IN THE MATTER OF THE APPLICATION FOR THE APPROVAL OF THE POWER SUPPLY AGREEMENT(PSA) BETWEEN II ELECTRIC COOPERATIVE, INC. (ISELCO II) AND ANDA POWER CORPORATION (ANDA)

ERC CASE NO. 2016-085 RC

ORDER

On 29 April 2016, Isabela II Electric Cooperative, Inc. (ISELCO II) and Anda Power Corporation (ANDA) filed their Application for approval oftheir Power Supply Agreement (PSA).

In support of said Application, ISELCO II and ANDA alleged, among others, the following:

1. Joint Applicant ISELCO II is an electric cooperative duly organized and existing under Philippine law, with principal office at Brgy. Alibagu, Hagan City, Isabela. It was granted an exclusive franchise issued by the National Electrification Commission (NEC) to operate an electric light and power distribution service in the City of Hagan and the following municipalities in Isabela: , , Burgos, , , , , Nagui.lian, Quezon, Quirina, Roxas, San Manu;!, d San Pablo, Sta. Maria, San Mariano, Sto. Tom/ f ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 2 of 14

Tumauini, , , , and ; the coastal towns of Divilacan and Maconacon were however waived for a Qualified Third Party (QTP).

2. Joint Applicant ANDA is a power generation company duly organized under Philippine law, with principal office address at TECO Special Economic Zone, Bo. Bundagul, Mabalacat, Pampanga. Copy of ANDA's Articles of Incorporation, Certificate of Incorporation and latest General Information Sheet are attached to the Application as Annexes "A", "B" and "C", respectively;

3. Applicants may be served with orders and other processes of the Commission through respective counsels;

NATURE AND SCOPE OF THE APPLICATION

4. Applicants are jointly filing the Application for the approval of their PSA pursuant to Rule 20 (B) of the ERC Rules of Practice and Procedure. A copy of the PSA is attached to the Application as Annex "D";

COMPLIANCE WITH PRE-FILING REQUIREMENTS

5. In compliance with Rule 6 of the ERC Rules of Practice and Procedure, Applicants have furnished the legislative bodies of each of the local government units (LGUs) where they principally operate a copy of the present Application with all its annexes and accompanying documents. Proofs of receipt by the LGUs are attached to the Application as Annex "E"and its submarkings;

6. Furthermore, Applicants have caused the publication of the present Application in its entirety in a newspaper of general circulation within the franchise area. Copies of the newspaper and oorrespondingaffidavitof publicationare attaoy ERC CASE NO. 2016-085 RC Order /5 August 2016 Page 3 of 14

to the Application as Annexes "F" and "G", respectively;

STATEMENT OF FACTS

7. ISELCO II currently sources the bulk of its power requirements from San Miguel Energy Corporation (SMEC) and the rest from the volatile Wholesale Electricity Spot Market (WESM);

8. ISELCO II received unsolicited offers from First Gen, GN Power, and ANDA. In order to reduce its WESM exposure, ISELCO II followed up on these unsolicited offers;

9. ISELCO II was informed that the supply from First Gen and GN Power would only be available in 2019. Considering that only the supply from ANDAwould be immediately available, ISELCO II decided to directly negotiate with ANDA;

10. On 28 April 2016, ISELCO II and ANDA entered into a PSA whereby ANDA will initially supply to ISELCO II up to 5 MW of power for the first three (3) years of the contract, which will be increased to 10 MW thereafter;

11. The contracted capacity is justified by the expected demand and available supply of ISELCO II, as substantiated by its Distribution Development Plan (DDP), Average Daily Load Curve and Demand- Supply Profile, copies of which are attached to the Application as Annexes H, I and J, respectively;

12. For the future, ISELCO II undertakes to submit a Demand Side Management (DSM) program for approval by the Commission and implement the same;

ABSTRACT OF THE PSAAND RELATED INFORMATION

13. Salient Features of the PSA. The PSA is a take and pay contractwhe,ebyANDA,hall ,npy ERC CASE NO. 2016-085 RC Order/s August 2016 Page 4 of 14

electricity to ISELCO II up to the contract capacity from the initial delivery date for a period of thirteen (13) years from Effective Date, unless earlier terminated in accordance with the provisions.'

