IN THE MATTER.

OF THE
APPLICATION FOR APPROVAL
OF THE POWER SALES
AGREEMENT (PSA) BETWEEN
ZAMBOANGA CITY ELECTRIC
COOPERATIVE, INC.
(ZAMCELCO) AND MAPALAD
POWER CORPORATION (MPC),
WITH PRAYER FOR
PROVISIONAL AUTHORITY

ERC CASE NO. 2015-120 RC

ZAMBOANGA CITY ELECTRIC

COOPERATIVE, INC.
(ZAMCELCO) AND MAPALAD
POWER CORPORATION (MPC),
Applicants.
x- - - - - - - - - - - - - - - - - - - - -- -x

ORDER

On June 26, 2015, Zamboanga City Electric Cooperative, Inc.

(ZAMCELCO) and Mapalad Power Corporation (MPC) filed a joint
application for approval of their Power Sales Agreement (PSA), with
prayer for provisional authority.

In support of their prayer for issuance of a provisional authority,

ZAMCELCO and MPC alleged, among others, the following:

1. ZAMCELCO's current power supply is not sufficient to

meet its total power requirements, resulting in substantial
power outages in ZAMCELCO's franchise area and
adversely affecting its Industrial, Commercial and
Residential power consumers;

2. For instance, ZAMCELCO's available contracted supply

for July 2015 is only 63.2 MW, far from sufficient to meet
.... its estimated demand of 90.9 MW, resulting in a .

, .
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 2 of 24

significant power shortage of 27.7 MW. This impending

power shortage would result to sustained daily rotational
brownouts;

3. Taking into consideration the current power situation in

ZAMCELCO's franchise area as well as its projected
demand, it is imperative that ZAMCELCO contracts for
additional power supply that can be available at the
soonest possible time;

4. ZAMCELCO's need for additional power is best

addressed by the leased modular diesel-fired generating
sets covered by the PSA that can be deployed and
installed expediently. As earlier stated, this solution has
proven effective when MPC implemented similar projects
for other distribution utilities in Mindanao to help alleviate
power shortages in their franchise areas;

5. The immediate implementation of the PSA will help

alleviate the power outages in ZAMCELCO's franchise
area;

6. In view of the foregoing, they moved for the provisional

approval of the instant joint application pursuant to Rule
14 of the Commission's Rules of Practice and Procedure;
and

7. They prayed that the Commission:

a. immediately issue an Order provisionally approving

the PSA subject of the instant joint application as
well as the Generation Rate and adjustment
mechanisms indicated therein; and

b. after due hearing, render judgment making such

provisional approval permanent.
ERC CASE NO. 2015~120 RC
ORDER/September 1,2015
Page 3 of 24

Relative to the prayer for a provisional authority, the

Commission initially reviewed the instant application, as follows:

1. PARTIES TO THE CONTRACT

ZAMCELCO is a non-stock, non-profit electric cooperative

organized and existing under Presidential Decree No. 269, as
amended, with office address at MCLL Highway, Putik, Zamboanga
City. It has a franchise to distribute electricity in the City of
Zamboanga.

MPC is a generation company duly authorized and. existing

under and by virtue of the laws of the Republic of the Philippines, with
principal address at 4th Floor, Alphaland Southgate Tower, 2258
Chino Roces Avenue corner EDSA, Makati City.

2. MINDANAO GRID AND ZAMCELCO'S SUPPLY-DEMAND

SCENARIO

The Mindanao Grid is currently facing a deficit in its power

supply, which may worsen over time. The generating capacity in the
grid is no longer sufficient to meet the power requirements of
Mindanao.

The table below shows the 2014-2020 supply-demand outlook

in the Mindanao Grid as published by the Department of Energy
(DOE):
 ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 4 of 24

MINDANAO SUPPLY-DEMAND OUTLOOK (2014-2020)

r--' .----
.--------.
2014 201S 2016 2017
~"*"
J

3000 ) A!r.13.6MWTIIlajo M.1r. I so MW Then:u Soo'Jl :1 M.T: 25 tAN lake HEP JaJ: 9 MW linbal.Il/O!I HE'
, 15MW~DleseI JIll: 112 ~ H£P Sop: ~05 t.1WfDC em
'Il1O' Sql:26.1MW __ Jut3() MW ~ I.E?
Sell: 200",'0; S3tYlgJlll Co.1I
: Nov. 150 WI T1lenna SOOth I !)e(: ~ll W't\'Brxn.ns

'400 1
12001
I
2000
1
1800 ~

1400 J
!
1200 -

At present, ZAMCELCO's power supply is far from sufficient to

meet the power requirements of Zamboanga City. Its customers have
to endure an average of about five (5) to eight (8) hours of daily
rotational brownouts.

