Republic of the PhilippinesENERGY REGULATORYCOMMISSION

San Miguel Avenue, Pasig City

IN THE MATTER OF THEAPPLICATION FORAUTHORITY TO DEVELOP,OWN, AND OPERATEDEDICATED POINT-TO-POINT LIMITED FACILITIESTO CONNECT PHASE II OFTHE SARANGANI ENERGYCORPORATION POWERSTATION TO THE GENERALSANTOS SUBSTATION OFTHE NATIONAL GRIDCORPORATION OF THEPHILIPPINES (NGCP), WITHPRAYER FOR PROVISIONALAUTHORITY

ERC CASE NO. 2014-113-MC

SARANGANI ENERGYCORPORATION (SEC),

Applicant.x-----------------------x

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DECISION

Before this Commission for resolution is the "Application forAuthority to Develop, Own, and Operate Dedicated Point-to-PointLimited Facilities to Connect Phase II of the Sarangani EnergyCorporation Power Station to the General Santos Substation of theNational Grid Corporation of the Philippines (NGCP), with Prayer forProvisional Authority" filed by Sarangani Energy Cqrporation (SEC)last 30 October 2014.

In the Application, Sarangani Energy Corporation (SEC)alleged, among others, the following:

THE APPLICANT

1. Sarangani Energy Corporation ("SEC") is a generationcompany duly authorized and existing under the laws of

ERC Case No. 2014-113 MCDECISIONj27 January 2016Page 2 Of26

the Republic of the Philippines, with principal addressat the Fourth (4th) Floor, Alphaland Southgate Tower,2258 Chino Roces Avenue corner Epifanio de los SantosAvenue (EDSA),Makati City.

Copies of SEC's Certificate of Incorporation andCertificate of Filing of Amended Articles of I "

Incorporation issued by the Securities and ExchangeCommission, Amended Articles of Incorporation, By-Laws and latest General Information Sheet (GIS) are, attached hereto as Annexes "A"and series.

2. Applicant may be served orders and other processesthrough the undersigned counsel.

NATURE OF THE APPLICATION

3. Pursuant to Section 9 of Republic Act No. 9136, or the"Electric Power Industry Reform Act," and Section 5,Rule 5 of its Implementing Rules and Regulations, thisApplication is hereby submitted to secure authorityfrom this Honorable Commission for SEC to develop,own, and operate dedicated point-to-point limitedtransmission facilities connecting the second phase ofits 2 x 105 MW power station, located in themunicipality of Maasim, Sarangani Province, to theMindanao Grid through General Santos Substation ofthe National Grid Corporation of the Philippines("NGCP").

STATEMENT OF FACTS

4. Need for additional long-term power supply inthe Mindanao grid. According to the Department ofEnergy ("DOE"), the Mindanao grid has beenexperiencing under generation since 2010.1 This isexpected to continue, if not worsen, if the rapid growthof the region's electricity demand is not met.

4.1. To illustrate, the demand in Mindanao isprojected to increase at an average annual growthrate of 4.57 percent - the highest growth rateamong the three grids.2 Its peak electricitydemand of 1,407 MW in 2012 is seen to increaseto 2,068 MW in 2020, and will increase further to'3,259MW in 2030.3

1Department of Energy ("DOE") 2013 Supply-Demand Outlook, p. 4.21d.31d.

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4.2. Meanwhile, the supply situation in Mindanao iscritical since its power supply is barely sufficientto meet its current demand, and it lacks thereserve power needed to provide stability in thegrid.4 A total of 1,600 MW in additional capacityis needed to meet the electricity demand andreserve margin of the grid.5

4.3. To underscore the perilous state of Mindanao'spower supply, the DOE has confirmed that anybreakdown or shutdown of a large power plantunit will already cause outage on the grid.6

4.4. The Mindanao grid is vulnerable to power outage,especially during the long dry seasons due to itsreliance on hydroelectric power plants,? which aredependent on the availability of water and areaffected by weather conditions.8 To note, half ofthe region's existing capacity is supplied byhydroelectric power plants.9

5. There is, thus, an urgent need to ensure that powersupply in the Mindanao grid will be sufficient to meet itssteadily increasing demand. Otherwise, the entire regionwill continue to suffer from outages. Needless to say, thelack of sufficient and reliable power supply has longhindered the much-needed capital investment thatwould spur the region's economy.

6. Private Sector Initiated Power Projects. Toaddress the need for long-term power supply, thegovernment has encouraged and mandated privatesector investment in the electric power industry,particularly in power generation, to ensure additionalcapacity in Mindanao and the entire country for thecomIng years.

7. Additional supply from SEC.To help address suchneed for additional supply, SEC has undertaken toconstruct, own, operate, manage, and maintain a 2 x 105MW Circulating Fluidized Bed Combustion Boiler Coal-Fired power station in the Municipality of Maasim,Sarangani Province (the "SEC Power Station").

7.1. The SEC Power Station is a committed generatingplant in the Mindanao Grid as indicated in the

4DOE 2013 Supply-Demand Outlook, p. I.5 DOE 2013 Supply-Demand Outlook, p. 4.6DOE 2013 Supply-Demand Outlook, p. I.7 National Grid Corporation Transmission Development Plan 2012, Volume I, p. 8.s DOE 2013 Supply-Demand Outlook, p. 4.9 DOE 2013 Supply-Demand Outlook, p.l.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 4 Of26

DOE List of Private Sector-Initiated PowerProjects, the DOE Supply-Demand Outlook, andthe Transmission Development Plan 2012("TD P"). 10Copies of the DOE List of Private Sector-InitiatedPower Projects and the DOE Supply-DemandOutlook are attached hereto as Annexes "B" and"B-1," respectively.

