Republic of the Philippines
ENERGY REGULATORY COMMISSION
San Miguel Avenue, Pasig City
INTHE MATTER OF THE JOINT
APPLICATION FOR THE APPROVAL OF
THE POWER PURCHASE AND SALE
AGREEMENT (PPSA) ENTERED INTO BY
AND BETWEEN DAGUPAN ELECTRIC
CORPORATION (DECORP) AND
GNPOWER LIMITED ~——s COMPANY.
(GNPOWER), WITH PRAYER FOR
PROVISIONAL AUTHORITY
ERC CASE NO. 2007-088 RC
DAGUPAN ELECTRIC CORPORATION
(DECORP) AND GNPOWER LIMITED
COMPANY (GNPOWER),
Applicants.
=x
DECISION
Before the Commission for resolution is the joint application filed on March
16, 2007 by the Dagupan Electric Corporation (DECORP) and the GNPOWER
Limited Company (GNPOWER) for the approval of their Power Purchase and
Sale Agreement (PPSA), with prayer for provisional authority.
In the said application, DECORP and GNPOWER alleged, among others,
that:
4. GNPOWER will build, own and operate a 2 x 300 MW clean pulverized
coabfired electric power generation to be located near Mariveles,
Bataan, for the purpose of supplying its customers with
environmentally clean electric power commencing in late 2010;
2. In view of the anticipated insufficient supply of power in 2010 as
projected by the DOE and the expiration of the Transition Supply
Contract (TSC) between the National Power Corporation (NPC) and
DECORP, DECORP placed an advertisement to Bid for the Electric
Power Purchase Agreement (EPPA) on June 13, 2005 issue of the 7
/ERC CASE NO. 2007-088 RC
OrderiSeptember §, 2007
Page 2 of 19
Manila Standard Today. In addition, letters of invitation to bid were
sent to the following:
. Trans-Asia Power Generation Corporation
PPDIC Management Co., Inc.
Mirant Philippines
Focus Asia Consult Pte. Ltd.
Mindanao Energy Systems, Inc.
Applied Research Technologies Phil, Inc.
GNPower Ltd., Co
eronose
During the Pre-Bid Conference held on July 7, 2005, only four (4)
power suppliers were in attendance, namely: a) PPDIC Management
Co., Inc.; b) Mirant Philippines; c) Applied Research Technologies
Phil, Inc.; and d) GNPower Ltd., Co. The said power suppliers
requested that the scheduled bid submission on July 18, 2005 be
cancelled and reset on July 29, 2005;
During the bidding date, DECORP did not receive any proposal from
the bidders, DECORP's Bidding and Awards Committee (BAC)
therefore declared a "Failure of Bidding", Due to the necessily of the
EPPA, DECORP’s BAC recommended a second public bidding on
September 21, 2005. All intending bidders were furnished with the Bid
Bulletin No. 2 dated September 2, 2005 embodying said
announcement;
Prior to the second public bidding, some intending bidders requested
for the extension of the bidding deadline. Accordingly, Bid Bulletin
No. 3 dated September 19, 2005 was issued resetting the bidding
deadline to October 25, 2005;
On October 25, 2005 bidding date, only GNPOWER submitted a
bidding proposal to DECORP's BAC. The other intending bidders
failed to appear during the bidding deadline. After the Bid Submission
closing, DECORP's BAC opened the lone proposal from GNPOWER
before the Commission. The BAC proceeded with the evaluation of
the two envelopes containing the Technical and Financial proposals of
GNPOWER;
After careful evaluation of the said proposals, the BAC declared the
proposal of GNPOWER acceptable and recommended the awarding
of the EPPA to GNPOWER which was embodied in the Notice of
Provisional Award dated December 9, 2005;
Qn July 7, 2006, DECORP and GNPOWER entered into the subject
PPSA;
Under the said PPSA, GNPOWER's Purchased Power Rate (Contract
Price) is the price in US Dollars to be paid by DECORP for the
purchase of the electric capacity. The said Contract Price comprised
of relevant Capacity Fee and Energy Fee that may be paid in