14. Allowable Downtime. ANDA shall be allowed downtime not to exceed its Maintenance Allowance. Beyond the downtime allowance, ANDA shall have the obligation to source replacement power to fulfill the Minimum Contracted Energy, which shall be at ANDA's cost:

Maintenance Allowance (kWh) = Contracted Capacity (10,000 kW) x 40 days x 24 hours = 9,600,000 kWh

15. The Generation Facility. ANDA has a coal-fired power plant located at TECO Special Economic Zone, Bo. Bundagul, Mabalacat, Pampanga and will have available power it could supply and sell. It is a one unit generating facility that has an installed capacity of 82 MW and a dependable capacity of 72 MW. It is projected to have a plant efficiency rate of 89% and an annual capacity of 561,600,000 kWh.

a. In connection with this planned 82 MW coal- fired power plant, Asia Pacific Energy Corporation (Asia Pacific for brevity) was initially issued an Environmental Compliance Certificate (ECC) by the Department of Environment Natural Resources (DENR). The said ECC was subsequently transferred to ANDA based on the confirmation letter issued by the DENR dated February 18, 2014. Copies of the ECC issued to Asia Pacific and the Confirmation of Transfer to ANDA are attached to the Application as Annexes "K" and "K-1", respectively;

b. ANDA was also issued a Certificate of Registration by the Philippine Economic Zone Authority (PEZA) as an Ecozone Utilities Enterprise. Copy of the Certificate from PEZA is. ______a_tt_a_c_h_ed_tothe Applicatioo as Annex "'7

Section 14.1, PSA. ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 5 of 14

c. ANDA has been issued a Certificate of Compliance (COC) by the Energy Regulatory Commission (ERC). It has also already secured a Transmission Service Agreement (TSA), Metering Service Agreement (MSA), and Connection Agreement (CA), as certified by the National Grid Corporation of the (NGCP). Copies of the COC and the NGCP Agreements are attached to the Application as Annexes "M" and "N", respectively; and

d. The Department of Energy (DOE) also issued a Certificate of Endorsement certifying "that the 82 MW CIRCULATING FLUIDIZED BED COAL FIRED POWER PLANT to be located in Mabalacat, Pampanga, owned and operated by the ANDA POWER CORPORATION is consistent with the Power Development Plan (PDP) of the government." A copy of the Certificate of Endorsement is attached to the Application as Annex "0";

16. Basic Energy Charge (BEC) for the 82 MW Coal-Fired Power Plant. The Computation of the BEC which was attached as Annex "D" to the PSAshall be as follows:

Tariff Rate. Tariff Components Rate CRF (Php(kWh - Month) 2.5199 FixedO&M Fixed PESO O&M (Php(kWh) 0.2132 Fixed USD O&M (USD(kWh) 0.0072 Variable O&M (Php(kWh) 0.1654 Fuel Fee (Php(kWh) *1.5184

*Indicative Fuel Fee

Fuel Fee will be Actual Fee Cost, which includes among others, freight, logistics cost and applicable taxes and duties.

All market-related, transmission and distribution charges incurred for the supply of electricity to BUYER such as but not limited to Line Rental from WESM and Transmission Charges shall be for the BUYER's account.

Tariff Rate shall b~ exc~ve of value-added tax, which shall be born, byth, BUYER~ ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 6 of 14

ENERGY FEE AND ADJUSTMENTS

The Energy Fees to be made in each Billing Period is the sum of Capacity Payment, which consists of Capital Recovery Fee and Fixed O&M, and Energy Payment, which consists of Fuel Fee and Variable O&M, multiplied to the Minimum Monthly Contracted Energy or actual kWh delivered for the billing period, whichever is higher.

Energy Fee = [(CRF + Fixed O&M + Variable O&M + Fuel) * E]

Load Factors of 100%

Fixed 0 &M

US_CPlActual] [" PhiLCPlActual] = [Fixed O&MUSD x S C x Forex + FIxed O&Mphp x h"l C U _ PIBase P l _ PISase

Phil CPlAc,ual] Variable Cost = [Variable Cost x h"{ C P l _ PIBase

Fuel Fee = [(COal Price + Freight Cost) x Forex) + Transport Cost 1 Coal Consumed in kg ] 1000 x [Total Net Generation in kWh

Where:

CRF = Capacity Recovery Fee = 2.5199 per kWh

Fixed = Peso-based O&M Fee = 0.2132 per kWh O&MPhp

Fixed = USD-based O&M Fee = 0.0072 per kWh O&MusD

Variable = Variable Cost = 0.1654 per kWh O&M

Fuel Fee = Actual Fuel Cost

Philippine Consumer Price Index (CPr) for all items for the Current Month as Published by the National Statistics Office

United States Consumer Price Index (CPI) for all items for the Current Month as = Published by the Bureau of Labor Statistics, US Department of Labor

= Base Philippine CPI= =140-40 (2006=100) July 2014

= Base US CPI ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 70f14

_ Reference exchange rate on the meter reading date, as published by the Bangko Forex - Sentral ng Pilipinas. (Php per USD)