7.2. The SEC Power Station is being implemented intwo (2) phases, each for one unit with a netgenerating capacity of 105 MW.

7.3. The construction of the second phase ("SEC PhaseII Plant") is expected to commence in early 2015,and commencement of full commercialoperations is expected in 2017. The SEC Phase IIPlant shall be connected directly to NGCP'sGeneral Santos Substation through theconnection assets that will be developed, owned,and operated by SEC. The said assets are thesubject of the present Application.

7-4. The SEC Phase II Plant shall provide much-needed power supply to the people of Mindanao,particularly the consumers of Davao del SurElectric Cooperative, Inc. ("DASURECO"),Cotabato Electric Cooperative, Inc. ("COTELCO"),South Cotabato I Electric Cooperative, Inc.("COTELCO"), Iligan Light and Power, Inc.("ILPI"), Zamboanga del Norte ElectricCooperative, Inc. ("ZANECO"), Zamboanga delSur Electric Cooperative, Inc. ("ZAMSURECO- I"),and Cagayan Electric Power and Light Company,Inc. ("CEPALCO").

8. Under Republic Act No. 9136, authorization from thisHonorable Commission is required for a generationcompany to develop, own, and operate point-to-pointlimited transmission facilities. Hence, this Application.

ABSTRACT OF THE PROJECT, THE CONNECTIONASSETS AND RELATED INFORMATION

10 See National Grid Corporation of the Philippines, Transmission Development Plan 2012,Volume I Major Network Development, March 2013 Final Report, p. 18, available athttp://www.ngcp.ph/savefiles/news/TDP/2012 TDP FINAL REPORT VOLI-Major Network Development.pdf Oast visited Oct. 28,2014); See also National Grid Corporationof the Philippines, Transmission Development Plan 2013, Volume I Major NetworkDevelopment, Consultation Draft Report December 2013, p. 29, available athttp://www.ngcp.ph/savefiles/news IBULLETINS 12013%20TD P%Consultation %20Draft Voll-Major%20Network%20Development.pdf Oast visited Oct. 28, 2014).

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 5 Of26

9. Connection of the SEC Phase II Plant to theGrid. As mentioned earlier, the SEC Phase II Plantshall be connected directly to NGCP's General SantosSubstation through the connection assets to bedeveloped, owned, and operated by SEC (the "Project").

9.1. The Project is more particularly described in theProject Description and its supportingattachments, attached hereto as Annex "C"("Project Description") and series.

9.2. The proposed connection is illustrated in adiagram, a copy of which is attached hereto asAnnex "C-1."

9.3. Necessity of the Project. The connectionassets are essential to the delivery of power fromthe SEC Phase II Plant to the Mindanao grid inorder to comply with the N-1 contingencyprovision of the Philippine Grid Code and toensure interconnection reliability.

10. Connection Assets. The connection assets arededicated point-to-point limited transmission facilitiesin the purview of Republic Act No. 9136. They arerequired only for the purpose of connecting the SECPhase II Plant to the Mindanao grid, and will be usedsolely for the said Plant. They are not intended to serveend-users or suppliers directly.

10.1. Technical Configuration. The connectionassets involve 138 kV double circuit 1-795 MCMACSRtransmission line, which will start from theplant site located inside the Kamanga Agro-Industrial Economic Zone, and which will connectto the Mindanao grid through NGCP's GeneralSantos Substation, which will serve as theconnection point. The said line will traverseBarangays Kamanga and Tinoto of Maasim,Sarangani Province as well as Barangays Bawing,San Jose, Sinawal, SiwlaY-7, Klinan-6, andKlinan-5 of General Santos City.

10.2. The location map ("Proposed 138kVTransmissionLine Route") and the Transmission Line RoutePlan and Profile, copies of which are attachedhereto as Annexes "C-2" and "C-3,"respectively, illustrate the route and plan of thesaid line.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 6 of 26

10.3. Further, the connection assets are moreparticularly described in the 138kV TransmissionLine Engineering Designs, 138kV Structures List,and the Line Insulators and Line ProtectionTechnical Data Sheets, attached hereto asAnnexes "C-4" to "C-9," respectively.

10.4. Selection of Connection Configuration. Theproposed connection configuration is the mostviable connection to the Mindanao grid.

10.5. The route was selected because it is the safest andshortest possible route to NGCP's General SantosSubstation without traversing heavily populatedareas. The route likewise considers the safeoperations of the General Santos Airport.

10.6. Further, the connection assets will utilize theroute and the right-of-way of the existing 69 kVline of South Cotabato II Electric Cooperative,Inc. Consequently, the proposed connection notonly optimizes the existing right-of-way, but isalso cost-efficient since it dispenses withadditional cost of acquiring new right-of-way.

Amore detailed explanation of the said route is attachedhereto asAnnex "D."

11. Results of the Grid Impact Study. NGCP hasconducted a Grid Impact Study ("GIS") to determine thetechnical feasibility of connecting the SEC Phase IIPlant to the General Santos Substation, as well as toensure the stability of the system.

11.1. The said report likewise indicates that, with thesaid connection in place, the resulting fault levelin the area will not require upgrading orreplacement of existing circuit breakers. Further,load flow simulations reveal that duringmaximum dispatch, either peak or off-peak loadscenarios, no major system degradation will beexperienced by the grid. Evaluation on voltagealso shows that magnitudes of the grid are withinstandard limits.

A copy of the GIS report is attached hereto asAnnex "E."

12. Result of the Facility Study. A third-party FacilityStudy ("FS") was likewise secured in preparation for theactual construction of the SECPower Station.

