Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City Approved for IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE POWER SALES AGREEMENT (PSA) BETWEEN ZAMBOANGA DEL SUR I ELECTRIC COOPERATIVE, INCORPORATED (ZAMSURECO I) AND MAPALAD POWER CORPORATION (MPC), WITH PRAYER FOR PROVISIONAL AUTHORITY ERC CASE NO. 2013-083 RC ZAMBOANGA DEL SUR I ELECTRIC COOPERATIVE, INCORPORATED (ZAMSURECO I) AND MAPALAD POWER DO CKETEI3 CORPORATION (MPC), Date: T&UL Applicants. x------------------------x On April 24., 2013, Zamboanga del Sur I Electric Cooperative, Inc. (ZAMSURECO I) and Mapalad Power Corporation (MPC) filed a joint application for the approval of their Power Sales Agreement (PSA), with prayer for provisional authority. In the said joint application, ZAMSURECO I and MPC alleged the following: 1. ZAMSURECO l's current power supply is not sufficient to meet its total power requirements. 2. ZAMSURECO I can no longer source additional power from the Power Sector Assets and Liabilities Management Corporation (PSAL 's it is mandated by law to privatize its generation fa 1ti and prohibited from investing in generation faciliti s. lri , fact, it has reduced its power ERC Case No. 201 3-083 RC ORDER/June 3, 2013 Page 2 of 20 supply commitment to ZAMSURECO I. In addition, ZAMSURECO l's power demand is steadily increasing. 3. ZAMSURECO l's power requirements stand at 34 MW but its available supply amounts to 17 MW. Thus, there is a very significant shortage of 17 MW, half of its power requirements. 4. As a result, the electricity consumers and local businesses in ZAMSURECO l's franchise area suffer from daily brownouts averaging at eight (8) hours. 5. Thus, given the reduction in its power supply and its steadily increasing power requirements, it is imperative that ZAMSURECO I contracts for additional power supply which can be available at the soonest possible time. Otherwise, ZAMSURECO I would not have sufficient power supply to the detriment, not only of ZAMSURECO l's consumers, but of local businesses as well. 6. The immediate implementation of the PSA subject of the instant application will significantly help alleviate the power outages in ZAMSURECO l's franchise area. This will greatly benefit the electricity consumers and local businesses. 7. Moreover, the immediate implementation of the PSA is made more urgent by the onset of the summer months when the supply of power in the entire Mindanao Grid will be severely reduced, owing to the Grid's dependence on hydroelectric power plants. 8. In view of the foregoing, they move for the provisional approval of the instant application pursuant to Rule 14 of the Commission's Rules of Practice and Procedure; In the same application, ZAMSURECO I and MPC prayed, that: 1. An Order be immediately issued provisionally approving the PSA subjectj the instant application as well as the generation rate/ hd adjustment mechanisms indicated therein. A J / ERC Case No. 2013-083 RC ORDER/June 3, 2013 Page 3 of 20 2. After due hearing, a Decision be rendered making such provisional approval permanent. Relative to the prayer for a provisional authority, the Commission initially reviewed the instant application, as follows: 1. Parties to the Contract ZAMSURECO I is a non-stock, non-profit electric cooperative organized and existing under and by virtue of Presidential Decree No. 269, as amended, with office address at J.S. Alano St., Pagadian City, Zamboanga del Sur. It has a franchise to distribute electricity in the City of Pagadian and the Municipalities of Tukuran, Labangan, Dumalinao, Tigbao, Tambulig, Molave, Mahayag, Dumingag, Josefina, Aurora, Ramon Magsaysay, Sominot, Midsalip, San Pablo, Guipos, San Miguel, Lapuyan, Margosatubig, Vicenzo Sagun, Dinas, Dimataling, Tabina, Pitogo and Don Victoriano, all in the Province of Zamboanga del Sur. MPC is a generation company duly authorized and existing under and by virtue of the laws of the Republic of the Philippines, with principal address at 4 th Floor, Alphaland Southgate Tower, 2258 Chino Roces Avenue corner EDSA, Makati City. 2. Power Supply in the Mindanao Grid The Mindanao Grid is currently facing a deficit in its power supply as the generating capacity in the Grid is no longer sufficient to meet the power requirements of Mindanao. Thus, the government's objective is to encourage private sector investments in power generation to infuse additional capacity and address the supply deficiency problem in the Mindanao region. Of the three (3) Grids in the country, Mindanao has the largest growth rate projection in the Department of Energy's (DOE) 2012 Power Development Plan (PDP). At 4.57% percent average annual growth rate (AAGR), the projected peak demand, which in 2012 is at 1,407 MW, is seen to increasg4o 2,068 MW in 2020 and will increase further to 3,250 MW in 2030.1 ERC Case