A"f>-"""""I "-"'- /,!.' f.'>UlATOi?y c"'., ,"<-v (},'". ' , "%,\ iAY.t0;-0[ ny~fi'{(!,"-CrJ (SiP. ",'J:. 'L-c ... ,'"ll" Ii <.."" !Ui 0il u ~~ :z . .. r:: e;.,.;".,J.'~ ~'.".r.~""1":: ReP.ublIc of the PhIlIppmes ILv Vi\\'.;.tre.t~,.ph ENERGY REGULATORY COMMISSIO~ "- ~PII ) San Miguel Avenue, Pasig City "===.~ IN THE MATTER OF THE APPLICATION FOR APPROVAL OF CAPITAL EXPENDITURE PROJECTS FOR 2015, NAMELY: 1) CONSTRUCTION OF 69kV SUB-TRANSMISSION LINE FROM CURVADA, KAPATAGAN TO LANECO MAIN OFFICE, AND 2) DOUBLE CIRCUITING OF BACKBONE LINE FROM KAUSWAGAN SUB-STATION TO LARAPAN BRIDGE, LINAMON, WITH PRAYER FOR . PROVISIONAL AUTHORITY ERC CASENO. 2015-206 RC LANAO DEL NORTE ELECTRIC COOPERATIVE, INC. (LANECO), Applicant. )(- - - - - - - - - - - - - - - - - - - - - - -)( ORDER On 7 December 2015, the Lanao del Norte Electric Cooperative, Inc. (LANECO) filed an application for the approval of capital expenditure projects for 2015, namely; construction of 69kV sub- transmission line from Curvada, Kapatagan to LANECO Main Office and double circuiting of backbone line from Kauswagan sub-station to Larapan bridge, Linamon, with prayer for the issuance of provisional authority. In the said application, LANECO alleged, among others,' the fOllOwin 0 ERC CASE NO. 2015-206 RC ORDER/l0 December 2015 Page 2 of 11 1. Applicant LANECO is a non-stock, non-profit electric cooperative duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Sagadan, Poblacion, Tubod, Lanao del Norte; 2. LANECOholds an exclusive franchise from the National Electrification Commission, to operate an electric light and power distribution service in all the municipalities of the province of Lanao del Norte, namely: Tagoloan, Linamon, Kauswagan, Matungao, Poona Piagapo, Bacolod, Mango, Munai, Kolambugan, Magsaysay, Tubod, Tangcal, Baroy, Salvador, Nunungan, Lala, Sapad, Kapatagan and Sultan Naga Dimaporo. Legal Basis for the Application 3. The instant application is being submitted to the Honorable Commission for its evaluation and approval of LANECO'sproposed capital expenditure projects for 2015 pursuant to ERC Resolution No.26, Series of 2009 and other pertinent laws, rules and regulations. The Proposed Projects 4. The proposed capital expenditure projects consist of the following: Proposed Projects Project Cost (PhP) 1 Construction of 18-kilometer 69kV Subtransmission Line from Curvada, Kapatagan to LANECO'smain office 88,864,173.22 2 Double circuiting of backbone line from the lOMV A Kauswagan Substation to Larapan Bridge, Linamon, for the tapping point of the GNPower Power Plant in Libertad, Kauswagan 6,562,060.31 Total 95,426,233.53 ERC CASE NO. 2015-206 RC ORDER/10 December 2015 Page3 of 11 Statement of Facts 5. On 02 May 2011,the Honorable Commission rendered its decision on LANECO'sapplication for approval of its Capital Projects for Years 2009-2013 under ERCCase No. 2010-015 RC, approving the proposed projects with modification; 6. Among the approved projects is the Construction of 18- kilometer 69kV Subtransmission Line from Curvada, Kapatagan to the cooperative's main office in Tubod, Lanao del Norte, which includes seventy (70) footer concrete poles and overhead electrical lines, intended to address present and future load requirements as well as to energizethe 10MVA Sagadan Substation; 7. As approved, the 18- kilometer 69kV Subtransmission Line Project has a horizontal structural design of construction, with a project cost of PhP36,000,000.00; 8. However, due to internal problems encountered by LANECO,the implementation said project has been set aside; 9. Due to passage of time, or more than six (6) years from the time the approved project was designed, the implementation thereof has been rendered impractical, less feasible and disadvantageous to LANECOas well as its consumers; 10. Recently, due to urgent necessity to implement the construction of the 18-km 69kVsubtransmission line, the cooperative sought permission from the Honorable Commission to revise the conceptual engineering design as well as transfer the location of the said project. The revised project will necessitate an increase in the project cost. Copy of LANECO's letter to the Honorable Commission dated 1 October 2014, is attached to the application as Annex "A"; 11. However, due to the substantial revision in the conceptual engineering design and significant increase in cost of the project, the Honorable Commission instead required LANECOto file a new application for approval of the revised project. Copyof the Commission's reply dated 20 October 2~, is attached to the application as Annex "R"; '1 ERC CASE NO. 2015-206 RC ORDER/10 December 2015 Page 4 ofn 12. Hence, the necessity to file the instant application in order to revise the structural design