Republic of the Philippines HOUSE OF THE REPRESENTATIVES ‘Quezon City SEVENTEENTH CONGRESS Second Regular Session 1309 HOUSE RESOLUTION No. Introduced by REP. CARLOS ROMAN UYBARRETA and REP. RODEL BATOCABE. A RESOLUTION URGING THE COMMITTEE ON ENERGY TO CONDUCT AN INQUIRY, IN AID OF LEGISLATION, ON THE ANOMALOUS ELECTRICITY SUPPLY AGREEMENTS BETWEEN FIRST CATANDUANES ELECTRIC COOPERATIVE, POWER ONE CORPORATION AND CATANDUANES POWER GENERATION INCORPORATED WHEREAS, under Section 2 of Republic Act No. 9136, otherwise known as the “Electric Power Industry Reform Act of 2001” or “EPIRA”, it is the policy of the State, to ensure and accelerate the total electrification of the country as well as to ensure the quality, reliability, security and affordability of the supply of electric power; WHEREAS, the National Power Corporation (NPC) is a national government-owned and — controlled corporation tasked to perform missionary electrification functions through the Small Power Utilities Group (SPUG) and shall be responsible for providing power generation and its associated power delivery systems in areas that are not connected to the transmission system. WHEREAS, the missionary electrification function shall be funded from the revenues from sales in missionary areas and from the Universal Charge to be collected from all electricity End-Users as determined by the Energy Regulation Commission (ERC); WHEREAS, “Small Power Utilities Group” or “SPUG” were created to be the functional unit of NPC created to pursue missionary electrification function; WHEREAS, Catanduanes, was identified to be a missionary electrification area, with First Catanduanes Electric Cooperative (FICELCO) operating NPC-SPUG plants in the province; WHEREAS, FICELCO which began its operations in the Province of Catanduanes in 1972, eventually assumed both the distribution and generation functions from 1974 to 1988; WHEREAS, in 1988, FICELCO assumed that the power supply situation in Catanduanes would considerably improve as the National Power Corporation-Small Power Utilities Group (NPC- SPUG) re-assumed generation functions in the said province; WHEREAS, contrary to previous expectations, the power supply situation in Catanduanes from 1998 up to present hardly changed even if the NPC-SPUG commissioned new medium and high- speed generating sets as demand became higher than supply;WHEREAS, FICELCO was forced in 2000 to construct and eventually operate its own diesel power plant, a 2.1 MW plant and despite the plant’s operations, acute power shortages continued to hound Catanduanes as NPC-SPUG?s diesel generating sets proved unreliable; WHEREAS, on November 15, 2003, FICELCO, represented by its former President, Engr. Bienvenido B. Berjuega, entered into an Electricity Supply Agreement (ESA) with Power One Corporation, represented by its President, Fernando V. Gonzaga; WHEREAS, Under the ESA, Power One has the obligation to supply all power needs to FICELCO and to construct, operate and maintain the needed power generation plant on build- ‘own-operate (BOO) basis, to build a Base-Load Diesel Power Plant, fueled with diesel, bunker C or combinations and to assure provision of power and adequate standby power needed to reasonably assure a 24/7 electric service to the consumes in FICELCO’s franchise area; WHEREAS, under Section 16 of the ESA, otherwise known as the “Accession Undertaking Provision”, POWER ONE was given the unilateral authority to form a project company that will undertake the project and perform POWER ONE’S obligations under the ESA; WHEREAS, on July 11, 2007, Catanduanes Power Generation Incorporated (CPGI) was formed as that project company, for the supply of power needs of FICELCO and to construct, operate and maintain the needed power generation plant(s) on build-own-operate basis as contemplated in the ESA beginning with the lease, rehabilitation, operation and maintenance of the Marinawa Diesel Power Plant as Phase I project; WHEREAS, on July 21, 2007, a Contract of Lease between NAPOCOR and FICELCO was executed over the 3.6 MW Marinawa Daihatsu Diesel Power Plant (MDDPP) allegedly for the purpose of facilitating FICELCO’s urgent implementation of power development program and to relinquish NPC’s generation function to FICELCO in line with the government's thrust on privatization and missionary subsidy reduction; WHEREAS, on the same date, a Contract of Lease was further executed between FICELCO as the lessor and CPGI, the contracted New Power Provider as the lessee over the same 3.6 MDPP being operated by the NAPOCOR and its related auxiliaries and structures thereto allegedly in order for it to implement its own land-based power development program by making the operation of Daihatsu engines commercially viable; WHEREAS, worse, on August 28, 2009, FICELCO and POWER ONE entered into an “Agreement” whereby