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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., City, . 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, 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 Ingore, La Paz, City. It owns, operates and maintains a 2 x 82 MW clean coal-fired power plant (Power Plant) located at Barangay Ingore, La Paz, ;

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. 2010-055 RC ; and

8.2. Further, for the period commencing on March 26, 2011, the rate used by PEDC for the computation of the Electricity Fee was based on the Commission's approved Commercial Operations Rate for one hundred percent (100%) load factor in ERC Case 2 No. 2010-066 RC ;

9. Meanwhile, they intended to file an application for approval of the EPPA, but they were not able to do so immediately as they had to complete the pre-filing requirements of the Commission;

10. Subsequently, CENECO decided to cancel the EPPA with PEDC for cause not constituting default on the part of the latter;

10.1 CENECO determined that with its contract with KSPC, it had sufficient supply of power to meet its

1 In the Matter of the Application for Approval of the Electric Power Purchase Agreement (EPPA) between Iloilo II Electric Cooperative, Incorporated (ILECO II) and Panay Energy Development Corporation (PEDC), with Prayer for Provisional Authority, ILECO II and PEDC -Applicants

2 In the Matter of the Application for Approval of the Electric Power Purchase Agreement (EPPA) between Electric Cooperative, Incorporated (ANTECO) and Panay Energy Development Corporation (PEDC), with Prayer for Provisional Authority, ANTECO and PEDC - Applicants ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 7 of 22

requirements, hence, its contract with PEDC had become superfluous; and

10.2 Thus, in a letter dated August 16, 2011, CENECO informed PEDC that it would cease to nominate the 24 MW intermediate load supply from the latter effective twelve o'clock in the afternoon (12:00 NN) of the same date;

11. Following CENECO's decision to cancel the EPPA, they discussed the settlement of the Electricity Fees due to PEDC for the power delivered to CENECO from December 26, 2010 to August 16, 2011. Thereafter, they entered into a Settlement Agreement for the settlement of PEDC's under-recovery, which was executed by CENECO on August 30, 2012 and acknowledged before Mr. Jan Anthony G. Saril, a Notary Public in and for Bacolod City, as per Document No. 272, Page NO.55, Book No. 18, Series of 2012, of his notarial register, and by PEDC on September 1, 2012 and acknowledged before Mr. Cyril R. Regalado, a Notary Public in and for the City and Province of Iloilo, as per Document No. 91, Page No. 19, Book No. 23, Series of 2012, of his notarial register;

12. Given their agreement that notwithstanding the Electricity Fees set out in the letter dated December 21, 2010, (i) Electricity Fees prior to the execution of the EPPA covering the Billing Periods of December 26, 2010 to March 25, 2011 shall be based on PEDC's Testing and Commissioning Rate, as approved by the Commission in ERC Case No. 2010-055 RC, instead of the NPC-TOU Rate; and (ii) Electricity Fees after the execution of the EPPA covering the Billing Periods of March 26, 2011 to August 16, 2011 shall be based on PEDC's Commercial Operations Rate for one hundred percent (100%) load factor, as approved by the Commission in ERC Case No. 2010-066 RC, CENECO's underpayments to PEDC amounted to PhP204,064,798.50, computed as follows: ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 8 of 22

For Testina and Commissionina I ERC Final Rate Actual Pavment Billing Month kWh Rate Rate For Recovery Amount VAT TOTAL Amount VAT TOTAL IEF+Fuell (EF+Fuel) Jan-11 18,165,360 3.88 70,508,844.01 8,439,262.85 78,948,106.85 4.04 73,379,498.49 8,605,965.13 81,985,463.62 3,037,356.77 Feb-11 7,072,457 3.88 27,451,741.61 3,289,377.39 30,741,119.00 4.30 30,401,973.23 3,566,272.74 33,968,245.97 3,227,126.97 Mar-11 9,963,913 3.88 38,674,930.08 4,631,786.51 43,306,716.59 4.35 43,363,068.03 5,187,275.14 48,550,343.18 5,243,626.58 111,508,110.32