Shown below is ZAMCELCO's annual historical and forecasted

supply-demand scenario:

Historical Forecasted
2013 2014 2015 2016 2017 2018 2019 2020
Coincident
Peak Demand, 91.4 91.2 94 95.3 96.5 97.8 99.1 100.5
MW
Suppliers:
PSALM 52.2 44.4 23 17 17 17 17 17
TMI 18 18 18 18 18
MPC 18 18 18
SRPI 85 85
NEA-GENSET 12 12
MPC-GENSET 10
WMPC 50 50 50
TSI 1 1 1 1 1
Total Supply
(MW)
88.2 80.4 81 97.56 85.56 67.56 102.56 102.56
(Deficit)/Surplus (3.20) (10.80) (13.00) 2.26 (10.94) (30.24) 3.46 2.06
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 5 of 24
Notes:
a) Supply contract with Power Sector Assets and Liabilities Management Corporation
(PSALM) expires by the end of 2015. Extent of supply from PSALM from 2016
onwards is uncertain given the privatization of its plants. Supply from PSALM has
been decreasing significantly over the past few years.

For purposes of simulation, supply from PSALM is assumed at 17 MW for 2016 and
onwards, in view of the expected privatization of certain plants.

b) MPC supply of 18 MW will be up to second quarter of 2016.

c) Under the PSA with Western Mindanao Power Corporation (WMPC), ZAMCELCO
has the option to reduce the contracted capacity or terminate the PSA, subject to
certain conditions.

The graph below shows ZAMCELCO's average daily load curve

(with and without the supply from the' MPC-Genset) based on its
submitted supply-demand scenario for July 2015:

ZAMCELCO's Daily Load Curve w/o MPC-Genset

(lOMW)
100,000
90,000
80,000
"'l:J 70,000
~ 60,000
E
.!: 50,000 o DEFICIT
s::;: 40,000
n MPC.IDPP
30,000
.TMI
20,000
10,000 m PSALM/NPC
a
:;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;: :;:
««««««~~~~~~~~~~~~
H~~~~~~~~~~~~"M~MMMMMMMM
~~~~~~~~~~~~~~~~~~~9.9.9.9.9.
~ M N M ~ ~ ~ ~ 00 m S ~ ~ M N M ~ ~ w ~ 00 m S~
Hours
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 6 of 24

ZAMCELCO's Daily Load Curve wi MPC-Genset

(lOMW)
100,000
90,000
~--"--"-
__ --
- - -- _ ...- -
- _.. .
_.-~
. ._. ..------ - --------~.-
-- -- "--
-
-_. --- .---- ..... -

80,000
70,000
~
N 60,000
isIi50,000
" DEFICIT

;;: 40,000 • MPCGENSET

:;;
30,000 E: MP(-IDPP

20,000 .TMI
10,000
" PSALM
o

Hours

3. PROCUREMENT PROCESS

ZAMCELCO needs to procure additional power supply that can

be available at the soonest possible time. Thus, ZAMCELCO exerted
efforts to procure the appropriate power supply.

MPC offered to supply power to ZAMCELCO from leased

modular diesel-fired power generating sets to be installed in
ZAMCELCO's franchise area as an emergency and temporary
solution to the power shortage. Modular generating sets may be the
most appropriate solution to the immediate need for power supply
because they can be deployed and installed expediently. This was
proven effective by MPC in alleviating power shortages when it
implemented similar projects for other distribution utilities in
Mindanao, such as MPC's Koronadal Power Station in South
Cotabato 1 Electric Cooperative, Inc. (SOCOTECO I) and Alsons
Energy Development Corporation's (AEDC) Digos Power Station in
Davao Del Sur Electric Cooperative, Inc. (DASURECO).

ZAMCELCO evaluated the offer and as a result, it executed the

PSA with MPC for the supply of 10 MW.
 ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 7 of 24

4. SALIENT FEATURES OF THE PSA

• Type of Plant Modular Diesel Power Plant

• Contracted Capacity 10 MW

• Term

Unless otherwise pre-terminated or extended in accordance

with the PSA, the term of supply and purchase under the PSA shall
. be for six (6) months from the date the power station is ready to
commence commercial operations, or until the start of the power
supply of 50 MW from WMPC Power Plant to ZAMCELCO, whichever
comes at a later date. Supply from the WMPC Power Plant is under a
separate agreement and is expected to commence early 2016.

• Proposed Tariffs and Rates Structure

The Monthly Payments shall be paid to MPC on a monthly

basis in accordance with the following formula:

Monthly Payments = CRF + FOMF + VOMF + AFC + SC + Taxes

Where:

CRF = Capital Recovery Fees

FOMF = Fixed Operation and Maintenance Fee

VOMF = Variable Operation and Maintenance Fee

AFC = Actual Fuel Cost

SC = Start-Up Costs

Taxes = Value Added Tax and other applicable taxes,

if any
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 8 of 24

Proposed Rates:

Particulars Rates
CRF PhP1,541.46/kW/month
FOMF PhP285.47/kW/month
VOMF PhPO.59/kWh
Pass-through Cost Subject
Fuel Fee
to Efficiency Cap

• Offtake Arrangement

Under the PSA, MPC shall make available, reserve, guarantee

and deliver to ZAMCELCO the Contracted Capacity and ZAMCELCO
shall pay for such quantity of electric power. MPC shall utilize such
Contracted Capacity to generate energy for ZAMCELCO.

There is no minimum energy offtake (MEOT) under the PSA.

As MPC will dedicate the Contracted Capacity to ZAMCELCO, the
Capital Recovery and the Fixed Operations and Maintenance Fees
are computed based on the Contracted Capacity as well as on the
proportion of actual energy delivered to the energy that could have
been delivered.

Also, the capacity to be provided by MPC shall always be the

Contracted Capacity. In case the actual capacity delivered by MPC,
as per dispatch order or limitation of ZAMCELCO for a given billing
month is less than the Contracted Capacity, the difference between
the actual capacity utilized by ZAMCELCO and Contracted Capacity
for that billing month shall be deemed delivered to and utilized by
ZAMCELCO.

It should be noted that the PSA does not include any scheduled
or unscheduled maintenance provision (except for Forced Outage).
The power plant will only be utilized for a span of six (6) months and
shall be guaranteed to operate for twenty-four (24) hours per day.

5. MPC'S 10 MW MODULAR POWER STATION

MPC shall supply power under the PSA using leased modular
diesel-fired power generating plants with a total net output of 10 MW
to be installed, operated and maintained in ZAMCELCO's premises in