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12.1. The FS describes the facilities required in order tosecure the intended delivery of the generatedcapacities from the SEC Power Station. It alsodiscusses the system's protection,telecommunications, and metering, which areamong the most important aspects of theinterconnection facilities. It likewise presents thetechnical data and specifications of the majorequipment and materials to be used. To note, thesaid data and specifications are generally inaccordance with the specific standards beingadopted by NGCP, the National PowerCorporation, and the National TransmissionCorporation ('TRANSCO").

A copy of the FS is attached hereto as Annex"F."

13. Indicative Timeline. A copy of the Project Timelineand Schedule of the proposed connection assets isattached hereto asAnnex "C-11."

13.1. Notably, the SEC Phase II Plant is scheduled tocommence commercial operations by 2017. Asmentioned above, it will supply power to variousdistribution utilities.

13.2. The connection assets should be completed at thesoonest in order to immediately complete thenecessary testing and commissioning activities,and ultimately to provide the considerable powerrequirements of several areas in Mindanao.

14. Estimated Project Cost. The total project cost of theconnection assets is estimated at US$33,410,000.

14.1. A detailed breakdown of the said project cost isattached hereto asAnnex "G."

TECHNICALAND FINANCIAL CAPABILITYOF SEC

15. As discussed below, SEC is fully equipped to own,operate, and maintain the connection assets.

16. Technical Capability. SEC is a majority-ownedsubsidiary of the Alsons Consolidated Resources, Inc.("ACR"), a publicly listed company engaged in thedevelopment, construction, operation, and maintenanceof power generation facilities.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 8 Of26

17. ACR is an established presence in the power industry,having gained extensive experience not only in powergeneration, but also in operation and maintenanceof facilities for the conveyance of electric power.

18. ACR owns, operates, and maintains the followinggeneration facilities, including the facilitiesconnecting the same to Mindanao grid.

a) Western Mindanao Power Corporation's ("WMPC") 100MW bunker C-fired diesel station in Sangali,Zamboanga City, which is connected to the Mindanaogrid;

b) Southern Philippines Power Corporation's ("SPPC") 55MW bunker C-fired diesel power station in Alabel,Sarangani, which is connected to the Mindanao grid;

c) Mapalad Power Corporation ("MPC-Iligan")'s 114 MWbunker C-fired diesel station in Iligan City, Lanao delNorte, which is connected to the Mindanao grid; and

d) PT Makassar Power's 60 MW diesel-fired power stationin Makassar, Sulawesi, Indonesia, which is connected tothe Indonesian transmission grid.

18.1. ACR, through MPC, also manages the power plantoperations of the following generation facilitieswhich are connected to their host distributionfacilities:

a) 12MW diesel-fired modular power station inthe City of Koronadal, South Cotabato; and

b) 15MW diesel-fired modular power station inDigos City, Davao del Sur.

18.2. The said generation facilities have their ownsubstation and switchyard facilities that havebeen in constant communication with the gridoperator and with the distribution utilities beingserved by the said facilities. Significantly, ACR hasbeen operating and maintaining the transmissionlines involved.

18.3. The above-said bunker stations of WMPC, SPPC,and MPC-Iligan are connected to the grid through138kV lines. The same applies to the PT Makassarpower station.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 9 Of26

18.4. To note, the ACR has been operating andmaintaining the said substation and switchyardfacilities as well as the transmission linesinvolved.

19. ACR, through its former subsidiary, the Lima UtilitiesCorporation ("LUC"), also acquired extensive experiencein the operation and maintenance of power distributionsystem.

19.1. LUC is located within Lima Land, Inc., aneconomic zone in Batangas that is registered withthe Philippine Economic Zone Authority. ACRowned the LUC from 2000 to 2013. In 2013, ACRdivested itself of its holdings in Lima Land, Inc. inorder to shift more focus to power generation,particularly in Mindanao.

19.2. LUC operates and maintains its own distributionsystem within Lima Land, Inc. in order to providepower to the locators within the said economiczone. The said distribution system includes a 50MVA substation directly connected to NGCP'sBatangas substation with an alternate connectionto the Mak- Ban geothermal line.

19.3. LUC operated and maintained the said substationand transmission line from 2000 until 2013.

19.4. In its Decision dated 12 March 2012 in ERC CaseNo. 2009-036MC,1l this Honorable Commissionapproved the acquisition by LUC of the said linefrom TRANSCO. Notably, this HonorableCommission ruled that LUC is qualified to takeover the responsibility of operating, maintaining,upgrading, and expanding the said line.

For reference, a copy of the said Decision ISattached Annex "H" hereof.

20. Indeed, SEC, through the ACR's collective experience inoperating and maintaining power facilities used for theconveyance of power, has the technical knowledge,manpower, and over-all technical capability to operateand maintain the connection assets subject of theinstant Application.

11Entitled "In the Matter of the Application for the Approval of the Sale of VariousSubtransmission Lines/Assets ofthe National Transmission Corporation CTRANSCO)to LimaUtilities Corporation CLUC)as Covered by a Contracts to Sell, with Prayer for ProvisionalAuthority, National Transmission Corporation CTRANSCO)and Lima Utilities CorporationCLUC),Applicants."

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 10 Of26

The technical capability of SEC to operate and maintainthe connection assets is likewise discussed in theCompany Profile and Track Record of SEC, attachedhereto as Annex "I."

21. To complement its technical capability to operate andmaintain the connection assets, as well as to ensure fullcompliance with pertinent rule, SEC intends to workwith contractors for the construction and managementof the said assets. The prospective contractors haveproven track record in the construction, erection,installation, and operation of lines and related facilities.

