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. Republic of the PhiliPPines:~ft0Approved for\

ENERGY R~GULATORY C<?M~ISSION~'u Po~ting
San Miguel Avenue, Paslg City \. w ~flt.gov,h

IN THE MATTER OF THE

APPROVAL OF THE ENERGY
SALES AGREEMENT (ESA)
AND ADDENDUM BETWEEN
ORIENTAL MINDORO
ELECTRIC COOPERATIVE,
INCORPORATED (ORMECO)
AND PHILIPPINE HYBRID
ENERGY SYSTEMS,
INCORPORATED (PHESI),
WITH PRAYER FOR . THE
ISSUANCE OF PROVISIONAL
AUTHORITY

ERC CASE NO. 2014-001 RC

ORIENTAL MINDORO
ELECTRIC COOPERATIVE,
. INCORPORATED (ORMECO),
Applicant.
x- - - - - - - - - - - - - - - - - - - - - - -x

ORDER

On January 8, 2014, Oriental Mindoro Electric Cooperative,

Incorporated (ORMECO) filed an application for approval of its
Energy Sales Agreement (ESA) and Addendum with Philippine
Hybrid Energy Systems, Incorporated (PHESI), with prayer for the
issuance of provisional authority.

In support of its prayer for the issuance of a provisional

.authority, ORMECO C!llegedthe following:

1. With the scheduled eventual phase out of the National

Power Corporation (NPC) in July 2014, it became
indispensable for it to look for new power suppliers to
accommodate the electricity demand of the whole
Province of Oriental Mindoro, otherwise rampant
blackouts will result within its franchise area;
ERC Case No. 2014-001 RC
ORDER/March 24, 201:!.;::.-~:",
Page 2 of 21

2. Based on its Ten (10)-Year Forecast Data, the energy

generated in 2013 is 184,641,000 kWh while the
maximum demand is 35.65 MW. Further, in year 2014, _
the maximum demand of energy shall rise to 37.92 MW.
Due to the continuous increase in load demand, the
construction of the Wind Energy Power System (WEPS)
Project is necessary to meet the maximum load demands
for the succeeding years;

3. The need for continuity of power supply is so urgent and

compelling as the delivery of electric services affects a
broad spectrum of intertwined economic, social,
governmental and public service activities. Significantly,
the business and operations of a public utility such as that
of ORMECO, is highly inibued with public interest;

4. Meanwhile, a provisional approval of the subject ESA and

Addendum is, likewise, necessary to PHESI since a
provisional authority is one of the critical requirements for
the achievement of financial closing of the WEPS Project;

5. The issuance of a provisional authority, therefore, would

allow PHESI to obtain the needed funds to immediately
commence the construction and installation of the WEPS,
consistent with the project milestone dates thereof.
Under the ESA, the parties shall work together for the
achievement and timely completion of the project
milestone dates;

6. In view thereof, it cannot afford a delay in the construction

of the WEPS to procure additional power, otherwise, it
risks the occurrence of prevalent brownouts and
intermittent power shortage within its franchise area;

7. Further, the basis by which it prays for the issuance of

provisional authority or interim relief prior to a final
decision, is anchored on Rule 15 of the Commission's
Rules of Practice and Procedure, to wit:

"Section 3. Action on the Motion. - Motions

for provisional authority or interim relief may be
acted upon with or without hearing. The
Commission shall act on the motion on the
basis of the allegations of the application or
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 3 of 21

petition and supporting documents and other

evidences that applicant or petitioner has submitted
and the comments or opposition filed by any
interested person, if there be any. (Emphasis ours)
11

8. In light of the foregoing and in recognition of the fact that

a substantial amount of time is customarily needed to
evaluate the documents submitted to support the
approval of the application, it beseeches the kind
indulgence of the Commission to approve the instant
application, immediately,' albeit provisionally, at the
soonest opportune time.

In the same application, ORMECO prayed that pending

hearing, a provisional authority be duly issued for the implementation
of its ESA and Addendum with PHESI, and that after due notice and
hearing, the instant application, the subject ESA and Addendum, and
the True Cost of Generation Rate (TCGR) of PhP8.50/kWh be duly
approved.