of the project and relocate the installation of the poles to the opposite side of the road. As of finalization of the instant application, the updated proposed cost of the projects is PhP88,864,173.22, based on the National Electrification Administration (NEA)latest price index; 13. On the other hand, the GNPower Ltd. Co., a power generation company, will locate its 4-150MW Coal-Fired Power Plant in Barangay Libertad, Kauswagan, Lanao Del Norte, or within LANECO'sfranchise area; 14. Construction of the plant has commenced in January 2015 and during its construction stage, it will require 4MW capacity from LANECO, to be sourced from its 10MVA Kauswagan Substation; 15. The Kauswagan Substation has a present loading of 4.56MW, and Linamon Feeder that will be serving GNPower has a present loading of 0.9MW; 16. The 3-kilometer old distribution line could not withstand the incoming load and needs rehabilitation by being converted into double-circuits construction wherein revisions on pole height, spanning/ distances and construction assemblies must be done. Hence, the instant application for the double circuiting of backbone line from Kauswagan Substation to Larapan Bridge, Linamon. Financial and Economic Evaluation 17. Project Financing. The total project cost of Ninety Five Million Four Hundred Twenty Six Thousand Two Hundred Thirty Three Pesos 53/100 (PhP95,426,233.53) will be funded through an approved loan availment from the National Electrification Administration (NEA) and the Land Bank of the Philippines (LBP) at an average interest rate of 6.125% for a term of fifteen (15)years. 18. Cash Flow. LANECO's CAPEX plan cash flow cost, shown below, has determined the viability to pursue and implement the proposed projects without necessarily ERC CASE NO. 2015-206 RC ORDER/10 December 2015 Page 5 of 11 201<;(PhP) INFLOWS: PROJECTED SALES (kWh) 73,819,320 FUNDING SOURCES: Annual Revenue from RFSC (73,819,320 X PhPo,4004) 29,557,256 Financing: NEALoan 123,842,998 Landbank Loan 13,600,000 TOTAL (29,557,256 +123,842,998 +13,600,000) 167,000,254 OUTFLOWS: CASH FOR DEBT SERVICE Existing Loans - NEA 2,477,940 New Loans -NEA 12,975,248 - Bank/Others 5,217,137 SUB-TOTAL 20,670,325 BALANCE AFfER DEBT SERVICE ( 167,000,254- 20,670,325) 146,329,929 TOTAL CAPEX PROJECTS and ERC CAPEX PERMIT FEES 16<).423.512 BALANCE. END ( 146.32<),<)2<) - 16<).423.512 ) (23,°93,584 ) 19. Rate Impact. The instant projects were envisioned to have the least rate impact focusing on a capital expenditure plan that will bring the most value to LANECO's customers at the most reasonable and justifiable electricity rates or at the least cost of service. Shown below is the rate impact of the CAPEXProjects on its Reinvestment Fund for Sustainable CapEx (RFSC), to wit: Rate Impact Computation Total (PhP) Projected kWh Sales 73,819,320 Annual Revenue from RFSC (RSEC-WR rate - PhPo,4004) 29,557,256 CAPEX Plan Cost Cash Flow Balance, End ( 23,093,584) Indicative Additional Rate (PhP 23,093,584 /73,819,320 ) 0.3128 Existing RSFC Rate 0,4004 CAPEX Plan Cost Cash Flow Rate per kWh 0.7132 ERC CASE NO. 2015-206 RC ORDER/l0 December 2015 Page 60fn Allegations in Support ofthe Prayer for Provisional Authority 20. LANECO re-pleads the foregoing allegations in support of its application for the issuance of provisional authority; 21. The proposed construction of 69kV Line is intended to address present and future load requirements, as well as to energize the new 10 MVA Sagadan Substation which was among the approved projects under ERC Case No. 2010-015 RC; 22. Due to the influx of potential investors, it is imperative that the above proposed project be implemented as soon as possible to help lessen the critical load level of LANECO's 2-5MVA Kapatagan Substation. The 5MVA Power Transformer- Takaoka Brand has a current percentage loading of 89.55 % while the 5MVA Power Transformer - Brush Brand as a current percentage loading of 92-40 %; 23. The Kapatagan Substation will be relieved by transferring loads/ distribution lines to the lOMVA Sagadan Substation which is currently undergoing civil works construction at the main office headquarters of LANECO; 24. Further, new big load customers are rising soon in the municipalities of Kapatagan, Lala and Tubod, consisting of the Lanao del Norte Provincial Hospital and Jollibee - Maranding Branch, with a total 1MW load requirement; 25. On the other hand, the coal-fired power plant of the GNPower Ltd. Co., which will be located in Brgy. Libertad, Kauswagan, will require 4 MW capacity from LANECO during its construction stage, which has commenced in January 2015; 26. Considering the foregoing, LANECO prayed that upon filing and initial review hereof, it be granted provisional authority to implement