22. It is worth noting that the power circuit breakers andassociated equipment loaded within the NGCP GeneralSantos Substation perform transmission functions.Consequently, NGCP has the responsibility to operateand maintain the said equipment.

23. Financial Capability. SEC, on its own, is capable offinancing the cost of the Project.

A copy of SEC's latest Audited Financial Statements isattached hereto as Annex "J."

24. Compliance with the Rules and Standards. SECundertakes to ensure that the SE Phase II plant will fullycomply with the applicable rules and standards set bythe Philippine Grid Code and Philippine DistributionCode.

A summary of the statement of compliance with thestandards of the Philippine Grid Code is attached heretoas Annex "K."

ALLEGATIONS IN SUPPORT OF THE MOTION FORPROVISIONAL AUTHORITY

25. As discussed earlier, the construction of the SEC PhaseII Plant is expected to commence in early 2015. It willprovide the much-needed power supply of electricityconsumers in Mindanao, particularly the consumers ofCOTELCO, DASURECO, SOCOTECO I, ILPI, ZANECO,ZAMSURECO I, and CEPALCO.

26. The provisional approval of the instant Application willallow SEC to implement the timely construction andinstallation of the connection assets, which will, in turn,enable SEC to supply the power requirements of theelectricity consumers in Mindanao in a timely manner.Clearly, the proposed connection of the said Plant to the

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 11of 26

Mindanao grid, through the connection assets to beowned, operated and maintained by SEC, ISindispensable to providing such power supply.

27. Moreover, the provisional approval of the instantApplication is necessary for SEC to continue securingthe financing needed for the SEC Phase II Plant and itsassociated interconnection system. Needless to state,the sooner the SEC Phase II Plant is completed, thesooner SEC can supply power to the above-citeddistribution utilities.

27.1. To illustrate, as a condition for the approval of thesaid financing, SEC must secure the necessarygovernment permits for its supply power from thesaid plant. Such permits include the requiredauthorization subject of the instant Application.

27.2. Moreover, the release of the proceeds of the loanis necessary for the issuance of the Notice toProceed to SEC's engineering, procurement, andconstruction contractor. The issuance of suchNotice is, in turn, necessary to commence withthe construction of the SEC Phase II Plant and itsassociated interconnection system.

28. Given the foregoing, the issuance of a provisionalapproval will enable SEC to connect the grid in a timelymanner, and to expedite the supply of power toMindanao. Hence, Applicant SEC respectfully moves forthe provisional approval of the instant Applicationpursuant to Rule 14 of the ERC Rules of Practice andProcedure.

A copy of a sworn statement supporting the said motionis attached hereto as Annex "L."

PRAYER

WHEREFORE, premises considered, Applicant SECrespectfully prays that this Honorable Commission:

1. Immediately issue an Order provisionally approvingthe instant Application; and

2. After due hearing, render judgment approving theinstant Application with finality.

Applicant SEC prays for other just and equitable reliefunder the premises.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 12 of26

Having found said application to be sufficient in form and insubstance with the required fees having been paid, an Order and aNotice of Public Hearing, both dated 2 February 2013, were issuedsetting the case for determination of compliance with thejurisdictional requirements, expository presentation, pre-trialconference, and presentation of evidence on 26 February 2015 at teno'clock in the morning (10:00 A.M.) at the ERC Hearing Room.

In the same Order, SEC was directed to cause the publication ofthe Notice of Public Hearing, at its own expense, once (1X) in anewspaper of general circulation in the Philippines, at least ten (10)days before the date of the scheduled initial hearing. It was alsodirected to inform the consumers, by any other means available andappropriate, of the filing of the instant application, its reasonstherefor, and of the scheduled hearing thereon.

The Office of the Solicitor General (OSG), the Commission onAudit (COA) and the Committees on Energy of both Houses ofCongress were furnished with copies of the Order and Notice ofPublic Hearing and were requested to have their respective dulyauthorized representatives present at the initial hearing.

Likewise, the Offices of the Governor of Sarangani Province andthe Mayor of the Municipality of Maasin, Sarangani Province werefurnished with copies of the Order and Notice of Public Hearing forthe appropriate posting thereof on their respective bulletin boards.

On 18 February 2015, NGCP filed its Petition for InterventionpraYing that it be admitted as an Intervenor and be furnished by SECa copy of its Application with complete annexes.

During the 26 February 2015 initial hearing held at the ERCHearing Room, 15th Floor, Pacific Center Building, San MiguelAvenue, Pasig City, Applicant SEC entered its appearance. Likewise,NGCP appeared as Intervenor. No oppositor appeared nor was thereany opposition filed.

At the said hearing, SEC presented proofs of its compliance withthe Commission's posting and publication of notice requirements,which were duly marked as Exhibits "A" to "G", inclusive. Thereafter,the Applicant delivered its expository presentation of its application.There were no comments nor oppositions raised on the presentation.

ERCCase No. 2014-113 MCDECISION/27 January 2016Page 13 of 26

Subsequently, the Applicant's witness, Mr. Joseph Nocos, waspresented. In his direct examination, he identified and affirmed theJudicial Affidavit which he executed on 20 February 2015 as well asseveral documents adduced as evidence in support of the Application.Thereafter, clarificatory questions by NGCP's counsel and theCommission were raised. Subsequent thereto, the Commissiondirected the Applicant to submit the following:

1) A study or comparison of the connection of the new plantsolely from Phase 1and connected to Phase II; and

2) Benefit-Cost Analysis of the two options: SEC to build-ownthe subject facility and SEC to build-own and operate thesubject facility.

On 13 March 2015, SEC filed Compliance (re: Directive toSubmit Additional Documents) and Manifestation and Formal Offerof Evidence with Motion for Additional Marking, both dated 13March 2015.

