2010-052rc Romelco CHPC

REPUBLIC OF THE PHILIPPINES
ENERGY REGULATORY COMMISSION

SAN MIGUEL AVENUE, PASIG CITY
IN THE MATTER OF THE
APPLICATION FOR THE
APPROVAL OF THE
AGREEMENT FOR THE
SUPPLY OF ELECTRIC POWER
BETWEEN CANTINGAS MINI-
HYDRO POWER CORPORATION
(CHPC) AND ROMBLON
ELECTRIC COOPERATIVE, INC.
(ROMELCO), WITH PRAYER FOR
PROVISIONAL AUTHORITY
ERC CASE NO. 201 0-052 RC
ROMBLON ELECTRIC
COOPERATIVE, INC.
(ROMELCO) AND CANTINGAS
MINI-HYDRO POWER
CORPORATION (CHPC),
App1 i ca nts.
x------------------------x
1)0CJtTLTE]J
Date:
SA
. . . . . . ? P1
-
DECISION
Before this Commission for resolution is the application filed by
Romblon Electric Cooperative, Inc. (ROMELCO)and Cantingas Mini-
Hydro Power Corporation (CHPC)on May 28, 2010 for the approval
of their Agreement for the Supply of Electric Power (ASEP), with
prayer for provisional authority.
Having found the said application sufficient in form and in
substance with the required fees having been paid, an Order and a
Notice of Public hearing, both dated
July 16, 2010, were issued
setting the case for initial hearing on August
5, 2010 and evidentiary
hearing on August 6, 2010.
ROMELCOand CHPC p
ridirected to cause the publication
of the Notice of Public Hearieir own expense, twice
(2x) for
wcJ)successive we (2) newspapers of general
ERC CASE NO. 2010- 052 RC (ROMELCO)
Order/February 4, 2013
Page 2 of 25
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 the
initial hearing. They were also directed to inform the consumers
within ROMELCO's franchise area, by any other means available and
appropriate, of the filing of the instant application, their reasons
therefor and of the scheduled hearings thereon.
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 Notice of
Public Hearing and were requested to have their respective duly
authorized representatives present at the aforesaid hearings.
Likewise, the Offices of the Governor of the Province of
Romblon and the Mayors of the Municipalities within the franchise
area of ROMELCO were furnished with copies of the said Order and
Notice of Public Hearing for the appropriate posting thereof on their
respective bulletin boards.
On July 27, 2010, ROMELCO and CHPC filed their "Pre-Trial
Brief'.
During the August 5, 2010 initial hearing, ROMELCO and
CHPC appeared. No intervenor or oppositor appeared nor was there
any intervention or opposition registered.
At the said hearing, ROMELCO and CHPC presented their
proofs of compliance with the Commission's posting and publication
of notice requirements which were marked as exhibits "A" to "H-7",
inclusive. Thereafter, they made an expository presentation of their
application. Subsequently, the Commission conducted the pre-trial
conference.
During the hearing on August 6, 2010, ROMELCO and CHPC
presented the following witnesses: 1) Engr. Rene M. Fajilagutan,
ROMELCO's General Manager and also CHPC's Chief Operating
Officer, who testified, among others, on the salient features of the
ASEP, the forecasted energy demand and the need for a reliable and
stable supply of electricity in the Sibuyan Island of Romblon; 2) Mr.
Inocencio M. Montojo Board 13resident of ROMELCO who testified
relative to Board Resolutioj14'.Jo. 04-2009 approving the PSA
ROMELCO entered into f t v i f r j
CHPC; 3) Ms. Betty Corong,
OMELCO's Finance ManaIr, who testified on the financial
Page 3 of 25
capacity and capability of ROMELCO; and 4) Engr. Aurelio R.
Quitoriano, Jr., Senior Civil Engineer of VERGEL 3 CONSULT, who
testified, among others, on the project preparation, cost estimates,
financial analysis of the project and the basis of both the hydro rate
and the projected energy escalation rate.
Subsequently, on September 6, 2010, the Commission issued
an Order provisionally authorizing ROMELCO and CHPC to
implement a generation rate of PhP3.7064/kWh for the Sibuyan
Island.
On March 1, 2011 and April 11, 2011, ROMELCO and CHPC
filed their "Compliance" and "Formal Offer of Evidence", respectively.
On July 25, 2011, they filed an additional 'Compliance".
On February 1, 2013, the Commission issued an Order
admitting the said formal offer of evidence for being relevant and
material in the resolution of the case.
DISCUSSION
A. The Power Supply Agreement (PSA)
The Islands of Romblon are among the off-grid islands currently
being served by the National Power Corporation-Small Power Utilities
Group (NPC-SPUG) opened for private sector participation. CHPC
has recognized the available potential of renewable source of power
in the franchise area of ROMELCO, more particularly, in Sibuyan
Island, which abounds with several rivers that can be harnessed into
a hydro power source.
Pursuant to the policy of the State declared in Republic Act No.
7156 (R.A. 7156), otherwise known as the "Mini-Hydro Electric Power
Incentive Act", CHPC invested on the development, construction,
operation and maintenance of Mini-Hydro Power Plant to supply the
power needs of ROMELCO. On the other hand, ROMELCO has also
recognized the willingness of CHPC to develop a Mini-Hydro Plant
and the benefits it can offero its member-consumers and thus, has
agreed to purchase power/fm it under the stipulations in the ASEP.
OrderlFebruary 4, 2013
Page 4 of 25
The terms and conditions of the ASEP are as follows:
1. Salient Features:
Project Type
Build-Own-and-Operate (BOO)
Type of Plant
Run-of-River Hydro Power

