~Q>\itATORf? c} O~~ 'I~~~~l:'ejvcr(\ Republic of the Philippines •., . ~()~Ci;l'ii ENERGY REGULATORYCOMMISSIO ,,,' c" ":J c .:. \'fI',"Mrc,~\W,!Jh San Migllel Avenue, Pasig City ,', <:J...:--- , IN THE MATTER OF THE JOINT APPLICATION FOR THE APPROVAL. OF THE ELECTRICITY SUPPLY. AGREEMENT ENTERED INTO BY AND BEllNEEN BUKIDNON SECOND ELECTRIC COOPERATIVE, INC. (BUSECO) AND SUNASIA ENERGY INC., WITH PRAYER FOR THE ISSUANCE OF PROVISIONAL AUTHORITY ERC CASE NO. 2016-099 RC BUKIDNQN SECQND ELECTRIC COOPERATIVE, INC. (BUSECO) AND SUNASIA DOCKE'rED Date';" iJU~IL:h.•••••••••••••••••1 2016_~ ENERGY INC., 8.1":,;..... • ...........•._, Applicants. "- - - - - - - - - - - - - - - - - - - - - - - - " ORDER On 29 April 2016, the Bukidnon Second Electric Cooperative, Inc. (BUSECO) and SunAsia Energy Inc. (SunAsia) filed a Joint Application for approval of the electricity supply agreement, with prayer for the issuance of provisional authority. In the. said Application, BUSECO and SunAsia alleged the following: 1. This Joint Application is respectfully submitted to the Honorable Commission for due consideration and approval of the Electricity Supply Agreement (ESA) executed by and between BUSECO and SunAsia pursuant to Rule 20(B) of the Energy Regulatory. Commission's Rules of Practice and Procedure approved by this Honorable Commission on 22 June 2006 in Resolution No. 38 Series of 2005 (ERC Rules) and other relevant rul~~~a~gulations. A copy of the ESA is ,tt"h,d" Annex"A/{ , ERC Case No. 2016-099 RC Order/12 July 2016 Page 2 of 17 THE APPLICANTS 2. BUSECO is a non-stock, non-profit membership electric cooperative duly organized and existing under and by virtue of the laws of the Republic of the Philippines with principal office address at the Municipality of Manolo Fortich, Province of Bukidnon. It holds a franchise to operate an electric light and power service in the areas presently comprised by the following municipalities: Manolo Fortich, Malitbog, Malaybalay, Libona, Baungon, Talakag, Sumilao, Impasug- ong, Lantapan, and Cabanglasan (Franchise Area). A copy of BUSECO's franchise is attached as Annex "B". 3. SunAsia is a corporation duly organized and existing under the laws of the Republic of the Philippines with its principal office at the 902 Paragon Plaza Building, 162 EDSA corner Reliance Street Mandaluyong City, Metro Manila, Philippines. Copies of SunAsia's Certificate of Registration with the Securities and Exchange Commission, Articles of Incorporation and By-Laws, latest General Information Sheet, and [Audited] Financial Statement are attached as Annexes "C", "D", "E", and "F" respectively. SunAsia secured its Board of Investments (BO!) Certificate of Registration on 29 June 2015. A copy of the Certificate is attached as Annex "G". 4. Applicants may be served with orders or other processes of this Honorable Commission through their respective counsel at their addresses stated below. COMPLIANCEWITH PRE-FILING REOUIREMENTS 5. In compliance with Rule 6 of the ERC Rules, a copy of the instant Joint Application with all its annexes and accompanying documents was furnished to the Sangguniang Panlalawigan of Bukidnon and Sangguniang Bayan of the Municipality of Manolo Fortich and Sangguniang Panglungsod of Mandaluyong City. A copy of the corresponding proof of receipt by the Sangguniang Panlalawigan of Bukidnon is attached as Annex "H" and by the Sangguniang Bayan of Manolo Fortich and the Sangguniang Panglungsod of Mandaluyong City is attached as Annex "H-1" and "H-2" respectively. 6. Furthermore, Applicants caused the publication of the present Joint Application in its entirety, excluding its annexes, in a newspaper of general circulation within the Franchise Area. Copies of the corresponding Affidavit of pu~~~~/d the newspaper are attached as Annexes "I" and ~ f ERC Case No. 2016-099 RC Order/12 July 2016 Page 3 of 17 STATEMENTOF FACTS 7. Under Section 23 of Republic Act No. 9136 or the Electric Power Industry Reform Act (EPIRA), a Distribution Utility (DU) shall have the obligation to supply electricity in the least cost manner to its captive market, subject to the collection of retail rate duly approved by the Energy Regulatory Commission (ERC). Furthermore, under Section 45(b) of the EPIRA, a DU may enter into a bilateral supply contract subject to the review by the ERC. 8. In accordance with the EPIRA prOVlSlOn, the Department of Energy (DOE), through Circular No. 2003-12- 11, particularly Section 1 thereof declared that "[a]ll distribution utilities must henceforth take cognizance and assume full responsibility to forecast, assure and contract for the supply of electric power in their respective franchise areas to meet their obligations as a distribution utility." 9. On 11June 2015, the DOE issued Department Circular No. DC 2015-06-008 mandating all distribution utilities to undergo a Competitive Selection Process in securing power supply agreements. 