Relative to the prayer for a provisional authority, the

Commission initially reviewed the instant application, as follows:

1. Parties to the Contract

ORMECO is a non-stock, non-profit electric cooperative, duly

organized and existing under the laws of the Republic of the
Philippines, with principal office at Barangay Sta. Isabel, Calapan
City, Oriental Mindoro. It is a holder of an exclusive franchise issued
by the National Electrification Administration (NEA) to operate the
electric power distribution system in the Municipalities of Baco,
Bansud, Bongabong, Bulalacao, Gloria, Mansalay, Naujan,
Pinamalayan, Pola, Puerto Galera, Roxas, San Teodoro, Socorro and
Victoria, and in the City of Calapan, all in the Province of Oriental
Mindoro (Franchise Area).

PHESI is a corporation duly organized and existing under the

Philippine laws with office address at Suite 2406, 24th Floor, Orient
Square Building, F. Ortigas Jr. Road, Pasig City. It shall build, own,
and operate the WEPS Project, with an installed capacity of 16 MW in
Barangay Tabinay, Puerto Galera, Oriental Mindoro.
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 4 of 21

2. Salient Features of the ESA

2.1 Cooperation Period. The cooperation period shall be

twenty-five (25) years commencing on the completion
date or commercial operation of the project (on or before
December 2015) in accordance with the terms and
conditions, as agreed by the parties;

2.2 Project Scope. PHESI shall own approximately 16 MW

of the WEPS.lt shall, likewise, be responsible for the
financing, design, engineering, supply, construction,
installation and erection, including civil works, testing,
commissioning of the WEPS (auxiliaries, substation and
transmission line from the project site(s) to the
interconnection point), and the operation and
maintenance of the said WEPS during the Cooperation
Period;

2.3 Project Milestone. ORMECO and PHESI shall work

together in order to achieve the timely completion and
commercial operation of the Project on or before
December 2015;

2.4 Supply of Electricity. PHESI shall supply electricity to

ORMECO. The generation of electricity from the WEPS
shall follow the dispatch .requirements of ORMECO which
shall be obliged to accept the electricity generated by the
Project in accordance with the provisions of the ESA and
Addendum;

2.5 WEPS Capacity and Monthly Contract Energy

Output. The nominal capacity of the selected WEPS
shall not be less than 16 MW. PHESI shall generate,
offer, and deliver to ORMECO and the latter agrees to
purchase, must take, and must have priority dispatch of
all available energy generated up to 5,500,000 kWh of
electricity per month;

2.6 Operation Mode. The WEPS has to be operated

consistent with wind resource levels. There shall be no
minimum power or energy off-take. Energy from the
WEPS shall be taken when available subject to the
provisions agreed upon by the parties;
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 5 of 21

2.7 Delivery Points. All energy shall be delivered by the

WEPS to the Delivery Points or by the operator of the
transmission lines subject to certain terms and conditions
agreed upon by the parties;

2.8 Surplus Energy Discount. ORMECO may purchase

additional energy from PHESI in excess of the monthly
contracted energy subject to terms and conditions agreed
upon by them. Moreover, ORMECO shall be entitled to a
surplus energy discount, to wit:

Surplus Energy
Surplus Energy
Discount
Surplus energy in excess of the annual
contracted energy (55,000,000 kWh) up to 5%
2,750,000 kWh
2,750,001 kWh up to 5,500,000 kWh 10%
5,500,001 kWh up to 8,250,000 kWh 15%
8,250,001 kWh up to 11,000,000 kWh 20%
Over 11,000,001 kWh Fixed at
PhP2.00/kWh

2.9 Electricity Fees. ORMECO and PHESI agreed on the

following fees for the duration of the Cooperation Period:

2.9.1 Generation Tariff Rate. ORMECO shall pay a

generation tariff rate per kWh of electricity for the
Contract WEPS Energy of PhP6.50/kWh. Provided,
however, that PHESI. shall be allowed by the
Commission to recover the difference between its
TCGR and the approved generation tariff rate from
the Universal Charge-Missionary Electrification
(UC-ME). The TCGR refers to the Commission-
approved monthly tariff per kWh, inclusive of any or
all adjustments; and