Putik, Zamboanga City.
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 9 of 24

The modular power station consists of eleven (11) units of

diesel generator sets and auxiliaries, with a total installed capacity of
1,070 kW per unit; two (2) units of transformer package; one (1) unit
each of control room, switch gear and oil water separator; diesel fuel
tanks with auxiliaries and water tanks; one (1) unit each of workshop
and of office; and an interconnection line from the modular power
station to ZAMCELCO's substation.

The Specific Fuel Oil Consumption (SFOC) of the power station

shall not be greater than 0.265 liter/kWh at site condition of 32 deg. C
ambient temperature. The SFOC is based on a diesel fuel density of
0.85 kilogram/liter.

MPC is currently processing the necessary application with the

Department of Environment and Natural Resources (DENR) for an
Environmental Compliance Certificate (ECC) covering the power
station.

MPC has also requested the DOE for the issuance of a

certification that the capacity of the power station is consistent with its
Power Development Plan (PDP).

Meanwhile, MPC is currently preparing its application for the

issuance of a Certificate of Compliance (COC) for the power station
to be filed with the Commission.

6. EVALUATION OF THE PROPOSED RATE

The Commission considered the following rate components in

determining the reasonableness of MPC's proposed rates:

a. CRF - a capital related element that will allow the MPC to

recover the cost of its investment over the life of the plant
together with a reasonable rate of return.

b. O&M Fee - a component to recover operating and

maintenance costs. The power plant O&M cost is
commonly composed of local and foreign costs, where
the local O&M cost represents locally denominated plant
operating cost such as salaries, wages, overhead and
technical expenses, while foreign O&M cost represents
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 10 of 24

maintenance of spare parts, supplies and all other cost

associated with the said parts that are usually imported.

I. Fixed O&M - a component to recover fixed O&M

costs. This cost is determined by the capacity of the
plant, not the level of utilization; and

II. Variable O&M - an element to recover variable

O&M cost. This non-fuel cost varies with the amount
of electricity generated.

c. Fuel Fee - a component to recover fuel costs.

A. 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 .
ZAMCELCO plus a reasonable return. The CRF agreed upon in the
PSA is PhP1 ,541.46/kW/mo.

A.1 CRF EVALUATION AND FINDINGS

The breakdown of the project cost used by MPC in the

derivation of the CRF is as follows:

Equivalent
Monthly
Project Cost PhP CRF
Recovery
(PhP/kW/mo.)
AGGREKO RENTAL 8,793,200.00 879.32"
UPFRONT FEES
1 Technical Works
Consultancy (EIAIEIS) 1,300,000.00
Interconnection study 1,750,000.00
Site Constructionl
8,986,250.00
Development
2 Interconnection 5,400,000.00
3 Distribution Impact Study 1,000,000.00
4 Permitting 2,068,819.00
5 Legal Fees 1,370,000.00
6 Bank Guarantee 620,000.00
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 11 of 24

7 Contingency 1,500,000.00
8 Development Cost 4,000,000.00
TOTAL UPFRONT FEES 27,995,069.00 4,665,845.00b 466.58c
PROFIT (14.53%) 195.56
TOTAL CRF 1,541.46
a . 0, .C
PhPB,793,200/10,OOO kW, PhP27,995,069/6 months, PhP4,665,B45/10,OOO kW

Upon evaluation of the foregoing CRF derivation, including the

supporting documents, it was noted that the proposed calculation is
not consistent with the Commission's existing methodologies in
deriving rates. However, it should be pointed out that the
arrangement of MPC with ZAMCELCO is to install a generator, which
is based on a Rental Fee on the equipment and not through
acquisition of the asset. MPC explained that the proposed rate was
derived from the total project cost over the agreed contract term.
Hence, it may not be appropriate to apply the Long Run Avoidable
Cost (LRAC) Methodology as the asset involved is rental only (MPC
is not the one who invested in the equipment). Moreover, the
contract is for a short term only and the power plant is leased by MPC
to generate energy and deliver power to ZAMCELCO.

The proposed project cost was evaluated based on the

documents submitted, justifications made by ZAMCELCO and MPC
and bench marked with the previously approved diesel power plant
similarly situated.

Monthly Rental to Aggreko

The Monthly Rental Fee represents the monthly payment by