Type of Operation
Base load
Cooperation
: Thirty (30) years effective on the
Period commencement of commercial
operation of the mini-hydro power plant
as declared by CHPC
Installed Capacity : 900 kW (2 x 450 kW) with provision for
additional 450 kW not later than five (5)
years from initial commercial operation
date
Energy Output
: ROMELCO will pay for whatever
Off take
energy it has taken from the mini
hydro-power plant as measured at the
delivery point/s
Delivery Point
: The delivery point shall be the meter at
the high side of the main transformer of
the mini hydro- power plant
Power Quality
: The power delivered and measured at
the receiving end of ROMELCO shall
be at plus or minus 10% of the required
delivery voltage, 60 hertz and at
minimum 90% power factor
Tie Line
Arrangements
The cost of the transmission or tie-
lines, including the maintenance of
such facilities that may have to be
constructed from each of the mini-
hydro power plants to the tapping
points of the existing 13.2 kV Sibuyan
''id of ROMELCO's electrical grid
I be for the account and
onsibility of CHPC
V
Page 5 of 25
Metering Station
: CHPC shall install at its own expense
the switchyard and metering station at
the mini hydro- power plant including
the maintenance of said facilities
Operation
and : CHPC shall be responsible for the
Maintenance of the
management, operation, maintenance
Mini-Hydro Power
and repair of the mini-hydro power
Plant
plant and ensure that it is in good
operating condition and capable of
delivering electricity in a safe and
reliable manner within the herein
provisions and in accordance with the
Philippine Grid and Distribution Codes
(PGDC)
Downtime
: CHPC shall be entitled to downtime
intended for the repairs and
maintenance of the mini hydro-power
plant facilities. In such event, it shall
notify ROMELCO of the occurrence of
any Downtime and provide its best
estimate of the probable timing and
d.uration of such planned or unplanned
Downtime
Priority Dispatch
ROMELCO shall give priority dispatch
to the energy generated from the mini
hydro-power plants following the
provisions of R.A. 7156
Purchase Rate
: CHPC shall sell the energy and a
"must" output from its mini-hydro power
plant at PhP5.40/kWh for the Sibuyan
Island
Page 6 of 25
Adjustment Clause
and Price Cap
The initial selling rate shall be
PhP5.40/kWh which shall be
fixed for five (5) years from the
commercial operation date.
However, if an extraordinary event
happens within the period that would
require an additional investment by
CHPC to the mini-hydro power
plant, it shall be allowed to adjust its
rate to recover its investment
subject, however, to the
Commission's prior approval.
Further, after the aforesaid period,
the parties should meet again to
negotiate for the appropriate price
cap to be imposed on CI-IPC's
selling rate to ROMELCO
The subsequent rate adjustments
after five (5) years are as follows:
Period
Rate
(PhP/kWh)
06-10 years 5.65
11-15 years 6.10
16-20years 6.65
21-25years 7.10
26-30 years 7.65
2. Sources of Funds
The total cost of the mini-hydro project comprises of
78.12% debt and 21 .88% equity. The equity is comprised of the
investment of ROMELCO and VERGEL, the technical
consultant of the mini-hydro project. The rest of the financing
required was sourced through a loan from the Development
Bank of the Philippines (DB).
ERC CASE NO. 2010- 052 RC(ROMELCO)
Page 7 of 25
3. Manner of Payment
The billing meter shall be read every 25th day of the
month, afterwhich, the billing shall be sent within five (5) days to
ROMELCO. Such billing shall be due and payable without the
necessity of further notice on or before the 30th day of
immediately succeeding month fromthe time the bill is served
on ROMELCO. Payment shall be made by ROMELCO to the
principal office of CHPC which will be established in San
Fernando, Romblon or to an authorized collector of the latter.
3.1 Prompt Payment Discount (PPD)
The due date for payment of billings for a given month
notwithstanding, ROMELCO shall be entitled to a two percent
(2%) PPD on the total monthly bill due provided that the total
monthly bill is paid in full on or before the fifteenth
