~TORyc. d' O,,~ i '& Republic of the Philippines i:':',<-A'pproved for~. ENERGY REGULATORY COMMISSION' Posting Pacific Center Building www..gov.ph San Miguel Avenue? Pasig City

IN THE MATTER OF THE APPLICATION FOR APPROVAL OF BUSINESS SEPARATION AND UNBUNDLING PLAN (BSUP) PURSUANT TO SECTION 36 OF REPUBLIC ACT NO.9136 AND RULE 10 OF ITS IMPLEMENTING I~ULES AND REGULATIONS

ERC CASE NO. 2016-023 MC

PAMPANGA III ELECTRIC COOPERATIVE, INC.(PELCO III),

Applicant. x------x

ORDER

• On 2 August 2016, Pampanga III Electric Cooperative, Inc. (PELCO III) filed with the Commission an Application for Approval of Business Separation and Unbundling, Plan (BSUP) pursuant to Section 36 of Republic Act No. 9136 and Rule 10 of its Implementing Rules and Regulations, dated 18 July 2016.

,In the said Application, PELCO III alleged, amon& others, that:

1. PELCO III .is a non-stock, non-profit electric cooperative, duly organized and existing under Philippine laws, with principal office at Sampaloc, Apalit, Pampanga;

2. It holds an exclusive franchise fTom the National Electrification Comm,ission to operate an electric light ~~~4 power distribution service in certain municipaliY ERC Case No. 2016-023 MC Order /01 September 2016 Page 3 Of29 in the province of Pampanga: Apalit, Macabebe, Masantol, Minalin San Simon and Sto. Tomas. PELCO Ill's main office is located in Sampaloc, Apalit, Pampanga. It maintains Sub-Offices in all the other five (5) municipalities in its franchise area.

The status of its electrification for the last five (5) years is provided in the table below, as follows:

Type of Customers 1 2011 1'2012': '2013 :'2014' 2015 I Ave. i L-~ .~ " i - I-:-Q!owth ! i ResidentiaL' Residential '52,26zl53,684~53,53~53,013 53~5.9..9'1.10%

'I Low I Commercial i 2,°94 I 2,144 i 2,105: 2,091 I 2,134 I 0,49% : ~~~age I I: I :

,- I Industrial i 3,3- 21 'I_ 21 ! 24 __ 2:1~5,52% _I_ 1 Irr[gation I 1~ 11 ~3 8 I -2,76% I i j :::::l:"" I '" '" I ,m i 3m "6 I 0,3% I I S~reet , ... '120 "li3-1 - 108;'--154 1-981, ~1:66%'Ii ~ ~ghts _ _--+ : .~I ~, i High I Commercial I 0 2 : 3 i 2 I 3 i 22.22% , I Voltage I I I I I ' I i !J!!YL I Industrial lot- 11r-'l~ 14 !~14_i 8.62% J '-- : Irrigation 'i it __Ol __ ~_~q=__oL9,OO% I ~T~ i _ i 55'03-L[55.498 - 55,314L~~:3961=_l.08% j

Based on its Financial and Statistical Report as of December 31, 2015, the following is PELCO Ill's sales data:

TOTAL RESIDENTIAL COMMERCIAL LV PUHUC BUILDING AIDiA/ KWH AMOUNT KWH AMOUNT KWH AMOUNT KWH AMOUNT TOWN APALIT (10.44~) (21.~l;;2.~~) 11886~) (16002.74) (,,60) (",102.81) (20) (IS6.78) MASANTOL (23.345) (198,037.20) (23,245) (196,714.48) (100) (1,322.72)

MACABEBE (10,086) (177.330••••) fto.Q86) (177,no. '5) (001 (700.77) STOTOMAS 000 6802.64 000 6802.6 MINALIN (0.820) (8".887.33) 6 8,,8) (60102.08) 2 (2 8 .2 ) SAN SIMON (".280) (46200.66) (5280) (462QO.66)

GRAND (76,893) (522,104.23) (73,242) (489,646.67) (3,721) (33,040.55) (20) (156.78) TOTAL

AIDiA/ TOTAL VAT. VAT GENCO VATTRANSCO VAT SL GENCON VAT SL TRANSCO TOWN DISTRIBUTION APAUf (".6~0.27) (~.~6".,,' (8120.6 ) (21"-"-.2') MASANTOL ("'"0"'.0") (~.186.!i:2 (, -.781.77) (2066.76) MACABEBE (14,,,82$) (',086.40 (0,"06.46) (1,080.20) STOTOMAS (1,'88.4") (101;;.0'-':' It 282.'71;;) (0.67) MINALIN (6.~47.,8) (1126.00) (" "'2.80) (1068.601 SAN SIMON (~.26~.,,0) (6"'.06) (2186.46) ("-62.071

GRAND (54,256.09) (11,484.47) (35,039.9') (7,731.71) - TOTAL

b)CORPORATE STRUCTURE

PELCO Ill's present organizational structure is typica~llY1 hierarchical. At the top of its hierarchy are the member-

... ------.- ERC Case No. 2016-023 MC Order /01 September 2016 Page40f29 consumers who elect the Board of Directors (BOD), the policy-making body of the Cooperative. The Board is headed by the President and is composed of six (6) members, including the General Manager (GM) in an ex- officio capacity and who sits on top of operations. The 6 members of the Board represent the different districts/municipalities covered by PELCO III and are elected by their respective constituents for a term of three (3) years.