10.Following a joint resolution of cooperation between the DOE and the ERC, the Honorable Commission issued ERC Resolution No. 13, Series of 2015 issued on 20 October 2015 titled "A Resolution Directing All Distribution Utilities to Conduct a Competitive Selection Process in the Procurement of their Supply to the Captive Market" which laid down the procurement guideline for power supply contracts. The guideline was later on clarified in the subsequent ERC Resolution NO.1, Series of 2016 issued on 15March 2016 titled ''A Resolution Clarifying the Effectivity of ERC Resolution No. 13 series of 2015" which states that PSAs executed on or after April 30. 2016 shall be required without exception to comply with the CSP.[Emphasis and underscoring supplied} 11.It is within the purview of the abovementioned resolutions that the instant Application is filed. 12.It must be noted that Mindanao, including the franchise area where BUSECO principally operates, has long been experiencing widespread rotational power interruptions due to power supply deficiency. These power interruptions adversely affect the businesses and the lives of the electricity consuming public. According to the 2012-2013 Supply-Demand Outlook issued by the DOE, a total of 1,600 MW additional capacity is needed during the planning period to meet the electricity ~':.~71requiredre~~, =gin of th, Minrum,e ERC Case No. 2016-099 RC Orderf12 July 2016 Page 4 oft7 13. PSALM/NPC is the main power supplier in the Mindanao Grid and of BUSECO. PSALM/NPC has a Contract for the Supply of Electricity (CSEE) with BUSECO, which will expire in 2019. Over the years the CSEE was renewed but the contract volume was significantly reduced. As a result, BUSECO was forced to implement rotational brownouts and to procure power supply from more expensive sources. 14. During the Customer's Forum held in Davao City on 11 August 2014, PSALM presented the Mindanao Power Supply Outlook for 2015-2016. It declared that the supply allocation for its customers for 2015 will be reduced by a maximum of 18% and will be further reduced in 2016 to a maximum of 46%. These will result to a reduction in BUSECO's average PSALM allocation. In addition, there is uncertainty of electricity supply coming from PSALM after the CSEE expires on 2019. 15.Notably, PSALM has issued a certification confirming that it has insufficient capacity to supply BUSECO's additional power requirements beyond the contracted energy and equivalent demand in the current electricity supply contract. A copy of the PSALM Certification is attached as Annex "K". 16. BUSECO's energy and peaking demand requirements are projected to significantly increase in the next few years based on the existing growth rate of 4.22% per annum, as evidenced by Distribution Development Plan and its Power Supply and Demand Scenario, copies of which are attached as Annexes "L" and "M". 17.Moreover, BUSECO's peaking demand is expected to increase even further as industries and commercial establishments continue to flourish within the franchise area. It is important for BUSECO being the franchised distribution utility, to procure additional capacity to service the requirements of the said industries and establishments and contribute to the economic improvement of the area and of Mindanao. 18.Therefore, to ensure power supply adequacy in its franchise area, it is imperative for BUSECO to enter into long- term power supply contracts from suppliers other than PSALM. 19. Starting 2013, BUSECO solicited offers from various power suppliers with due consideration on its demand growth, generation mix and its rate impact to its Member-Consumer- Owners (MCOs). Among the offers BUSECO considered and ev,"uatedWM fromSunk;iaEn"gy Inc., whicheommitte'i ERC Case No. 2016-099 RC Order/12 July 2016 Page 5 of 17 build a 2.0 MW Solar Power Plant within the Franchise Area. SunAsia's power plant is scheduled to be commissioned in 2017. 20. Based on BUSECO's evaluation, it was determined that the proposal of SunAsia is advantageous to its consumers. Considering that the power plant of SunAsia will be located within the Franchise Area which is adjacent to BUSECO's Sumilao Substation and will be connected directly to BUSECO'S power distribution network, the DU will be able to avoid paying transmission charges to the National Grid Corporation of the Philippines. 21. In addition to the cost savings, since BUSECO is an embedded generator, it is capable of delivering electricity of better quality and reliability since its power plant will be subjected to fewer power interruptions arising from grid- related faults and/or transmission line constraints. BUSECO is also obligated to supply BUSECO back-up energy and capacity during forced outage beyond allowable threshold levels. 22. Given the need to secure long-term power supply and considering the advantages of procuring electricity from SunAsia, and following extensive negotiations, BUSECO and SunAsia signed the ESA subject of the instant Joint Application on 7 January 2014. An affidavit describing BUSECO'S procurement process is attached as Annex "N". SALIENT FEATURES OF THE ELECTRICITY SUPPLY AGREEMENT 23.