MPC to Aggreko Energy Rental Solutions, Inc. (Aggreko) for the
lease of the modular genset owned by the latter. The said amount
should be a full pass through cost on the part of MPC to its customers
and it should not include any additional charge as part of the Rental
Fee. On the other hand, it should not be forced to charge lower than
what is agreed upon in the Lease Contract.

The proposed pass through cost equivalent of the rental is

PhP879.32/kW/month.

The Commission took note of the Certification issued by

Aggreko to MPC, certifying that the rental fee is US$197,600/month.
On that basis, the Commission deemed it appropriate to approve a
Rental Fee of PhP849.68/kW/month, calculated as follows:
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 12 of 24

= US$ 197,600 monthly rental x PhP43/US$ exchange rate /

10,000 kW contracted capacity

The Monthly Rental Fee of PhP849.689/kW/mo. is lower than

the applicants' proposed Rental Fee of PhP879.32/kW/mo due to the
use of different exchange rates. In the submitted Financial Model,
MPC assumed a PhP44.5/US$ exchange rate while the subject PSA
assumed a Base Exchange Rate of PhP43/US$.

Hence, the Commission adopted the Base Exchange Rate as

stated in the PSA to reflect the actual rental fee.

Upfront Fees

This cost represents the Upfront Cost incurred by MPC in

putting up the project. The cost is part of the capital recovery (or the
asset base) and subject to an appropriate rate of return. On the other
hand, the cost of equipment should not form part of the asset base
as the same is a pass through cost only which shall not involve time
value of money.

The equivalent recovery of the proposed cost is shown below:

Upfront Fees PhP

1 Technical Works
Consultancy (EINEIS) 1,300,000.00
Interconnection study 1,750,000.00
Site Construction/
8,986,250.00
Development
2 Interconnection 5,400,000.00
3 Distribution Impact Study 1,000,000.00
4 Permitting 2,068,819.00
5 Legal Fees 1,370,000.00
6 Bank Guarantee 620,000.00
7 Contingency 1,500,000.00
8 Development Cost 4,000,000.00
Total Upfront Fee 27,995,069.00
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 13 of 24

To verify the reasonableness of the proposed capital cost, the

Commission bench marked MPC's project cost with the capital cost
used in the recently Commission-approved power plants similarly
situated, particularly the Koronadal and Digos Power Stations. The
subject PSA is under the same circumstances as that of the said
power stations wherein the generator set involves rental equipment
and not asset investment through acquisition. In addition, both
modular power plants are under the same project proponent, which is
Alsons Consolidated Resources, Inc.

The breakdown of the Project Cost used by MPC In the

derivation of the CRF is as follows:

Particulars Koronadal Digos Zamboanga

Monthly Rental 6,658,200.00 9,036,980.00 8,496,800.00

Upfront Costs
Import VAT - - -
Development Cost 3,000,000.00 4,000,000.00 4,000,000.00

Site Development 7,900,000.00 9,658,000.00 -

Permitting 1,400,000.00 2,068,819.00 2,068,819.00

Technical Studies 8,100,000.00 4,838,960.00 12,036,250.00

Legal Fees 1,370,000.00 1,370,000.00 1,370,000.00

Performance Bond - 301,000.00 -

Bank Guarantee: Payment 731,924.00 1,084,438.00 620,000.00

Insurance 462,000.00 - -
Pre-operating Cost 1,800,000.00 - -
Contingency 3,157,184.00 6,036,675.00 1,500,000.00

Interconnection - - 5,400,000.00

Distribution Impact Study - - 1,000,000.00

Total Upfront Cost, PhP 27,921,108.00 29,357,892.00 27,995,069.00

Contracted Capacity 12 15 10

Upfront CostlMW 2,326.76 1,957.19 2,799.51

 ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 14 of 24

The foregoing table shows that MPC's proposed Upfront Cost

in terms of per MW is higher than the approved Upfront Cost for
Koronadal and Digos Power Stations.

Hence, for purposes of provisional authority, the Commission

deems it appropriate to adopt the average Upfront Cost per MW of
the Koronadal and Digos Power Stations amounting to PhP2,141.98
per MW as the Upfront Cost applicable in the calculation of the CRF,
to arrive at an allowable Upfront Cost of PhP21 ,419,759.

Considering that the Commission's current policy is to look into

specific cost for the power plant, ZAMCELCO and MPC should
further substantiate the components of the project cost by submitting
documents, particularly the proposed Rental Fee and Upfront Fees,
which constitute eighty-seven percent (87%) of the proposed total
capital cost.

