Decision,+ERC+Case+No +2014-118+RC

Republic of the Philippines
ENERGY REGULATORY COMMISSIO

San Miguel Avenue, Pasig City
IN THE MATTER OF THE

APPLICATION FOR THE
APPROVAL OF THE
.SUPPLEMENT TO THE ENERGY
SUPPLY AGREEMENT
BETWEEN DAVAO DEL SUR
ELECTRIC COOPERATIVE, INC.
(DASURECO) AND THERMA
MARINE, INC. (TMI), WITH
MOTION FOR PROVISIONAL
AUTHORITY
ERC CASE NO. 2014-118 RC
DAVAO DEL SUR ELECTRIC

COOPERATIVE, INC. DOCKiiTIiD
(DASURECO) AND THERMA Date. .,..."............
DEC 2 2 2015 ,.-.
MARINE, INC. (TMI), 1b.r:' . W~ _-
Applicants.
x- - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
Before the Commission for resolution is the application filed on

August 15, 2014 by Davao Del Sur Electric Cooperative, Inc.
(DASURECO) for the approval of the Supplement to the Energy
Supply Agreement (Supplement Agreement) it executed with Therma
Marine, Inc. (TMI), with prayer for the issuance of 'provisional
authority.
In the said application, DASURECO alleged, among others, the

following:
1. DASURECO is an electric cooperative duly organized and

existing under the laws of the Republic of the Philippines .
with principal office at Cogan, Digos City, Davao D
q
DECISION/October 20, 2015
Page 2 of 35
2. DASURECO is the grantee of a franchise from the

National Electrification Commission (NEC) to operate and
maintain an electric light and power distribution system in
Digos City and in the Municipalities of Magsaysay, Sulop,
Jose Abad Santos, Sta. Cruz, Hagonoy, Malalag, Don
Marcelino, Bansalan, Padada, Sta. Maria, Sarangani,
Matanao, Kiblawan and Malita, all in the Province of
Davao Del Sur;
3. The application seeks approval by the Commission of the

Supplement Agreement executed between DASURECO
and TMI on December 3, 2013;
4. TMI is a generation company duly organized and existing

under the laws of the Republic of the Philippines with
principal office address in Aboitiz Corporate Center, Gov.
Manuel A. Cuenco Avenue, Kasambagan, Cebu City;
5. TMI owns and operates the 100 MW Power Barge No.

117 (PB 117) in Nasipit, Agusan del Norte and the 100
MW Power Barge No. 118 (PB 118) in Maco, Compostela
Valley, upon their privatization by the Power Sector
Assets and Liabilities Management Corporation (PSALM)
pursuant to Republic Act No. 9136, otherwise known as
the "Electric Power Industry Reform Act of 2001" (EPIRA);
6. On December 18, 2010, DASURECO entered into an

Energy Supply Agreement (ESA) with TMI for the supply
of 8 MW1 for a term of one (1) year from the Effective
Date. The ESA was approved by the Commission in ERC
Case No. 2011-015 RC. In accordance with the
provisions of the ESA, they agreed to renew the terms
and conditions of the ESA for an additional period one (1)
year or until July 25, 2013 (Renewal Term). The said
renewal is the subject of a manifestation before the
Commission in the same ERC Case No. 2011-015 RC;
7. On January 15, 2013, DASURECO executed with TMI an

Amendment to the Energy Supply Agreement
(Amendment Agreement) stipulating that the ESA shall
1 The Billing Capacity was increased to 12 MW effective February 2012 and subsequently
increased to 18 MW commencing on the April 2012 billing period, subject to the availability of
TMI's capacity pending the Commission's provisional approval of the various ESAs it entere~
into with other distribution utilities. ~
Page 3 of 35
remain in force for an additional period of three (3) years

from the expiration. of the Renewal Term (Additional
Term), provided that, the Agreement may be terminated
effective on the date of commercial operation of the coal-
fired power plant of Therma South, Inc. (TSI) located in
Toril, Davao. Provided further that, if commercial
operation date of said plant has not occurred by the end
of the Additional Term, the Agreement shall be
automatically renewed on a year-to-year basis, unless
earlier terminated in accordance with the Agreement;
8. On December 3, 2013, DASURECO executed with TMI a

Supplement Agreement stipulating that the rights and
obligations of the Parties during the Additional Term shall
be under the same terms and conditions of the ESA,
subject to the following:
SALIENT PROVISIONS OF THE SUPPLEMENT AGREEMENT
9. Electricity Fees. Beginning on the expiration of the

Renewal Term, the Electricity Fees shall be computed
based on the following values:
2013 2014 2015 2016 2017 2018

CF PhP/kW/mo 296 323 305 287 268 250
FOM PhP/kW/mo 239 314 314 314 314 314
EF PhP/kWh 0.14864 0.15245 0.15245 0.15245 0.15245 0.15245
HFCR L/kWh 0.23580 0.23580 0.23580 0.23580 0.23580 0.23580
LOCR L/kWh 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240
Furthermore, the formula for' FC in Item 2 (Contract

Energy Fee per Month) of Schedule III (Contract Energy
Fee) of the ESA shall be deemed amended to read as
follows:
FC = [CF + (FOM)(IFr)] BC + [(INS) ( BC )]

12 TotalBC
INS = INSy - INS1

Page 4 of 35
Where:
INSy = actual insurance cost for the two barges for the current
year
INS1 =PhP43,035,782.00 for the two barges, representing

insurance cost included in the FOM
Hence, the formula for Contract Energy Fee per Month

shall be:
Contract Energy Fee per Month
CEF = FC+VC
FC= [CF + (FOM)(IFt)]BC + [(~:)(To:a~BC)]

VC = [(EF)(IF,) + FLR]EDm
For calendar month m =~, 2, ... , n
Where:
CEF = Contract Enerav Fee in PhP
EF = Energy Fee (before adding the applicable VAT) for the
Billina Period in PhP/kWh
FC = Fixed CharQe per month in Pesos
VC = Variable Chame per month in Pesos
CF = Capacity Fee in PhP/kW/month for the current
Contract Year
FOM = Fixed O&M Fee in PhP/kW/month
1Ft = Inflation Factor for Fixed O&M Fee
BC = BillinQ Capacity in kW
INS = INSv -INS1
Where:
INSy = actual insurance cost for the two barges
for the current year
INS1 = PhP43,035,782.00 for the two barges,
representing insurance cost included in
the FOM
IFv = Inflation Factor for EnerQY Fee
Total = Total Billing Capacity for all ESAs entered into by the
BC Supplier which have achieved effectivity date and for
the duration of such effectivity, as such terms and
DECISION/October 20,2015
Page 5 of 35
conditions are defined under the respective ESAs

FLR = Fuel Oil, Lube Oil and Related Fuel Rate in PhP/kWh
EDm = The Sum of the hourly volumes of Contract Energy as
found in the Schedule of Contract Energy (or as
revised by the Parties or by MSO/MSO RCC) for the
Billing Period primarily associated with calendar month
m (for example December 26-January 25 is associated
with January) (and adjusted for transmission losses, if
any, imputed by the transmission service provider if
measured at a meter other than the Generator
Metering Point), in kWh
The Fixed Charge (FC) shall be proportionately adjusted if:
a. The Contract Energy Delivery days in a Billing Period are

less the total number of days in the Billing Period (to adjust
to first and last Billing Periods of the ESA); and
b. The non-delivery days (or fraction thereof) in any Billing

