
(a) After forty (40) Days from filing of the ERC Application, the ERC has not issued an ERC FA of this Agreement; or
(b) After ERC FA has been issued, Power Supplier is not amenable to any changes in the terms and conditions of the Agreement, including the rate, as may be provided in the ERC FA, pursuant to Section 1.2.
9.3 In the event of pre-termination of this Agreement on grounds as provided in this Agreement, MERALCO shall purchase energy from the WESM.
xxx"
8. In accordance thereto, the simulated delivered price under the IPSA for the months of April to June 2014 is PhP13.56 per kWh as shown in the sample calculation below:
Rate Impact of Limay Interim PSA April 2014 • June 2014
Dispatch cerlVered Price • Cost if Sourced capacity GWh PHP/kWh from WESM IPHP/kWhl MW Anr Mav Jun Apr Mav Jun Anr Mav Jun Limy IPSA 270 64.80 61.56 71.28 13.5600 13.5600 13.5600 25.0194 22.1644 26.1507 PCF 32.26% 31.67% 35.48%
• Inclusive of Une Rental Charge: PHP/kWh Lillay 0.3000
Impact to MERALCO Generation Charge Anr 2014 May 2014 Jun 2014 Apr 2014 to Jun 2014 Gen Charge Rate ImDact GenCharge Rate moact Gen Charge Rate ImDact OveraD Rate Jrmact PI kWh PI kWh MPhP PI kWh PI kWh MPhP PI kWh P1kWh MPhP P/kWh I MPhP .Without Umay IPSA 7.6897 6.5696 7.2252 With Umay IPSA 7.4044 -0.2853 -742.57 6.3752 -0.1944 -529.7 6.8943 -0.3310 -897.5 -0.2699 I -2,169.12
Impact to WESM Exposure Apr 2014 May 2014 Jun 2014 %WESM %WESM %WESM inc I (dec) inc I (dec) inc I (dec) Share Share Share Without Umay IPSA 12.58% 7.39% 8.19% With Umay IPSA 10.09% -2.49% 5.13% -2.26% 6.17% -2.63%
9. As seen above, for the months of April to June 2014, the simulated delivered price under the IPSA with PANASIA would result in cost savings in the blended generation rate for the months of April, May and June 2014 of about PhP(0.2853) per kWh, PhP(0.1944) per kWh and PhP(0.3310) per kWh, respectively. This translates into ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 8 of 19
an overall savings of PhP(0.2699) per kWh for the period from April to June 2014;
10. However, if the IPSA it executed with PANASIA is not implemented during said period when the reserve capacity will be below the required contingency reserves, MERALCO will be constrained to source from the WESM, where the simulated costs for April, May and June 2014 are PhP25.0194 per kWh, PhP22.1644 per kWh and PhP26.1507 per kWh, respectively. It is to be noted that these costs can increase further considering the high volatility of WESM prices and such very tight supply under thin reserve margin conditions. Thus, it is essential and urgent that the instant application be approved in order to shield the end-users from the volatility of WESM prices for the period from April to June 2014;
11. There is a paramount urgency and necessity to implement the subject IPSA in order to ensure continuous and reliable electricity for its customers;
12. In support of the instant application, the Judicial Affidavit of Mr. Ciprinilo C. Meneses, Head of its Energy Sourcing Office, is attached to the application as Annex "C"; and
13. It prays that after hearing on the merits, a Decision be immediately rendered approving the IPSA it executed with PANASIA.
Finding the said application to be sufficient in form and in substance with the required fees having been paid, the same is hereby set for jurisdictional hearing, pre-trial conference, expository presentation and evidentiary hearing on May 21, 2014 (Wednesday) th at two 0' clock in the afternoon (2:00 P.M.) at the 15 Floor, Pacific Center Building, San Miguel Avenue, Pasig City.
MERALCO is hereby directed to cause the publication of the attached Notice of Public Hearing, at its own expense, twice (2x) for two (2) successive weeks in two (2) newspapers of general circulation in the Philippines, with the date of the last publication to be made not later than ten (10) days before the date of the scheduled initial hearing. It is 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. ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 9 of 19
Let copies of the application, this Order and the attached Notice of Public Hearing be furnished the Office of the Solicitor General (OSG), the Commission on Audit (COA), and the Committees on Energy of both Houses of Congress. They are hereby requested, if they so desire, to send their duly authorized representatives at the scheduled hearing.
Likewise, let copies of this Order and the attached Notice of Public Hearing be furnished the Offices of the Provincial Governors of and the Mayors of the Cities and Municipalities within the franchise area of MERALCO for appropriate posting thereof on their respective bulletin boards.