(15th)
day of
the month immediately following the billing period and provided
that ROMELCO has no unpaid power bill account including
interests and other charges. Notwithstanding the PPD,
ROMELCO shall, however, ensure the prompt release of the
electricity fees.
3.2 Penalty for Overdue Amount
If ROMELCO fails to pay any power bill or account after it
became due and payable, such overdue account shall bear a
basic penalty interest payment equivalent to 8% per annum
reckoned fromthe first day it becomes due and payable.
Interest of overdue accounts shall be computed based on a
360-day year.
3.3 Rate Impact
The table below shows the impact of the proposed rate of
PhP5.40IkWh as against the existing Subsidized Approved
Generation Rate (SAGR) of PhP3.71/kWh on the overall rate of
ROMELCO for the vear2009:
Page 8 of 25
Particulars
Average
kWh
Used
Existing
(PhP/kWh)
Proposed
(PhP/kWh)
Impact
(PhP/kWh) Remarks
Residential 48 354.99 388.58 33.60 Increase
Commercial 196 1,352.55 1,489.73 137.18 Increase
Public Building 140 941.47 1,039.46 97.99 Increase
Street Lights 117 787.80 869.68 81.88 Increase
Special Lights 280 1,969.01 2,164.99 195.98 Increase
4. PROCUREMENT PROCESS
The ASEP did not undergo a Competitive Selection
Process (CSP) there being no New Power Provider (NPP)
interested in investing in Sibuyan Island.
THE CANTINGAS MINI-HYDRO POWER PLANT
1.
Hydro-Power Project
The hydro-power project is located in Sibuyan Island (within the
franchise area of ROMELCO). Based on the actual records of
ROMELCO, the peak demand for 2009 was 1,100 kW or an increase
of 22.2% from 900 kW since 2002. With the entry of the mini hydro-
power project, a projected increase in commercial and industrial
loads will make the project much more attractive. On this note, the
average demand growth rate for the entire franchise area is pegged
at a conservative 3.7% per annum based on the historical trend or
growth of the area. By the years 2010 and 2012, it was projected that
the peak demand for Romblon would be 1,140 kW and 1,273 kW,
respectively.
ROMELCO, in coming up with the ASEP, believes that since
the hydro-power project has lower generation cost than the
generation costs of other energy resources, such as NPC and other
conventional power sources, said hydro-power project will result to a
lower generation rate which is
benetical
to its consumers.
Page 9 of 25
2. The Cantingas Hydro-Power Corporation
The primary purpose of the CHPC is to develop, construct,
operate and maintain the mini-hydro power plant and sell power to
distribution utilities in the Province of Romblon. ROMELCO's
General Manager, Mr. Fajilagutan, concurrently serves as CHPC
Board President with the majority of the Board of Directors of
ROMELCO serving as Directors in the Board of CMHPC.
Initially, the authorized capital stock of CHPC is One Million
Pesos (PhPI,000,000.00) divided into 10,000 shares with a par value
of PhPI00.00 per share. However, in March 2009, the Articles of
Incorporation of CHPC was amended to take into account the
increase in its authorized capital stock from PhP1 M to PhP85M.
3.
The Mini-Hydro Power Development Operating Contract
(MHPDOC)
In June 2004, the Department of Energy (DOE) and ROMELCO
(as the "DEVELOPER") signed a MHPDOC wherein DOE availed
itself of the resources of ROMELCO under which ROMELCO shall
furnish necessary services, technology and financing for the mini-
hydro power development operations.
The MHPDOC has, among others, the following scope:
a. It is a contract for the Cantingas mini hydro-power project
located at Sitio Cantingas, Barangay Taclobo,
Municipality of San Fernando, Sibuyan Island, Romblon
Province;
b. ROMELCO shall undertake, manage and execute the
mini hydro-power development operations;
C.
ROMELCO shall be responsible to the DOE for the
execution of such operations and therefore, ROMELCO is
appointed and constituted as the exclusive party to
conduct such operati$?ts; and
Page 10 of 25
d. During the term of the Contract, the total power generated
in the conduct of such operation shall be accounted for in
accordance with Section 7 of the R.A. 7156.
Under the said MHPDOC, ROMELCO will have the following