Philippine Peso (PhP). Any foreign exchange risk is, however, borne
by DECORP; dee
.ERC CASE NO. 2007-088 RC
Crder/September 5, 2007
Page 3 of 19
10. The Capacity Fee is the component of the Contract Price allocated to
pay for the cost, including the cost of operations and maintenance, of
the power plant and may be adjusted from time to time based on
DECORP's Capacity Factor;
11. The Energy Fee is also a component of the Contract Fee allocated to
pay for the cost of the coal, including govemment charges, and may
be adjusted from time to time due to changes in the delivered price of
Coal;
12. Shown below is the calculation of the GNPOWER Contract Price:
Contract Price = Capacity Fee + Energy Fee
43. The determination and rate impact of the subject PPSA to DECORP's
consumers are as follows:
“In order to determine the impact of GNPOWER's and DECORP’s
PPSA to DECORP’s over-all generation rate, DECORP's Current load
profile was simulated. Shown in Table | is the present allocation of
DECORP's energy requirement and the combined generation rate from its
current supplier. NPC was grouped into two; so as to proportion what will
be reallocated to GNPOWER once the PPSA takes into effect. The
projected allocation of DECORP's energy requirement due to
GNPOWER's and DECORP's PPSA, as well as the combined generation
rate is shown in Table 2. With GNPOWER being another supplier for
DECORP, GNPOWER's rate is about PhP1,02/kWh less than the
comparable NPC rate of the displaced quantity. The effect would then be
a reduction of about PhP0.88 per kWh in DECORP’s over-all generation
rate. It has to be noted that at the time when GNPOWER will deliver
power to DECORP, its contracted demand will eventually be at a baseload
level because of DECORP’s projected growth.
Table 1. DECORP’s Present Load Allocation and Combined Generation Rate
‘Average Monthly Percent | ‘Combined
| SUPPLIERS Energy Share Rato Rate
(kwh)! (2) (Phe/kWh) _|__(PhP/kWh)
NPC 1 a 17,007,320 [87.16% | 4.7418 |
NPC 27 | ___ 2,504,729 | 12.84% 6.2545 49360 |
TOTAL 19,512,305 | 100% on
Table 2. DECORP's Projected Load Allocation and Combined Generation Rate
| Average Monthly Combined
SUPPLIERS Energy tones Rate Rate |
| (iewh) nPneWh) | (PRP/Wh)_
| SNPOWER® 17,007,320 | 87.16% 3.7252 |
TOTAL 79,512,305 | 100%
\&
AERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 4 of 19
Notes:
1. (Peak/Of-peak Quantity) Based on the current annualized (Year
2006, ERC-approved) NPC Time-Of-Use rates for Luzon. Also
included in the calculation is the current Deferred Accounting
Adjustment (6" GRAM and 5” ICERA) which recovers incremental
costs from April to October 2005 only.
2. (Purely Off-peak Quantity) Based on the current annualized (Year
2006, ERC-approved) NPC Time-Of-Use rates for Luzon. Also
included in the calculation is the current Deferred Accounting
Adjustment (6" GRAM and 5" ICERA) which recovers incremental
costs from April to October 2005 only.
3, Based on the current coal price and FOREX at PhP50: USS,
Prompt Payment Discount for 15 years not yet included.
4. Analyses and simulations were based on January to December
2006 NPC-TOU data.”
14, The operation by GNPOWER of the proposed 2 x 300 MW clean
pulverized coal-fired electric power generation facility is a concrete
step in averting a power crisis that could hit the Luzon grid by 2010.
In fact, the Honorable Undersecretary Melinda L. Ocampo of the
Department of Energy (DOE), speaking at the 32nd Philippine
business Conference urged distribution utilities, large industrial and
commercial users to help in facilitating investments in new capacity
“by firming up and indicating their eneray requirements and by
signing up for bilateral contracts with power providers to provide a
stable market.”