On 6 April 2015, NGCP filed its comment on SEC's FormalOffer of Evidence. Applicant SEC then filed its Motion to Admit Replydated 22 April 2015 and Reply (re: NGCP's Comment to the FormalOffer of Evidence) dated 22 April 2015. Thereafter, a Rejoinder (ToSEC's Reply to NGCP's Comment to the Formal Offer of Evidence)dated 5May was filed by NGCP on 7 May 2015.

On 20 January 2016, finding the documents adduced intoevidence by SEC to be material and relevant in the resolution of theinstant application, the Commission issued an Order admitting SEC'sFormal Offer of Evidence.

DISCUSSION

SEC is a generation company duly authorized and existingunder the laws of the Republic of the Philippines, with principal officeaddress at the 4th Floor, Alphaland Southgate Tower, 2258 ChinoRoces Avenue corner Epifanio de los Santos Avenue (EDSA), MakatiCity. Attached to the application are copies of Certificate ofIncorporation, Certificate of Filing of Amended Articles ofIncorporation, Amended Articles of Incorporation, By-Laws andlatest General Information Sheet (GIS).

ERCCase No. 2014-113 MCDECISIONj27 January 2016Page 14 of26

Pursuant to Section 9 of Republic Act No. 9136 (R.A. No. 9136)or the "Electric Power Industry Reform Act of 2001" or the EPIRAand Section 5, Rule 5 of. its Implementing Rules and Regulations(IRR), the Application was filed to secure authority from theCommission for SEC to develop, own, and operate dedicated point-to-point limited transmission facilities connecting the second phase, 1 x105 MW power station, located in the Municipality of Maasim,Sarangani Province, to the Mindanao Grid through the GeneralSantos Substation of the NGCP.

To help address the need for additional supply in Mindanao,SEC has undertaken to construct, own, operate, manage, andmaintain a 2 x 105 MW Circulating Fluidized Bed Combustion BoilerCoal-Fired power station in the Municipality of Maasim, SaranganiProvince (SEC Power Station). For this purpose, SEC needed toconstruct a dedicated transmission facility from the generating plantto the nearest NGCP facility.

I. Project Description

SEC shall develop, own, and operate dedicated point-to-pointlimited facilities to Connect Phase II of the Sarangani EnergyCorporation Power Station to the General Santos Substation of theNational Grid Corporation of the Philippines (NGCP)

The components of the project are as follows:

• Length of the point-to-point transmission line:approximately 42 kms.

• Voltage: 138 kV• Conductor Size: 1x 795 MCM-ACSR, double circuit• Structures: Compact, Steel and Special Towers• Number of Structures: 260

II. Project Rationale

The project is designed to cater the direct delivery of the full 105MW capacity of the SEC Phase II Power Plant to the Mindanao Grid.

III. Project Cost

The total project cost of the dedicated point-to-pointtransmission facility is broken down as follows:

ERCCase No. 2014-113 MCDECISION/27 January 2016Page 156f 26

Dedicated point-to- Estimated Cost in Estimated Costpoint transmission USD (USn l=PhP 44)facilityEPC 29,704,000.00 1,306,976,000.00138kVSwitchyard 7,113,0000.00 312,972,000.00138kVTransmission 21,177,000.00 931,788,000.00LineContingency (during 1,414,000.00 62,216,000.00construction)

Non-EPC 3,706,000.00 163,064,000.00Right of Way 2,681,000.00 117,964,000.00Construction Period 849,00.00 37,356,000.00InsurancesContingency (for Non- 176,000.00 7,744,000.00EPC portion)

TOTAL 33,410,000.00 1,470,040,000.00

IV. Indicative Timeline

A copy of the Project Timeline and Schedule of the proposeddedicated point-to-point transmission facility is attached in theapplication as Annex "C-11":

1. Notably, the SEC Phase II Plant is scheduled to commencecommercial operations by 2017. As mentioned above, it willprovide supply power to various distribution utilities; and

2. The dedicated point-to-point transmission facility should becompleted at the soonest possible time in order toimmediately complete the necessary testing andcommissioning activities, and ultimately to provide theconsiderable power requirements of several areas inMindanao.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 16 of26

v. Diagram

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VI. Result of System Impact Study (SIS) conducted by NGCP

The GIS presents the results of evaluating and assessing theimpact of connecting the proposed Southern Mindanao Coal-FiredPower Plant to the NGCP's transmission facilities at General SantosSubstation. The power plant which will be located in Maasim,Sarangani, General Santos City, has the primary purpose of supplyingthe power requirement of South Cotabato II Electric Cooperative, Inc.(SOCOTECO II) which is the area's local cooperative. Powergenerated from the plant in excess of the area's demand requirementwill be exported to the Grid.

The power plant comprises of 2X100MW generating units, eachunit equipped with step-up transformer, that will be constructed intwo phases. First Phase (Unit 1) and Second Phase (Unit 2) areexpected to be on-line by 2016 and 2017, respectively.

The 2nd phase (Unit 2) will utilize 138kV double circuit 1-79SMCMACSRtransmission lines.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 17of 26

With the plant in place, the resulting fault level in the area willnot require upgrading/replacement of existing circuit breakers.

Load flow simulations reveal that during maximum dispatch ofthe project, either in peak or off-peak load scenarios, no major systemdegradation will be experienced by the Grid. It is only noted that theexisting 1-336.4MCM Gen. Santos-Ligaya 69kV line will besignificantly loaded and may be considered to be reinforced to ahigher capacity conductor.

The interconnection of the plant would require protectionequipment to be installed and should be made consistent with theprotection philosophy of NGCP to ensure reliability, security, andstability of the system. Also, it should be compliant with thePhilippine Grid Code (PGC) standards requirements.

