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5 H.)F' O~~' Or,~ ENERGY REGULATORY COMMISSION R0:Tmg San Miguel Avenue, Pasig City ~C,Gov'ph

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5 H.)F' O~~' Or,~ ENERGY REGULATORY COMMISSION R0:Tmg San Miguel Avenue, Pasig City ~C,Gov'ph ',' e;,U\..ATORy c. ~'(:; 01t 6' ~ f ~ f\ {f" '-IJ IJ n:lN '(t:H,'j f v..2 Republic of the Philippines .:5 h.)f' o~~' or,~ ENERGY REGULATORY COMMISSION r0:tmg San Miguel Avenue, Pasig City ~C,goV'Ph IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE SETTLEMENT AGREEMENT BETWEEN CENTRAL NEGROS ELECTRIC COOPERATIVE, INCORPORATED AND PANAY ENERGY DEVELOPMENT CORPORATION ERC CASE NO. 2012-130 RC CENTRAL NEGROS ELECTRIC COOPERATIVE, INCORPORATED (CENECO) AND PANAY ENERGY DOCKETED DEVELOPMENT CORPORATION Date: .•P..~~..ll ..~(lj~ (PEDC), By'; ""•••.f)t1(. - , Applicants. )( -,- - - - - - - - - - - - - - - - - - - - - - - )( DECISION Before the Commission for resolution is the application filed on December 4, 2012 by Central Negros Electric Cooperative, Incorporated (CENECO) and Panay Energy Development Corporation (PEDC) for approval of their Settlement Agreement. In the said application, CENECO and PEDC alleged, among others, that: Parties to the Case 1. CENECO is an electric cooperative duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at Gonzaga St. corner Mabini St., Bacolod City, Negros Occidental. It is a duly franchised electric utility pursuant to National Electrification Administration (NEA) Franchise No. 057 servicing its member-consumers in the Cities of Bacolod, Bago, Silay and Talisay and the Municipalities of Murcia and Don Salvador Benedicto, all in the Province of Negros Occidental; ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 2 of 22 2. PEDC is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines with principal office address at Barangay Ingore, La Paz, Iloilo City. It owns, operates and maintains a 2 x 82 MW clean coal-fired power plant (Power Plant) located at Barangay Ingore, La Paz, Iloilo City; Statement of Facts and of the Case 3. On December 21, 2010, while negotiations were on-going for the Electric Power Purchase Agreement (EPPA) between them, CENECO wrote to PEDC requesting the latter to make available to it 24 MW of capacity beginning December 26, 2010. A copy of the letter dated December 21,2010 is attached to the application; 3.1 In the said letter, CENECO stated that it was sourcing its power requirements from Green Core Geothermal, Incorporated (GCGI) based on the National Power Corporation NPC)/Power Sector Assets and Liabilities Management Corporation (PSALM) power supply contract that was ceded to it This contract was to expire on December 25, 2010 but was extended for another year or until December 25, 2011 albeit at a reduced contracted energy of 147,520,102 kWh from 549,158,784 kWh and with the supply of power no longer coming from GCGI but from NPC/PSALM; 3.2 Due to the reduction of its contracted energy with NPC/PSALM, CENECO was in urgent need of additional power supply by December 26, 2010; 3.3 On the other hand, it had signed power supply contract with KEPCO-Salcon Power Corporation (KSPC) for 40 MW, which contract was to commence in March 2011; 3.4 Given that its contract with KSPC was to commence only in March 2011, there was a gap in its power supply beginning December 26, 2010 that it needed to fill in; and ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 3 of 22 3.5 With no other option given the lack of available supply from other generators, it requested PEDC to supply the shortfall and the latter agreed to supply it", 3.5.1 As early as the last quarter of 2009, CENECO already began soliciting proposals for power supply from various Independent Power Producers (IPPs) in light of the privatization of NPC's assets; 3.5.2 In October 2010, it found itself with an expiring contract with NPC and GCGI and no new power supply contract, leaving a shortfall of about 75 MW; 3.5.3 Given this situation, it needed to immediately find IPPs to supply its power requirements and PEDC was the only IPP having the available capacity that it needed very much; 3.5.4 Sourcing power from the Wholesale Electricity Spot Market (WESM) was not a viable option for it due to potential exposure to market volatility; 3.5.5 Thus, in December 2010, while they were still negotiating the terms of the EPPA, CENECO requested PEDC to make available a capacity of 24 MW beginning December 26, 2010; and 3.5.6 Then, on March 1, 2011, they