2.9.2 TCGR. PHESI's TCGR of PhP8.50/kWh IS

computed based on the following formula:

TCGR = CRF + O&MRF

ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 6 of 21

Where:

CRF = Capital Recovery Fee

O&MRF = Operation and Maintenance

Recovery Fee

Base Prices:

Base Price
Tariff Component
PhP/kWh
6.216
0.232
2.073
8.521
8.500

O&MRF = O&MRF (Peso) + O&MRF

(Foreign)

O&MRF (Peso) = [Base O&MRF (Peso)] x

(PCPle I PCPlb)

Where:

PCP Ie = Philippine Consumer Price Index

(CPI) for all items, as published by
the National Statistical Coordination
Board (NSCB), as of the current
month for which the billing invoice is
being prepared

= Philippine CPI for all items, as

published by the NSCB for the month"
the Delivery Period commences

O&MRF (Foreign) = [Base O&MRF (Foreign)] x

(FOREXe I FOREXb)
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 7 of 21

Where:

FOREXc = Average PhP/US$ exchange rate for

the current month for which the billing
invoice is being prepared and as
published by the Bangko Sentral ng
Pilipinas (SSP)

FOREXb = PhP/US$ exchange rate for the

month the delivery period
commences

2.10 Operation Prior to the Completion Date. After

installation of the WEPS and prior to the completion date,
PHESI may supply energy to ORMECO. On its part,
ORMECO may take and pay for the electricity offered
prior to the said completion date;

2.11 Prompt Payment Discount' (PPD). ORMECO shall be

entitled to a PPD of one-half percent (1/2%) of the total
monthly bill due, provided that it shall pay PHESI all
amounts due under the Monthly Invoice on or before the
tenth (10th) day following the date of its receipt of the
Monthly Invoice; and

2.12 Taxes. PHESI has agreed not to charge value-added tax

(VAT) to ORMECO. However, in the event that
ORMECO or its successor or assignee is determined not
to be exempted from VAT, PHESI shall have the right to
charge VAT to it or such successor or assignee.

3. Power Demand - Supply Scenario

The energy and capacity demand in the Province of Oriental

Mindoro is constantly increasing, thus, the need for an additional
supply of power. The table below shows the said Province's
Compound Annual Growth Rate (CAGR) for the last five (5) years:
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 8 of 21

Historical kWh Energy and Peak Demand

CAGR 2004 to 2012 5.26%
CAGR 2007 to 2012 6.510/0
Average Peak
Period kWh Growth
Demand Demand
2004 113,947,687 7.55% 13.0077
2005 124,178,399 8.980/0 14.1756
2006 113,846,430 -8.320/0 12.9962
2007 125,245,175 10.010/0 14.2974
2008 128,306,202 2.440/0 14.6468
2009 138,574,716 8.000/0 15.8190 26.085
2010 153,114,691 10.490/0 17.4788 27.783
2011 157,191,175 2.660/0 17.9442 28.931
2012 171,670,771 9.210/0 19.5971 30.330

Moreover, based on ORMECO's ten (10)-year forecast data,

the 2013 energy generated is 184,641,000 kW while the maximum
demand is 35.65 MW. Further, by the year 2014, the maximum
demand of energy shall be 37.92 MW and is expected to increase up
to 53.47 MW by year 2021.

Due to the lack of reserve power vis-a-vis the continuous

increase in load demand as well as the eventual phase out of the 17
MW rented modular units of the NPC-Small Power Utilities Group
(SPUG) in July 2014, the construction and installation of new power
plants are indispensable to accommodate the electricity demand of
the whole Province of Oriental Mindoro. Thus, whenever the
generation plants of ORMECO's existing power providers break or
shut down for periodic maintenance, there is no reserve power to
compensate for the deficiency.

The 16 MW WEPS Project, therefore, aims to provide additional

power to ORMECO to meet its constantly increasing energy demand
and cushion the impact of any resulting energy shortage within its
franchise area.