No. 201 3-083 RC ORDER/June 3, 2013 Page 4 of 20 A total of 1,600 MW additional capacities are needed to meet the electricity demand and the required reserve margin of the grid. The table below shows the 2013 supply demand outlook in the Mindanao grid as published by the DOE: Mindanao Supply-Demand Outlook Requked Reserve Margin LIP The lack of sufficient and reliable power supply has long been a barrier to much needed capital investment that would spur the local economy, not only in the franchise area of ZAMSURECO I, but in greater Mindanao as well. The Mindanao Grid is heavily dependent on hydroelectric power. More than fifty-three percent (53%) of the total dependable capacity in the Mindanao Grid consists of hydroelectric generating capacity. As a consequence, available power supply in the Grid is drastically reduced during the summer months. The following table showjthe current Mindanao grid generation nix and power situation as of A 'nI 24, 2013 as published by NGCP. ERC Case No. 2013-083 RC ORDER/June 3, 2013 Page 5 of 20 Generation Plant Mix Percentage (%) Coal Power Plant 18.30 Diesel Power Plant 17.29 Geothermal Power Plant 7.94 Hydro Power Plant 56.47 Total 100.00 Power Situation System Capacity (MW) 930 System Peak (MW) 1,149 Reserve/(Deficit) (MW) -219 3. Insufficiency of ZAMSURECO l's Power Supply ZAMSURECO l's total power supply is not sufficient to meet its power requirements. Majority of ZAMSURECO l's power requirements is currently being supplied by the National Power Corporation (NPC). However, NPC has drastically reduced its supply commitments to ZAMSURECO I and is expected to make further reductions in the near future. Therma Marine, Incorporated (TMI) also supplies 5 MW of power to ZAMSURECO I under an Energy Supply Agreement (ESA) which will expire in 2014. In order to address its long-term electricity requirements, ZAMSURECO I has entered into power supply contracts with GNPOWER Limited Company (GNPOWER), Therma South, Incorporated (TSI) and San Ramon Power, Incorporated (SRPI) for a total of 38 MW of baseload power and with King Energy Generation, Incorporated (KEGI) for 5 MW of peaking power supply. However, the supply from KEGI is expected to commence only at the end of 2013. Further, the supply from baseload plants is expected to commence in 2016. Despite these, ZAMSURECO l's power supply is still far from sufficient to meet its current jQtal requirements. ZAMSURECO l's c)órrfrt power requirements stand at 34 MW. PSALM/NPC supplies aj r94'e of 12 MW, while TMI supplies 5 ERC Case No. 2013-083 RC ORDER/June 3, 2013 Page 6 of 20 MW. Thus, there is a very significant shortage of 17 MW which accounts half of ZAMSURECO l's power requirements. As a result, ZAMSURECO l's consumers currently endure daily brownouts, sometimes up to eight (8) hours, adversely affecting all electricity consumers, including local businesses. In addition, the shortage of power supply is expected to worsen due to the steady increase in ZAMSURECO l's power demand. Moreover, ZAMSURECO I will continue to experience outages due to the shortage of supply and to the steady increase in its power demand, to the detriment of its consumers and local businesses. 4. Salient Features of the PSA Type of Plant Bunker C-Fired Diesel Power Plant Total Capacity 103 MW (net generating capacity of 98.5 MW) Contracted Capacity MPC shall supply or cause to supply to ZAMSURECO I the latter's electric power requirements with the Contracted Capacity of up to 5 MW based on the following schedule and the Dispatchable Energy as indicated in and subject to the terms and conditions of the PSA Weeks after Contracted Effective Date Capacity (MW) 8-22 3 23 onwards 5 Contract Term Three (3) years Scheduled Commercial Within seven (7) weeks from the Operation Date Effective Date of the PSA, or on a later date agreed upon by the parties on which the two (2) MW of Contracted ''-ncity will be made available Payment Security SURECO I shall, no later than (30) days prior to the Scheduled mercial Operation Date, deliver to ERC Case No. 201 3-083 RC ORDER/June 3, 2013 Page 7 of 20 MPC security in an initial amount equivalent to the unadjusted first Monthly Payment of the first Contract Year Offtake Arrangement There is no minimum energy offiake under the PSA. As MPC will dedicate the Contracted Capacity to ZAMSURECO I, the Capital Recovery and the Fixed Operations and Maintenance Fees are computed based on the Contracted Capacity as well as on the proportion of actual energy delivered to the energy that could have been delivered Consumption in Excess During the term, MPC may, but is not of Contracted Capacity obliged to, make available to and Dispatchable ZAMSURECO I electric power in Energy excess of the Contracted Capacity and Dispatchable Energy, as the case may be, upon written request of ZAMSURECO I.