Republic of the Philippines ], ENERGY REGULATORY COMMISSION San Miguel Ave., Pasig City \ 'l.. IN THE MATTER OF THE JOINT APPLICATION FOR APPROVAL OF THE POWER SUPPLY CONTRACT (PSC) .. ENTERED INTO BY AND BETWEEN DAVAO DEL SUR ELECTRIC COOPERATIVE, INC. (DASURECO) AND SAN .MIGUEL CONSOLIDATED POWER CORPORATION .(SMCPC), WITH PRAYER FOR CONFIDENTIAL TREATMENT OF INFORMATION ERC CASE NO. 2016-106 RC DAVAO DEL SUR ELECTRIC COOPERATIVE, INC. (DASURECO) AND SAN MIGUEL CONSOLIDATED POWER CORPORATION (SMCPC), Applicants. ](- - - - - - - - - - - - - - - - - - - - - -]( ORDER On 29 April 2016, Davao del Sur Electric Cooperative, Inc. (DASURECO) and San Miguel Consolidated Power Corporation (SMCPC) filed their Joint Application dated ~1 April 2016 (Joint Application) for approval oftheir Power Supply Contract (PSC) dated 26 April 2016, with prayer for provisional authority and confidential treatment of information. In support of said APplic:~io/YSURECO and SMCPC alleged, among others, the followin~ I .. -, ERC CASE NO. 2016-106 RC Order/15 September 2016 Page 20f23 The Joint Applicants 1. DASURECO is a non-stock, non-profit electric cooperative duly organized and existing under the Philippine Laws, with principal office address at Digos City, Davao del Sur. It holds a franchise to operate light and power services in the City of Digos and in the Municipalities of Bansalan, Hagonoy, Kiblawan, Magsaysay, Malalag, Matanao, Padada, Sta. Cruz, and Sulop in the Province of Davao del Sur, and Don Marcelino, Jose Abad Santos, Malita, Sta. Maria, and Sarangani in the Province of Davao Occidental (Franchise Area). It shall also be herein referred to as the "Buyer"; 2. SMCPC is a corporation duly created and existing by and under the laws of the Republic of the Philippines, with business address at No. 40 San Miguel Avenue, Mandaluyong City 1550. It shall also be herein referred to as the "Seller"; 3. Applicants may be served with the orders, notices and other processes of the Commission through respective counsels; Nature of the Application 4. The Joint Application for approval of the Power Supply Contract (PSC) dated 18 April 2016 entered into by and between DASURECOand SMCPC, is being submitted to the Honorable Commission for its review and approval pursuant to Sections 25 and 45(b) of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 or the EPIRA, Rules 5, Section 4(e) and 11, Section 5 of its Implementing Rules and Regulations (IRR), Rule 20(B) of its Rules of Practice and Procedure, and other pertinent rules and regulations; Statement of Facts 5. Competitive Selection Process (CSP). On June 2013, SMCPC presented before DASURECO'sBoard its proposed project of constructing a coal-fired power plant in Malita, Davao del Sur. In response thereto, DASURECO' Board expressed its intention of contracting with SMCPC as soon as the power plant becomes fully operational; 5.1 On 23 January 2015, DASURECO's Technical Working Group (TWG) presented before its Board the fifteen (15)-year supply and demand scenario of DASURECO. Said presentation highlighted the need to secure additional capacity to address the increasing demand of DASURECOand taking into consideration the most reliable and least cost .~~n~tion mix for the benefit of its member-consumer~ " ERC CASE NO. 2016-106 RC Order/15 September 2016 Page 3 Of23 5.2 On 27 February 2016, said TWG informed DASURECO's Board and Management on Sarangani Energy Corporation's (SEC) unexpected change in power supply schedule of 10 MW, from 1Stquarter of 2016 to 2nd quarter of 2018; 5.3 Moreover, since September 2015, the EI Nino phenomenon has considerably reduced the capacity allocation of the National Power Corporation (NPC)/Power Sector Assets and Liabilities Management Corporation (PSALM) and Tudaya 2 for DASURECO,from forty percent (40%) to sixty percent (60%); 504 DASURECO's TWG recommended for the need of securing an additional power supplier, which would commercially operate at the soonest possible time and augment the power shortage in its Franchise Area; 5.5 On 15 April 2016, SMCPC presented before DASURECO's Board and Management its final proposal as regards the capacity it could allocate for DASURECO. Likewise, it disclosed that the 150 MW capacity of its Malita Power Plant will be connected to the grid by June 2016; and 5.6 After a thorough deliberation on SMCPC's offer and subsequent negotiations in good faith, on 18 April 2016, DASURECO executed a PSC with SMCPC, subject of the Joint Application; 6. Salient Features of the PSCs. 6.1 Contract Capacity. The Contract Capacity for the duration of the PSC shall be 10,000 kW. The Buyer shall maintain a minimum hourly nomination of at least forty percent (40%) of the Contract Capacity for the duration of the PSC, as its share in the minimum stable load of the Power Plant. The Contract Capacity shall be subject to a separate nomination protocol set forth in Annex V of the said PSC; 6.2 Generation Source. SMCPC is constructing a 2 