4. Procurement Process

Consistent with the Department of Energy (DOE) Circular No.

2004-01-0011, ORMECO passed Board Resolution No. 11-110 on

1 Prescribing the Rules and Procedures for Private Sector Participation in

Existing NPC-SPUG Areas Pursuant to Rule 13 of the Implementing Rules and
Regulations of the Electric Power Industry Reform Act of 2001 (EPIRA-IRR)
ERC Case No. 2014-001 RC
ORDER/March 24, 201~~:::::,," "
Page 9 of 21

July 4, 2011 for the conduct of a Competitive Selection Process

(CSP) for the additional 10 MW to 22 MW power supply. In
conjunction thereto, it passed Board Resolution No. 12-41, whereby it
resolved to adopt the provisions of Republic Act No. 9184 or the
Government Procurement Reform Act in the process of conducting
the CSP for the supply of Renewable Energy Facilities, particularly,
the provision on single bidder under Article X Section 362 thereof.

ORMECO published an "Invitation to Apply for Eligibility and to

Bid" in the January 27, 2012 and February 3, 2012 issues of The
Manila Standard Today.

PHESI was the lone qualified bidder for its Renewable Energy
Power Facility NO.1 (REPF NO.1). It was determined that the Bid
documents of PHESI met the criteria prescribed in Section 363 of
R.A. No. 9184.

Further, ORMECO has evaluated and determined that PHESI is

technically capable in providing the required minimum electricity per
month, and that the financial proposal of PHESI is within the ceiling
rate it prescribed for the generation rate.

2 A single calculated/rated and responsive bid shall be considered for award if it

falls under the following circumstances:

1. If after advertisement, only one prospective bidder submits a LOI and/or

applies for eligibility check, and meets the eligibility requirements or
criteria, after which it submits a bid, which is found to be,responsive to the
bidding requirements;

2. If after advertisement, more than one prospective bidder applies for

eligibility check, but only one bidder meets the eligibility requirements or
criteria, after which it submits a bid, which is found to be responsive to the
bidding requirements; or

3. If after the eligibility check, more' than one bidder meets the eligibility
requirements, but only one bidder submits a bid, and its bid is found to be
responsive to the bidding requirements. In all instances, the 'Procuring
Entity shall ensure that the ABC reflects the most advantageous prevailing
price for the government.

3 Section 36. Single Calculate/Rated and Responsive Bid Submission

(a) If after advertisement, only one prospective bidder submits a Letter of Intent
and/or applies for eligibility check, and meets the eligibility requirements or
criteria, after which it submits a bid, which is found to be responsive to the
bidding requirements.
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 10 of 21

On May 8, 2012, the DOE issued a "Certification on the

Conduct of Competitive Selection Process" to certify that ORMECO
underwent a CSP in the selection of its power provider, as prescribed
by ERC Resolution No. 21, Series of 2011 in relation to DOE Circular
No. 2004-01-001.

Thereafter, ORMECO issued a "Notice of Award" to PHESI for

the REPF No.1.

Thus, on May 14, 2012, ORMECO and PHESI entered into an

ESA for the 16 MW WEPS Project in Puerto Galera, Oriental
Mindoro.

Subsequently, on September 13, 2013, they executed an

Addendum to the ESA. In the said Addendum, PHESI shall generate,
offer, and deliver to ORMECO and the latter agrees to purchase,
must take, and must have priority dispatch of all available energy
generated up to 5,500,000 kWh, incorporating therein a provision for
Surplus Energy Discount and TCGR for the WEPS Project.

5. Evaluation of the Proposed Rate

For purposes of determining the reasonableness of the

proposed rate, the Commission considered the following rate
components:

5.1 Capital Recovery Fee - a capital~related element that

will allow PHESI to recover the cost of its investment
over the life of the plant together with a reasonable rate of
return; and

5.2 0 & M Fee - a component to recover operating and

maintenance costs. The power plant 0 & M cost is
commonly composed of local and foreign costs, where
the local 0 & M cost represents locally denominated plant
operating cost such as salaries, wages, overhead, and
. technical expenses, while foreign 0 & M cost represents
maintenance of spare parts, supplies, and all other costs
associated with the said parts that are usually imported.