In order to update the power system model, the actualparameters of the selected machines and equipment to be installedmust be provided to NGCP as soon as these become available.

Finally, as the results of the GIS simulation indicate that theentry of the Plant is generally feasible, NGCP further recommends tothe proponent of the Plant to secure the conduct of a comprehensiveFacility Study (FS) in preparation to the actual construction andconnection of the Plant.

VII. Need for the Project

As stated in the Application and as manifested during thehearings, the dedicated point-to-point limited transmission facility isessential to deliver the power from the second phase, 1X105MWCirculating Fluidized Bed Combustion Boiler Coal-Fired powerstation of SEC in the Municipality of Maasim, Sarangani Province, tothe Mindanao Grid. The dedicated point-to-point limitedtransmission facility involves the construction of a 138kV doublecircuit 1.795MCMACSRtransmission line.

VIII. Technical Configuration

The dedicated point-to-point transmission facility involves 138kV double circuit 1-795 MCM ACSR transmission line, which willstart from the plant site located inside the Kamanga Agro-IndustrialEconomic Zone, and which will connect to the Mindanao grid throughthe NGCP's General Santos Substation, which will serve as the

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 18 of26

connection point. The said line will traverse Barangays Kamanga andTinoto of Maasim, Sarangani Province, as well as Barangays Bawing,San Jose, Sinawal, SiwlaY-7,Klinan-6, and Klinan-5 of General SantosCity.

The location map (Proposed 138 kV Transmission Line Route)and the Transmission Line Route Plan and Profile, copies of whichare attached to the Application as Annexes "C-2" and "C-3",respectively, to illustrate the route and plan of the said line.

Further, the dedicated point-to-point transmission facility aremore particularly described in the 138 kV Transmission LineEngineering Designs, 138 kV Structures List, the Line Insulators andLine Protection Technical Data Sheets, the Klinan 138 kV SwitchyardEngineering Designs and the Protection System Technical DataSheets, which are attached to the application as Annexes "C-4" to "C-9", respectively.

Selection of Connection Configuration. The proposedconnection configuration is the most viable connection to theMindanao Grid.

The route was selected because it is the safest and shortestpossible route to NGCP's General Santos Substation withouttraversing heavily populated areas. The route likewise considers thesafe operations of the General Santos Airport.

Further, the single line diagram submitted by the Applicantshows that the proposed project will be used solely by the Applicantand there will be no other user that will connect thereto incompliance with Rule 5, Section 5 (a) (i) of the Implementing Rulesand Regulations of the Electric Power Industry Act of 2001, to wit:

Such dedicated point-to-point limited transmission facilitiesare required only for the purpose of connecting to the Gridwhich will be used solely by the Generation Facility, and arenot used to serve End-users or Suppliers directly.

IX. Technical and Financial Capability of SEC

SEC is a majority-owned subsidiary of the Alsons ConsolidatedResources, Inc. ("ACR"). ACR, a publicly listed company, is anestablished entity in the power industry, having gained extensiveexperience in power generation, and in the operation and

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 19 of 26

maintenance of facilities for the conveyance of electric power. ACRowns, directly or through its affiliates, operates, and maintains thefollowing generation facilities, including the facilities connecting thesame to the Grid:

1. Western Mindanao Power Corporation's ("WMPC") 100 MWbunker C-fired diesel station in Sangali, Zamboanga City,which is connected to the Mindanao Grid;

2. Southern Philippines Power Corporation's ("SPPC") 55 MWbunker C-fired diesel power station in Alabel, Sarangani,which is connected to the Mindanao Grid;

3. Mapalad Power Corporation's ("MPC-Iligan") 114 MWbunker C-fired diesel station in Iligan City, Lanao del Norte,which is connected to the Mindanao Grid; and

4. PT Makassar Power's 60 MW diesel-fired power station inMakassar, Sulawesi, Indonesia, which is connected to theIndonesian Transmission Grid.

ACR, through MPC, also manages the power plant operations ofthe following generation facilities which are connected to their hostdistribution utilities:

1. 12MW diesel-fired modular power station In the City ofKoronadal, South Cotabato; and

2. 15MW diesel-fired modular power station In Digos City,Davao del Sur.

The said generation facilities have their own substation andswitchyard facilities that have been in constant communication withthe grid operator and with the distribution utilities being served bythe said facilities. Significantly, ACR has been operating andmaintaining, not only the substation, but also the switchyard facilitiesand transmission lines involved.

The above-mentioned bunker stations of WMPC, SPPC, andMPC- Iligan are connected to the Grid through 138kV lines. The sameapplies to the PT Makassar Power Station.

ACR has also acquired extensive experience in the operationand maintenance of power distribution system through its formersubsidiary, the Lima Utilities Corporation ("LUC"). LUC operated and

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 20 of26

maintained its own distribution system within Lima Land, Inc. inorder to provide power to the locators within the said economic zone.The said distribution system includes a 50 MVA substation directlyconnected to NGCP's Batangas substation with an alternateconnection to the Mak -Ban geothermal line.

Notably, LUC operated and maintained not only the saidsubstation but also the transmission line from 2000 until 2013. In itsDecision dated 12 March 2012 in ERC Case No. 2009-036MC,l2 theCommission ruled that LUC is qualified to take over the responsibilityof operating, maintaining, upgrading, and expanding the said line.

As shown in the latest Audited Financial Statements of SEC, it iscapable of financing the project cost of the dedicated point-to-pointtransmission facility through loan and equity, with a debt-equity ratioof 70:30. The said loan is being negotiated and about to be finalized.

