.,- Republic of the Philippines , ENERGY REGULATORY COMMISSIO~ San Miguel Avenue, Pasig City \ '\ IN THE MATTER OF THE '''~''',,~ APPLICATION FOR APPROVAL OF THE SALE FOR RESALE AGREEMENT BETWEEN SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO) AND DINAGAT ISLAND ELECTRIC COOPERATIVE, INC. (DIELCO), WITH PRAYER FOR PROVISIONAL AUTHORITY ERC CASE NO. 2013-149 RC SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO) AND DINAGAT ISLAND ELECTRIC COOPERATIVE, INC. (DIELCO), Applicants. )(- - - - - - - - - - - - - - - - - - - - - - - - - - )( DECISION Before the Commission for resolution is the joint application filed on July 23, 2013, by Surigao Del Norte Electric Cooperative, Inc, (SURNECO) and Dinagat Island Electric Cooperative, Inc. (DIELCO) for the approval of their Sale for Resale Agreement (SRA), with prayer for provisional authority. In the said joint application, SURNECO and DIELCO alleged, among others, that: 1. SURNECO is a non-stock, non-profit electric cooperative (EC) duly organized and existing under and by virtue of the laws of the Republic of tl=le Philippines, with principal office address at 1308 Narciso cor. Espina Streets., Surigao City; 2. SURNECO is the holder of an exclusive franchise issued by the National Electrification Commission (NEC), to operate an electric light and power distribution service in the City of Surigao and eleven (11) Municipalities, namely: Alegria; ERC CASE NO. 2013-149 RC DECISION/December 2, 2013 Page 2 of 12 Bacuag; Claver; Gigaquit; Mainit; Malimono; Placer; San Francisco; Sison; Tagana-an; and Tubod; all in the Province of Surigao del Norte; 3. DIELCO is a non-stock, non-profit EC duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal offices at Justiniana, San Jose, Dinagat Island; 4. DIELCO is the holder of an exclusive franchise issued by NEC to operate an electric light and power distribution service in the Municipalities of San Jose, Basilisa, Libjo, Tubajon, Loreto, Dinagat and Cagdianao, all in the Province of Dinagat Island; 5. Pursuant to the Commission's Resolution NO.2, Series of 2009, otherwise known as the "Rules for the Recovery of Costs Associated with the Sale for Resale Agreements By, Between or Among Distribution Utilities" as well as other pertinent laws, rules and regulations, they filed the instant application for the Commission's approval; STATEMENT OF FACTS 6. The City of Surigao has seven (7) progressive barangays situated in the Islands of Nonoc, Hanigad and Sibale, commonly known as the Nonoc Island Barangays, namely: Nonoc; Talisay; Cantiasay; San Pedro; Aurora; Lisondra; and Zaragosa; 7. The aforesaid barangays are being energized through their own diesel-fueled generating sets and solar power units. The residents of Talisay only enjoy a four-hour electricity per day at a cost of Three Hundred Pesos (PhP300.00) a month per bulb and various charges; 8. The said barangays availed of the Sitio Energization Program (SEP) and the Barangay Line Enhancement Program (BLEP) of President Benigno Simeon C. Aquino III; 9. SURNECO found it impractical to put up a six (6) km. submarine cable and a three (3) km. distribution line to connect the aforesaid Island Barangays to its distribution grid. The ideal tapping point of the aforesaid Barangays is in Aurora due to its two hundred (200) meter distance from the nearest tapping point, which is the neighboring Sitio of Sto. ERC CASE NO. 2013-149 RC DECISION/December 2, 2013 Page 3 of 12 Nino located in Barangay Tigbao, Cagdianao, Dinagat Island; 10. Thus, SURNECO deemed it proper and reasonable to source power from DIELCO for resale to its end-users in the seven (7) barangays within its franchise area; 11. Consequently, SURNECO offered to buy and DIELCO agreed to sell power for distribution in the subject barangays under mutually beneficial terms. On June 23, 2013, the.' parties have entered into a Sale for Resale Agreement, subject of the instant application; 12. The salient features of their agreement are as follows: I. Responsibilities of SURNECO: a. Prior to the energization of the distribution lines, SURNECO shall install the necessary primary metering equipment at the delivery point located in Sitio Sto. Nino, Tigbao, Cagdianao, Dinagat Island; b. SURNECO shall be responsible for the upgrading of DIELCO's more than two (2) km. single phase distribution line to three phase line, which will serve as tapping point; c. SURNECO shall put-up a one (1) month energy deposit in the amount of One Hundred Eighty-Two Thousand Eight Hundred Twenty-Eight and 49/100 Pesos (PhP182,828.49), representing the calculated one (1) month energy consumption; and d. SURNECO shall settle its monthly bill within ten (10) calendar days from receipt of the Statement of Account, by depositing the payment to the designated bank account of DIELCO. II. Responsibilities of DIELCO: a. DIELCO shall sell and deliver