For Commercial Ooerations ERC Final Rate Actual Pavment Billing Month kWh Rate Rate For Recovery Amount VAT TOTAL Amount VAT TOTAL IEF+Fuell (EF+Fuell Apr-11 16,745,126 6.15 102,930,578.36 12,333,863.18 115,264,441.54 3.42 57,309,069.46 6,859,282.11 64,168,351.57 51,096,089.96 May-11 15,042,935 6.15 92,533,420.00 11,087,212.31 103,620,632.31 3.49 52,531,838.19 6,287,022.50 58,818,860.69 44,801,771.62 Jun-11 15,423,562 2.39 36,907,867.88 4,411,605.20 41,319,473.08 (0.09) (1,371,529.78 1,721,932.55 350,402.77 40,969,070.31 Jul-11 13,717,282 6.68 91,591,744.43 10,975,460.35 102,567,204.78 3.67 50,275,928.26 6,017,562.41 56,293,490.67 46,273,714.11 AUQ-11 8,387,481 7.09 59,481,289.83 7,128,231.88 66,609,521.71 3.64 30,523,912.32 3,653,346.58 34,177,258.89 32,432,262.81 215,572,908.82

TOTAL 204,064,798.50

13. In order to settle CENECO's outstanding underpayments of PhP204,064,798.50 (broken down as PhP183,666,658 for the Electricity and Fuel Fees and PhP20,398,140.51 for Value Added Tax), they agreed as follows:

13.1 PEDC shall deduct PhP12,OOO,OOO.00from the amount of its under-recovery of PhP204,064,798.50 as a discount, thereby leaving it a Net Receivable of PhP192,064,798.50 (Net Receivable);

13.2 Subject to the Commission's approval, the period of recovery shall be seven (7) years from the date of the approval of the Settlement Agreement, at a monthly amortization of PhP2,286,485.70 assuming that CENECO's monthly kWh sales is 50,0000,000 and with a rate impact to its member-consumers of PhPO.0457/kWh; and

13.3 PEDC shall also allocate PhP9,000,000.00 for the electrification program of the nine (9) districts covered by CENECO's franchise area, to be released to it in twelve (12) equal monthly installments after the Commission's approval of the Settlement Agreement. The disbursement of this amount to the districts shall be left to the sole discretion of CENECO and shall be subject to the usual auditing and accounting procedures; ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 9 of 22

14. Under the said Settlement Agreement, all payments shall be made by CENECO to PEDC on the 30th day of every month following the Commission's approval of the same. If CENECO fails to pay any amount of the Net Receivable when this falls due, the full amount of the unsettled Net Receivable shall become immediately due and demandable, whereupon it shall pay the same to PEDC, failing which it agreed to pay interest on the full amount of the unsettled Net Receivable at a rate per annum equal to the T- ill Rate as of the due date plus three percent (3%) from the date when such payment is due until the date such amount is received in full by PEDC;

15. The foregoing are contained in the Settlement Agreement, a copy of which is attached to the application. Also attached to the application is the Summary of the Tariff Recovery Computation and Payment Schedule for CENECO;

Compliance With Pre-Filing Requirements

16. They manifest their compliance with the pre-filing requirements mandated under Rule 3, Section 4(e) of the Implementing Rules and Regulations of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 or the EPIRA, and Rule 6 of the 2006 ERC Rules of Practice and Procedures, as evidenced by the following attachments:

16.1 Affidavit of Service re: the service of the application with annexes to the Sangguniang Panlungsod of the City of Iloilo;

16.2 Affidavit of Service re: the service of the application with annexes to the Sangguniang Panlungsod of Bacolod City;

16.3 Affidavit of Publication stating that the instant application had been published in a newspaper of general circulation;

16.4 Newspaper issue where the application, as published, appeared; ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 10 of 22