ORMECO and PHESI did not provide a detailed derivation of

the proposed generation rate of PhP6.50/kWh (bid rate that PHESI
ERC Case No. 2014-001 RC
ORDERlMarch 24, 2014
Page 11 of 21

offered during the CSP). However, pursuant to the Addendum to the

ESA, PHESI derived its TCGR as follows:

Rate
Rate Component
PhP/kWh
Ca -ital Recove Fee 6.2156
Forei n 0 eration and Maintenance Fee 0.2323
Local 0 eration and Maintenance Fee 2.0733
TCGR 8.5212

It bears stressing that the parties mutually agreed that the

generation charge to be collected from ORMECO would still be the
PhP6.50/kWh bid rate, provided, however, that PHESI may be
allowed to recover the difference between its TCGR and the
proposed rate through the UC-ME subsidy.

5.3 Capital Recovery Fee (CRF)

The CRF is intended to recover the cost to build the

facilities that are needed to provide the capacity and supply the
energy to ORMECO plus a reasonable return.

PHESI proposed a total Project Cost of

PhP2,014,975,326.82 which is seventy percent (700/0)financed
through a loan from RCBC Capital Corporation and thirty
percent (300/0)financed through equity. The table below shows
the cost component of the WEPS Project:

Cost Com ponent Amount, PhP

Engineering, Procurement and
1,470,661,040.00
Construction (EPC) Cost
Pre-Development Cost 290,092,076.00
Site Cost 3,860,000.00
Financing Cost 169,475,853.62
Project Management and Supervision 29,413,220.80
Contingency Allowance 51,473,136.40
Total Project Cost 2,014,975,326.82

A perusal of the documents submitted disclosed that the

EPC Cost was supported by an EPC Contract executed by and
between PHESI and Gamesa Eolica S.L. Unipersonal on
October 11, 2011. Further, the said EPC Cost covers
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 12 of 21

approximately seventy-three percent (73%) of the Total Project

Cost.

For purposes of determining the reasonableness of the

proposed project cost, the Commission bench marked the same
to the capital cost it previously used in approving power supply
agreements involving power plants with similar technology.

Incidentally, the actual cost valuation is not possible at

this time since the power plant is yet to be constructed. In this
regard, the Commission cross-referred the proposed project
cost vis-a-vis the approved project cost under the Feed-In Tariff
(FIT) for wind power plants, to wit:

Particulars FIT PHESI

Total Project Cost, PhP 3,358,144,531.24 2,014,975,326.82
Installed Capacity, MW 30 16
Cost per MW, PhP/MW 111,938,151.04 125,935,957.93

Based on the foregoing, the proposed project cost of the

WEPS Project is within the level of the previously approved
project cost under the FIT c"onsidering the concept of
economies of scale (plant capacity considered under the FIT is
twice the size of PHESI's plant) and other economic factors
such as price fluctuations, foreign exchange, and CPI
adjustments.

In this regard, the Commission deems it prudent to adopt

the proposed project cost of PhP2,014,975,326.82 for purposes
of issuing a provisional authority. However, the same will still
be subject to re-evaluation.

On another note, the project is funded by seventy percent

%
(70 ) debt and thirty percent (30%) equity, as discussed
earlier. The Commission adopted the proposed cost of debt as
the same was evidenced by an Indicative Term Sheet
submitted by RCBC Capital Corporation which bears an eight
percent (80/0)interest rate.

It is worth mentioning that ORMECO did not consider any

tax assumption in the computation of cost of debt. The
Commission recalculated the same using a ten percent (10%)
tax assumption for wind project which yielded a lower cost of
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 13 of 21

debt of 7.20%. As regards the cost of equity, the Commission

adopted 14.71% which is derived based on an updated market
data for calendar year 2013.