MERALCO is hereby directed to furnish all those making requests therefor with copies of the application and its attachments, subject to reimbursement of reasonable photocopying costs.
On the date of the initial hearing, MERALCO must submit to the Commission. its written Compliance with the jurisdictional requirements attaching therewith, methodically arranged and duly marked, the evidences on the actual posting and publication of the Notice of Public Hearing consisting of certifications issued to that effect, signed by the aforementioned Governors and Mayors or their duly authorized representatives, bearing the seals of their offices, and the affidavits of the Editors or Business Managers of the newspapers where the said Notice of Public Hearing were published together with the complete issues of the said newspapers, and such other proofs of compliance with the requirements of the Commission.
MERALCO and all other interested parties are directed to submit, at least five (5) days before the date of initial hearing and pre- trial conference, their respective Pre-trial Briefs containing, among others:
(a) a summary of admitted facts and proposed stipulation of facts;
(b) the issues to be tried or resolved;
(c) the documents or exhibits to be presented, stating the purposes thereof and proposed markings therefore; and ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 10 of 19
(d) the number and names of the witnesses, with their written testimonies in an individual affidavit form, to be attached to the Pre-trial Brief.
Failure of MERALCO to submit the required Pre-Trial Brief and Judicial Affidavits of its witnesses within the prescribed period shall be a ground for cancellation of the scheduled hearing, and the resetting of which shall be six (6) months from said date of cancellation.
As part of the pre-trial conference, MERALCO must also be prepared to make an expository presentation of its application, aided by whatever communication medium that it may deem appropriate for the purpose, in order to put in plain words and explain, for the benefit of the consumers and other concerned parties, what the application is all about and the reasons and justifications being cited in support thereof.
SO ORDERED.
Pasig City, April 21, 2014.
FOR AND BY AUTHORITY OF THE COMMISSION:
)) ;{, {~ IDA G. CRUZ-DUCUT Chairperson ~ V ~ ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 11 of 19
Copy Furnished:
1. Manila Electric Company (MERALCO) 7th Floor, Lopez Building, Ortigas Avenue, Pasig City
2. Office of the Solicitor General (OSG) 134 Amorsolo Street, Legaspi Village, City of Makati 1229
3. Commission on Audit (COA) Commonwealth Avenue, Quezon City 1121
4. Senate Committee on Energy GSIS Building, Roxas Boulevard, Pasay City 1300
5. House of Representatives Committee on Energy Batasan Hills, Quezon City 1126
6. President Philippine Chamber of Commerce and Industry (PCCI) 3rd Floor, ECC Building, 355 Sen. Gil Puyat Ave., Makati City
7. The City Mayor City of Manila
8. The City Mayor Quezon City
9. The City Mayor City of Caloocan
10. The City Mayor City of Makati
11. The City Mayor City of Malabon
12. The City Mayor City of Mandaluyong
13. The City Mayor City of Muntinlupa ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 12 of 19
14. The City Mayor City of San Jose del Monte, Bulacan
15. The City Mayor City of Valenzuela
16. The City Mayor City of Pasig
17. The City Mayor Pasay City
18. The City Mayor City of Parafiaque
19. The City Mayor Cavite City
20. The City Mayor Trece Martirez City
21. The City Mayor Las Pifias City
22. The City Mayor San Juan City
23. The City Mayor Lucena City
24. The City Mayor Batangas City
25. The City Mayor San Pablo City, Laguna
26. The City Mayor City of Marikina
27. The City Mayor Antipolo City, Rizal
28. The City Mayor Tagaytay City, Cavite
29. The City Mayor Calamba, Laguna ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 13 of 19
30. The Municipal Mayor Navotas, Metro Manila
31. The Municipal Mayor Taguig, Metro Manila
32. The Municipal Mayor Pateros, Metro Manila
33. The Municipal Mayor General Aguinaldo, Cavite
34. The Municipal Mayor Magallanes, Cavite
35. The Municipal Mayor Amadeo, Cavite
36. The Municipal Mayor Indang, Cavite