16.5 Proof of payment of filing fees;

16.6 A copy of the Board Resolution authorizing CENECO to jointly file the instant application with PEDC; and

16.7 A copy of the Board Resolution authorizing PEDC to jointly file the instant application with CENECO; and

Prayer

17. They pray that the Commission approve the terms of the Settlement Agreement between them! thereby authorizing PEDC to charge and collect from CENECO the Electricity Fees corresponding to: (i) the Commission-approved Testing and Commission Rate for other PEDC customers (for the Billing Periods of December 26, 2010 to March 25, 2011); and (ii) the Commission-approved Commercial Operations Rate for other PEDC customers (for the Billing Periods of March 26, 2011 to August 16, 2011), amounting to One Hundred Ninety-Two Million Sixty-Four Thousand Seven Hundred Ninety-Eight Pesos and Fifty Centavos (PhP192!064,798.50) and authorizing CENECO to pass the full amount thereof to its member-consumers.

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 January 2, 2013, were issued setting the case for jurisdictional hearing! expository presentation, pre-trial conference and evidentiary hearing on January 24, 2013.

CENECO and PEDC were directed to cause the publication of the Notice of Public Hearing, at their 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 scheduled date of initial hearing. They were also directed to inform CENECO's member-consumers, by any other means available and appropriate, of the filing of the instant application, their reasons therefor, and of the scheduled hearing thereon. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 11 of 22

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 Notice of Public Hearing and were requested to have their respective duly authorized representatives present at the initial hearing.

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

On January 18, 2013, PEDC submitted its "Pre-Trial Brief'.

On even date, CENECO filed a "Manifestation" manifesting, among others, that it is adopting the "Pre-Trial Brief' of PEDC.

On January 22, 2013, Mr. Lavilla, Sr. filed his "Motion for Intervention/Opposition".

During the January 24, 2013 hearing, the following entered their appearances: a) Atty. Dital Lerios-Amboy for CENECO; b) Atty. Bernadette Ann Villa-Policarpio for PEDC; c) Atty. Vicente Petierre for the Honorable Evelio R. Leonardia, Mayor of Bacolod City; d) Atty. Archie S. Balibar for the Sangguniang Panlungsod of Bacolod; and d) Mr. Romeo L. Lavilla, Sr.

I In the said hearing, Atty. Petierre (for the Honorable Leonardia) and Mr. Lavilla, Sr., entered their respective appearances as intervenors. On the other hand, Atty. Balibar (for the Sangguniang Panlungsod of Bacolod) entered his appearance as an oppositor and reserved his right to file the necessary opposition by way of comment.

CENECO and PEDC, then, presented their proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "BB" to "11-3", inclusive. Thereafter, they conducted an expository presentation of their application.

At the termination of the expository presentation, the Commission as well as Attys. Petierre and Balibar, Mr. Lavilla, Sr. and some member-consumers of CENECO propounded c1arificatory questions on the presentors. ERC Case No. 2012-130 RC DECISION/December 2, 2013 . Page 12 of 22

Upon motion of CENECO, the Commission issued an Order of general default against other interested parties who failed to appear during the hearing despite sufficient notice. Thus, only the Honorable Leonardia and Mr. Lavilla, Sr., were recognized as intervenors in the instant application.

The Commission then conducted a pre-trial conference whereby the allegations in PEDC's pre-trial brief were thoroughly discussed.

On January 30, 2013, the Honorable Leonardia filed his "Petition for Intervention".

On January 31, 2013, PEDC filed its "Compliance".

On February 7, 2013, Mr. Lavilla, Sr. submitted his "Pre-Trial Brief'.

On February 11, 2013, the Honorable Leonardia submitted his "Pre-Trial Brief'.

On even date, PEDC filed its "Comment (To the Pre-Trial Brief Dated January 31, 2013 of Intervenor Mayor of Bacolod City)".