15. In its officially published Power Development Plant (PDP) for 2008-
2016, the DOE estimated the annual electricity demand to grow by
about six percent (6%) in Luzon and requires additional capacity in
the Luzon grid as early as 2008. In its latest presentation on the
National Competitiveness Summit for Energy Sector held last
October 6, 2008, the DOE had pronounced a four percent (4%)
annual average growth rate in the electricity demand in Luzon;
16. Even with this conservative estimate used in the aforesaid
presentation, given the present capacity and committed projects,
power supply will become critical in Luzon by year 2010. In Luzon
itself, a minimum of 15 MW capacity is needed by 2010 and another
450 MW by 2011;
17. Out of the 10,596 MW dependable capacity in Luzon, 19.4% comes
from oil-based power plants vis-a-vis its generation share of only
about 5%. It is important to note that if the increasing demand will
not be supported by power supply from baseload and mid-range
power plants, it will be forced to fully utilize oil-based power plants
which are way too expensive; ( “
fERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 5 of 19
48. If no power plant will be built, the impact in the Luzon grid would be
high generation cost then supply shortage starting 2010;
19. GNPOWER, as it is first in the market, is approaching its target of
selling 500 MW of capacity under long-term contracts as a
precondition to its financial closing. After financial closing,
GNPOWER plans to construct the said power plant in year 2007 to
achieve its goal of delivering power by late 2010;
20. The project is bound by milestones, and any delay or barrier will
hinder GNPOWER's commencement of commercial operations by
late 2010;
21. They prayed that a provisional authority be immediately issued in
order for GNPOWER to commence the construction of the coal-fired
power plant by 2007 in time to address the expected power short-fall
in 2010;
22. The instant application was filed in line with the DOE Circular No.
2003-12-22; and
23. Public welfare, necossity and interest demand, particularly in Luzon-
wide, the immediate approval of the instant application as this will
help meet the forecasted capacity shortage in the Luzon grid by the
year 2010.
Having found 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 June 4, 2007, were issued setting the case for hearing on July 5,
2007 (Thursday), at the DECORP’s Main Office, Veria Il Building, AB Fernandez
West, Dagupan City.
DECORP and GNPOWER 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, the last
date of publication to be made not later than ten (10) days before the
scheduled date of initial hearing. In compliance therewith, DECORP and
GNPOWER published the Notice of Public Hearing in the Manila Times and the
Daily Tribune on June 15, and 22, 2007.ERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 6 of 19
The Office of the Solicitor General (OSG), the Commission on Audit
(COA) and the Committees on Energy of both Houses of Congress were
furnished with copies of the Order and the Notice of Public Hearing and were
requested to have their respective duly authorized representatives present at the
aforesaid initial hearing.
Likewise, the Offices of the Mayors of the City and Municipalities within
the franchise area of DECORP were furnished with copies of the Order and the
Notice of Public Hearing for the appropriate posting thereof on their respective
bulletin boards.
During the July 5, 2007 hearing, the following entered their appearances
a) Atty. Lourdy D. Torres, as counsel for GNPOWER; and b) Atty. Marleen
Joyce P. Abesamis, as counsel for DECORP. No oppositors appeared nor was
there any opposition registered
At the said hearing, DECORP and GNPOWER presented proofs of their
compliance with the Commission's posting and publication of notice requirements
which were duly marked as Exhibits "A" to "E-7”, inclusive. Thereafter, DECORP
and GNPOWER made an expository presentation of their application in
compliance with the Commission's directive in its Order dated June 4, 2007.
Subsequently, DECORP and GNPOWER presented the following
witnesses who testified in support of the application: a) Mr. Dave Andrew Opiso,
DECORP's Business Manager; b) Mr. John A. Becker, GNPOWER's Senior Vice
President; c) Mr. Steve C. Varberg, GNPOWER's Project Manager; and d) Ms.
Noelina B, Miran, GNPOWER's Environmental Officer. In the course of theirERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 7 of 19
direct testimonies, additional documents were presented and marked as Exhibits
“F" to “CC”, inclusive,
The direct examinations of the said witnesses having been terminated, the
Commission propounded clarificatory questions. DECORP and GNPOWER
were directed to submit their formal offer of evidence and various documents.
On August 16, 2007, DECORP and GNPOWER filed their "Formal Offer of
Evidence for Joint Applicants” which is hereby admitted for being material and
relevant in the final resolution of this case.
DISCUSSION
DECORP currently sources its electricity requirements from the National
Power Corporation (NPC) under the Transition Supply Contract (TSC) with a
monthly contracted energy of 14,391,135 kWh for year 2007 and a peak demand
of 38,423 kW. The TSC will expire on August 25, 2010. Shown below is the
supply-demand scenario of DECORP in years 2010 and 2011 based on its
Distribution Development Plan (DDP):
ooo 2010 2011
| Particulars ey (ew)
(Demand 47,160 49,582
(‘Supply _ Sieg
|_NPC, (TSC) 25,314 Expiration - 2070
| WESM 4,716 -
(Deficit i7.129 | __ 49,582
Based on the foregoing table, DECORP will experience energy supply
shortfall by year 2010 onwards in case no additional capacity is in place by that
time. In order to address this and to mitigate the effect of the looming capacityERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 8 of 19
shortfall in the Luzon grid, DECORP entered into a PPSA with GNPOWER on.