Period caused by Allowed Downtime described under
Section 8 of the ESA.
Finally, the base indices in Item 3 (Inflation Factor) of

Schedule III (Contract Energy Fee) of the ESA shall be
deemed to read as follows:
PCPlb = Philippine CPI of 126.4 as of June 2011

UCPlb = US CPI of 225.722 as of June 2011
ECPlb = EURO CPI of 113.10 as of June 2011
JCPlb = Japan CPI of 99.9 as of June 2011
10. Billing Capacity. In the event that TMI is required to

reduce its installed capacity in order to remain compliant
with Section 45 of the EPIRA, TMI shall have the right to
reduce the Billing Capacity of DASURECO to the extent
of the reduction required under Section 45 of the EPIRA;
provided that, the reduction in the Billing Capacity of
DASURECO shall not exceed its pro rata share in the
total Billing Capacity of TMI in relation with the other
offtakers of TMI;
11. Considering that under the Supplement Agreement, the

rightsand obligationsof the Paniesduringthe Additio~
Page 6 of 35
Term shall continue to be governed by the ESA, the

following salient terms and conditions of the ESA shall
continue to be in effect:
12. Contract Energy. Under the ESA, TMI shall make

available, on a monthly basis, the capacity of 8 MW, to be
delivered in accordance with the Schedule of Contract
Energy of the ESA. The Contract Capacity was increased
2
to 12 MW in February 2012 ;
13. Purchased Power Rate. For 2013 to 2015, DASURECO

shall be liable to pay such electricity fees, as follows:
Rates
Ca 2013 296
2014 323
2015 305
239
0.14891
Pass-thru cost based on fuel
consumption rates of 0.2358
Fuel and Lube Oil Rate liter/kWh or actual, whichever is
lower, for Heavy Fuel Oil (HFO)
and 0.0024 liter/kWh or actual,
whichever is lower, for Lube Oil
LO
14. Additional Energy. TMI may, at its option, make

available to DASURECO such energy in excess of the
contracted energy for which DASURECO shall be liable to
pay the Additional Energy Fee consisting of variable and
fixed charges pro-rated for the hours of delivery of the
additional energy, subject to annual adjustments. The
same formula for the Additional Energy Fee Rate under
the ESA shall continue to be in effect;
15. Load Curtailment Adjustment. For Contract Energy

subject of load curtailment, DASURECO shall pay the
2 The Total Billing Capacity was increased to 18 MW commencing on the April 2012 billing period,
subject to the availability of TMl's capacity pending the Commission's provisional approval of
the various ESAs it entered into with other distribution utilities.
, _d 0" ., D~"'o" d",d No~m"" 19,20" '" ERCC,~ No 201\-0" ~

Page 7 of 35
Load Curtailment Adjustment in lieu of the Capacity Fee

component of the electricity fees. The same formula for
the Load Curtailment Adjustment Rate under the ESA
shall continue to be in effect;
16. Replacement Power. TMI has the option but not the
obligation to source replacement or alternative supply
from its own back-up facility and/or any third party to
supply all or part of the contract energy;
17. The extension of the Contract Term under the

Amendment Agreement and Supplement Agreement, and
the implementation thereof, will redound to the benefit of
its consumers which may otherwise be forced to bear the
cost of 12 MW purchased from the Interim Mindanao
Electricity Market (1MEM). In undertaking the extension of
the ESA under the Supplement Agreement, it seeks to
comply with its obligation of providing stable and
continuous power supply, pursuant to the Department
Circular No. DC 2012-12-0011 dated December 10, 2012
of the Department of Energy (DOE);
18. The estimated rate impact on DASURECO's purchased

power cost from TMI under the Supplement Agreement is
computed as follows:
Generation Costs
Scenario 1 Scenario 2 Increase/(Decreasel
Rate, in 5.6405 5.6918 0.0514

PhP/kWh
"Generation mix includes NPC, TMI, AEDC and TUDAYA 2
MOTIONS FOR PROVISIONAL AUTHORITY AND

NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
19. DASURECO moved for the issuance of a provisional

approval of the Supplement Agreement pending trial on
the merits thereof upon the following reasons:
a. Mindanao Power Crisis. The power shortage in

Mindanao has remained a critical proble
4
?
Page 8 of 35
DASURECO which continues to suffer rotating

brownouts in the grid. A bilateral agreement, such
as the Supplement Agreement, will significantly aid
DASURECO in minimizing or even eliminating the
rotating brownouts in its franchise area which has
had a debilitating impact upon the local economy;
b. Insufficiency of the National Power

Corporation/Power Sector Assets Liabilities
Management Corporation (NPC/PSALM) Supply.
The reduction of the NPC/PSALM CSEE capacity
from its portfolio renders imperative a bilateral
supply contract to answer for the equivalent
capacity, lest DASURECO be compelled to resort to
the unpredictable and expectedly higher prices in
the IMEM or worse, be curtailed for insufficient
contracted capacity; and
c. Continuing Demand Growth. As illustrated in

DASURECO's Distribution Development Plan
(DDP), it is expecting a growth in the total demand
of its end-users so that, coupled with the reduction
of the NPC/PSALM capacity, there is a wide supply
gap that urgently needs to be filled. Without the
Supplement Agreement, DASURECO will be
incapable of satisfying the electricity requirements
of its end-users who must be forced to suffer
brownouts resulting from its curtailment;
20. Considering the foregoing, DASURECO requested the

Commission for the provisional approval of the
Supplement Agreement to enable it to draw under the
said agreement. This will avoid the power interruptions
which have caused irreversible losses upon economic
productivity within its franchise area;
21. Furthermore, under Article 13 of the ESA, each Party

undertook to keep in strict confidence and not disclose to
4
any third party any and all Confidential Information of the
other Party;
4 Confidential Information means all information relating to or concerning such other Party, its
subsidiaries, affiliates, associates, associated companies or customers which by reason of [the
ESA], are made known to the receiving Party or its subsidiaries and affiliated companies, or
4
directors, trustees, employees and representatives, including, without limitation attorneys
7/ .
Page 9 of 35
.22. Under Rule 4 of the ERC Rules, the Commission may,

upon request of a party and determination of the
existence of conditions which would warrant such
remedy, treat certain information submitted to it as
confidential. Pursuant to its undertaking, DASURECO
moved that Annexes "N", "0", "P" and "Q" not be
disclosed and be treated as confidential documents in
accordance with Rule 4 of the ERC Rules. These
documents contain. certain non-public information, data
and calculations involving business operations and
financial trade secrets reflecting TMl's investment and
business calculations;
23. DASURECO submitted one (1) copy of Annexes "N", "0",

"P" and "Q" in a sealed envelope, with the envelope and
each page of the document stamped with the word
"Confidential'" ,
SUBMISSION OF DOCUMENTARY AND PRE-FILING