On February 15, PEDC filed its "Comment (To the Pre-Trial Brief Dated February 5, 2013 of Intervenor Romeo L. Lavilla, Sr.)".

On even date, CENECO filed its "Compliance".

On February 22, 2013, PEDC filed a "Manifestation".

At the continuation of the hearing on March 1, 2013, the Commission conducted another pre-trial conference wherein the allegations in the respective pre-trial briefs of the Honorable Leonardia and Mr. Lavilla, Sr. were, likewise, thoroughly discussed.

On March 13,2013, the Commission issued a "Pre-Trial Order".

During the March 22, 2013 hearing, CENECO and PEDC presented their first witness, Mr. Sulpicio C. Lagarde, Jr., General Manager of CENECO, who testified, among others, on the necessity ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 13 of 22 of drawing power from PEDC beginning December 26, 2010 to address the deficiency in its power requirements as well as the validity and reasonableness of the Settlement Agreement.

In the course of his direct examinatiOn, the witness identified various documents which were duly marked as exhibits.

The said witness was lengthily cross-examined by Mr. Lavilla, Sr. and the Honorable Leornadia. At the termination of cross- examination, CENECO and PEDC, and the Honorable Leonardia conducted their respective re-direct and re-cross examinations. The witness was, likewise, required to address the c1arificatory questions propounded by the Commission.

On March 25, 2013, Mr. Lavilla, Sr. filed a "Motion to Dismiss" praying for the dismissal of the instant application for failure of CENECO and PEDC to comply with the jurisdictional requirements of the Commission.

At the continuation of the hearing on April 23, 2013, CENECO and PEDC presented their second witness, Mr. Jaime T. Azurin, Global Business Power Corporation's (GBPC) Executive Vice- President and Chief Finance Officer, who testified, among others, on the due execution and terms and conditions of the Settlement Agreement, and to demonstrate the reasonableness and fairness of the Electricity Fees and other terms stipulated in the said agreement for the settlement of CENECO's underpayments to PEDC for the Billing Periods December 26, 2010 to August 16, 2011.

In the course of his direct examination, the witness identified various documents which were duly marked as exhibits.

The said witness was lengthily cross-examined by the Honorable Leornadia and Mr. Lavilla, Sr. At the termination of cross- examination, CENECO and PEDC conducted their re-direct examination. The witness was, likewise, required to address the c1arificatory questions propounded by the Commission.

Thereafter, the Honorable Leonardia and Mr. Lavilla, Sr. manifested that they will not be presenting any evidence but will await for the submission of the formal offer of evidence so that they may file their respective comments thereon. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 14 of 22

CENECO and PEDC, then, moved that they be given a period of ten (10) days from said date of hearing within which to file their formal offer of evidence. On the other hand, the Honorable Leonardia and Mr. Lavilla, Sr, moved that they be given a period of fifteen (15) days from receipt thereof within which to file their respective comments thereon. Said motions were granted.

On April 30, 2013, PEDC filed its "Formal Offer of Evidence".

On even date, CENECO filed a "Manifestation (Adopting Co- Applicant' PEDC's Formal Offer of Evidence)".

On May 14, 2013, the Honorable Leonardia filed a "Manifestation" ,

On May 20, 2013, the Honorable Leonardia filed his "Opposition to the Formal Offer of Evidence". On even date, he filed a "Motion for Leave to Submit Memorandum",

On May 21,2013, PEDC filed a "Manifestation".

On May 27, 2013, CENECO filed its "Comment (Re: Intervenor Bacolod City Mayor's Manifestation Dated May 9, 2013 and Opposition to the Formal Offer of Evidence Dated May 17, 2013)",

On May 29, 2013, PEDC filed its "Reply (To the Opposition to the Formal Offer of Evidence Dated May 17, 2013)".

On June 6, 2013, the Honorable Leonardia filed his "Memorandum" .