July 6, 2008 with an objective to secure a more reliable power supplier at a
cheaper cost,
PROPOSED GNPOWER 600 MW POWER PLANT
GNPOWER undertakes to build, own and operate a 2x300 MW clean
pulverized coalfired electric power generation facility located at Mariveles,
Bataan. The construction of the said power plant shall commence upon the
approval of the instant application. GNPOWER is expected to deliver energy to
its buyer by 2011 upon the termination of the contract between NPC and the
distribution utilities.
in line with the policy of the State to encourage private sector investments
in power generation, the DOE issued a Certification dated August 30, 2006
recognizing GNPOWER as a developer of a 600 MW Clean Coal-Fired power
generation facility which will utilize a clean coal technology.
A. Project Cost
Amount
Cost Component (USS '000)
Engineering, Procurement 466,152
and Construction
Value Added Tax 68,780
Financing Fees, IDC, PRI 75,813
Other Cost 61,566
Coal Reserve 9,966
Debt Service Reserve 87,000
Contingency 53,503
TOTAL 822,780ERC CASE NO. 2007-088 RC
Ordet!September 5, 2007
Page 9 of 19
Based on the submitted documents to the Board of investments (BOI), the
total project cost is estimated to be at US$822,780,000.00 which will be financed
as follows: 68.15% Debt and 31.85% Equity. The altin annual interest rate on
the debts is expected to be at 9.5% while the project's cash flows will result in an
equity Intemal Rate of Return (IRR) equivalent to 14.2%.
PRICING STRUCTURE
Under the PPSA, DECORP shall purchase the power supplied by
GNPOWER at a Contract Price comprising of the relevant Capacity Fee and
Energy Fee.
As defined in the PPSA, Capacity Fee is the component of the Contract
Price allocated to pay for the cost of the power plant, as well as the operations
and maintenance of the power plant computed based on DECORP's Capacity
Factor. On the other hand, the Energy Fee is the component of the Contract,
Price allocated to pay the cost of coal including government charges at the rate
of $0.0250/kWh to be adjusted from time to time due to changes in the delivered
price of coal
1. Capacity Fee
The Capacity Fee is calculated using the applicable Capacity Factor of
DECORP for a certain billing period
With respect to the DECORP's purchases from GNPOWER during any
billing period, Capacity Factor means the number derived from dividing (i) the
actual quantity of the Product made available by the GNPOWER to be purchasedERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 10 of 19
and received by DECORP at the Delivery Point, by (ii) the quantity of the Product
(a) that could have been made available by the GNPOWER to be purchased and
received by DECORP if the Contracted Capacity was utilized continuously during
the Billing Period less (b) the quantity of the Product not available for delivery
due to any Scheduled and Unscheduled Outages during the billing period
The Capacity Factor is calculated as follows:
Capacity Factor (CF) = Q
CO* (Hr —EHso-EHuo)
Where:
Q
cc
He
EHso
EHuo
= The actual quantity of the kWh made available by the
Seller to be purchased by the Buyer at the Delivery Point
in any billing period.
= Contracted capacity, in kW.
= Total number of hours in such billing period.
= The sum of the duration, in equivalent hours, of
Scheduled Outages, in such billing period.
= The sum of the duration, in equivalent hours, of
Unscheduled Outages, in such billing period.
Shown below are the contracted capacity and the minimum capacity factor
provided under the PPSA:
Minimum Minimum Contracted | Capacity Fee
Month Capacity Factor | Quantity (kWh) | Gapacity (kW) | — ($/kWh)
% |
| Based on the
180 Months 65.00 158,500,000 30,000 Capacity Factor
| Pricing Table
On the basis thereof, the Commission takes note of the folowing:
a) The
plant that DECORP should maintain. As a coal plant, it must have a
minimum capacity factor is a monthly floor on utilization of the
steady level of projected performance to maintain efficient operations. =,ERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 11 of 19
b)
)
a)
A coal plant is a baseload plant operated to generate electricity for a
continued period;
The minimum quantity is an annual quantity of kWh which the
customer is required to pay. This provision in the contract is necessary
only because of the above discussion on the minimum capacity factor
but also to provide financial protection to the Investors in the event that
DECORP chooses not to off-take any amount of energy from them;
The contracted capacity, which is the upper limit of the amount of MW
that DECORP can actually demand for anytime; and
The Capacity Fee to be paid by DECORP shall account for the
recovery of the cost of investment, the operation and maintenance fee
as well as the retum on investment.