Shown below is a comparison between PHESI's

proposed and the Commission's computed weighted average
cost of capital (WACC):

PHESI's Commission's
Particulars
Proposed WACC Computed WACC

Debt Element:
Pre-Tax Cost of Debt 8.00% 8.00%
Post-Tax Cost of Debt - 7.20%
Weiqht of Debt 70% 700/0
5.600/0 5.04%
Equity Element
Cost of Equity 16.44% 14.71%
Weight of Equity 30% 30%
4.94% 4.42%
Post-Tax WACC 10.53% 9.46%
Pre-Tax WACC 11.71% 10.51%

The WEPS Project consists of eight (8) generating units

with an installed capacity of 2 MW for each unit. The table
below shows the computation for the annual saleable
generation of the power plant (Billing Determinant):

8X2MW 16MW
16,000
30.96%
8,760
43,400,000

For purposes of determining the reasonableness of

PHESl's WEPS capacity factor of 30.960/0, the Commission
made reference to some approved capacity factors of wind
power plants. The Commission finds the same to be
reasonable inasmuch as it is above the previously approved
capacity factors as well as the typical capacity factor of wind
power generating plants.
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 14 of 21

In this regard, the Commission deems it prudent to adopt

a billing determinant of 43,400,000 kWh in computing the
TCGR.

The Commission then used a Discounted Cash Flow

analysis in determining the provisional CRF. It set a rate that
will yield an Equity Internal Rate of Return (EIRR) equal to the
14.71% cost of equity and at the same time, it will satisfy the
Debt Service Payments required by the banks to assure the
repayment of loan pursuant to the Indicative Term Sheet. The
Commission adopted a twenty (20)-year economic life for the
WEPS Project and a six (6)-year Income Tax Holiday (ITH).

Shown below is a comparison between the proposed and

provisionally approved CRFs:

PHESI's Commission's
Particular Pro osed CRF Com uted CRF Difference
PhP/kWh 6.2160 5.9000

5.4 Operations and Maintenance (O&M) Fee

The O&M costs are the recurring expenses which are

related to the operation of a business or to the operation of the
power plant facilities. The O&M cost of a power plant is usually
composed of foreign and local costs and is usually fluctuating
proportionately with the changes of the predetermined
economic factor ~uch as CPls. To address these changes in
cost, an adjustment factor/formula is provided in the ESA to
cover the fluctuations in the prices and cost of the foreign
and/or locally manufactured materials, equipment, and goods
and other consumables purchased and used by an independent
power producer (IPP) in the operation and maintenance of its
power plant facilities.

Based on the computed TCGR, PHESI proposed a Local

O&M Fee of PhP2.0730/kWh and Foreign O&M Fee of
PhPO.2320/kWh.
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 15 of 21

The proposed O&M Cost is broken down as follows:

PHESI PhP
13,480,000.00
16,800,000.00
4,200,000.00
4,200,000.00
11,029,957.80
16,800,000.00
1,915,612.76
2,766,750.00
21,528,316.04
434,000.00
434,000.00
93,588,636.60

Forei n Cost Com onent

O&M as er Gamesa O&M Contract
Total Forei n O&M

The reasonableness of the O&M cost may be best

established and validated by referring the same to the historical
cost of operations of the power plant as the said actual results
of operations would reflect the power plant's true cost of
generation. However, inasmuch as the WEPS Project has not
yet commenced commercial operation, the foregoing is not
applicable.

In the absence of such historical information, the

Commission evaluated the components of the O&M costs
based on the documents submitted in substantiating the
proposed local and foreign O&M rates.

After a thorough evaluation of the foregoing, the

Commission adopted the Foreign and Local O&M Costs
amounting to PhP10,080,000.00 and PhP13,480,000.00,
respectively, as these were supported by the O&M Contract
that PHESI executed with Gamesa Eolica S.L. Unipersonal.
Anent the other costs such as salaries and wages,
maintenance, general and administrative, and insurance
expenses, the Commission deems it necessary to consider the
same for purposes of issuing a provisional authority as these
are legitimate expenses. However, the same will still be subject
to re-evaluation.
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 16 of 21

In this regard, the Commission deems it prudent to adopt

the Local and Foreign O&M Fees of PhP2.0730/kWh and
PhPO.2320/kWh, respectively.