rights and privileges:
a. Full exemption from payment of income taxes levied by
the National Government for seven (7) years from the
start of commercial operations;
b. Full exemption from payment of tariff duties and Value
Added Tax (VAT) on importation into the Philippines of
all machinery and equipment, including control and
communication equipment, made within seven (7) years
from the date of the awarding of the Contract;
C. Purchases of machinery, equipment, materials and parts
from a domestic manufacturer made within seven (7)
years from the date of issuance/awarding of the
contract, which are directly needed and will be used
exclusively by ROMELCO, shall be given tax credit
equivalent to one hundred (100%) percent of the VAT
and customs duties that would have been paid on the
machinery, equipment, materials and parts had these
items been imported;
d. Enjoyment of special realty tax rates on equipment and
machinery not exceeding two and a half (2.5%) percent
of their original costs; and
e. Exemption from VAT on the gross receipts derived from
the sale of electric power whether wheeled through the
NPC grid, electric cooperative grid or through the
existing electric utility lines.
Section IX of the MHPDOC
create a separate companydul ? E
Exchange Commission (SEC), e
generate power from the mint
provides that ROMELCO shall
jistered with the Securities and
g s9i1 company the authority to
p9*er facility. It further provides
Page 11 of 25
that ROMEL.CO and the newly-formed company shall enter into an
agreement wherein the latter shall become the DEVELOPER under
the MHPDOC. A Power Purchase Agreement (PPA) shall, likewise,
be entered into between the new DEVELOPER and the outgoing
DEVELOPER on the sale of power.
4. CERTIFICATE OF COMPLIANCE AND OTHER PERMITS
4.1 Certificate of Compliance (COC)
The Commission issued a COC to CHPC's 900 kW mini
hydro-power plant on January 19, 2010. The economic life of
the mini-hydro plant indicated in the said COC is fifty (50)
years.
4.2 Department of Environment and Natural Resources
(DENR) Environmental Certificate of Compliance
(ECC)
The DENR issued a Certificate of Non-Coverage to
Cantingas Mini Hydro-Project stating, among others, that the
said project is exempted from the coverage of Presidential
Decree 1586 (P.D. 1586) pursuant to the Memorandum of
Agreement (MOA) executed by and between DENR and DOE
dated August 1997. However, the Commission noted the
specific provision of the Certificate which stated that "the same
is valid only for the construction and operation of a run-off-the-
river mini hydro-power generation plant for remote island
electrification with a maximum capacity of 0.90 megawatt and a
low weir of 1.60 meter" and all its appurtenances as presented
in the submitted documents. Said provision will limit CHPC's
plans to provide for an additional capacity not later than five (5)
years from its commercial operation.
Page 12 of 25
C. ROMELCO's Power Supply
The NPC-SPUG provides all the energy requirements of
ROMELCO in Sibuyan Island.
Upon its entry, the mini-hydro plant shall provide sixty percent
(60%) of ROMELCO's power requirements with the other forty
percent (40%) to be supplied by NPC-SPUG since it does not have
adequate capacity to supply the total energy demand of ROMELCO.
Moreover, NPC encourages the participation of the private sector,
especially, renewable energy resources, like CMHP, in the business
of generating power.
1. Historical Data of Customers for the Years 1999-2009
(Sibuyan Island)
Shown below are the historical data of ROMELCO's customers
in the Sibuyan Island for the years 1999 to 2009. The largest number
of customers pertains to Residential followed by those in the
Commercial sector, to wit:
Historical
System 1999 2000 2001 2002
Performance
2003 2004 2005 2006 2007 2008 2009
Residential 1,923 2,159 2,419 2,571 2,839 3,203 3,343 3,854 4,167 4,458 4,727
Commercial 140 146 146 148 145 143 407 383 364 359 360
PublicBldg 77 82 90 92 95 102 115 129 148 154 171
Street Light 21 1 34 34
1
30 27
1
21 21 20
1
18 18
1
15
BAPA 1 1 1 3 3 4 4 4 4 4 4
SpecialLight
2 4 4 2 11 19 27 34 25 41 50