SEC claimed that it will ensure that it will have the capability tofully operate and maintain said point-to-point transmission facilities.The chosen operations and maintenance strategy will also ensure thatthe point-to-point transmission facility will be run in compliance withPhilippine Grid Code and the NGCP requirements, as well as all otherapplicable standards. However, it did not submit how it willimplement the said strategies considering the two separate legal andoperational entities of ACR and SEC.

In the absence of a definite assurance that the subject facilitieswill be operated without any adverse effect to the reliability of theGrid, the Commission deems it best to assign the operation andmaintenance of said facilities to NGCP since it was granted theexclusive right to operate and maintain the Philippine transmissionsystem. By virtue of its Legislative Franchise (Republic Act No. 9511),TRANSCO, now NGCP, is mandated in Section 9 of RANo. 9136 to:

c) Ensure and maintain the reliability, adequacy, security,stability and integrity of the nationwide electrical grid xxx

Section 8 of R.A. No. 9136 also provides that "no person,company or entity other than TransCo (now NGCP) shall own anytransmission facilities." The only exception is under Section 9 of the

12 Entitled "In the Matter of the Application for the Approval of the Sale of Various Sub-Transmission Lines/Assets of the National Transmission Corporation (TRANSCO) to LimaUtilities Corporation (LUC), as Covered by Contracts to Sell, with Prayer for ProvisionalAuthority, National Transmission Corporation (TRANSCO) and Lima Utilities Corporation(LUC),Applicants."

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 21 of26

EPIRA, "a generation company may develop and own or operate adedicated point-to-point limited transmission facilities that areconsistent with the TDP." This exemption, however, is not withoutnumerous limitations. The Commission's resolution is similar to thededicated point-to-point limited transmission facility of GNPowerMariveles Coal Plant Ltd. Co (GMCP) wherein GMCP financed theproject and NGCP operated the subject asset in ERC Case No. 2010-oogRC. This is also consistent with the general policy in the OpenAccess Transmission Service ("OATS") Rules.

Although a generator is not an end-user, and there is no suchprovision for generators in the OATS, the Commission believes thatthe same principles should apply.

x. Issues raised during the Hearing

NGCP raised the following issues during the hearing:

1. First issue: Whether the connection of the proposed projectof Sarangani Energy Corporation (SEC) will not cause adegradation of the Grid;

2. Second issue: Whether SEC's proposed project is inaccordance with the System Impact Study and FacilityStudy submitted to and approved by NGCP.

Below are SEC's comments on the issues:

On thefirst issue:

NGCP's intervention is not necessary in order toresolve the said issue. It is NGCP's own GIS which is thebest piece of evidence to resolve whether the proposedconnection will not cause degradation of the grid. At anyrate, it is clearly established that the proposed connectionof the SEC Phase II Plant will not cause grid degradation.It bears stressing that NGCP's own GIS confirms that theproposed connection of the SEC Phase II Plant to NGCP'sGeneral Santos Substation will not cause degradation tothe grid. In fact, the GIS confirm that the entry of bothSEC Phase I and I Plants through their respectiveproposed connections is technically feasible.

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 22 of26

On the second issue:

As established in the Judicial Affidavit13 of thewitness of SEC,Mr. Joseph C.Nocos, as well as during thehearing,l4 the technical data and specifications of themajor equipment and materials to be used for theproposed connection, as described in the InterconnectionFacility Study, are in accordance with the specificstandards being adopted by NGCP, the National PowerCorporation and the National Transmission Corporation .. Notably, NGCP has not presented any evidence provingthe contrary.

At any rate, it is not appropriate to raise the saidissue since its resolution could not be resolved during theproceedings for the application. This is because whetherthe proposed connection actually complies with the saidstudies could be determined only when the connection isalready being implemented. To note, the connectionproject is not yet being constructed. Also, andsignificantly, no connection will be allowed withoutNGCP's approval.

On the first issue, the concern anent the possible degradation tothe Grid is addressed in the System Impact Study (SIS), to wit:

xxx load flow simulations reveal that, during maximumdispatch of the Project, either peak or off-peak load scenarios,no major system degradation will be experienced by thegrid. Xxx (Emphasis supplied.)

As to the second issue, the SIS showed that the proposedconnection is technically feasible. One of the recommendations in theapproval is to develop and construct the subject facilities inaccordance with the System Impact Study (SIS) and Facility Study(FS) requirements so as not to result in the degradation of NGCP'stransmission system. NGCP should not connect any user that is notcompliant with the connection requirements. This provision is part ofthe Philippine Grid Code (PGC).

XI. Project Cost

The total project cost of the dedicated point-to-point transmissionfacility is broken down as follows:

13 page 28, Judicial Affidavit of Joseph C. Nocos dated 21 February 2015.14 page 27, Transcript of the Stenographic Notes ("TSN) of the Hearing dated 26 February 2015.

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Dedicated point-to- Estimated Cost Estimatedpoint transmission in USD Cost

facility (USD 1=PhP 44)EPC 29,704,000.00 1,306,976,000.00

138kV Switchvard 7,113,0000.00 312,972,000.00138kV Transmission 21,177,000.00 931,788,000.00LineContingency (during 1,414,000.00 62,216,000.00construction)

Non-EPC 3,706,000.00 163,064,000.00Right of Way 2,681,000.00 117,Q64,000.00

Construction Period 849,00.00 37,356,000.00InsurancesContingency (for Non- 176,000.00 7,744,000.00EPC portion)

TOTAL 33,410,000.00 1,470,040,000.00

The said cost was based on the final price proposal submitted bythe consortium implementing the SEC Phase I interconnection project.The funding will be sourced through the equity and loan of SEC.