37. The Municipal Mayor Mendez, Cavite
38. The Municipal Mayor Alfonso, Cavite
39. The Municipal Mayor Imus, Cavite
40. The Municipal Mayor Kawit, Cavite
41. The Municipal Mayor Noveleta, Cavite
42. The Municipal Mayor Bacoor, Cavite
43. The Municipal Mayor Maragondon, Cavite
44. The Municipal Mayor Ternate, Cavite ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 14 of 19
45. The Municipal Mayor Gen. Trias, Cavite
46. The Municipal Mayor Naic, Cavite
47. The Municipal Mayor Rosario, Cavite
48. The Municipal Mayor Tanza, Cavite
49. The Municipal Mayor Dasmarinas, Cavite
50. The Municipal Mayor Gen. Mariano Alvarez, Cavite
51. The Municipal Mayor Silang, Cavite
52. The Municipal Mayor Carmona, Cavite
53. The Municipal Mayor Cainta, Rizal
54. The Municipal Mayor Taytay, Rizal
55. The Municipal Mayor Teresa, Rizal
56. The Municipal Mayor Jala-jala, Rizal
57. The Municipal Mayor Cardona, Rizal
58. The Municipal Mayor Baras, Rizal
59. The Municipal Mayor Angono, Rizal ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 15 of 19
60. The Municipal Mayor Tanay, Rizal
61. The Municipal Mayor Pililla, Rizal
62. The Municipal Mayor Morong, Rizal
63. The Municipal Mayor Binangonan, Rizal
64. The Municipal Mayor Rodriguez, Rizal
65. The Municipal Mayor San Mateo, Rizal
66. The Municipal Mayor Meycauayan, Bulacan
67. The Municipal Mayor Obando, Bulacan
68. The Municipal Mayor Marilao, Bulacan
69. The Municipal Mayor Norzagaray, Bulacan
70. The Municipal Mayor Sta. Maria, Bulacan
71. The Municipal Mayor Angat, Bulacan
72. The Municipal Mayor Doria Remedios Trinidad, Bulacan
73. The Municipal Mayor Plaridel, Bulacan
74. The Municipal Mayor Malolos, Bulacan
75. The Municipal Mayor Calumpit, Bulacan ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 16 of 19
76. The Municipal Mayor
Pulilanj Bulacan 77. The Municipal Mayor Hagonoy, Bulacan
78. The Municipal Mayor Paombong, Bulacan
79. The Municipal Mayor Bustos, Bulacan
80. The Municipal Mayor Guiguinto, Bulacan
81. The Municipal Mayor Pandi, Bulacan
82. The Municipal Mayor Bocaue, Bulacan
83. The Municipal Mayor Bulacan, Bulacan
84. The Municipal Mayor Balagtas, Bulacan
85. The Municipal Mayor Baliwag, Bulacan
86. The Municipal Mayor San Rafael, Bulacan
87. The Municipal Mayor San Miguel, Bulacan
88. The Municipal Mayor San r1defonso, Bulacan
89. The Municipal Mayor Binan, Laguna
90. The Municipal Mayor Sta. Rosa, Laguna
91. The Municipal Mayor Victoria, Laguna ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 17 of 19
92. The Municipal Mayor Nagccirdan, Laguna
93. The Municipal Mayor Magdalena, Laguna
94. The Municipal Mayor Calauan, Laguna
95. The Municipal Mayor Pila, Laguna
96. The Municipal Mayor Sta. Cruz, Laguna
97. The Municipal Mayor Liliw, Laguna
98. The Municipal Mayor San Pedro Tunasan, Laguna
99. The Municipal Mayor Alaminos, Laguna
100. The Municipal Mayor Rizal, Laguna
101. The Municipal Mayor Los Banos, Laguna
102. The Municipal Mayor Cabuyao, Laguna
103. The Municipal Mayor Bay, Laguna
104. The Municipal Mayor Dolores, Quezon
105. The Municipal Mayor Sampaloc, Quezon
106. The Municipal Mayor Pagbilao, Quezon ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 18 of 19
107. The Municipal Mayor Lucban, Quezon
108. The Municipal Mayor Tayabas, Quezon
109. The Municipal Mayor Candelaria, Quezon
110. The Municipal Mayor Sariaya, Quezon
111. The Municipal Mayor San Antonio, Quezon
112. The Municipal Mayor Mauban, Quezon
113. The Municipal Mayor Tiaong, Quezon
114. The Municipal Mayor Majayjay, Quezon
115. The Municipal Mayor Luisiana, Quezon
116. The Municipal Mayor Sto. Tomas, Batangas
117. The Municipal Mayor San Pascual, Batangas
118. The Municipal Mayor Candaba, Pampanga
119. The Municipal Mayor San Simon, Pampanga
120. The Municipal Mayor Apalit, Pampanga
121. Office of the Governor Province of Rizal
122. Office of the Governor Province of Laguna ERC CASE NO. 2014-042 RC ORDER/April 21, 2014 Page 19 of 19
123. Office of the Governor Province of Batangas
124. Office of the Governor Province of Cavite
125. Office of the Governor Province of Pampanga
126. Office of the Governor Province of Quezon
127. Panasia Energy, Inc. (PANASIA) E-3204-B Philippine Stock Exchange Center, Exchange Road, Ortigas Center, Pasig City
\ ~\