TOTAL 2,164 2,426 2,694 2,846 3,120 3,492 3,917 4,424 4,726 5,034 5,327
Percentage
(lo)
Base
year
12.11 11.01 5.68 9.59 11.96 12.14 12.95 6.85 6.52 5.82
Note: No inclustnal Customer
Over the past ten (10) years, the average percentage of
increase in the number of ROMELCO's customers is 9.46% which
signifies a constant growth
inAhe
demand for supply of power in
Sibuyan Island.
/ A /
OrderlFebruary 4, 2013
Page 13 of 25
2. Historical Tabulation on the Energy Sold for the Years
1999-2009 (Sibuyan Island)
Shown below is the historical tabulation of the energy sold by
ROMELCO in Sibuyan Island for the years 1999 to 2009. For the
past ten (10) years, the average percentage of increase on the
energy sold to its customers is 14.46% which indicates a steady
increase in the sale of energy in said Island:
H i s t o r i c a l S y s t e m
P e r f o r m a n c e
1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9
( k W h ) ( k W h ) ( k W h ) ( k i ) ( k W h ) ( k W h ) ( k W h ) ( k W h ) ( k W h ) ( k W h ) ( k W h )
R e s i d e n t i a l 9 3 8 4 6 8 9 8 7 0 6 6 1 , 4 8 9 , 4 0 4 1 , 3 7 6 , 1 9 9 1 , 7 5 6 8 9 6 1 , 6 9 0 , 9 6 3 1 , 7 8 0 9 7 1 1 , 8 2 2 , 5 9 2 2 , 3 5 9 , 6 1 6 2 , 5 8 3 , 9 6 0 2 , 7 2 3 , 5 7 7
C o n i m r c i a l 1 4 8 , 7 0 4 1 3 0 , 1 9 9 2 0 0 , 4 8 8 1 6 4 , 3 6 3 1 8 8 7 9 5 1 6 3 , 7 7 0 5 1 5 1 5 6 4 7 9 , 1 9 3 6 0 4 , 9 6 6 6 6 9 , 8 0 1 8 1 7 , 3 5 6
l n d u s f t i a l 01 0 0 1 0 0 1 0 01 01 0 01 0
R t h ! i c B l d g 5 3 , 8 1 7 5 7 , 6 2 4 8 4 , 8 2 1 7 2 , 3 1 8 1 0 7 , 5 7 6 7 6 , 8 6 4 1 1 2 , 6 0 1 1 3 3 , 2 0 5 1 9 2 , 6 8 7 2 4 6 , 6 2 5 2 8 8 , 9 3 4
S t r e e t L i g h t 3 3 , 8 8 2 3 4 , 6 3 9 3 8 , 0 5 0 3 6 , 2 9 8 4 6 , 8 8 1 2 9 , 9 3 2 2 5 , 5 3 6 2 2 , 4 2 7 2 5 , 4 9 1 3 0 , 9 5 3 2 1 , 7 1 1
B A P A 1 , 1 2 5 1 , 7 7 0 2 , 6 7 2 9 , 9 7 5 7 , 2 3 6 1 0 , 0 1 6 1 7 , 6 2 7 1 9 , 5 7 1 2 7 , 7 0 1 3 1 , 3 6 3 3 0 , 7 1 0
S p e t h l L i g h t
1 , 2 1 2 1 , 3 3 9 3 , 7 9 0 2 , 3 5 0 1 6 , 7 7 3 2 7 , 1 1 4 4 1 , 7 7 0 4 3 , 1 3 6 8 7 , 8 8 4 1 4 9 , 3 4 0 1 6 6 , 3 4 4
T O T A L 1 , 1 7 7 , 2 0 8 1 , 2 1 2 , 6 3 7 1 , 8 1 9 , 2 2 5 1 , 6 6 1 , 5 0 3 2 , 1 2 4 , 1 5 7 1 , 9 9 8 , 6 5 9 2 , 4 9 3 , 6 6 1 2 , 5 2 0 , 1 2 4 3 , 2 9 8 , 3 4 5 3 , 7 1 2 , 0 4 2 4 , 0 4 8 , 6 3 2
P e r c e n t a g e ( % ) b a s e y e a r 3 . 0 1 5 0 . 0 2 8 . 6 7 2 7 . 8 5 5 . 9 1 2 4 . 7 7 1 . 0 6 3 0 , 8 8 1 2 . 5 4 9 . 0 7
3.
Forecasted Energy Requirements Per ROMELCO's
Distribution Development Plan (DDP)
Direct Sales to
2011 2012 2013 2014 2015 2016 2017 2018 12019
Customers
(MWh) (MWh) (MWh) (MWh) (MWh) (MWh) (MWh) (MWh) (MWh)
Residential 6,421 6,973 7,612 8,310 9,071 9,902 11,015 12,253 13,631
Commercial 1,784 1,853 1,941 2,036 2,138 2,288 2,449 2,622 2,782
Industrial 241 281 331 411 510 634 787 953 1,153
Others 1375 375 376 1376 1377 1377 378 378 378
PublicBldg 1,3071 1,355 1,418 1,4801 1,620 1,767 1,969 2,213 2,533
StreetLight 80 1 82 1 84 1 88 1 92 197 102 1 107 1112
TOTAL 10,208 10,919 11,7621 12,7011 13,8081 15,0651 16,7001 18,5261 20,589
C.,
Page 14 of 25
Based on ROMELCO's DDP submitted to the DOE, it projected
an annual increase of nine percent (9%) in its energy requirements.
Thus, the power to be supplied from the mini-hydro plant will help
deliver the anticipated increase in its energy demand in the coming
years.
4. Determination of the Hydro Starting Rate by
CHPC/ROMELCO
The CMHP has an installed capacity of 900 kW. The scheme of
development is a run-of-river type and is currently operating as a
base load power. It was completed, tested and commissioned in
2009 and is now operating and supplying about 70% of the power
needs of the entire Sibuyan Island.
A methodology was adopted to determine the starting rate of
CHPC, to wit:
Hydro Tariff Rate = CRR + O&MR + M
Where:
CRR = Capital Recovery Rate
O&MR = Operation and Maintenance Rate
M = Margin
The capital recovery rate was calculated using the formula
shown below:
i(l+i
1
A = P
L
i(I+i) -1J,Capital Recovery Factor (CRF)
Where:
A = Annual Capital Recovery Amount (if capital is
loan representing amortization)
P = Capital Investment at refer zero
= Interest in percent
N = Term (in years)
ERG CASE NO. 2010- 052 RC (ROMELCO)