The Commission also observes that the capacity rate is highly dependent
on the uti
lization of the total capacity contracted by the distribution utility, which
means that the higher the capacity factor the cheaper the electricity price. With
this cavacity factor pricing mechanism, the interests of both the generation
company
a.
and the distribution utility are protected:
GNPOWER must be compensated with a certain amount on a
particular level of utilization for providing or making available at all
times the contracted capacity (30 MW) to DECORP. If the 30 MW will
be utilized every hour of the month
baseload), DECORP shall
apply the capacity 100% of time, However, if DECORP shall use 99%
of the time, the cost for the 99% is slightly higher considering thatERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 12 of 19
GNPOWER has allocated capacity of 30 MW to DECORP at all
times.
b. DECORP will have flexibility as to the number of hours each month it
wants to buy power from GNPOWER. The extent of the flexibility will
depend on whether DECORP wants to use the power generated by
GNPOWER or enter into a contract with other suppliers or purchase
from the Wholesale Electricity Spot Market (WESM) as prices change
in the market, As mentioned earlier, the Capacity Fee is cheaper
when the 30 MW is fully utilized (100%). However, there may be
situations where using GNPOWER's plant half the time is more
reasonable such as when the WESM price is relatively low compared
to the cost of GNPOWER on a per unit basis.
The prices per kWh on the capacity factor are fixed for fifteen (15) years
and shall not be subject to escalation. The price considers not only the capacity
but also the investment of the power plant and the cost of operation and
maintenance subject to adjustment tied with the movement of the predetermined
economic price index. Thus, GNPOWER takes the risk of possible price inflation
on the cost of operation and maintenance which is usually passed-on to buyers.
Nl, Energy Fee
The Energy Fee shall be computed as follows:
Energy Fee = Initial Energy Fee x CIF_Cost of Fuel for Billing Period
Base CIF Cost of Fuel
Where:
initial Energy Fee
[$0.02500/kWh]*
Base CIF Cost of Fuel (87.1073]
* indicative. Inclusive of Excise Tax of $0.20 per ton of coal and Import Duty of 7.0% of
the CIF price of coal.ERC CASE NO. 2007-088 RC
Order!September 5, 2007
Page 13 of 19
The initial Energy Fee of $0.025/kWh is fixed throughout the duration of
the PPSA unless the applicable law is amended resulting to changes in the
current government charges.
The Base CIF cost of fuel is also fixed throughout the duration of the
PPSA. The only item that changes in the Energy Fee formula is the CIF Cost for
Billing Period which varies according to the provisions of GNPOWER's Coal
Supply Agreement with its Coal Suppliers. However, the Total Energy Fee for a
billing period varies every time and is dependent on the CIF Cost for the Billing
Period.
GNPOWER considered two (2) main components in deriving its Initial
Energy Fee, namely: a) the cost of coal and; b) the efficiency of the power plant.
To obtain competitive costs of coal, GNPOWER conducted a procurement
process for its coal supply by sending invitations to prospective coal suppliers
from the Philippines and the Republic of Indonesia. All bidders were provided a
bid package consisting of, among others, a model or a draft long-term coal
supply agreement for low rank coal, which has low calorific value, a similar
agreement for middle rank coal and the suggested form of letter for the bid price.
Upon thorough evaluation of the bids, GNPOWER entered into a coal
‘supply agreement with three (3) suppliers. It decided to use a low rank coal that
has relatively low energy content and cheaper than the high grade coal. The
power plant design can use a low grade coal. However, the lower efficiency does
not necessarily affect the Energy Fee that will be paid by DECORP because the
Initial Energy Fee of US$0.025/kWh was derived using a heat rete which is
fERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 14 of 19
efficient and within the standard that corresponds to the type of coal used. Any
slight inefficiency of the coal used is offset by the low price of the low grade coal.