On June 19, 2013, PEDC filed a "Motion for Leave to File Memorandum" attaching therewith its "Memorandum",

On November 18, 2013, the Commission issued an Order admitting PEDC's formal offer of evidence for being relevant and material in the evaluation of the instant application and declaring he case submitted for resolution. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 15 of 22

DISCUSSION

Pursuant to the whereas clauses of their Settlement Agreement, it can be concluded that the EPPA between CENECO and PEDC was mutually canceled and that the said Settlement Agreement was executed only for purposes of recovering the Energy Fees for the actual energy purchased by CENECO from PEDC, to wit:

"x x x.

WHEREAS, CENECO seeks to cancel the EPPA for causes not constituting default on the part of PEDC;

WHEREAS, PEDC acknowledges CENECO's desire to cancel the EPPA and agrees to such cancellation subject to the terms and conditions of this [Settlement] Agreement;

x x x."

Thus, for purposes of determining the reasonableness of the proposed Electricity Fees, the Commission thoroughly evaluated the instant application, as follows:

1. Parties to the Settlement Agreement

CENECO is an electric cooperative duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is a duly franchised electric utility 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.

PEDC is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. 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. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 16 of 22

2. Electricity Fees

2.1 Electricity Fees prior to execution of the EPPA (December 26, 2010 to March 25, 2011) - PEDC's Testing and Commissioning Rate, as approved by the Commission in ERC Case No. 2010-055 RC (ILECO II and PEDC's application for approval of their EPPA) instead of NPC- TOU Rate; and

2.2 Electricity Fees after execution of the EPPA (March 26, 2011 to August 16, 2011) - PEDC's Commercial Operations Date Rate for 100% Load Factor, as approved by the Commission in ERC Case No. 2010-066 RC (ANTECO and PEDC's application for approval of their EPPA).

3. Total Underpayment

CENECO's underpayments amounted to PhP204,064,798.50 (Electricity Fee: PhP186,666, 658.00; and Fuel and VAT: 20,398,140.51). Subject to approval of the Commission, the period of recovery shall be seven (7) years from the date of the approval of the Settlement Agreement, at a monthly amortization of PhP2,286,485.70 assuming that CENECO's monthly kWh sales is 50,0000,000. The estimated rate impact to its member-consumers is PhPO.0457/kWh.

4. PEDC's Corporate Social Responsibility

PEDC shall deduct an amount of PhP12,000,OOO.00 as a form of discount from the amount of its under-recovery of PhP204,064,798.50, thereby leaving it a Net Receivable of PhP192,064,798.50.

It shall also allocate PhP9,000,000.00 for the electrification program of the nine (9) districts covered by CENECO's franchise area, to be released to it in twelve (12) equal monthly installments after the Commission's approval of the Settlement Agreement. The disbursement of this amount to the districts shall be left to the sole discretion of CENECO and shall be subject to the usual auditing and accounting procedures. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 17 of 22

5. Reasonableness of the Proposed Electricity Fees

It is worth mentioning that in its Decisions approving the EPPAs of PEDC with some distribution utilities, the Commission considered that PEDC used a billing determinant of 1,030,176,000 kWh which was derived by multiplying the plant capacity factor of eighty percent (80°/0) by 147 MW net plant capacity and further multiplying it by 8,760 hours. Since the contracted energy is at one hundred percent (100°/0) load factor, the billing determinant remains at 1,030,176,000 kWh.

In this regard, for PEDC to become financially and economically viable, it has to operate using the approved billing determinant and Electricity Fees as these were actually considered by the Commission in computing its Capital Recovery Fee and Operations and Maintenance (O&M) Cost.