E = Minimum Contracted Energy or Actual Energy Delivered, whichever is higher

Freight Cost = Actual Freight Cost in USD per metric ton

Transport = Actual Transport Cost in Php per metric ton Cost

17. Prompt Payment Discount. ISELCO II shall be entitled to a discount at the rate of 3% of the Capital Recovery Fee, which discount will be reflected as a rebate in a credit memo, provided that such payment was made in full and on or before the 10th day from receipt of the billing invoice, and provided further that ISELCO II does not have any overdue payment of any applicable amount under this Agreement and that the ERC has approved this Agreement including the fees and pricing structure contained herein;

18. ANDA's True Cost of Generation. ANDA reiterates that its true cost of generation, which was a basis for the negotiation of contracts covering the remaining capacity of its coal-fired power plant, is higher than the negotiated energy fee and its adjustments under the instant PSA. A copy of the computation is attached to the Application as Annex "P".

a. Capital Recovery Fee (CRF) is to be paid to ANDAfor the recovery of their capital investment over the 25-year economic life of the project. The capital cost of the 82 MW Coal-Fired Power Plant is estimated at US$199,895,856.37 equivalent to P8,990,940,936.74. The project is to be funded by loans and equity with a debt-equity ratio of 67.5 to 32.5. Based on the desired equity internal rate of return, ANDA proposes a CRF in the amount of P2.62/kWh;

b. Fixed Operations and Maintenance (Fixed O&M) Fee. Fixed O&M has both peso and dollar components, covering the fixed expenses / fo' opemtion, and mffintenanreof the Pl~ ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 8 of 14

Fixed Peso O&Mis P .2915/kWh and Fixed USD O&Mis $.00723/kWh; and

c. Variable Costs. Variable costs are consumables (limestone, sands) and the PO.01/kWh benefit for the host community, which amounts to P .1654/kWh;

19. Fuel Cost. Fuel is a total pass through cost. The power plant has a guaranteed coal consumption of 0.7kg/kWh with an escalation rate of 1.5%/year. Coal is expected to be sourced from both domestic and foreign suppliers. A copy of the summary of ANDA's Coal Supply Plan is attached to the Application as Annex "Q";

20. Rate Impact. A rate impact simulation based on ISELCO II's actual power bill for May 2016 would show that, had ISELCO II been procuring energy from ANDA based on the instant Power Supply Agreement, there would be a decrease in the rates charged by ISELCOII amounting to PO.33/kWh (a decrease from a blended rate of P4.89/kWh to a blended rate of P4.56/kWh). A copy of the Rate Impact Simulation is attached to the Application as Annex "R'",

ALLEGATIONS IN SUPPORT OF THE MOTION FOR CONFIDENTAIL TREATMENT OF INFORMATION

21. The Engineering Procurement and Construction (EPC) Contracts which ANDA executed with its suppliers contain confidential arrangements which ANDA is bound not to disclose so as to perpetuate such business arrangements;

22. ANDAalso executed a Loan Agreement at preferred rates and ANDA wishes to preserve this business advantage among its competitors;

23. Furthermore, the computation of the WACC, Breakdown of Project Cost and Financial Model not only make reference to the aforementioned confidential contracts. These also detail ANDY ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 9 of 14

business model and other proprietary information that constitute trade secrets and hence should remain confidential;

24. ANDA thus submits to the Commission one copy of the following documents containing the information sought to be treated as confidential even after the conclusion of the instant case, placed in a sealed envelope:

ANNEX DOCUMENT "8" EPC Contracts "T" Loan Agreement "u" Executive Summary including the computation of WACCand Breakdown of Proiect Cost "Y" Financial Model

PRAYER

25. Applicants ISELCO II and ANDA pray before the Commission that:

1. An Order granting confidential treatment to Annexes "T" to "w" pursuant to Rule 4 of the . ERC Rules of Practice and Procedure; and

11. After hearing on the merits, render a decision issuing a PERMANENT APPROY AL of the implementation of the provisions of the PSA between ISELCO II and ANDA, including the rates set forth therein.

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 hearing for the determination of compliance with jurisdictional requirements, expository presentation, pre-trial conference, and presentation of evidence on 7 October 2016 (Friday) at nine o'clock in the morning (9:00 A.M.) at I8ELCO II's Main Office, Brgy. Alibagu, Hagan City, Isabela.

ISELCO II and ANDA are hereby directed to cause the publication of the attached Notice of Public Hearing in two (2) newspapers of general circulation in the Philippines at their own expense, 'wke (2X) within two (2) ,ncee""ive weeks, the da,/y ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 10 of 14 publication not being less than seven (7) days apart, with the date of last publication made not later than ten (10) days before the date of the scheduled initial hearing. ISELCO II is also directed to inform its customers within its franchise area, by any other means available and appropriate, of the filing of the Application, the reasons therefor, and of the scheduled hearing thereon.