REQUIREMENTS
24. In support of the application and in compliance with the

Commission's Guidelines for the Recovery of Costs for
the Generation Component of the Distribution Utilities'
(DUs) Rates as well as Rule 20 (B) of the ERC Rules of
Practice and Procedure, DASURECO submitted the
following documents, attached to the application and
made integral parts thereof as annexes, to wit
Annex Nature of Document
Supplement to the Energy Supply Agreement dated

A December 3, 2013 entered into between DASURECO and
TMI
DASURECO Board Resolution authorizing the execution of
B the Su lement A reement with TMI
Amendment to the Ener Su I A reement dated Janua
outside legal counsel, accountants, consultants and professional advisers to whom such
Confidential Information is disclosed, including but not limited to, any business, technical,
marketing, operational, organizational, financial or other information, and trade secrets, whether
in electronic, oral or written form, and all notes analyses, compilations, studies or other
information which contain or reflect such information. /
. t
Page 10 of 35
C 15,2013 entered into between DASURECO and TMI

D Energy Supply Agreement dated December 18, 2010
entered into between DASURECO and TMI
Securities and Exchange Commission (SEC) Certificate of
E Reaistration of TMI
F Articles of Incorporation of TMI
G General Information Sheet of TMI
H Board of Investments Certificate of ReQistration of TMI
Environmental Compliance Certificate (ECC) issued by the
I Department of Environment and Natural Resources (DENR)
toTMI
J Certificate of Comoliance (COC) issued to TMI
Transmission Service Agreement (TSA) between TMI and
K the National Grid Corooration of the Philiooines (NGCP)
Transmission Service Agreement (TSA) between
L DASURECO and NGCP
M Fuel Procurement Process of TMI
N Sources of Funds/Financial Plans of TMI
0 Purchased Power Rate of TMI
P Cash Flow ofTMI
Q Latest Audited Financial Statement (AFS) of TMI
Certification from the PSALM of the insufficiency of its supply
R to meet DASURECO's reauirements
S Distribution Develooment Plan (DDP) of DASURECO
T Actual and Forecasted Load Data of DASURECO
U Rate Impact Analvsis
V Judicial Affidavit in support of the motion for provisional
authority
Wto Proof of furnishing copies of the application to the
W-1 Sangguniang Panlungsod of Digos City and Sangguniang
PanlalawiQan of Davao Del Sur
X to Publication of the application in a newspaper of general
X-2 circulation in the franchise area of DASURECO or where it
orincipally ooerates, with an Affidavit of Publication
25. DASURECO prayed that the Commission:
a. Issue an Order treating Annexes "N" , "0" , "P" and

"Q" and the information contained therein as
confidential, directing their non-disclosure pursuant
to Rule 4 of the ERC Rules, and prescribing the
guidelines for the protection ther%
J
Page 11 of 35
b. Pending trial on the merits, provisionally approve

the Supplement Agreement effective July 26, 2013;
and
c. After trial on the merits, approve with finality the

Supplement Agreement, including the rates set out
in paragraphs 9, 13 to 16 hereof.
On August 15, 2014, TMI filed a "Motion to be Admitted as Co-

Applicant with Entry of Appearance" alleging, among others, that it
has an interest in the subject matter and outcome of the instant
application considering that it is a party to the ESA and the
Supplement Agreement. It further alleged that it is in a position to
provide pertinent information and evidence required by the
Commission, particularly on matters relating to the rate charged by
TMI under the Supplement Agreement. It prayed that it be granted
leave to participate in the application as a party co-applicant.
On August 22, 2014, the Commission issued an Order granting

TMI's motion. Thus, TMI is considered as a co-applicant in this
application.
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 August 22, 2014, were issued
setting the case for jurisdictional hearing, expository presentation,
pre-trial conference and evidentiary hearing on October 2, 2014.
In the same Order, DASURECO and TMI were directed to

cause the publication of the Notice of Public Hearing, at their own
expense, twice (2x) for two (2) successive weeks in two (2)
newspapers of general circulation in the Philippines, with the date of
the last publication to be made not later than ten (10) days before the
scheduled date of initial hearing. They were also directed to inform
the consumers within DASURECO's franchise area, by any other
means available and appropriate, of the filing of the application, its
reasons therefor and of the scheduled hearing 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 NotiC/-;
y
Page 12 of 35
Public Hearing and were requested to have their respective duly

authorized representatives present at the hearing.
Likewise, the Office of the Governor of the Province of Davao

Del Sur and the Mayors of the City and Municipalities within the
franchise area of DASURECO were furnished copies of the Order
and Notice of Public Hearing for the appropriate posting thereof on
their respective bulletin boards.
On September 26, 2014, DASURECO and TMI filed their

respective "Pre-trial Briefs".
During the October 2, 2014 initial hearing, only DASURECO

and TMI appeared. No intervenor/oppositor appeared nor was there
any intervention/opposition registered.
At the said hearing, DASURECO and TMI presented proofs of

their compliance with the Commission's publication and posting of
notice requirements which were duly marked as Exhibits "A" to "1-3".
Thereafter, DASURECO and TMI conducted an expository
presentation of their application. The Commission propounded
c1arificatory questions.
Subsequently, a pre-trial conference was conducted.
At the termination of the pre-trial conference, DASURECO and

TMI presented the following witnesses: 1) Engr. Jerry D. Morastil,
DASURECO's Chief of the Construction and Maintenance
Department, who testified, among others, on the following: a) salient
provisions of the Supplement Agreement; b) Transmission Service
. Agreement (TSA) between DASURECO and the National Grid
Corporation of the Philippines (NGCP); and c) rate impact on
DASURECO's purchased power cost of the Supplement Agreement;
d) insufficiency of power supply within the franchise area of
DASURECO; and 2) Mr. Theodore U. Bisnar, Account Officer of the
Sales and Marketing Department of Aboitiz Power Corporation
(APC), who testified, among others, on the following: a) Electricity
Fees relevant to the computation of Contract Energy Fees; b) fees
payable by DASURECO under the ESA; and c) amendments made to
the formula for the computation of the Contract Energy Fee. In the
course of their respective direct examinations, various documents
were presented and marked as exhibits. Thereafter, the Commission
. propounded elarifleatory questions and directed DASURECO ~
DECISIONIOctober 20,2015
Page 13 of 35
TMI to submit various documents and their respective formal offers of

evidence, within fifteen (15) days from said date of hearing.
Meantime, TMI moved for the withdrawal of its motion for

confidential treatment of certain information. Said motion was
granted.
On October 17, 2014, DASURECO filed its "Formal Offer of

Evidence" (FOE) and "Compliance (To The Order Given October 2,
2014)".
On even date, TMI filed its "Formal Offer of Evidence" and