Page 15 of 25
CHPC sourced its capital from the DBP at a debt-equity ratio of
90:10, interest rate ('I') of 9% and term ('N') of twelve (12) years to
repay the loan. The starting hydro tariff rate shall be determined using
the following formula:
First Year Operation & Maintenance
Hydro Tariff = Annual Amortization + Including Benefit to Host Community + Margin (Contingency,
Rate Annual Energy Annual Energy
Privilege Tax, Business
Generation (kWh) Generation (kWh)
Tax, Profit, etc.)
Based on the foregoing formula, the Capital Recovery Rate
(CRR) shall be determined using the ratio of the annual capital
recovery amount or the amortization and the annual energy
generation.
The Operation & Maintenance Rate (O&MR) is equated to the
first year of Operation and Maintenance (O&M) cost divided by the
annual energy generation in PhP/kWh. The subsequent rate after the
first year is modified by the Consumer Price Index (CPI) which
accounts for the price inflation. The Margin Rate is added to account
for contingency expenses and is pegged somewhere from five
percent (5%) to eight percent (8%), one percent (1%) privilege tax
required by Republic Act 9513, miscellaneous expenditures and
marginal profit.
D. Issuance of Provisional Authority
On September 6, 2010, the Commission provisionally
authorized ROMELCO and CHPC to implement a generation rate of
PhP3.7064/kWh which is also the current SAGR for Romblon-
Sibuyan Island.
E. Commission's Determination of CHPC's True Cost of
Generation
The Commission made an evaluation of CHPC's proposed rate
using the following factors to determine its true cost of generation:
qV
1. The Project Cost;
2. Weighted Average Cost of Capital (WACC);
3. Operating Cost for Plant Operation;
4. Asset Life; and
5. The billing determinant.
it
Page 16 of 25
1. The Project Cost
CHPC proposed a project cost of PhP140,928,420.04 broken
down, as follows:
Description
Project Cost
(PhP)
Weir and in-take Structure
13,846,516.35
Miscellaneous and Repair Works for
Headrace and Surge Tank Civil Works
1,334,716.95
Earthworks for Penstock, Headrace Lines
and Surgetanks
28,208,241.79
Construction of Powerhouse and All
Associated Works
13,034,934.16
Installation of Powerhouse and Substation
Grounding
611,500.00
Switch Gear, Supply and Installation 1,400,000.00
Local Cost Associated with Supply and
Installation
1,747,297.02
Access Road
1,641,405.67
Installation/Laying
of FRP5 for Headrace
and Penstock
28,296,366.00
Mini Hydro Generating Sets, Panels, Power
Transformer, etc. and Installation
Supervision
19,277,382.68
Engineering Support Services
7,502,289.60
Pre-operating Expense
1,688,718.48
Take-off Facilities
700,000.00
Temporary Facilities
450,257.25
Interest During Construction
15,915,143.25
Working Capital
4,572,601.32
Contingency
701,049.52
TOTAL
140,928,420.04
The Commission adopted a total project cost of
PhPII8,440,193.50 taking into consideration CHPC's updated cost
of the power plant assets as reflected in its 2011 Audited Financial
Statement (AFS) amounting to PhPlfl,,590,192.00 plus a working
capital of PhP850,001 .50.
/ A 1
Page 17 of 25
2. Weighted Average Cost of Capital (WACC)
In calculating the CRF, the Commission adopted a 16.44%
Cost of Equity for CHPC based on the following: a) approved Feed-
In-Tariff (FIT) rates; and b) recently approved PSAs. The Cost of
Equity for NPC-SPUG areas may be relatively higher considering the
economic factors involved such as proximity of location, the economic
development in the area and the economic situation of ROMELCO
itself.
3. Operations and Maintenance Cost
CHPC proposed an O&M cost of PhP7,930,000.00.
The Commission computed CHPC's O&M based on its 2011
AFS at PhP5,100,009.00 taking into account its operating expenses
and cost of sales (directly attributed to the generation of energy)
excluding depreciation, to wit:
Operating Expense
Total Cost
(PhP)
Administrative and General Salaries 380,361.00
Outside Services Employed 531,721.00
Employees' Pension and Benefits 415,508.00
Officers' Allowance and Benefits 653,649.00
Travel 136,065.00
Insurance and Property Taxes 296,536.00
Miscellaneous General Expense 473,292.00
TOTAL
2,887,132.00
Cost of Sales
Total Cost
(PhP)
Salaries and Wages 1,521,445.00
Repairs and Maintenance 691,432.00
TOTAL 2,212,877.00
OVER-ALL TOTAL
t ihl / I
5,100,009.00
5
Page 18 of 25
4. Plant Asset Life
The Commission adopted a plant life of thirty (30) years based
on the amended COC of CHPC.
Under the FIT, the Commission used a twenty (20) year asset
life while the "Asset Valuation Policy Guidelines for PSALM/NPC
Generation Assets" sets the standard economic life of hydraulic
production plants at forty (40) years.
5 . Billing Determinant
Based on the data submitted, CHPC's average actual annual
kWh generation from its start of operation until CY 2012 is 4,5 42,119
kWh.
The Commission made a determination of CHPC's appropriate
load factor by comparing it with the load factors of various mini-hydro
plants in the Philippines, to wit:
Mini-Hydro Power Plant (MHPP) ERC case No. Capacity Factors
BOHECO I Sevilla MHPP 2008-007 RC 5 5 %
Solong MHPP 2008-021 RC 5 6%
Hitoma 01 MHPP 2008-021 RC 5 3%
Hitoma 02 MHPP 2008-021 RC 5 5 %
Capipiari MHPP 2008-021 RC 5 5 %
Smith Bell 2010-1 26 RC 5 2%
The Commission adopted a 5 7.61% load factor for CHPC and a
billing determinant of 4,5 42,119 kWh based on the average actual
annual kWh generation of the plant since it started its operation until
CY 2012.
Further, under the FIT, the approved capacity factor is 47%. In
its Decision dated July 27, 2012, the Commission stated that:
Page 19 of 25
"To validate the reasonableness of NREB 's
proposed net capacity factor, the Commission
checked the current independent data available from
the National Renewable Energy Laboratonj (NREL). 1
NREL 's comparison of capacity factors by
technologies2
disclosed that capacity factors for
hydropower generation range from 40% up to 50%, to
wit:
100%
80%
C
60%
40%
V5
0.
3 20%
0% I-.-.- -.- -'
0
<,0
b
9 S'
4"
q'