x 150 MW Circulating Fluidized Bed Coal-Fired Thermal Power Plant (the Plant) located in Barangay Culaman, Malita, Davao del Sur, which is expected to be commercially operational by the 1St quarter of calendar year 2016; 6.3 Contract Term. The PSC shall take effect between the Parties on the date of signing (Execution Date) and shall remain effective for a period of ten (10) years from Commercial Operations Date (COD). The s~tv of electric power by the Seller shall commence /, / . ~ ERC CASE NO. 2016-106 RC Order/15 September 2016 Page 4 of 23 COD, and shall continue until the end of the Contract Term; 6-4 Current Charges. Under the PSC, the Buyer shall pay the following Contract Charges for the duration of the Contract, subject to the applicable value-added tax (VAT),and computed as follows: Particulars Unit Amount PhP kW-month 1,386.8021 PhP kW-month 383.8079 1770.6100 Ener Fee C. Variable 0 eration and Maintenance Fee PhP kWh 0.28 1 D. Fuel Fee PhP kWh 1.6566 Total Ener Fee 1.9397 6.5 Other Charges. The Buyer shall bear all other costs and charges incurred after the Delivery Point, including but not limited to transmission line losses, any interconnection charges and site specific loss adjustments, among others; 6.6 Adjustment Formula. The Contract Charges are adjusted on a monthly basis in accordance with the following Adjustment Formula (Annex II~B of the PSC): MONTHLY CONTRACT CHARGES = Capacity Chargesmonth + Energy Chargesmonth Where: Capacity Charges = Capital Recovery Fee (CRF) + Fixed Operation and Maintenance Fee (FOM) Energy Charges = Variable Operation and Maintenance Fee (VOM) + Fuel Fee + Start-up Charge I. CAPITAL RECOVERY FEE (CRFmonth) CRFmonth = CRFadjusted x CC ERC CASE NO. 2016-106 RC Order/15 September 2016 Page 5 of 23 CRFadjusted = (CRF(base)X 0.30) + (CRF(base)X m 0.70 X FX ) FXo CRFbase = Capital Recovery Fee in PhP/kW- month contained in Annex II-A of the PSC FXm = The simple average of the daily exchange rate of the Philippine Peso to the US Dollar, as posted by the Bangko Sentral ng Pilipinas (BSP) for the calendar month within which the start of the current Billing Period occurs FXo = Exchange rate of the Philippine Peso to the US Dollar, Base = PhP44.00 CC = Contract Capacity in kW II. FIXED OPERATION AND MAINTENANCE FEE (FOMmonth) PHCPlm FOMmonth= FOM X -~ x CC PHCPlo Where: FOM = Fixed Operation and Maintenance Fee in PhP/kW-month contained in Annex II-A of the PSC PHCPlm = Philippine Consumer Price Index (CPI) for All Income Households in the Philippines All Items (2006=100), as posted by the Philippine National Statistics Office (NSO) for the calendar month within which the start of the current Billing Period occurs PHCPlo = Philippine CPI for All Income Households in the Philippines - All Items (2006=100), as posted by the Philippine NSO for the calendar month of the COD CC = Cont'''' Cap'city;n~ ERC CASE NO. 2016-106 RC '. Order/15 September 2016 Page 6 of 23 III. VARIABLE OPERATION AND MAINTENANCE FEE (VOMmonth) m m VOMmonth=[(0.85 x YOM X USCPlm X FX ) + (0. 15 x YOM X PHCPl )] X AE USCPlo FXo PHCPlo Where: VOM = Variable Operation and Maintenance Fee in PhP/kWh contained in Annex II-A of the PSC USCPIm = United States (US) CPI for All Urban Consumers - All Items (1982-84=100), as posted by the Unites States Bureau of Labor Statistics (USBLS) for the calendar month within which the start of the current Billing Period occurs USCPIo = US CPI for All Urban Consumers - All Items (1982-84=100) for the calendar month of the COD FXm = The average daily exchange rate of the Philippine Peso to the US Dollar, as posted by the BSP for the calendar month within which the start of the current Billing PeriOd occurs = Exchange rate of the Philippine Peso to the US Dollar, Base=PhP44.00 PHCPIm = Philippine CPI for All Income Households in the Philippines - All Items (2006=100), as posted by the Philippine NSO for the calendar month within which the start of the current Billing Period occurs PHCPIo = Philippine CPI for All Income Households in the Philippines - All Items (2006=100), as posted by the Philippine NSO for the calendar month of the COD AE = Associated Energy in kWh delivered to the Buyer by the S~ ERC CASE NO. 2016-106 RC Order/15 September 2016 Page 7of23 during the current Billing Period at the Delivery Points stated in Annex IIIofthe PSC The Parties agree to adopt changes in any of the inflationary indices subject to prior notification by the Seller to the Buyer for the occurrence of any of the following events: a) shift made in the base year and other adjustments to such inflation index made by the relevant authorized entity; or b) the inflation index: i) becomes unavailable, ii) is replaced by a new benchmark rate as determined by the relevant authorized entity or its successor-in-interest, iii) ceases to exist, or iv) in the reasonable determination of either Party, fails to reflect the real costs and forms an integral part of this price adjustment formula; IV.