"Partial Compliance with Motion for Confidential Treatment and
Motion for Additional Time to Submit Documents".
On October 22, 2014, the Commission issued an Order

provisionally approving the application, the dispositive portion of
which reads:
"WHEREFORE, the foregoing premises

considered, the Commission hereby PROVISIONALLY
APPROVES the Supplement to the Energy Supply
Agreement (ESA) between Davao Del Sur Electric
Cooperative, Inc. (DASURECO) and Therma Marine,
Incorporated (TMI), subject to the following conditions:
a. The applicable rate shall be as follows:
Particulars Rates
2014 - 211
Capital Recovery Fee, PhP/kW/month 2015- 305
2016- 286
2014- 205
Fixed O&M, PhP/kW/month 2015-314
2016-314
Enerav Fee, PhP/kWh 0.14864
Fixed Consumption rates
Fuel and Lube Oil Rate of O.2358 ii/kWh for HFO
and 0.00241i/kWh for LO
DECISIONIOctober 20, 2015
Page 14 of 35
b. The final generation cost that can be

recovered shall be determined by the
Commission in its Decision in the instant joint
application; and
c. In the event that the final rates are higher than

that provisionally granted, the resulting
additional charges shall be collected by TMI
from DASURECO. On the other hand, if the
final rates are lower than that provisionally
granted, the amount corresponding to the
reduction shall be refunded by TMI to
DASURECO.
Accordingly, DASURECO is hereby directed to

ATTACH in its Automatic Generation Rate Adjustment
(AGRA) submission the computation of the monthly fuel
cost, including the following details: gross kWh
generation, total kWh sales, the corresponding quantity of
fuel consumed, and any other documents necessary for
the Commission to verify the amount of fuel cost passed-
through."
On November 11, 2014, TMI filed its "Supplemental Formal

Offer of Evidence" and "Compliance (With Manifestation and Motion
for Confidential Treatment of Information)".
On January 21, 2015, TMI filed a "Motion for (1)

Reconsideration; and (2) Deferment of Effectivity (of the Order Dated
October 22,2014)".
On April 10, 2015, TMI filed a "Manifestation (Re: Motion for

Reconsideration Filed on January 2015)".
On October 8, 2015, the Commission issued an Order admitting

the exhibits contained in the respective FOEs of DASURECO and
TMI for being relevant and material in the final resolution of the case.
Relative to DASURECO's motion to treat as confidential

information Exhibits "20-A,,5, "20-8,,6, "20-D,,7 and "20-E"a attached to
, Com","." ~ fu' p,"pored VOMFre of Ph".15""kWh ~

Page 15 of 35
its "Partial Compliance with Motion for Confidential Treatment and

Motion for Additional Time to Submit Documents" dated October 17,
2014 , as well as Exhibits "20-H"g and "20_1,,10attached to its
"Compliance (With Manifestation and Motion for Confidential
Treatment of Information)" dated November 11, 2014, the
Commission resolves to deny the same since said documents or
information are necessary in the evaluation and determination of the
reasonableness of the rates to be charged to the consumers. Thus,
they must be disClosed to those who would ultimately be burdened or
affected thereby. TMI may have the right to protect its proprietary or
business concerns but it cannot outweigh the paramount duty of thE!
State to protect and uphold public interest by ensuring "transparent
and reasonable prices of electricity" pursuant to Section 2 (c) and (f)
of the EPIRA.
DISCUSSION
I. EVALUATION OF THE PROPOSED RATES
TMI's approved total project cost is PhP1,833,440,00011

(PhP870,884,000 for PB 118 and PhP962,556,000 for PB 117).
Under the Supplement Agreement, TMI and DASURECO

agreed on the following rates:
6 Supporting documents for the item "Other Lubricants" in the O&M Fee
7 Fuel Oil Sales Agreement between TMI and Petron Corporation
8 Supply Agreement between TMI and Pilipinas Shell Petroleum Corporation
.9 Summary of TMl's recovery of the CRF starting from the Commission's approval of the Original
ESA .
10 Actual and Projected Contracted Capacity of TMI to its customers from years 2012to 2019
11 Page 3 of the Orders dated July 9, 2012resolving the "Motion for Reconsideration" filed by
Cagayan Electric Power and Light Company, Inc. (CEPALCO) in ERC Case Nos. 2010-011
RC and 2010-014
Page 16 of 35
CF
Year (PhP/kW/mo.)
2013 296
2014 323
2015 305
2016 287
2017 268
2018 250
DASURECO and TMI alleged that the proposed rates under the
Supplement Agreement were derived and consistent with the
Commission's previous approval.
A. CAPACITY FEE (CF)
Shown below is the approved CF based on the Commission's

Decision on the Original ESA entered into by TMI and several
distribution utilities:
CF
Year (PhP/kW/mo.)
2011 344
2012 278
2013 296
2014 323
2015 305
The foregoing CF was computed based on the annual revenue

requirements provided in the July 9, 2012 Orders of the Commission
in ERC Case Nos. 2010-011 RC and 2010-014 RC [Application for
Approval of the Ancillary Services Procurement Agreement (ASPA)
between the National Grid Corporation of the Philippines (NGCP) and
TMI]. This approval has been consistently used by the Commission in
approving the ESAs of TMI with several distribution utilities. The said
annual revenue requirements and their corresponding CF were
derived based on the following factors/
V
Page 17 of 35
1. The acquisition costs of PB 117 and PB 118 in the

amounts of PhP739,467,200.00 and PhP651 ,233,800.00,
respectively, plus the cost of procurement of the excluded
equipment and replenishment of spare parts - In the
aforesaid Orders, the Commission resolved that the Asset
Base to be used in determining the CF shall be the
acquisition cost instead of the appraised value;
2. The life of the asset, which is ten (10) years;
3. The rate should be unlevelized as the contract term is for

a short period only;
4. The billing determinant for the first two (2) years (2010
and 2011) should be based on the actual capacity
available and scheduled; and
5. The billing determinant for the succeeding years should

be based on the actual contracted quantity recognizing
that TMI has already contracted most of its capacity under
a bilateral supply contract or seventy percent (70%)
capacity factor.
Thus, the Commission set TMI's CF using a billing determinant

of seventy percent (70%) capacity factor or actual output, whichever
is higher, to wit:
Revenue Billing
CF
Year Requirement Determinant
(PhP/kW/mo.)
(PhP) (kW)*
2011 562,687,547.2850 1,633,474.79 344
2012 535,185,947.2850 1,924,585.80 278
2013 507,684,347.2850 1,714,000.00 296
2014 480,182,747.2850 1,485,124.59 323
2015 452,681,147.2850 1,485,124.59 305
*based on seventy percent (70%) capacity factor or actual/projected capacity,
whichever is higher ~
Page 18 of 35
The Commission already approved the declining annual

revenue requirements for TM!. However, the said rates should be
subjected to recalculation depending on the updated actual
contracted capacity.
Upon perusal of the Supplement Agreement, the Commission

verified that the proposed rate provided therein is the same CF it
approved in several ESAs involving TMI's power plants.
However, to determine the updated actual contracted capacity,

the Commission subjected it once more to the billing determinant test,
where the billing determinant should be the actual contracted
capacity or seventy percent (70%) capacity factor, whichever is
higher. Thereafter, the Commission tested the CF for 2014-2019
using the following values:
Revenue 70% Plant Contracted

Year Requirement Capacity Factor Capacity
"(PhP) (kW) (kW)
2014 480,182,747.2850 1,485,124.59 2,280,000
2015 452,681,147.2850 1,485,124.59 1,022,000
2016 425,179,547.2850 1,485,124.59 90,000
Note: 2014 - Actual; 2015 to 2016 - Based on Projection
In this regard, the Commission believes that the CF for 2014

should be adjusted by using the actual billing determinant instead of
seventy percent (70%) capacity factor to reflect the resulting rate,
consistent with its previous approvals of TMl's ESAs with various
distribution utilities.
Shown below is a comparison between the CFs (in