Figure13. Comparisonof capacityfactor bytechnologies
I Thecapacityfactor for 1\' lechitolo2ies i-angesfrom14%lZ% for thin-filinsystemsmmci
I 20%-24% for crystallineinsinUations. Thennal storagecansimifmcmiiIyincreasethe
capacityfactor of eli2ibieCSPplanS fl-cm25% wiiliotit $101020 tonpproxiniaielv75%
withMorose.
- SoRenewaeEnergyResearchLaboratory2011
-
Moreover, according to the US Energy
Information Agency Administration, the typical net
capacity factor for hydropower is 44%3
ROR Hydropower Plants have small or no
capacity for storage, their production is maintained to
exactly match the river flow and its availability is
significantly affected by seasonal and annual
fluctuations. As such, they generate much more
power during rainy season and much less during drier
summer months. Their electricity output is determined
by the instantaneous river flow, which is subjected to
water flow variations and is highly dependent on the
natural run-off the water from upstream.
- 1
NREL is the national laboratory of the United
Department of Energy (USDOE), Office of

Energy Efficiency and Renewable Energy.
2
NREL'S Technical Report entitled
ating Solar Power and Photovoltaics

Projects: A Technology and Market
2012. http://www.rtreLgov
Typical Capacity Factor of a Hydroelectric
PWJ FWant dated April13, 2009. Jcmiras.Net_02
ERG CASE NO. 2010- 052 RC (ROMELCO)
Page 20 of 25
Given the hydrological risk, the Commission
finds the conservative 47% net capacity factor
acceptable, since project hydrology assessments,
which are normally based on historical data, can be
highly variable in its reliability, taking into
consideration the recent experienced changes in the
global weather patterns. The Commission is also
mindful of the possible effect of climate change to the
long-term energy yield of hydro plants, as capacity
factor would be naturally reduced during extreme city
season, such as during the outset of the El Nino
phenomenon.
In view of the foregoing, the Commission finds
the 47% proposed capacity factor reasonable
considering that it is well within the 40% to 50% range
of capacity factors for hydropower plants based on
NREL 's comparative data."
F. Rate Derivation
The Commission made a determination of CHPC's Capital
Recovery Fee (CRF) which will allow it to recover its investment with
a reasonable rate of return. CHPC's required return on capital was
benchmarked based on the recent approval of the Commission on
similar mini-hydro plant.
Shown below is the derivation of the capacity fee:
Capital Cost
PhP118,440,193.50
Asset Life
30 yrs
Load Factor
57.61%
Cost of Debt, 70%
9%
Cost of Equity, 30%
16.44%
Derived Annuity, PhP
PhP 18,567,573.23
Derived CRF, PhP/kW/mo.
PhP4.0879/kWh
The CRF was derived by using an annuity or net cash flow that
would sufficiently cover the Debt Service repayment taking into
consideration the term of the lof and at the same time satisfy the
5~//