A.2 DERIVATION OF THE CRF

To establish the reasonableness of MPC's proposed rate for

the purpose of issuance of a provisional authority, the Commission
adopted the methodology used in the said two (2) precedent cases
given that the power plant is only temporary and the relevant
documents and further explanation to prove its actual cost have yet to
be submitted by MPC.

Shown below are the parameters used in the derivation of CRF

of MPC's modular power plants:

Zamboanga Zamboanga
Particulars Koronadal Digos
.
(Proposed) (Approved)

Monthly Rental 6,658,200.00 9,036,980.00 8,793,200.00 8,496,800.00

Total Upfront Cost, PhP 27,921,108.00 29,357,892.00 27,995,069.00 21,419,759.00
Recovery Period, months 48 36 6 6
Contracted Capacity, MW 12 15 10 10
CRF, PhP/kW/mo. 617.95 668.97 1,541.46 1,220.96

It should be noted that the proposed CRF is significantly higher

than the Commission's recently-approved CRF for modular diesel
plant.
 ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 15 of 24

MPC explained that the proposed CRF is higher compared to

other modular plants because the recovery period or the term of the
PSA is only six (6) months. In the event that the PSA is extended by
the Parties, the necessary costs already recovered during the period
of six (6) months will be carved out from the proposed cost to prevent
double recovery of the CRF. In this regard, the Commission deems it
reasonable to allow a recovery period of six (6) months.

As regards the Financial Model, the proposed profit is based on

a profit margin of 14.53% or the difference between the agreed rate
of PhP1,541.46/kW/month and MPC's calculated CRF of
PhP1,345.90/kW/month.

The Commission calculated the recoverable Upfront Cost plus

rate of return based on levelized monthly amortization/recovery taking
into consideration the time value of money for a recovery period of six
(6) months. The Commission adopted the approved Weighted
Average Cost of Capital (WACC) of 13.59%, similar with the
Koronadal and Digos Power Stations.

Accordingly, the Commission calculated a rate for MPC

equivalent to PhP371.28/kW/mo., which will provide a cash flow
sufficient to recover the Upfront Cost for six (6) months and will yield
a rate of return equivalent to the WACC of 13.59%.

Shown below is the comparison between the proposed and

approved CRFs:

Proposed Approved Difference

Particulars (PhP/kW/mo.) (PhP/kW/mo.) (PhP/kW/mo.)

Monthly Rental 879.32 849.68 (29.64)

Upfront Cost + Profit 662.14 371.28 (290.86)
TOTAL CRF 1,541.46 1,220.96 (320.50)

For purposes of provisional authority, the Commission deems it

reasonable to approve a CRF of PhP1 ,220.96/kW/mo.
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 16 of 24

B. O&M FEE

The O&M Costs are recurring expenses related to the operation

of a business or power plant facilities. The O&M Cost of a power
plant is commonly composed of foreign and local costs and usually
fluctuates proportionately with the changes in the predetermined
economic factors, such as the Consumer Price Index (CPI). To
address these changes in cost, an adjustment factor/formula is
provided in the PSA to cover the fluctuations in the prices and costs
of the foreign and/or locally manufactured materials, equipment,
goods and other consumables purchased and used by an
Independent Power Producer (IPP) in the operation and maintenance
of the power plant facilities.

Based on the proposed tariff structure, ZAMCELCO shall pay

MPC a FOMF of PhP285.47/kW/month and a VOMF of
PhPO.59/kWh, subject to adjustment depending on the rise and fall of
the economic factors as indicated in the PSA.

Below is the breakdown of proposed Fixed O&M:

Fixed 0 & M Expenses PhP/month

Aqqreko FOMF 2,198,300.00
Personnel 194,858.00
Communitv Relations 4,000.00
Communication and Mailing 9,800.00
Repairs and Maintenance 21,500.00
Transportation and Travel 120,340.00
Personnel Protective Equipment 30,000.00
Lab Analyses 29,500.00
Waste Disposal 2,000.00
Securitv 125,090.00
Representation and Entertainment 5,000.00
Continqencies 114,320.00
Total 2,854,708.00

Monthly
Pa ment PhP er month 2,854,708.00
FOMF PhP/kW/mo. 285.47
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 17 of 24

For purposes of provisional approval, the Commission

recalculated the FOMF by disallowing the following cost items,
subject to further justification:

Fixed 0 & M PhP

Transportation and Travel 120,340.00
Security 125,090.00
Total 245,430.00

Moreover, the cost item Contingencies amounting to