PhP/kW/mo.) based on a seventy percent (70%) capacity factor, as
approved under the Original ESAs, and the Commission's
recalculation using TMl's actual dat~
i
Page 19 of 35
Approved
CF Under
At 70% Plant
the Revised Approved
Year Capacity Factor
Original (c) CFs
(a)
ESA
(b)
2014 323 323 211 211
2015 305 305 443 305
2016 286 - 4,724 286
Note: (a) CF based on seventy percent (70%) plant capacity factor
(b) Calculated CF during the approval of the Original ESAs
(c) Calculated CF based on actual contracted capacity for 2014 and

projected capacity factor of forty-five percent (45%) (1,022,000 kW)
for 2015 and four percent (4%) capacity factor (90,000) for 2016.
This will be subject to annual true-up determination.
For the year 2014, the approved CF is PhP323.00/kW/mo.

where the billing determinant used therein is the seventy percent
(70%) capacity factor. However, the Commission noted that the
actual contracted capacity was higher than the seventy percent (70%)
billing determinant. Thus, the resulting CF was accordingly reduced.
On the other hand, for the years 2015 to 2016, the CFs are
calculated based on the seventy percent (70%) capacity factor since
the projected quantity is below the same.
The Commission is cognizant that TMI may not fully recover its
CF in the event that it would not be able to contract at least seventy
percent (70%) of its plant capacity. On this note, the risk for not
being able to sell the plant capacity is borne by TMI and not its
customers.
Shown below is a comparison between TMI's proposed and the

Commission's approved CF~
Page 20 of 35
TMI's Proposed CF Approved CF

Year
lPhP/kW/mo.) lPhP/kW/mo.)
2014 323 211
2015 305 305
2016 287 286
B. FIXED OPERATIONS AND MAINTENANCE (FOM) FEE
The FOM under the ESA is based on annual FOM costs of

PhP466,648,382.00 for the Power Barges, as approved by the
Commission in its Decision involving TMl's ESAs. Hence,
DASURECO and TMI agreed that the proposed FOM Fee is
PhP314.00/kW/mo., based on the approved annual FOM Fee and
seventy percent (70%) capacity factor.
Pursuant to its Decisions, the Commission calculated the

following annual FOM Fee and its equivalent rate:
FOM Revenue Billing

FOM Fee
Year Requirement Determinant
(PhP/kW/mo.)
lPhP) lkW)
2011 466,648,382.00 1,633,474.79 285.68
2012 466,648,382.00 1,924,585.80 242.47
2013 466,648,382.00 1,714,000.00 272.26
2014 466,648,382.00 1,485,124.59 314.21
2015 466,648,382.00 1,485,124.59 314.21
Similar with the CF, the Commission recalculated the applicable

FOM Fee (in PhP/kW/mo.) based on the updated actual contracted
capacity. This is to compare the billing determinant used based on
updated actual contracted capacity and the seventy percent (70%)
plant capacity factor, to wit~
Page 21 of 35
Approved
At 70% Plant FOM Under
Revised FOM Approved
Capacity Factor the Original
Year (PhP/kW/mo.) FOM
(PhP/kW/mo.) ESA
(c) (PhP/kW/mo.)
(a) (PhP/kW/mo.)
(b)
2014 314 314 205 205
2015 314 314 457 314
2016 314 - 5,185 314
Note: (a) FOM based on seventy percent (70%) plant

capacity factor
(b) Calculated FOM during the approval of the Original

ESA
(c) Calculated FOM based on actual contracted

capacity for 2014 and projected capacity factor of
forty-five percent (45%) (1,022,000 kW) for 2015
and four percent (4%) capacity factor (90,000 kW)
for 2016-2019. This will be subject to annual true-
up determination.
Thus, the revised FOM is as follows:
TMI's Proposed Approved

Year
PhP/kW/mo. PhP/kW/mo.
2014 314 205
2015 314 314
2016 314 314
It is worth mentioning that in the application, TMI's proposed

FOM of PhP314.00/kW/mo. is consistent with the Commission's
previous calculation.
The projected VOM Fee under the Original ESA is based on

total estimated VOM of PhP115,406,480, broken down as fOIlOW~
y
Page 22 of 35
Ex ense Amount in PhP

Diesel Generator Units 85,950,934.00
Auxiliar S stems 18,804,862.00
DOE ER 1-94 Pa ments 7,760,740.00
Total YOM 112,516,536.00
A roved YOM 112,311,596.00
Additional: Lubricants 3,094,884.00
Revised Total YOM 115,406,480.00
On the other hand, the proposed YOM under the Supplement

Agreement is based on the annual YOM costs of PhP115,406,480.00
for the Power Barges and based on the approval by the Commission
of PhP112,311 ,596.00 plus the additional costs for the lubricants of
PhP3,094,884.00.
The additional cost for system lubricant was not included in the
YOM cost from TMl's previous applications. This system lubricant is
applied to the bearings and other movable parts in the auxiliary
equipment of the power plant. TMI calculated the said cost based on
the 2014-2019 operating projections of the power plant, to wit:
Particulars 2014-2019
2014 2015 2016 2017 2018 2019
Average
Other
lubricants, 3,788,429.00 2,787,026.00 2,873,424.00 2,968,247.00 3,057,295.00 3,057,295.00 3,088,619.00
PhP
Hence, TMI derived its YOM as follows:
Annual YOM PhP 115,406,480.00

Billing Determinant kWh/vr 755,580,000
YOM Rate PhP/kWh 0.1527
It should be noted that the rate of PhPO.1527/kWh is the

updated estimate of the Annual YOM. However, TMI undertook to
charge DASURECO the same rate of PhPO.15245/kWh as initially
agreed.
On another note, TMI derived its Energy Fee (EF) of

PhPO.14891/kWh by dividing the Annual VOM Cost ~
Page 23 of 35
PhP112,516,536 over the net annual energy production of

755,580,000 kWh.
Though the Commission approved the same VOM cost of

PhP112,516,536.00 in the ASPA cases without disallowance, arriving
at an EF of PhPO.14891/kWh, it made an adjustment for each plant
from PhP3,880,370.00 to PhP3,777,900.00 since the DOE Energy
Regulations (E.R.) 1-94 state that the Generation Company and/or
energy resource developer shall set aside one centavo per kilowatt-
hour (PhPO.01/kWh) of the total electricity sales as Financial Benefit
to the Host Communities (FBHC) of such Generation Facility. Hence,
the Commission arrived at an EF of PhPO.14864/kWh.
In the application, TMI proposed a VOM of PhPO.15245/kWh,

which considers the additional cost for system lubricant.
Inasmuch as DASURECO and TMI failed to substantiate their

proposed VOM, the Commission is constrained to approve a VOM
Fee of PhPO.14864/kWh.
C. FUEL COST
In the Original ESA, TMI proposed fixed fuel consumption rates

of 0.2210 liter/kWh for Heavy Fuel Oil (HFO) and 0.00313 liter/kWh
for Lube Oil.
Subsequently, TMI submitted a Plant Performance Test Report