both parties agreed on the following terms, to wit: “A) Phases 2 and 3 of their ESA are mutually rescinded as of August 28, 2009;” and “B) All other claims by one party against the other respecting Phases 2 and 3 of the ESA are waived.” WHEREAS, said rescission completely freed the respondents-officers of POWER ONE and CPGI of their obligation to build power plants and only ensured the failure and inability of the the parties involved to provide sufficient power supply to the province of Catanduanes; WHEREAS, despite the said rescission of Phases 2 and 3 of the ESA, FICELCO and CPGI even executed another Addendum for the purpose of establishing a rate formula and indexation that matches fees with appropriate costs and to update project timings and stipulate penalty clauses in case of non-compliance; WHEREAS, parties involved even justified the purchase of electricity by FICELCO from CPGI and made it appear that the same will provide adequate and reliable power service and purportedly economical and social benefits to its captive market. WHEREAS, it tured out that power service provider was still unreliable and only the parties involved enjoyed economical benefits by earning millions of pesos in profits contrary to the extreme poverty and economic decline caused to the people of Catanduanes who had no choice but to depend on an erratic electricity provider;WHEREAS, CPGI, as POWER ONE’s assignee, proved incapable to fulfill its obligation to supply power and has, in fact, incurred numerous violations in the ESA with FICELCO; WHEREAS, POWER ONE and CPGI should have installed a new power plant as dictated by the ESA but instead converted the obligation to a mere sublease of an aging and dilapidated power plant that has led to numerous downtimes mostly due to equipment failures causing great inconvenience to FICELCO’s member-consumers; WHEREAS, aside from the physical deficiencies, CPGI has been subleasing said plant from FICELCO in the amount of 500,000 pesos per year while FICELCO, in turn, has been leasing the same plant from NPC for the amount of 1,000,000 pesos per year resulting into greater expenses; WHEREAS, in addition to its inefficiency, CPGI has been directly charging FICELCO of the Forgone Energy charge which is passed on the FICELCO member-consumers, an additional burden to the residents of Catanduanes who are dependent on CPGI to supply the public utility; WHEREAS, foregone energy charges is a take or pay provision under the ESA and is payment to CPGI by FICELCO member-consumers for the energy generated by the company even if it is not supplying power to FICELCO. WHEREAS, this is despite the fact that foregone energy should not have been charged since CPGI does not own the power plant and POWER ONE and CPGI never built the power plant they agreed to build; WHEREAS, CPGI was also in breach of contract as it only delivers 13M to 18M kilowatt-hour per annum from 2010 to 2016 forcing NPC to even rent and build additional diesel gensets because CPGI refused to deliver the unsupplied power; WHEREAS, despite this anomaly, CPGI was able to charge FICELCO for foregone energy in the amount of PSO, 344,695 from 2011 to 2014 alone thereby putting an additional burden upon the consumers of Catanduanes; WHEREAS, under the Phase-In Phase-Out Agreement, CPGI and POWER ONE will install/rehabilitate, commission and operate and maintain respective power generation capacities of slow-speed fuel-oil fed diesel power generators; WHEREAS, in violation of that agreement, CPGI and POWER ONE did not rehabilitate the said generators but they just made some repairs, in an effort to evade the expenses for the rehabilitation despite the huge earnings that they get every year; WHEREAS, instead of helping improve the power situation in Catanduanes, CPGI, in connivance with Power One Corporation and FICELCO and public officers of the National Power Corporation and Energy Regulatory Board, converted the already dire situation into their own benefit and took advantage of existing energy policies and incentives provided by the Philippine government; WHEREAS, since Catanduanes is a Small Power Utilities Group (SPUG) area, there is a need to protect the interests of the consumer public by ensuring the provision of a reliable power supply that will lead to its total electrification; WHEREAS, as a missionary area entitled to electrification subsidies sourced from the government, there is a need to protect public funds by ensuring that subsidies were utilized with due regard to economy, efficiency and established policy; WHEREAS, the grave anomalies arising from the various malicious acts and gross negligence of duties done by FICELCO, Power One and CPGI, has resulted into a steadly declining power supply situation in Catanduanes contrary to the aim of missionary electrification to provide basic