Anent the proposed Electricity Fees in the Settlement Agreement, it bears stressing that the same are in accordance with the previously approved Electricity Fees during PEDC's Testing and Commissioning Period and Commercial Operations, to wit:

a. Approved Electricity Fee During Testing and Commissioning Period Pursuant to the Decision in ERC Case No. 2010-055 RC (ILECO II and PEDC EPPA)

Commission's PEDC Proposed Computed Testing Testing and and Difference Cost Component Commissioning Rate Commissioning (PhPlkWh) at 100% Load Factor Rate (PhPlkWh) (PhPlkWh) Capita/ Recovery 1.3028 - Fee Peso O&M Fee 0.2127 Dollar O&M Fee 0.1948 - Fue/ Cost 2.2695 - Total 3.9798 3.8815 0.0983

Thus, the Commission deems it prudent to approve a testing and commissioning rate of PhP3.88151kWh which is based on the operational history of PEDC. " ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 18 of 22

b. Approved Electricity Fee During Commercial Operation Pursuant to the Decision in ERC Case No. 2010-066 RC (ANTECO and PEDC EPPA)

Pre-Commercial Commercial Rate Component o eration o eration Ca ital Recove Fee PhP1.9390/kWh PhP2.5853/kWh Peso O&M Fee PhPO.2858/kWh PhPO.3811/kWh Dollar O&M Fee US$0.0065/kWh US$0.0082/kWh Fuel Cos Pass-throu h cost Pass-throu h cost

1 Subject to Philippine Consumer Price Index (CPI) adjustment with May 2009 base index of 158.8, except for component in the local taxes pertaining to ER 1- 94

2 Subject to US CPI adjustment with May 2009 base index of 213.856. Reference exchange rate in PhP/US$ on the meter reading date as published by the Bangko Sentral ng Pilipinas (BSP)

3 To be computed based on a consumption rate of O. 70kg/kWh escalated at a rate of 1.5% per year or actual, whichever is lower. The average fuel cost of PEDC based on its latest purchases in PhP2.3648/kWh

The approved rate for the additional electric power in excess of 1,030,176,000 kWh per year shall be:

Rate Com onent Amount O&M Variable Fee PhPO.1114/kWh Fuel Cost Pass-throu h cost

6. Mr. Lavilla, Sr.'s Motion to Dismiss

With regard to Mr. Lavilla, Sr.'s allegation that the Commission has not acquired jurisdiction over the instant application for the alleged failure of CENECO and PEDC to comply with the pre-filing requirements, particularly, notice and publication requirements, a thorough review of the attachments in the said application disclosed that the application itself was published on page 4 of the November 28, 2012 (Wednesday) issue of The Daily Guardian, a newspaper of local circulation within the franchise area of CENECO (Annex "I"). This was also attested by Mr. Lemuel T. Fernandez, Publisher-Editor of the said local newspaper when he issued the Affidavit of Publication dated November 28, 2012 (Annex "H"). ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 19 of 22

Further, as proof of compliance with the notice requirements, Ms. Charmaine G. Posa executed an Affidavit of Service evidencing that she personally delivered to the Office of the Sangguniang Panlungsod of Bacolod with copies of the instant application and all its annexes and caused the affixing of the stamp "Received" by the said Office on the first page of the application (Annex "G").

On another note, it is incorrect for Mr. Lavilla, Sr. to conclude that there was never a contract executed by and between CENECO and PEDC as contemplated in CENECO Board Resolution No. 9294 dated December 17, 2010.

It is worth reiterating that on March 1, 2011, CENECO and PEDC executed an EPPA, some of the salient provisions of which are as follows:

a. Take or pay;

b. Twenty-four (24) MW Contracted Capacity;

c. One hundred percent (100%) Load Factor; and

d. Approved Electricity Fee for Commercial Operations Date.

Inasmuch as CENECO and PEDC intended to file an application for approval of their EPPA immediately, however, they failed to do so as they had to comply with the technical and legal pre- filing requirements of the Commission.

Unfortunately, on August 16, 2011, CENECO sent a letter to PEDC informing the latter that it decided to terminate its EPPA effective 12:00 MN of the same date. PEDC was made to understand that CENECO reviewed its power supply portfolio and found that its PSC with KSPC was sufficient to meet its electric requirements.