made by NPC on the test it conducted on PB 117 and PB 118 on
January 24 to 27, 2011. The said report is in compliance with the
Commission's directive to conduct a fuel heat rate testing.
The result of heat rate testing12, which is also the proposed fuel
consumption rates in the application, showed that the consumption
rates for HFO and Lube Oil are 0.2358 liter/kWh and 0.0024
liter/kWh, respectively.
.
12 "Plant Performance Test Report of Therma Marine Mobile 1 and Therma Marine Mobile 2",
Y
attached as Annex E of TMl's "Manifestation with Motion for Non-Disclosure of Confide~;ai /
Information" dated August 19, 2011
Page 24 of 35
Shown below is a comparison between the proposed and the

consumption rate test results:
Consumption
TMI's Proposal Difference
Fuel Rate Result
(Ii/kWh) (Ii/kWh)
(Ii/kWh)
HFO 0.22100 0.2358 (0.01480)
Lube Oil 0.00313 0.0024 0.00073
In the Decision approving the Original ESA, the Commission

adopted TMl's proposed fuel consumption rates, subject to the
condition that it shall be the actual or proposed, whichever is lower.
It bears stressing that in most recent ESAs of TMI and several

distribution utilities, the Commission ruled that the fuel rate shall be
pass-through cost based on fuel consumption rates of 0.2358
liter/kWh or actual, whichever is lower, for Heavy Fuel Oil (HFO; and
0.0024 liter/kWh or actual, whichever is lower, for Lube Oil (LO) 3,
Further, considering that TMl's diesel power plants will be

dispatched for peaking load, the Commission compared the proposed
fuel heat rate with power plants involving the same technology and it
was disclosed that the said proposed fuel consumption rate is lower
than the previous approvals of other diesel plants. In this regard, the
Commission deems it prudent to adopt the proposed fuel heat rate,
subject to adjustment if the actual consumption rates are lower.
The Commission recognizes that the fuel cost utilized in

generating electricity may be passed-on to the customers, however,
the same should be within the efficiency levels set by it. Further, the
fuel cost shall be subject to adjustment to account for its
upward/downward changes as well as the transportation cost.
The Commission believes that the efficient fuel cost will be a

passed-on cost to the end-users and the power producer should not
make revenue from it.
13
with ZANECO, ZAMSURECO I, ZAMSURECO II, ZAMCELCO, MOELCI I,
MOELCI II, COTELCO, SUKELCO, BUSECO, and CAMELCO ?
Approved Fuel Consumption Rates in most recent cases of TMI, particularly,
Page 25 of 35
Any inefficiency should not be passed on to the end-users but

should be absorbed by TM!. 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 TMI to shoulder the cost
for the increase in fuel consumption and the additional cost of
improving efficiency.
On the other hand, if TMI saves on fuel consumption due to its

efficient operations and maintenance of the plant, then the savings in
fuel will be passed-on to DASURECO's customers.
Further, considering that the fuel cost is a pass-on cost and

there is no long-term fuel supply contract for TMI, the Commission
believes that the fuel procurement process should be monitored with
the objective of obtaining the fuel supplier with the least cost possible.
IV. TMI'S "MOTION FOR RECONSIDERATION"
In its motion for reconsideration, TMI alleged, among others,

that a reduction in the CF for 2014 and for the succeeding years, if
there be any, may result in failure to recover its total revenue
requirement given the changing supply environment in the Mindanao
Region.
It averred that, with the entry of several new base load power
plants and peaking modular generation sets in the said Region, TMI
is expecting a steep decrease in its contracted capacities. Even as it
remains to be the cheaper alternative supplier of peak power (when
compared to other peaking and oil-based power plants in Mindanao),
the reduction of its possible offtakers is a certainty.
Considering these unfavorable prospects, TMI foresees that its

ESAs will not be renewed or, worse, may even be terminated early
upon the entry of the coal-fired power plant of TSI in 2015. Although
TMI has contracts which are extended beyond 2015, the same
provide the customers the right to terminate them even before the
endofthecontractpenod~
Page 26 of 35
Using the CF rates approved by the Commission in ERC Case

No. 2011-015 RC14, TMI had previously estimated that it shall be able
to collect its total CF by the end of Asset Life of PBs 117 and 118.
However, with its capacities contracted only until 2015, it expects an
under-recovery in revenue requirement, as follows:
Ca acit Fee
Actual Februar 2010 to Se tember 2014
Pro'ected October 2014 to 2019
Total Actual and Pro'ected Collections
Revenue Re uirement
Pro.ected Differential
Based on the foregoing, a total of PhP1.48 Billion or thirty-two

percent (32%) of TMl's ten (10)-year revenue requirement may not be
recovered by the end of the Assets' useful life of ten (10) years. As
further averred, this is a huge blow to its viability which, in deciding
upon the acquisition of the power plants from the PSALM, has
assumed the recovery of its investment and a reasonable return
thereon within the period of ten (10) years.
Moreover, TMI claimed that with the Order reducing the

applicable CF for 2014, it has been dealt another serious blow. While
at present, TMI is still capable of contracting with off-takers, the
reduction in its CF resulting in the increase of its contracted
capacities effectively deters it from maximizing its revenue for
capacities actually generated. By such a deterrent, TMI inevitably
contends of not recovering its total revenue requirement in the
succeeding years until the end of the Asset Life of the power plants.
Beyond 2015, when TMI must compete with cheaper suppliers

such as coal and with peaking modular generation sets under long-
term contracts, it is certainly bound to end up with contracted
capacities way less than present levels. By then, any hope of
recovering its remaining revenue requirement may well be gone.
14 In the Matter of the Application for the Approval of the Energy Supply Agreement (ESA)
Between Davao Del Sur Electric Cooperative. Inc. (DASURECO) and Therma Marine, Inc.
(TMI), DASURECO - APPiican~
i
Page 27 of 35
Furthermore, the risks that may be encountered by TMI in the

next few years are very likely to happen. There should be a
significant change in the underlying assumptions used in the previous
calculation of the CF, including the assumption on the continuing
ability of TMI to contract its capacity to offtakers in Mindanao, which
verily, will cease to be true following 2015. In such case, capping
TMI revenues based on actual contracted capacities will be
detrimental to the recovery of its revenue requirements beyond 2015
when circumstances will push down contracted capacities way below
present levels and the capacity factor of seventy percent (70%) set by
the Commission.
As previously discussed, the foregoing CF calculation is based

on the previous Decisions wherein the Commission derived the CF
based on the actual billing determinant or seventy percent (70%),
whichever is lower.
In its Decision in ERC Case No. 2011-015 RC, the Commission

stated, that:
'The determination of the CF shall be based on

actual contracted capacity provided that in no case shall it
be lower than 70% of the plant dependable capacity.
Relative thereto, TMI and DASURECO are hereby
directed to submit actual contracted capacity every end of
the year for purposes of monitoring compliance with the
said condition and recalculating the CF, if necessary. ,,15
It can be recalled that the basis of using such calculation was

premised on the use of the cost-based methodology wherein TMI
should be entitled for the recovery of the approved revenue
requirement for CF (acquisition cost through annual depreciation plus
corresponding return).
In order for TMI to recover the said allowable revenue, the