Moreover, the cost of inefficiency brought about by the conversion of the coal to
energy will be borne by GNPOWER and will not be passed-on to the electricity
buyer.
RATE IMPACT
In order to determine the impact of GNPOWER's rate to DECORP’s over-
all generation rate, DECORP’s 2006 load profile was used to simulate the rate
impact,
‘Shown below are the present allocation of DECORP's energy requirement
and the combined generation rate from its current supplier and GNPOWER.
‘A. DECORP’s 2006 Load Allocation and Combined Generation Rate
‘Average | Percent Combined
SUPPLIERS | Monthly Energy | Share Rate
NPC 1
ENPC2 2,504,729 12.84%
\roraL i 19,512,805 | 100% ae
B. DECORP'’s Year 2006 Load Allocation and Combined Generation Rate
~~] “Average Monthly Combined |
SUPPLIERS Energy beste Rate | ane
(kWh) (PhP/KWh) | _(PhP/kWh)
‘GNPOWER 17,007,320 87.76% |__3.7252__|
[NPC 2 2,604,720 12.84% | 6.2545 4.0499
TOTAL 19,512,305 700% See éERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 15 of 19
Based on the above simulations, GNPOWER's rate is about
PhP1.0166/kWh less than the comparable NPC rate of the displaced quantity
(PhP4.7418/kWh less PhP3.7252/kwh).
‘The effect on the over-all generation rate of DECORP would be a possible
reduction of PhPO.8861/kWh (PhP4.9360/kWh less PhP4.0499/kwh).
The GNPOWER's rate of PhP3.7252/kWh was based on 92% Capacity
Factor which was derived using @ capacity of 25.5 MW as against the 30 MW
contracted capacity under the PPSA. This was done in order to update the
equivalent load allocation during the time when NPC's supplied energy was
displaced by the operation of GNPOWER in year 2006. By year 2041,
considering the DOE's projected energy growth of 6%, the 92% Capacity Factor
based on 36 MW will be achieved.
It is very apparent that GNPOWER’s baseload rate of PhP3.4850/kWh is
cheaper than NPC's baseload rate of PhP4.6810/kWh. However, GNPOWER's
baseload rate will be more costly compared to NPC's if DECORP's Capacity
Factor falls below 63%. Nevertheless, by year 2011, DECORP’s Capacity Factor
is expected to remain at 80% because its baseload is the contracted capacity.
This means that DECORP will utilize the 20 MW at all times resulting to its 100%
Capacity Factor.
The foregoing comparison of rates also considered NPC's approved 6”
Generation Rate Adjustment Mechanism (GRAM) rate of PhP0.4170/kWh and 5"
Incremental Currency Exchange Rate Adjustment (ICERA) of PhPO.5719/kWh
As of June 2007, the 7" GRAM and 6" ICERA rates were PhP0.1221/kWh and
PhP0.7425/kWh, respectively. If the GRAM and ICERA are updated to its JuneERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 16 of 19
2007 level, the rate impact as presented by DECORP and GNPOWER will be
reduced by PhP0.1243/kWh.
However, the above computation of NPC rate did not consider the
Mandated Rate Reduction (MRR) under Section 72 of Republic Act No. 9136.
Considering that only NPC is mandated to extend the MRR to rosidential
consumers, the rate impact should be reduced by the percentage of the
residential end-users multiplied by the MRR of PhPO.30/kWh. Accordingly, the
simulated rate impact of the PPSA between GNPOWER and DECORP reflected
a rate reduction from NPC tariff.
Further, under the PPSA, DECORP shall be subject to a minimum
Capacity Factor of 65%. If it actually utilizes its contracted capacity at a Capacity
Factor below 65%, it shall stil pay a rate at 65% level. The subsequent deliveries
of undelivered power (.e., the difference between the minimum off-take and the
actual quantity delivered below the minimum off-take) should be billed to
DECORP at no cost, provided there is no fluctuation on the fuel cost.
Applicability of Value Added Tax (VAT)
The electricity produced by GNPOWER and delivered to DECORP shall
be subject to 12% Reformed Value Added Tax (RVAT).