The foregoing information were attested by the witnesses presented. Thus, it is for this very reason that the instant application was filed for PEDC to recover the Electricity Fees for the energy delivered to CENECO from the period December 26, 2010 to August 16, 2011 pursuant to the Settlement Agreement. ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 20 of 22

The Commission has a mandate to protect the interest of the electricity consumers insofar as they are affected by the rates, by ensuring that the tariffs imposed are consistent with the principle of full recovery of prudent and reasonable costs.

After a thorough evaluation of the documents submitted and the testimonies of the witnesses presented, the Commission finds that the Electricity Fees in the Settlement Agreement are in accordance with its Decisions, thus, finds the same to be fair and reasonable.

WHEREFORE, the foregoing premises considered, the application for approval of the Settlement Agreement filed by Central Negros Electric Cooperative, Incorporated (CENECO) and Panay Energy Development Corporation (PEDC) is hereby APPROVED.

Accordingly, PEDC is hereby authorized to COLLECT from CENECO the amount of One Hundred Ninety-Two Million Sixty- Four Thousand Seven Hundred Ninety-Eight Pesos and Fifty Centavos (PhP192,064,798.50).

Further, CENECO is hereby authorized to COLLECT from its member-consumers the said amount at a rate of PhPO.0457/kWh until such time that the entire amount shall have been fully recovered.

SO ORDERED.

Pasig City, December 2, 2013.

~~~ h. (~ (JZENAIDA ef CRUZ-~UT Chairperson O... ~- i ALFREDO J. NON GlOrf.lAViCTiiRi;( ~ YAP-TARUC Commissioner Commissioner

JOSEFINA PATRI ~ Co issioner

~1CENECO and PEDC/settlement agreement/2012-130 RC/decision ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 21 of 22

Copy Furnished:

1. Leros-Amboy & Delos Reyes Law Offices Atty. Ditas A. Lerios-Amboy Counsel for CENECO Units 1609-1610, 16th Floor, Tycoon Center Condominium, Pearl Drive, Pasic City

2. Atty. Amanda R. Abrera-Bengson Atty. Bernadette Ann Villa-Policarpio Atty. Esther Marie B. Amular-Bantog Counsel for PEDC c/o Global Business Power Corporation 10th Floor GT Tower International, 6813 Ayala Avenue corner H.V. De La Costa St., Makati City

3. Central Negros Electric Cooperative, Inc. (CENECO) Gonzaga St. corner Mabini St., Bacolod City

4. Panay Energy Development Corporation (PEDC) Barangay Ingore, La Paz, Iloilo City

5. Office of the Solicitor General 134 Amorsolo Street, Legaspi Village, Makati City

6. Office of the Commission on Audit Don Mariano Marcos Avenue, Diliman, Quezon City

7. The Committee On Energy Senate of the Philippines GSIS Building, Roxas Blvd., Pasay City

8. The Committee On Energy House of Representatives Batasan Hills, Quezon City

9. Office of the City Mayor Bacolod City, Negros Occidental

10. Office of the City Mayor Bago City, Negros Occidental

11. Office of the City Mayor Silay City, Negros Occidental ERC Case No. 2012-130 RC DECISION/December 2, 2013 Page 22 of 22

12. Office of the City Mayor Talisay City, Negros Occidental

13. Office of the Municipal Mayor Murcia, Negros Occidental

14. Office of the Municipal Mayor Don Salvador Benedicto, Negros Occidental

15. Office of the Governor Province of Negros Occidental

16. Philippine Chamber of Commerce and Industry (PCCI) 3rd Floor, ECC Bldg., 355 Sen. Gil Puyat Ave., Makati City

17. Atty. Vicente C. Petierre, III Counsel for the Honorable Evelio R. Leoardia Corazon Aquino Boulevard, Bacolod City

18. Mr. Romeo L. Lavilla, Sr. No. 31 Jose Ledesma St., Silay City, Negros Occidental