actual contracted capacity for calendar years 2010 and 2011
equivalent to seventy percent (70%) of plant capacity was used as
billing determinant. Using a capacity lower than seventy percent
(70%) would not enable TMI to recover the allowed revenue
requirement for that two (2) years. On the other hand, using a
15 Page 35, Commission's Decision dated November 19,2012 in ERC Case No. 2011-015 ~
Page 28 of 35
capacity higher than seventy percent (70%) would allow TMI to

recover higher than the allowed revenue for those years.
However, considering that there may be an instance wherein

the actual contracted capacity will be higher than seventy percent
(70%), the Commission decided then to derive the CF based on the
higher between the seventy percent (70%) of plant capacity or the
actual contracted capacity. In such case, TMI will not be able to
recover higher than the allowed revenue. Conversely, setting the
billing determinant will not allow TMI to recover the allowable revenue
if the actual contracted capacity is lower than seventy percent (70%).
The Commission recognized the same but it upheld that the risk of
having no customers should be borne solely by TMI and not its
customers. Otherwise, it would lead to a scenario where a 1 MW
contracted capacity will be charged with the entire cost of 200 MW.
On another note, by capping the billing determinant, TMI may

no longer achieve its allowed revenue requirements considering the
forecasted contracted capacity which, in fact, may be beyond its
control.
Based on the documents submitted by DASURECO and TMI, it

can be gleaned that TMI may not be able to fully recover the allowed
revenue, and consequently, the rate of return. As averred earlier,
with the entry of several new baseload power plants and peaking
modular generation sets in Mindanao, TMI is expecting a steep
decrease in its contracted capacities which will result in under-
recoveries. Reducing further the CF would result in additional under-
recoveries.
In summary, TMI prayed that the Commission assess the CF by

matching the collections against its total revenue requirement for
years 2010 to 2019 and giving due regard to the change in
circumstances which render the use of actual capacities reasonable
and inappropriate in limiting its revenue requirement for every year.
In substance, what TMI is asking the Commission to consider is its
market risk.
On the contrary, the Commission believes that such risk, similar

to any identified risk, should be allocated to the party best suited to
handle or mitigate it. As to which could better manage the risk of not
being able to sell its capacity, as compared to the captive customers,
the Commission believes lhal it is the investor or TMI itself. In ~
Page 29 of 35
regard, the Commission maintains its position that the billing

determinant to be used in calculating the CF shall still be based on
actual contracted capacity, provided that, in no case shall it be lower
than seventy percent (70%) of the plant dependable capacity.
As regards the issue on replacement power, TMI assailed the

following discussion in the Commission's Order dated October 22,
2014 in the application:
"TM/ has the option but not the obligation to source

replacement or alternative supply from its own back-up
facility and/or any third party to supply all or part of the
contract energy."
The Commission notes, however, that the afore-

quoted is unclear as to whether or not TM/ has the
obligation to source replacement power beyond the
allowable outage.
Thus, the Commission is constrained to

provisionally approve that, beyond the period for allowed
scheduled and unscheduled outages, TMI shall have the
obligation to source replacement power to fulfill the
contracted energy of DASURECO and shall shoulder any
incremental cost in providing the same. In the event that
TMI fails to source replacement power, DASURECO shall
be allowed to find replacement power, the incremental
cost of which shall be for the sole account of TMI.,,16
TMI alleged that the ESA is clear and leaves no room for
interpretation as to the party responsible for procuring replacement
power beyond allowable downtime. It is DASURECO, not TMI which
is responsible, therefore - this is the intent of the parties to the ESA,
as approved by the Commission in 2013 and as implemented by
them since 2011.
TMI disagrees with the Commission's ruling that the ESA is

unclear as to whether or not it has the obligation to source
replacement power beyond the allowable outage.
" '"'" '~'4. Comm;,"oo', 0",";0 ERec= No. ""-118 R~

Page 30 of 35
TMI further alleged that there is no instance under the ESA

when the supply of the replacement power becomes its obligation,
whether the requirement therefore arises within and beyond allowable
downtime or from force majeure events provided in the ESA. It is
only for the purpose of setting out the electricity fees payable by
customer, in case TMI does exercise the option, that the ESA has
specific provisions applying thereto.
Furthermore, TMI alleged that the assailed provision of the ESA

was included in the final approval of the Commission in the Original
ESA between DASURECO and TMI, and was implemented since
2011 by the parties without issue. In executing the Supplement
Agreement which carried over the same provision (Section 3.1) of the
ESA, DASURECO and TMI were fully aware, based on their
respective experiences in the implementation of the ESA, of the
. circumstances and possible consequences of continuing the same
terms and conditions thereof. The fact that, in entering into the
Supplement Agreement, DASURECO did not object to the carry-over
of Section 3.1 of the ESA signifies its willingness to be responsible for
the procurement of its replacement power beyond the allowed
downtime of TM!.
Taking into account the present situation in the Mindanao

Region, it is unreasonable that TMI should presently be tasked with
the procurement and cost of replacement power. The cost of
replacement power is not part of the electricity fees charged under
the Supplement Agreement, hence, to force it to absorb the same is
grossly oppressive and confiscatory because additional burdens and
costs are imposed without any just compensation therefor.
In holding that TMI has the obligation to source replacement

power under the said Supplement Agreement, the Order modified the
intent of the parties by enlarging the obligations of TMI even in the
absence of any consideration. In so holding, TMI must shoulder a
substantial burden which was never contemplated when it entered
into the Supplement to the ESA.
The Commission is not persuaded with TMl's arguments. TMI

shall have the obligation, not merely an option, to source replacement
power for DASURECO, beyond the allowed downtime (scheduled
and unscheduled outages), to fulfill the latter's contracted energy and
shall shoulder any incremental cost in providing the same. In the
event that TMI fails to source replacement power, DASURECO ~
Page 31 of 35
be allowed to find replacement power, the incremental cost of which

shall be for the sole account of TM!.
It must be noted that in the event TMI fails to supply power to

DASURECO beyond the allowed downtime, it should be incumbent
upon TMI to source replacement power for DASURECO since the
failure to supply power is due to its fault, except in case of Force
Majeure. Moreover, it is TMI's obligation under the Supplement
Agreement to supply power to DASURECO for the entire duration or
term of the contract (less the allowed downtime per year).
The failure to supply power beyond the allowed downtime due

to the fault of the supplier, is considered as an inefficiency of the
supplier. Thus, such supplier should bear the consequence of its
inefficiency by sourcing replacement power at its own expense. It
should not merely be an option on the part of the supplier but should
be an obligation since the supplier undertook to supply the contracted
energy of the distribution utility for the entire duration or term of the
contract, except during allowed downtime. On its part, DASURECO
has an obligation to take and pay the contracted quantity.
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.
After a thorough evaluation of the documents submitted and the

testimonies of the witnesses presented, the Commission finds that
the approval and implementation of the Supplement Agreement
entered into by and between DASURECO and TMI will redound to
the benefit of DASURECO's customers in terms of continuous,
reliable, efficient and affordable power supply as mandated by the
EPIRA [Section 2. Declaration of Policy - (b) "to ensure the quality,
reliability, security and affordability of the supply of electric powerj.
WHEREFORE, the foregoing premises considered, the

