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 CASE NO. 2015-206 RC LANAO .DEL NORTE ELECTRIC COOPERATIVE, ( {JiJ or l!l D D J C.JAN. 0 5 2016 INC. (LANECO), nate:, 20./ ,=..-. Applicant. .. p.o/: _W ~.~._-llI )(- - - - - - - - - - - - - - - - - - - - - - -)( NOTICE OF PUBLIC HEARING TO ALL INTERESTED PARTIES: On 07 December 2015, the Lanao del Norte Electric Cooperative, Inc. (LANECO) filed an application for the approval of capital expenditure projects (CAPEX) 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. ERC CASE NO. 2015-206 RC NOTICE OF PUBLIC HEARING/10 December 2015 Page 2 of8 In the said application, LANECO alleged, among others, the following: 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 Commission for its evaluation and approval of LANECO's proposed 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 6,562,060.31 Libertad, Kauswagan Total 95,426,233.53 ERC CASE NO. 2015-206 RC NOTICE OF PUBLIC HEARING/10 December 2015 Page 3 of8 Statement of Facts 5. On 02 May 2011, the Commission rendered its decision on LANECO's application for approval of its Capital Projects for Years 2009-2013 under ERC Case 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 energize the 10 MVA Sagadan Substation; 7. As approved, the 18- kilometer 69kV Subtransmission Line Project has a horizontal structural design of construction, with a project cost ofPhP36,000,000.00; 8. However, due to internal problems encountered by LANECO, the implementation of the said project was set aside; 9. Due to the 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 LANECO as well as its consumers; 10. Recently, due to the urgent necessity of implementing the construction of the 18-km 69kV subtransmission line, the cooperative sought permission from the 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;' 11. However, due to the substantial revision in the conceptual engineering design and significant increase in cost of the project, the Commission instead required LANECOto file a new application for approval ofthe revised project;2 'Copy of LANECO's letter to the Commission of 1October 2014 is attached hereto as Annex "A". 2 Copy of the Commission's reply of 20 October 2014 is attached hereto as Annex "B", ERC CASE NO. 2015-206 RC NOTICE OF PUBLIC HEARING/10 December 2015 Page 4 of8 12. Hence, the present application was filed 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 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 (PhP95A26,233.53) 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 of pursuing and implementing the proposed projects without necessarily causing a significant increase in its electricity rates, to wit: ERC CASE NO. 2015-206 RC NOTICE OF PUBLIC HEARING/10 December 2015 Page 5 of8 2015 (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 AFTER DEBT SERVICE ( 167,000,254- 20,670,~2S) 146,:-l2<},<}29 TOTAL CAPEX PROJECTS and ERC CAPEX PERMIT FEES 169-42:-l,512 BALANCE, END ( 146,329,929 - 169,423,512 ) (23,093,584 ) 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 Imnact Comnutation Total (PhP) Pro;ected kWh Sales 7~,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 ner kWh 0.7132 ERC CASE NO. 2015-206 RC NOTICE OF PUBLIC HEARING/10 December 2015 Page 6 of8 Allegations in Support of the 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 10MVA 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 the projects in order that the cooperative could deliver a reliable and efficient electric