cost of equity as compensation OL/s the return on Working Capital.
Page 21 of 25
The computed annuity on the capital cost of PhP18,567,573.23
is divided by the annual energy of 4,542,119 kWh to arrive at the
CRF of PhP4.0879/kWh.
Overall, the net cash flow should not result to an Equity Internal
Rate of Return (IRR) more than the cost of equity and that the Net
Present Value (NPV) of the net cash flow should be equal to the NPV
of the capital cost funded through equity.
1. Operation and Maintenance Rate = PhPI .1228/kWh
The annual total O&M costs consist of the incremental
O&M expenses associated with the operation of the project.
CHPC proposed a final O&M cost of PhP7,939,000.00.
However, the Commission adopted an O&M of
PhP5,100,009.00 taking into account CHPC's operating
expenses and cost of sales (excluding depreciation), to wit:
O & M = Operating Cost + Cost of Sales (excluding
Depreciation)
To calculate the O&M per kWh, the O&M cost of
PhP5,100,009.00 is divided by the billing determinant of
4,542,119 kWh, resulting to PhP1.1228/kWh.
2. Generation Rate
Shown below is the breakdown of the computed
generation rate:
Component PhP/kWh
Capital Recovery Fee (CRF) 4.0879
Operation and Maintenance (O&M) 1.1228
Total Generation Rate 5.2107
' U I
Page 22 of 25
3. Rate Impact to NPC-SPUG
The ASEP between ROMELCO and CHPC shall relieve the
National Government from the allocation of subsidy for Romblon-
Sibuyan Islands considering that CHPC did not pray for any subsidy
from the Universal Charge-Missionary Electrification (UC-ME)
allocation.
Shown below are the potential savings of NPC-SPUG as a
result of the ASEP:
Recently
Approved SAGR NPC-SPUG
for Romblon- Estimated Cost
Sibuyan Islands of Generation for NPC-SPUG
per ERC Case Romblon- Estimated Estimated NPC
No. 2006-020 RC Sibuyan Islands Subsidy Annual Savings in
(PhP/kWh) (PhP/kWh) (PhP/kWh) Subsidy (PhP)
5.6404
12. 7162* 7. 0758**
32,139,1 25***
* Under ERC Case No. 2006-020 RC entitled "In the Matter of the Application for the
Approval of a Socially-Acceptable Generation Rate (SAGR) for Sixty (60) Remaining
NPC-SPUG Areas" approved by the Commission in its Decision dated March 7, 2011.
** Difference between NPC Estimated True Cost of Generation Rate (TCGR) for Romblon -
Sibuyan Islands of Ph1312.7162/kWh and the recently approved SAGR of
PhP5.6404/kWh under ERC Case No. 2006-020 RC.
The NPC-SPUG estimated subsidy of PhP7.0758/kWh multiplied by the Total Estimated
Annual Generation of 4,542,119 kWh of CHPC.
CHPC's proposed TCGR will not affect the generation rate
currently being imposed on the consumers of ROMELCO as the
generation rate that will be imposed will still be the Commission-
approved SAGR of PhP5.6404/kWh.
If CHPC's proposed TCGR is higher than the SAGR, the
difference (the subsidy) shall be collected from NPC-SPUG through
the UC-ME which is being collected from all electricity end-users.
The table below shows the impact of purchasing electricity
from CHPC at the Commission's computed rate of PhP5.2107/kWh
as opposed to NPC-SPUG's TCGR for its Sibuyan Island Power
Plant of PhP38.3547/kWh4. The proposed TCGR will reduce the
amount of subsidy being shouldered by all electricity end-users and
will relieve the government from se ious losses in the operation of
SPUG areas-missionary electrificati
Based on CY 2011 Result of Operation
Page 23 of 25
CHPC's
NPC's Estimated
NPC Cost of Estimated CHPC's Subsidy Decrease in
SAGR Generation Subsidy TCGR Requirement
Subsidy*
(PhP/kWh) (PhP/kWh) (PhP/kWh) (PhP/kWh) (PhP/kWh) (PhP/kWh)
5.6404 38.3547 32.7143 5.2107 0 32.7143
Difference between NPC's estimated subsidy and CHPCs estimated subsidy.
The proposed TCGR will reduce the UC-ME annual subsidy by
approximately PhPI48.60 Million based on the PhP32.7143/kWh
decrease in subsidy and CHPC's net expected energy level of
4,542.12 kWh.
Shown below is a comparison between CHPC's calculated rate
and the approved generation rates of other mini-hydro power plants
operating in the country, to wit:
Applicant
Run-of-the River
Hydroelectric
Power Plant Location
Plant
Capacity
(MW)
Rate
(PhPIkWh)
BOHECO I Sevilla MHEP Visayas 2.500 4.2530
SUWECO Solong MHEP Luzon 2.300 5.3955
Hitoma 1 MHEPP Luzon 1.500 5.3955
Hitoma2 MHEPP Luzon 1.575 5.3955
MINERGY Cabulig MHEPP Mindanao 8.00 4.6899
NUVELCO Smith Bell Luzon 1.800 4.5000
AURELCO San Luis MHEPP Liuzon 0.800 4.395
ROMELCO CHPC Luzon 0.900 5.2107
FIT - - 6.00 5.900
CHPC's proposed rate of PhP5.2107/kWh is comparable or
within the level of the Commission's approved rates for other mini-
hydro plants and is lower by PhPO.6893/kWh compared to the
approved FIT for mini-hydro of PhP5.900/kWh.
WHEREFORE, the foregoing premises considered, the
application filed by Romblon Electric Cooperative, Inc. (ROMELCO)
and Cantingas Mini-Hydro Power Corporation (CHPC) for approval of
their Agreement for the Supply of Electric Power (ASEP) is hereby
APPROVED with modificationectto the following conditions:
Page 24 of 25
1. Approved Generation Rate:
Component PhP/kWh
Capital Recovery Fee (CRF) 4.0879
Operation and Maintenance (O&M) 1.1228
Total Generation Rate 5.2107
2. The Basic Energy Charge (excluding the Capital
Recovery Rate and the component in the O&M that
pertains to E.R. 1-94) shall be escalated or de-escalated
annually by the Philippine Consumer Price Index (CPI)
published by the National Statistical Coordination Board
(NSCB).
Considering that the rate as approved herein is higher than the
provisional rate granted by the Commission, ROMELCO is hereby
directed to submit, within fifteen (15) days from receipt hereof, a
collect scheme from the actual date of operation until the
implementation of the final rates, including its calculations and
supporting documents.
SO ORDERED.
Pasig City, February 4, 2013.
fSZDUC
>DA
rperson
r'
AREDA
(C. REVES
Commitioner
missioner
ALF4 E C.
Commissioner
rrm/njdAELCO PSA
(On Official Business)
GLORIA VICTORIA C. YAP-TARUC
Commissioner
Page 25 of 25
Copy Furnished:
1. Atty. Arnido 0. Inumerable
Counsel for Applicant, ROMELCO
405 Elias St., U.E. Village, Cainta, Rizal
2. Romblon Electric Cooperative, Inc. (ROMELCO)\
Capaclan, Romblon, Romblon
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. Office of the Municipal Mayor
Romblon, Romblon
8. Office of the Municipal Mayor
San Fernando, Romblon
9.
Office of the Municipal Mayor
Cajidiocan, Romblon
10.Office of the Municipal Mayor
Magdiwang, Romblon

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REPUBLIC OF THE PHILIPPINES

ENERGY REGULATORY COMMISSION

Run-of-River Hydro Power

ERG CASE NO. 2010- 052 RC (ROMELCO)

Department of Energy (USDOE), Office of

ating Solar Power and Photovoltaics

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