provisional authority granted to Davao Del Sur Electric Cooperative,
Inc. (DASURECO) and Therma Marine, Inc. (TMI) on October 22,
2014 in relation to this application, is hereby made PERMANENT,
subject to the following condition~
Page 32 of 35
1. The applicable rates shall be as follows:
RATES
YEAR (PhP/kW/month) PhP/kWh
CAPACITY ENERGY
FEE FIXED O&M FEE
2014 211 205 0.14864
2015 305 314 0.14864
2016 286 314 0.14864
2. The foregoing applicable generation rates shall be subject

to adjustments based on the formula provided in the
Supplement to the ESA;
3. The Fuel and Lube Oil Rates shall be based on

consumption rates of 0.2358 ii/kWh for HFO or actual,
whichever is lower, and 0.0024 Ii/kWh for LO or actual,
whichever is lower;
4. TMI shall have the obligation to source replacement

power to fulfill the contracted energy of DASURECO and
shall shoulder any incremental cost in providing the same.
In the event that TMI fails to source replacement power,
DASURECO shall be allowed to find replacement power,
the incremental cost of which shall be for the sole account
ofTMI;
5. DASURECO is directed to include in the monthly

calculation of its generation rate in accordance with the
Automatic Generation Rate Adjustment (AGRA) Rules,
the indices used by TMI in the calculation of monthly
payment and the details of the fuel cost calculation,
including the relevant heat rates and actual consumption;
and
6. DASURECO and TMI are directed to file a

refund/recovery scheme of the difference between the
final and provisionally approved rates starting from the
implementation of the Amendment and/or Supplement
Agreement until the effectivity of the final rates approved
herein>?,
Page 33 of 35
The Commission further resolves to DENY TMI's "Motion for (1)

Reconsideration; and (2) Deferment of the Effectivity (Of the Order
Dated October 22,2014)" filed on January 21,2015, for lack of merit.
SO ORDERED.
Pasig City, October 20,2015.
-
JOSE VICENTE B. SALAZAR
Chairman~
AlFRQf:~
Commissioner
(On Official Travel)
GLORIA VICTORIA C. YAP-TARUC
Commissioner
.ft-
JOSEFINA PAT RONIMO D. STA.ANA
C issioner Commissioner
i
.ER-c...:
Office a/the Chairman
. 11I:11111"!IIIIIIII'llil'I~~~IIII~I~~~II!~
L-2015-004-02047
Page 34 of 35
Copy Furnished:
1. LERIOS-AMBOY PINGOL & GONZALES LAW OFFICES

Counsel for Applicant DASURECO
Unit 1609-1610 Tycoon Center Condominium,
Pearl Drive, Pasig City
2. Atty. Katrina Platon

Counsel for TMI
16th Floor, NAC Tower,
32nd St., Bonifacio Global, Taguig City
3. Davao Del Sur Electric Cooperative, Inc. (DASURECO)

Barangay Cogon, Digos City, Davao Del Sur
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. Office of the City Mayor

Digos City, Davao Del Sur
9. Office of the Municipal Mayor

Magsaysay, Davao Del Sur

Sulop, Davao Del Sur

Jose Abad Santos, Davao Del Sur
12. Office of the Municipal ~;y/

Sta. Cruz, Davao Del S~
Page 35 of 35

Hagonoy, Davao Del Sur

Malalag, Davao Del Sur

Don Marcelino, Davao Del Sur

Bansalan, Davao Del Sur

Padada, Davao Del Sur

Sta. Maria, Davao Del Sur

Sarangani, Davao Del Sur

Matanao, Davao Del Sur

Kiblawan, Davao Del Sur

Malita, Davao Del Sur
23. Office of the Provincial Governor

Province of Davao Del Sur
24. President
Philippine Chamber of Commerce and Industry (PCCI)
1030 Campus Avenue corner Park Avenue,
McKinley Town Center, Fort Bonifacio, Taguig ~

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Republic of the Philippines

ENERGY REGULATORY COMMISSIO

IN THE MATTER OF THE

ERC CASE NO. 2014-118 RC

DAVAO DEL SUR ELECTRIC

Before the Commission for resolution is the application filed on

In the said application, DASURECO alleged, among others, the

1. DASURECO is an electric cooperative duly organized and

2. DASURECO is the grantee of a franchise from the

3. The application seeks approval by the Commission of the

4. TMI is a generation company duly organized and existing

5. TMI owns and operates the 100 MW Power Barge No.

6. On December 18, 2010, DASURECO entered into an

7. On January 15, 2013, DASURECO executed with TMI an

remain in force for an additional period of three (3) years

8. On December 3, 2013, DASURECO executed with TMI a

SALIENT PROVISIONS OF THE SUPPLEMENT AGREEMENT

9. Electricity Fees. Beginning on the expiration of the

2013 2014 2015 2016 2017 2018

Furthermore, the formula for' FC in Item 2 (Contract

FC = [CF + (FOM)(IFr)] BC + [(INS) ( BC )]

INS = INSy - INS1

INS1 =PhP43,035,782.00 for the two barges, representing

Hence, the formula for Contract Energy Fee per Month

Contract Energy Fee per Month

FC= [CF + (FOM)(IFt)]BC + [(~:)(To:a~BC)]

conditions are defined under the respective ESAs

a. The Contract Energy Delivery days in a Billing Period are

b. The non-delivery days (or fraction thereof) in any Billing

Finally, the base indices in Item 3 (Inflation Factor) of

PCPlb = Philippine CPI of 126.4 as of June 2011

10. Billing Capacity. In the event that TMI is required to

11. Considering that under the Supplement Agreement, the

Term shall continue to be governed by the ESA, the

12. Contract Energy. Under the ESA, TMI shall make

13. Purchased Power Rate. For 2013 to 2015, DASURECO

14. Additional Energy. TMI may, at its option, make

15. Load Curtailment Adjustment. For Contract Energy

, _d 0" ., D~"'o" d",d No~m"" 19,20" '" ERCC,~ No 201\-0" ~

Load Curtailment Adjustment in lieu of the Capacity Fee

17. The extension of the Contract Term under the

18. The estimated rate impact on DASURECO's purchased

Rate, in 5.6405 5.6918 0.0514

MOTIONS FOR PROVISIONAL AUTHORITY AND

19. DASURECO moved for the issuance of a provisional

a. Mindanao Power Crisis. The power shortage in

DASURECO which continues to suffer rotating

b. Insufficiency of the National Power

c. Continuing Demand Growth. As illustrated in

20. Considering the foregoing, DASURECO requested the

21. Furthermore, under Article 13 of the ESA, each Party

.22. Under Rule 4 of the ERC Rules, the Commission may,

23. DASURECO submitted one (1) copy of Annexes "N", "0",

SUBMISSION OF DOCUMENTARY AND PRE-FILING

24. In support of the application and in compliance with the

Annex Nature of Document

Supplement to the Energy Supply Agreement dated

C 15,2013 entered into between DASURECO and TMI

25. DASURECO prayed that the Commission:

a. Issue an Order treating Annexes "N" , "0" , "P" and

b. Pending trial on the merits, provisionally approve

c. After trial on the merits, approve with finality the

On August 15, 2014, TMI filed a "Motion to be Admitted as Co-