PhP114,320.00 was reduced to 3.5% of the total Fixed O&M
expenses consistent with the recently-approved PSAs. Accordingly,
the Contingency Cost shall be PhP87,324.00.

Similar with the monthly rental to Aggreko, MPC assumed a

PhP44.5/US$ exchange rate for the cost item Aggreko FOMF in the
Fixed O&M expenses. However, the Commission used the base
exchange rate of PhP43/US$ as provided in the PSA. The details of
which are shown below:

Particulars Pro osed A roved

A reko FOMF, US$/mo. 49,400* 49,400
Exchan e Rate, PhP/US$ 44.5 43
A reko FOMF, PhP/mo. 2,198,300 2,124,200
Other Fixed O&M Expenses 656,408 383,982
• Based on the Certification issued by Aggreko to MPC

In view of the foregoing disallowances and adjustments, the

approved FOMF shall be as follows:

Particulars Pro osed A roved

FOMF, PhP/kW/mo. 285.47 250.82

Variable O&M costs are incurred in relation to the volume of

electricity generated by the power plant. The table below shows
MPC's VOMF computation:

VOMF, US$/kWh 0.01375

Foreign Exchange Rate, PhP 43.00
VOMF, PhP/kWh 0.5913
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 18 of 24

Hence, for purposes of provisional approval, the Commission

deems it reasonable to approve a FOMF of PhP250.82/kW/month
and a VOMF of PhPO.59/kWh inasmuch as said rates are within the
level of the previously-approved O&M for diesel plants.

At any rate, similar with the CRF, MPC should submit its
Audited Financial Statement (AFS) for the Commission's review of its .
actual O&M Fee.

It should be noted, however, that MPC-Genset (Zamboanga

City) is more comparable with MPC (Koronadal) and AEDC (Digos)
Power Plants as it has the same circumstances with the latter.

C. FUEL COST

The AFC is the fee paid to MPC as payment for the

procurement and delivery of the fuel oil (Diesel) used in the operation
of the Modular Power Station.

The AFC shall be computed as follows:

AFC = FCR x Specific Fuel Oil Consumption x ED

Where:

FCR = Fuel Price of Diesel Fuel Oil based on the

weighted average of all fuel delivered during
the billing period

SFOC = 0.265 liter/kWh

ED = kWh delivered during the billing period

The Fuel Fee shall be the actual price at which the Fuel
Supplier shall sell in order to be consistent with the Commission's
policy that Fuel Cost is a pass through cost.
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 19 of 24

However, the Fuel Cost to be passed on to consumers shall be

the actual fuel cost, subject to an efficiency cap of 0.265 liter/kWh at
site condition of 32-degree Celsius ambient temperature and is based
on use by the power station of the diesel fuel with a density of 0.85
kilogram/liter.

The fuel cost utilized in generating electricity may be passed-on

to the customers, provided that, the same is within the efficiency
levels set by the Commission.

Any inefficiency should not be passed on to the end-users but

should be absorbed by MPC. In case there is an increase in fuel
consumption due to fuel quality, deterioration of the equipment or
other reasons, it will be the responsibility of MPC to shoulder the cost
of the increase in fuel consumption and the additional cost of
improving efficiency.

On the other hand, if MPC saves fuel consumption due to its

efficient operations and maintenance of the plant, then, the savings in
fuel will be for ZAMCELCO's account.

Further, efficient fuel cost will be a passed on cost to the end-

users and the power producer should not make revenue therefrom.

Considering that MPC's diesel power plant will be dispatched

for peaking load, the Commission compared the proposed fuel heat
rate with similar power plants and found that the same is within the
approved fuel consumption rate cap. Thus, the Commission deems it
appropriate to approve the proposed fuel heat rate, subject to
adjustment if the actual consumption rates are lower.

Finally, ZAMCELCO should include in its Automatic Generation

Rate Adjustment (AGRA) submission the computation of the monthly
Fuel Cost, which shall include at least the following details: 1) gross
kWh generation; 2) total kWh sales; and 3) the corresponding
quantity of fuel consumed.
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 20 of 24

7. RATE IMPACT

Shown below is the comparison between the proposed and

approved rates:

Particulars PROPOSED APPROVED

CRF, PhP/kW/month 1,541.46 1,220.96

FOMF, PhP/kW/month 285.47 250.82

VOMF, PhP/kWh 0.59 0.59

Pass-through cost Pass-through cost

Fuel Fee, PhP/kWh subject to efficiency subject to efficiency