Transmission Service
The existing transmission line of the National Power Corporation
(TRANSCO) shall be used by GNPOWER to deliver the power generated from its
plant at Mariveles, Bataan,ERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 17 of 19
Upon review and evaluation of the PPSA, the Commission finds that its
implementation will be beneficial to the customers of DECORP by way of reliable,
continuous and sufficient supply of power within its franchise area at reasonable
costs,
The Commission agrees that there is a need to address the imminent
increase in power demand in the Luzon grid by year 2010 to avoid any shortage
as predicted by the DOE. In the absence of sufficient capacity as early as 2008,
the Luzon grid will be forced to utilize more expensive generation plants.
In the meantime, a Certification dated January 25, 2007 was issued by the
NPC stating, among others, that it cannot commit the availability of capacity to
supply the energy requirements of DECORP from 2011 to 2026 upon expiry of its
Contract for the Supply of Electric Energy (CSEE) on July 25, 2010 due to the
on-going privatization of its generating assets in the Luzon grid. Hence,
DECORP had no other recourse but to enter into a power supply contract with
GNPOWER in order to comply with its commitment to its customers to provide
reliable and sufficient supply of power.
WHEREFORE, the foregoing premises considered, the joint application for
the approval of the Power Purchase and Sale Agreement (PPSA) filed by
Dagupan Electric Corporation (DECORP) and the GNPOWER Limited Company
(GNPOWER) is hereby APPROVED subject to the following conditions:
1. DECORP should observe the terms and conditions of its contract with
GNPOWER to achieve a quality and reliable supply of power at a least
cost for the benefit of its consumers;ERC CASE NO. 2007-088 RC
Order/September 5, 2007
Page 18 of 19
2. The undelivered power representing the difference of the minimum off-
take and the quantity below its minimum should be delivered to
DECORP at no cost, provided there is no fluctuation on the fuel cost;
3. DECORP and GNPOWER should clarify that the "CIF Cost of Fuel for
Billing Period” in the PPSA formula is the CIF invoices of the suppliers
of GNPOWER; and
4, GNPOWER should provide a mechanism to address the undelivered
‘energy due to extreme plant damage.
SO ORDERED.
Pasig City, September 5, 2007.
RODOLFO B. ALBANO, JR-
Chairman
fing fe (On Leave)
RAUF A. TAN ALEJANDRO Z. BARIN
Commissioner ‘Commissioner
4 j
f
MARIA TERBSA\A. R, CASTANEDA Josijc. REYES
Comntssioner Confimissioner
314 pone DECORP GNPOWER DecisionERC CASE NO. 2007-088 RC
Order/September 5, 2007 ‘i
Page 19 of 19
Copy furnished:
10.
43.
14,
15.
46.
Atty. Erwin A. Gavino
Atty. Marleen Joyce P. Abesamis
Counsel for Applicants
Divino & Gavino
Suite 497, One Magnificent Mile Building
(OMM-CITRA), San Miguel Avenue
Ortigas Center, Pasig City
Dagupan Electric Corporation (DECORP)
Veria | Building, 62 West Avenue, Quezon City
National Power Corporation
‘Quezon Avenue Corner BIR Road
Diliman, Quezon City
National Transmission Corporation (TRANSCO)
Power Genter, Quezon Avenue corner BIR Road:
Diliman, Quezon City
Office of the Solicitor General
134 Amorsolo Street, Legaspl Village
Makati City, Metro Manila
‘Commission on Audit
Commonwealth Avenue
Quezon City, Metro Manila
‘Senate Committee on Energy
GSIS Bidg., Roxas BNd., Pasay City
Metro Manita
House Committee on Energy
Batasan Hills, Quezon City, Metro Manila
The City Mayor
Dagupan City
‘The Municipal Mayor
San Fabian, Pangasinan
‘The Municipal Mayor
Calasiao, Pangasinan
‘The Municipal Mayor
Sta, Barbara, Pangasinan
‘The Municipal Mayor
San Jacinto, Pangasinan
‘The Municipal Mayor and Heads of Barangay
Barangays Cruz and Bolingit
San Carlos, Pangasinan
Lourdy D. Torres and Associates
Counsel for Applicant, GNPOWER
1906 The Orient Square Building
Don Francisco Ortigas, Jr. Road,
Ortigas Center, Pasig City
GNPOWER LTD., CO.
1905 The Orient Square Building
Don Francisco Ortigas, Jr. Road,
Ortigas Center, Pasig