electric power and energy to SURNECO at the delivery point at 3-Phase, 4 wire, 60 Hertz, 13.2/7.62 kV Alternating Current, except in cases where the National Power Corporation-Small Power Utilities Group (NPC-SPUG) delivery voltage will be below the standard set by the Philippine Grid Code (PGC); b. The Selling Rates to be charged by DIELCO to ERC CASE NO. 2013-149 RC DECISION/December 2, 2013 Page 4 of 12 SURNECO shall be the summation of DIELCO's Generation and Allowable System Loss Rates, the Allowable Wheeling Rate and other pass-thru charges approved by the Commission; c. The Wheeling Rate shall be composed of the Distribution, Supply and Metering (DSM) Charges, plus loan condonation, as follows: COMMERCIAL TYPE PARTICULARS PhP/kWh PhP/Custlmo. PhP/meter/mo. 0.9205 28.03 28.09 (1.3175 d. DIELCO shall categorize SURNECO as a commercial type customer; e. DIELCO shall not impose the Universal Charge (UC), Lifeline Rate Subsidy Charge, Senior Citizen Subsidy Charge to SURNECO since these are charges imposable to electricity end-users and SURNECO cannot be treated as such; and e. DIELCO shall be responsible for the replacement of the primary metering equipment in case of damage due to force majeure. III. Provisions Applicable to Both Parties: a. The reading of the billing meter shall be done jointly by a representative of each party every 25th day of the month. The statement of account shall, then, be transmitted by DIELCO to SURNECO not later than the 1st day of the succeeding month via email, courier, fax, or personal delivery; b. Both parties shall make the necessary representations with the Power Sector Assets and Liabilities Management Corporation (PSALM) of the Sale for Resale Agreement regarding the non-imposition of the UC to SURNECO, as well as the necessary representations with the Bureau of Internal Revenue (BIR) for the non-imposition of Value Added Tax (VAT) in the Distribution Charges; ERC CASE NO. 2013-149 RC DECISION/December 2, 2013 Page 5 of 12 The parties shall abide by the existing as well as future policies/regulations promulgated by the Commission; and c. The agreement shall remain in full force and effect for as long as it is permitted by Resolution NO.2, Series of . 2009, or any amendments thereto, unless the parties decide to make amendments thereto or otherwise terminate the same. In which case, the concerned party shall notify the other party in writing of its desire to introduce amendments or terminate the agreement, at least thirty (30) days before the intended effectivity thereof; 13. They complied with the pre-filing requirements of the Commission; 14. SURNECO has already completed the construction of the lines and installation of the facilities that will provide the subject barangays with a 24-hour electric service; 15. The immediate connection of these barangays to the main power lines is the vision of the present administration through the SEP and BLEP in order to generate a significant and focused economic investment and intervention in the remote rural areas; and 16. They pray that, upon initial review of the instant application and pending evaluation thereof, an Order be issued granting a provisional authority to implement the provision of their Sale for Resale Agreement and, after trial on the merits, the same be granted permanently. Having found the said joint application sufficient in form and in substance with the required fees having been paid, an Order and a Notice of Public Hearing, both dated October 7, 2013, were issued setting the case for initial hearing on October 30, 2013. In the same Order, SURNECO and DIELCO were directed to cause the publication of the Notice of Public Hearing, at their own expense, twice (2x) for two (2) successive weeks, in two (2) newspapers of general circulation in the Philippines with the date of the last publication to be made not later than ten (10) days before the scheduled date of initial hearing. They were also directed to inform the consumers within their franchise area, by any other means available and appropriate, of the filing of the joint application, their reasons therefor and of the scheduled hearing thereon. ERC CASE NO. 2013-149 RC DECISION/December 2, 2013 Page 6 of 12 The Office of the Solicitor General (OSG), the Commission on Audit (COA) and the Committees on Energy of both Houses of Congress were furnished with copies of the Order and the Notice of Public Hearing and were requested to have their respective duly authorized representatives present at the initial hearing. Likewise, the Offices of the Governors and the Mayors of the Cities and Municipalities within the franchise area of SURNECO and DIELCO were furnished with copies of the Order and Notice of Public Hearing for the appropriate posting thereof on their respective bulletin boards. During the October 30, 2013 initial hearing, only SURNECO and DIELCO appeared.