cap of 0.265 li./kWh cao of 0.265 li.lkWh

The table below shows the approved rates In terms of

PhP/kWh:

Cost Rate
Component (PhP/kWh)
CRF 2.1266
FOMF 0.4369
VOMF 0.5900
Fuel Fee 7.6850
TOTAL 10.8384

NOTE: Based on ZAMCELCO's demand for July 2015, it will take 5,741,436.32 kWh from
the power plant. Fuel cost of PhP29/liter.

PhP2.1266/kWh = (PhP1,220.96/kW per month x 10,000 kW) + 5,741,436.32

PhPO.4369/kWh = (PhP250.82/kW per month x 10,000 kW) + 5,741,436.32
PhP7.6850/kWh = (PhP29/liter x 0.265 liter per kWh

The estimated rate impact of the entry of MPC GenSet to

ZAMCELCO's customer is PhPO.6860/kWh.

The Commission has a mandate to protect the interest of

electricity consumers insofar as they are affected by the rates, by
ensuring that the tariffs are consistent with the principles of full
recovery of prudent and reasonable costs.
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 21 of 24

An initial evaluation of the instant application discloses that the

PSA entered into by and between ZAMCELCO and MPC will redound
to the benefit of ZAMCELCO'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 power].

WHEREFORE, the foregoing premises considered, the

Commission hereby PROVISIONALLY APPROVES the Power Sales
Agreement (PSA) between Zamboanga City Electric Cooperative,
Incorporated (ZAMCELCO) and Mapalad Power Corporation (MPC),
subject to the following conditions:

1. The applicable rates shall be as follows:

Particulars Rates
Capital Recovery Fee PhP1,220.96/kW/month
Fixed O&M Fee PhP250.82/kW/month
Variable O&M Fee PhPO.59/kWh
Pass-through cost subject to
Fuel Fee
efficiency cap of 0.265 li./kWh
The rates shall be subject to adjustment based on the adjustment
formula provided in the PSA.

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

determined by the Commission in its Decision in the
instant application.

3. In the event that the final rates are higher than that
provisionally granted, the resulting additional charges
shall be collected by MPC from ZAMCELCO. On the
other hand, if the final rates are lower than that
provisionally granted, the amount corresponding to the
reduction shall be refunded by MPC to ZAMCELCO.

4. The approval of the PSA is without prejudice to the

Commission's evaluation of MPC's application for a
Certificate of Compliance (COC) and pertinent permits
required and issued by other government agencies, such
as the Department of Environment and Natural
Resources' (DENR) Environmental Compliance
 ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 22 of 24

Certificate (ECC) and the Department of Energy's (DOE)

Certificate of Endorsement (CaE).

SO ORDERED.

Pasig City, September 1, 2015 .

. - . _.-r--
JOSE VICENTE B. SALAZAR
Chairmany

O. '~~~~l
AlFR~'N GLokltViCTORIA <b YAP-TARUC
Commissioner Commissioner

~tL
tj.r'>-
JOSEFINA PAT~. MAGPALE-ASIRIT ERONIMO D. STA.ANA
cl~~ioner Commissioner
ERC CASE NO. 2015-120 RC
ORDER/September 1,2015
Page 23 of 24

Copy Furnished:

1. Attys. Sundy Lorence C. Lachica and Abigail T. Madanlo

LACHICA & ASSOCIATES
Counsel for Mapalad Power Corporation (MPC)
Suite 2304-B, West Tower, Philippine Stock Exchange Center,
Exchange Road, Ortigas Center, Pasig City

2. Zamboanga City Electric Cooperative, Inc. (ZAMCELCO)

MCLL Highway, Putik, Zamboanga City

3. Mapalad Power Corporation (MPC)

4th Floor, Alphaland Southgate Tower, 2258 Chino Roces
Avenue corner EDSA, Makati City

4. Office of the Solicitor General

134 Amorsolo Street, Legaspi Village
Makati City, Metro Manila

5. Commission on Audit
Commonwealth Avenue
Quezon City, Metro Manila

6. Senate Committee on Energy

GSIS Bldg. Roxas Blvd., Pasay City
Metro Manila

7. House Committee on Energy

Batasan Hills, Quezon City, Metro Manila

8. President
Philippine Chamber of Commerce and Industry (PCCI)
1030Campus Avenue corner Park Avenue,
McKinley Town Center, Fort Bonifacio, Taguig City

9. Office of the City Mayor

Zamboanga City

10. Atty. Carl Andrew M. Rubio

Counsel for Industrial Group of Zamboanga, Inc. (IGZI) and
Zamboanga Chamber of Commerce and Industry Foundation,
Inc. (ZCCIFI)
Wee Sit & Rubio Law Offices
A5 Lantaka Hotel, Zamboanga City
 ,
.
.:-
i
ERC CASE NO. 2015-120 RC
ORDER/September 1, 2015
Page 24 of 24

11. Mr. Pete Hagan

National Association of Electricity Consumers for Reforms, Inc.
(NASECORE)
NO.1 Beta Bayview Homes, San Jose, Tacloban City

12. Atty. Jesus C. Carbon, Jr.

Counsel for the City Government of Zamboanga
Office of the City Legal Officer
N.S. Valderosa Street, City Hall, Zamboanga City