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 Governor of the Province of Isabela, as well as the Mayors and Local Government Legislative Bodies within ISELCO II's franchise area for the appropriate posting thereof on their respective bulletin boards.

ISELCO II and ANDA are 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 and pre-trial conference, ISELCO II and ANDA must submit to the Commission their written Compliance with the jurisdictional requirements attaching therewith, methodically arranged and duly marked, the evidence of the actual posting and publication of the Notice of Public Hearing consisting of certifications issued to that effect, signed by the aforementioned Mayors and Local Government Legislative Bodies, or their duly authorized representatives, bearing the seals of their offices, and the affidavits of the Editors or Business Managers of the newspapers where 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.

ISELCO II and ANDA, and all 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 s~~~ f admitted facts and proposed stipulation of fac:yz/ ERC CASE NO. 2016-085 RC Order / 5 August 2016 Page 11 of 14

(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

(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 ISELCO II and ANDAto submit the required Pre-trial Brief and Judicial Affidavits of their 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, ISELCO II and ANDA must also be prepared to make an expository presentation of their Application, aided by whatever communication medium that they 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, 5 August 2016.

FOR AND BYAUTHORITY OF THE COMMISSION: J~';iVI~;;;E-;'S~ E~~i~man,an~CE~

djJice of the Chairman

1~11111111111111111~[I~'IIIIIIIIIII~~llil~IIII~II~~~~1II H-2016-026,OC-04561

AtI «:(;apV/2016-085 RC ISELCO II&ANDA.doc ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 12 of 14

Copy furnished:

1. Atty. Cecilia R. Layug Counsel for Joint Applicants Unit 2904, One San Miguel Building San Miguel Avenue corner Shaw Boulevard Ortigas Center, Pasig City, Metro

2. Isabela II Electric Cooperative, Inc. (ISELCOII) Alibagu, , Isabela

3. ANDA POWERCORPORATION TECO Special Economic Zone Bo. Bundagul, Mabalacat, Pampanga

4. 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. The City Mayor Ilagan, Isabela

8. Office of the Local Government Legislative Body Ilagan, Isabela

9. The Municipal Mayor Aurora, Isabela

10. Office of the Local Government Legislative Body Aurora, Isabela

11. The Municipal Mayor Benito Soliven, Isabela

12. Office of the Local Government Legislative Body Benito Soliven, Isabela

13. The Municipal Mayor Burgos, Isabela

14. Office of the Loca ernment Legislative Body Burgos, Isabela .' ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 13 of 14

The Municipal Mayor Cabagan, Isabela

16. Office of the Local Government Legislative Body Cabagan, Isabela

The Municipal Mayor Delfin Albano, Isabela

18. Office of the Local Government Legislative Body Delfin Albano, Isabela

19. The Municipal Mayor Gamu, Isabela

20. Office of the Local Government Legislative Body Gamu, Isabela

21, The Municipal Mayor Mallig, Isabela

22. Office of the Local Government Legislative Body Mallig, Isabela

The Municipal Mayor Naguilian,Isabela

Office of the Local Government Legislative Body Naguilian,Isabela

The Municipal Mayor Quezon, Isabela

26. Office ofthe Local Government Legislative Body Quezon, Isabela

27. The Municipal Mayor , Isabela

28. Office of the Local Government Legislative Body Quirino, Isabela

The Municipal Mayor Roxas, Isabela

30. Office of the Local Government Legislative Body Roxas, Isabela

31. The Municipal Mayor San Manuel, Isabela

32. Office of the Loc~l ~rent Legislative Body San Manuel, Isabely f '., , . ERC CASE NO. 2016-085 RC Order/5 August 2016 Page 14 of 14

33. The Municipal Mayor Sta. Maria, Isabela

34. Office of the Local Government Legislative Body Sta. Maria, Isabela

35. The Municipal Mayor San Mariano, Isabela

36. Office of the Local Government Legislative Body San Mariano, Isabela

37. The Municipal Mayor San Pablo, Isabela

38. Office of the Local Government Legislative Body San Pablo, Isabela

39. The Municipal Mayor Sto. Tomas, Isabela

40. Office of the Local Government Legislative Body Sto. Tomas, Isabela

41. The Municipal Mayor Tumaini, Isabela

42. Office of the Local Government Legislative Body Tumaini, Isabela

43. The Municipal Mayor Palanan, Isabela

44. Office of the Local Government Legislative Body Palanan, Isabela

45. The Municipal Mayor Dinapigue, Isabela

46. Office of the Local Government Legislative Body Dinapigue, Isabela

47. The Provincial Governor Province of Isabela