The table below is a comparison between and among the

proposed rate, FIT for. wind power plants, and the Commission's
provisionally approved rate:

PHESI's
Proposed Rates FIT for Commission's
(PhP/kWh) Wind Provisionally
Particulars
Power Approved
Addendum ESA Plants Rates
(PhP/kWh) (PhP/kWh)
Capacity Fee 6.2160 - - 5.9000
Local O&M Fee 2.0730 - - 2.0730
ForeiQn O&M Fee 0.2320 - - 0.2320
Total Rate 8.5210 6.50 8.53 8.2053

It can be gleaned that the Commission's provisionally approved

rate has a lower cost of generation as compared to PHESI's TCGR
by PhPO.3160/kWh and to FIT for wind power plants by
PhPO.3247/kWh.

6. Rate Impact

The total electricity fee under the ESA will not adversely affect
the existing rates which ORMECO bills to its member-consumers
since the same remains to be the approved Subsidized/Approved
Generation Rate (SAGR). Further, PHESI's power plant is not yet
ready to deliver energy until its commercial operation in 2015.

For purposes of determining the rate impact once PHESI

commences to supply power to ORMECO, the Commission made
reference to the kWh purchases of ORMECO from its current
suppliers and their corresponding generation costs, to wit:
 ERC Case No. 2014-001 RC
ORDERlMarch 24, 2014
Page 17 of 21

Increase/
Suppliers Without PHESI With PHESI
(Decrease)
NPC/Cummins 10.09% 6.5896 7.56% 6.5896
GBH 17.13% 10.2682 12.84% 10.2682
ORMIN Power 18.19% 6.5896 13.63% 6.5896
Power One (MIPGC) 19.07% 6.5896 14.29% 6.5896
DMHP-ORMECO 5.09% 1.9635 5.09% 1.9635
LCMHP-ORMECO 4.88% 5.9000 4.88% 5.9000
MGC 25.55% 6.5896 19.14% 6.5896
PHESI 0.00% - 22.57% 6.5896
ORMECO's
100.00% 6.9506 100.00% 6.7927 (0.1580)
Blended Rate
Savings in UC-ME
UC-ME Savings (PhP12.00/kWh, diesel -
(3.7947)
(PhP/kWh) PhP8.2053/kWh)
UC-ME Savings PhP164,689,000.00
(PhP3.7947 x 43,400,000 kWh)
(PhP) (Annual)

Had the WEPS Project been operational in 2013, it would have

benefited ORMECO's member-consumers in terms of lower rates. It
would have generated 43,400,000 kWh which could have provided
ORMECO with a total savings of PhPO.1580/kWh (PhP6.9506/kWh -
PhP6.7927/kWh). Moreover, it would have generated a total annual
savings in the UC-ME of PhP164,689,000.00.

The Commission has a mandate to protect the interest of the

electricity consumers insofar as they are affected by the rates, by
ensuring that the tariffs imposed are consistent with the principle of
full recovery of prudent and reasonable costs.

An initial evaluation of the instant application disclosed that the

ESA entered into by and between ORMECO and PHESI will redound
to the benefit of ORMECO's member-consumers in terms of
continuous, reliable, efficient and affordable power supply as
mandated by Republic Act No. 9136, otherwise known as the Electric
Power Industry Reform Act of 2001 or the EPIRA [Section 2.
Declaration of Policy - (b) "to ensure the quality, reliability, security
and affordability of the supply of electric powe"].
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 18 of 21

WHEREFORE, the foregoing premises considered, the

Commission hereby PROVISIONALLY APPROVES the Energy
Sales Agreement (ESA) of Oriental Mindoro Electric Cooperative,
Incorporated (ORMECO) with Philippine Hybrid Energy Systems,
Incorporated (PHESI), subject to the following conditions:

a. The applicable rate shall be as follows:

Com onent Rate PhP/kWh

Ca ital Recove Fee 5.9000
Local O&M Fee 2.0733
Forei n O&M Fee 0.2320
TCGR 8.2053