executed the EPPA in which PEDC agreed to supply and deliver and CENECO agreed to take or pay for electricity supplied by PEDC at a contracted capacity of 24 MW (Contracted Capacity) with a load factor of one hundred percent (100%) upon the commencement of the Commercial Operation Date of the Power Plant (i.e., March 26, 2011). The EPPA shall have a term of fifteen (15) years commencing on the Commercial Operation Date and ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 4 of 22 ending on the 15th anniversary of such commencement date, unless sooner terminated pursuant to the terms thereof. A copy of the said EPPA is attached to the application; 4. As requested by CENECO in its letter dated December 21, 2010, PEDC commenced supply of base load power to it on December 26, 2010; 5. Based on the said letter, CENECO was to pay for the actual kWh delivered by PEDC at a cost per kWh equivalent to the average NPC Grid Rate (NPC- TOU Rate) until it was able to execute the EPPA. Once the EPPA was executed, the Electricity Fees to be paid by it to PEDC were to be in accordance with the terms and conditions of the said EPPA. Under the EPPA, Electricity Fees payable for the energy supplied by PEDC to CENECO were computed as follows (Schedule 4 of the EPPA): Electricity Fees = Energy Fees + Actual Fuel Cost Energy Fees = Tariff Fees x E Tariff Fees = CRF + [PhPO&M PhCPlcI rUSDO&M USCPic x Forexl x PhCPlbJ + l X USCPlb ) Actual Fuel Cost = Coal Price ~.~~~nsort Cost j x Consumption Rate x Forex x E Current Newcastle Index Coal Price = Base Coal Price x -B-a-se-Ne-w-C-as-t-Ie-I-nd-e-x- Where: CRF = Capacity Recovery Fee = PhP2.6055/kWh PhPO&M = Peso-based O&M Fee = PhP0.4253/kWh PhCPlc = Philippine Consumer Price Index (CPI) for the all items for the Current Month as published by the National Statistics Office (NSO) PhCPlb = Base Philippine CPI = 158.80, May 2009 USDO&M = U.S. Dollar-based O&M Fee. = $0.0082/kWh = U.S. CPI for the Current Month as published by the U.S. Bureau of USCPl c Labor Statistics (USBLS) ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 5 of 22 USCPlb = Base U.S. CPI = 213.856, May 2009 Forex = Reference exchange rate (in PhP per US$) on the meter reading date, as published by the Bangko Sentral ng Pilipinas (BSP), www.bsp.gov.ph = Minimum Contracted Energy or Energy Delivered, whichever is E higher Current Newcastle = Preceding quarter's average coal price for 6,700kcal/kg ADB per Index the Global Coal Newcastle Physical Trading Index, www.globalcoal.com Base Newcastle Index = $63.44/metric ton Base Coal Price = $53.22/metric ton Transport Cost = Actual transport cost in US$/metric ton Consumption Rate = 0.7kg/kWh, escalated at a rate of 1.5% per year 6. For the duration of PEDC's supply to CENECO, its member-consumers were spared from crippling daily power rationing prevalent in 2010. Further, with supply coming from Panay, it was assured not only of more reliable power but also reduced cost of power due to rebates on line rental costs. Moreover, for the interim power supply by PEDC, it was to pay PEDC only the NPC- TOU Rate, which was well below the commercial rate of PEDC, to the advantage of its member- consumers; 7. Pursuant to the letter dated December 21, 2010, PEDC billed CENECO as follows: Actual Pa ment Billing Month Rate Amount VAT Total EF+Fuel PhP PhP PhP 4.04 73,379,498.49 8,605,965.13 81,985,463.62 4.30 30,401,973.23 3,566,272.74 33,968,245.97 4.35 43,363,068.03 5,187,275.14 48,550,343.18 Total 164,504,052.77 8. Notably, despite the Electricity Fee contained in the letter dated December 21, 2010, a careful reading of the computation for the under-recovery above would show that PEDC lowered the Electricity Fee for the period of ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 6 of 22 December 26, 2010 to March 25, 2011 from the average NPC-TOU Rate to PhP3.88/kWh, giving CENECO savings of PhP11,508, 110.32, computed as follows: Commission's A roved Rate Billing Month kWh Rate Amount VAT Total EF+Fuel PhP PhP PhP Janua 2011 18,165,360 3.88 70,508,844.01 8,439,262.85 78,948,106.85 Februa 2011 7,072,457 3.88 27,451,741.61 3,289,377.39 30,741,119.00 March 2011 9,963,913 3.88 38,674,930.08 4,631,786.51 43,306,716.59 Total 152,995,942.45 Less: Amount Paid b CENECO 164,504,052.77 Amount to be Credited 11,508,110.32 8.1. The PhP3.88/kWh used by PEDC was based on the Commission's approval of the Testing and Commissioning Rate of PEDC in the Decision in 1 ERC Case No.
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