The project cost already forms part of the application underERC Case of SEC's Power Supply Agreement (PSA) with severalDistribution Utilities (DUs) which the Commission already issued aProvisional Approval (PA). Shown below are the list of SEC'scontracts with DUs and status of its PSAs:

DUs ERCCaseNo. DatePAwasGranted

1. South Cotabato I 3 November 2014Electric Cooperative, 2014-120 RCInc. (SOCOTECO 1)

2. Zamboanga del NorteElectric Cooperative, 2014-72 RC 2 February 2015Inc. (ZANECO)

3. Cotabato ElectricCooperative, Inc. 2014-121 RC 3 November 2014(COTELCO)

29 September 20144. Davao del Sur Electric - 21 SeptemberCooperative, Inc. 2014-107 RC 2015: ERC extended(DASURECO) PA until revoked or

made permanent.

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5. Iligan Light and Power, 2014-178 RC 16 February 2015Incorporated (ILPI)6. Zamboanga del Sur IElectric Cooperative, 2014-177 RC 16 February 2015Inc. (ZAMSURECO I)

7. Cagayan Electric Powerand Light Company, 2014-137 RC 24 November 2014Incorporated(CEPALCO)

In the PSA approved by the Commission, the generation chargeis composed of Capital Recovery Fee (CRF), Operation andMaintenance Fee (O&M), and Fuel fee, if any. One of the componentsof the CRF is the Transmission Line/Interconnection facility. Oncesaid line is transferred to NGCP/TRANSCO there will be a possiblereduction in the CRF pertaining to the recovery of the same.

It is worthy to note that the estimated project cost is just for thepurpose of computing the permit fee.

XII. Prescribed Fees

Permit fees for the construction of SEC's CAPEX are prescribedunder Commonwealth Act No. 146, as amended, and computed basedon the existing ERC Schedule of Fees and Charges, as follows:

Permit Fee = Total ProjectCost x 0.75100

Permit Fee

= 1,470,040,000.00 x 0.75100

PhP 11,025,300.00

In Fine, there were no factual and legal impediment to thegranting of the instant Application.

WHEREFORE, the foregoing premises considered, theApplication filed by Sarangani Energy Corporation (SEC) forauthority to develop, own, and operate a dedicated point to pointlimited facilities to connect Phase II of the SEC Power Substation ofthe National Grid Corporation of the Philippines, with Prayer forProvisional Authority, is hereby APPROVED subject to the followingconditions:

ERCCase No. 2014-113 MCDECISIONj27 January 2016Page 25 of26

1) The National Grid Corporation of the Philippines (NGCP)shall operate and maintain the subject dedicated point topoint transmission facilities subject to applicable charges;

2) The subject facilities shall be developed and constructed inaccordance with the System Impact Study (SIS) and FacilityStudy (FS) requirements so as not to result in thedegradation of NGCP's transmission system;

3) The subject facilities shall be used solely by the generatingfacility consistent with Section 9 of Republic Act No. 9136;and

4) Any portion thereof required for competitive purposes orconnect to any other user, ownership of the same shall betransferred to TRANSCOjNGCP at fair market value.

Relative thereto, SEC is hereby directed to pay a permit fee inthe amount of Eleven Million Twenty - Five Thousand ThreeHundred Pesos (PhP11,025,300.00) computed based on Section40 (g) of Commonwealth Act (C.A.) No. 146 and the Revised ScheduleofERC Fees and Charges.

SO ORDERED.

Pasig City, 27 January 2016.

(On Leave)ALFREDO J. NON

Commissioner

(On Official Travel)JOSEFINAPATRICIAA. MAGPALE-ASIRIT

CommissionerONIMO D. STA. ANA

Commissioner

ERC Case No. 2014-113 MCDECISION/27 January 2016Page 26 Of26

Copy Furnished:

1. Atty. Sundy Lorence C. Lachica, Atty. Christiene Salve A. Demaisip,and Atty. Abigail MadanloLachica and Associates Law OfficesCounsel for applicant SECSuite 2304-B, West Tower, Philippine Stock Exchange Center,Exchange Road, Ortigas Center, Pasig City, 1605

2. Sarangani Energy Corporation (SEC)4th Floor, Alphaland Southgate Tower,2258 Chino Roces Avenue corner Epifanio de los Santos Avenue,Makati City

3. Office of the Solicitor General134 Amorsolo Street, Legaspi VillageMakati City, Metro Manila

4. Commission on AuditCommonwealth AvenueQuezon City, Metro Manila

5. Senate Committee on EnergyGSIS bldg., Roxas Blvd., Pasay CityMetro Manila

6. House Committee on EnergyBatasan Hills, Quezon City, Metro Manila

7. Office of the President of PCCIPhilippine Chamber of Commerce and Industry (PCCI)3rd Floor, Chamber and Industry Plaza (CIP)1030 Campus Avenue corner Park AvenueMcKinley Town Center, Fort Bonifacio, Taguig City

8. Office of the Provincial GovernorProvince of Sarangani

9. Office of the Municipal MayorMaasim, Province of Sarangani

10.The National Grid Corporation of the Philippines (NGCP)NGCP Building, Quezon Avenue corner BIR RoadDiliman, Quezon City

11. South Cotabato II Electric Cooperative, Inc. (SOCOTECO II)Jose Catolico Sr. Ave,General Santos City, 9500South Cotabato

12.National Transmission Corporation (TRANSCO)Power Center, Agham Road, Corner Quezon Avenue,Diliman, Quezon City, 1101

13. Standards & Compliance Monitoring Division,Regulatory Operations ServiceEnergy Regulatory Commission,Pacific Center Building, San Miguel Avenue,Ortigas Center 1600, Pasig City