. Note: Both the Local and Foreign O&M Fees are subject to
adjustments, as provided in the ESA, except for the
PhPO.01/kWh ofthe said Local O&M Fee as this pertains
to the provision of ER 1-94

b. ORMECO shall charge its member-customers a rate

equivalent to the approved Subsidized/Approved
Generation Rate (SAGR);

c. PHESI is hereby allowed to recover the subsidy from the

Commission-approved Universal Charge-Missionary
Electrification (UC-ME) based on the petition filed by the
National Power Corporation-Small Power Utilities Group
(NPC-SPUG) and as set forth under the "Amended
Guidelines for the Setting and Approval of Electricity
Generation Rates and Subsidies for Missionary
Electrification Areas" promulgated on August 22, 2011.
Likewise, PHESI shall be entitled to the subsidy
commencing from the date of its first delivery of energy to
ORMECO;

d. The final generation cost that can be recovered shall be

determined by the Commission in its Decision in the
instant application; and
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 19 of 21

e. In the event that the final rate is higher than that

provisionally granted, the resulting additional charges
shall be collected by PHESI from NPC/ORMECO. On the
other hand, if the final rate is lower than that provisionally
granted, the amount corresponding to the reduction shall
be refunded by PHESI to NPC/ORMECO.

50 ORDERED.

Pasig City, March 24, 2014.

/~ A,(~
ZENAIDA G.
CRUZ-DUCUT
~ Chairperson ~

ALFR DO J. NON
;,--- a~tfr~,~C-
GLo~1A VICTORIA C. AP-TARUC
Commissioner , Commissio er

J05EFINA PATRI
Co

rA'RMECO ~HESI ESAI2014-001

RC/provisional
authority
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 20 of 21

Copy Furnished:

1. Diccion Law Firm

Counsel for ORMECO
Attn: Atty. Mary Ann Castro Diccion
Unit 1912 Jollibee Plaza Building,
F. Ortigas Jr. Road, Pasig City

2. Oriental Mindoro Electric Cooperative, Inc. (ORMECO)

Simaron, Calapan City, Oriental Mindoro

3. Office of the Solicitor General (OSG)

134 Amorsolo Street, Legaspi Village,
City of Makati 1229

4. Commission on Audit (COA)

Commonwealth Avenue,
Quezon City 1121

5. Senate Committee on Energy

GSIS Building, Roxas Boulevard,
Pasay City 1300

6. House of Representatives Committee on Energy

Batasan Hills, Quezon City 1126

7. National Electrification Administration (NEA)

NIA Road, Diliman, Quezon City

8. Office of the City Mayor

Calapan City, Oriental Mindoro

9. Office of the Municipal Mayor

Municipality of Baco, Oriental Mindoro

10. Office of the Municipal Mayor

Bansud, Oriental Mindoro

11. Office of the Municipal Mayor

Bongabong, Oriental Mindoro

12. Office of the Municipal Mayor

Bulalacao, Oriental Mindoro

13. Office of the Municipal Mayor

Gloria, Oriental Mindoro
 .....
j

.;.J
ERC Case No. 2014-001 RC
ORDER/March 24, 2014
Page 21 of 21

14. Office of the Municipal Mayor

Mansalay, Oriental Mindoro

15. Office of the Municipal Mayor

Naujan, Oriental Mindoro

16. Office of the Municipal Mayor

Pinamalayan, Oriental Mindoro

17. Office of the Municipal Mayor

Pola, Oriental Mindoro

18. Office of the Municipal Mayor

Puerto Galera, Oriental Mindoro

19. Office of the Municipal Mayor

Roxas, Oriental Mindoro

20. Office of the Municipal Mayor

San Teodoro, Oriental Mindoro

21. Office of the Municipal Mayor

Socoro, Oriental Mindoro

22. Office of the Municipal Mayor

Victoria, Oriental Mindoro

23. Office of the Governor

Province of Oriental Mindoro

24. National Power Corporation-Small Power Utilities Group

NPC Compound, Agham Road,
Diliman, Quezon City