The top management, headed by the General Manager under the office of the General Manager (OGM), is composed of six (6) departments and six (6) area offices, respectively described as follows:

OFFICE OF THE GENERAL MANAGER (OGM)

1. Institutional Services Department (ISD) The lSD is headed by Melinda T. Javier. Under lSD is the Coop Mfairs & Consumer Development Division.

2. HR AND ADMINISTRATIVE DEPARTMENT (HR AD)

The HR AD is headed by Engr. C. Rommel P. Calilung. There are two Divisions under this department: (a) Human Resource Development Division and (b) Administrative Division.

3. TECHNICAL SERVICES DEPARTMENT (TSD)

The TSD is headed by Engr. Michael P. Yutuc. There are two Divisions under this department: (a) Asset Management Division and (b) Network Management Division.

4. FINANCIAL SERVICES DEPARTMENT (FSD)

The FSD is headed by Ma. Elizabeth D. Urbano. There are two Divisions under the FSD: (a) Accounting Division, and the (b) Consumer Accounts Division.

5. INTERNAL AUDIT DEPARTMENT (lAD)

The lAD is headed by Engr. Cornelio C. Limpin. There are two Divisions under this department: (a) Operation Audit Division and (b) Technical Audit Division'i ERC Case No. 2016-023 MC Order /01 September 2016 Pagesof29 6. CORPORATE PLANNING, TRADING & INFORMATION TECHNOLOGY DEPARTMENT (CPD)

The CPD is headed by Eduardo A. Aduna. This department has two divisions: (a) Information Technology Division and (b) Trading Division. Under the Trading Division is the Load and Forecasting Analyst.

7. AREA OFFICES (AO)

The six (6) Area Offices are: Apalit Area Office located in Sampaloc, Apalit which covers the town of Apalit; Macabebe Area Office which covers the town of Macabebe; Masantol Area Office which covers the town of Masantol; Minalin Area Office which covers the town of Minalin; San Simon Area Office which covers the town of San Simon and Sto. Tomas Area Office which covers the town of Sto. Tomas.

Each Area Office is headed by an Area Manager, and composed of two (2) divisions: (a) Office Services Division and (b) Operation and Maintenance Division.

Several collection centers or paying stations are located strategically in the area coverage, add to these are the banks located in the respective towns. Over- the-counter and on line payments of electric bills are also catered by other commercial banks.

c.) DESCRIPTION OF FUNCTIONS

1. GENERAL MEMBERSHIP

Their general functions are to vote, to participate in General and Special Meetings, to purchase from the cooperative electric energy; to comply with and be bound by the Articles of Incorporation and By-Laws of the cooperative, rules and regulations adopted by the Board, and requirements of the National Electrification Administration ("NEA"), and to pay the membership fee.

2. BOARD OF DIRECTORS

The Board is fully responsible to the member- consumers for the management of internal affairs of the Cooperative, for public relations and for relations ~th Government and Public Agen~i:s. It delegates /f ... ERC Case No. 2016-023 MC Order /01 September 2016 Page 6 Of29 the General Manager detailed management, program planning and supervision over execution of policies and programs.

3. OFFICE OF THE GENERAL MANAGER (OGM)

The Office of the General Manager is responsible for the over-all planning, organizing, directing, controlling and coordinating of all activities, programs and projects of the cooperative.

4. FINANCE SERVICES DEPARTMENT (FSD)

The FSD is primarily responsible for the preparation of the annual budget and financial plan of the FSD and the entire cooperative. It functions as the implementing arm of the GM in the financial operation of the cooperative.

Accounting Division

This division reviews the propriety of transactions, verifies payment documents and certifies as to validity of transactions, propriety and completeness of supporting papers and accounting entries. It also supervises the work of accounting personnel and the implementation of accounting policies and procedures, in conformity with guidelines/standards and with the established accounting and auditing practices, rules and regulations.

Consumer Accounts Division

This division is responsible in the computation of monthly electric rates based on ERC-approved guidelines, ensures proper and accurate billing of customers; prepares monthly summary of sales as to energy (kWh), amount, and type of consumers. It is likewise responsible for the submission of monthly reportorial requirements to the ERC regarding rates.

5. INSTITUTIONAL SERVICES DEPARTMENT (ISD)

Handles the institutional development of member- .consumers and employees of the .cooperative. It ensures the effectiveness and success of information campaign, Annual General Membership Assemblies, di,t,idcl",Hon/mectinr>,.ndt'IDning,.nd "min¥. ERC Case No. 2016-023 MC Order /01 September 2016 Page 70f29

Coop Affairs and Consumer Development Division

This Division assists the ISD Manager in formulating the implementation of training programs, information dissemination activities for the members-consumers; ensures that all consumers' complaints are properly acted upon and recorded; reviews all requirements for service connections to ensure that they are properly accomplished and documented; supervises the processing of membership applications for submission to the Board for Approval and the maintenance of updated membership register and other membership records; devises plans and procedures for peaceful, honest and orderly conduct of district elections and holding of meaningful and informative annual general membership assembly (AGMA).

6. HUMAN RESOURCE / ADMINISTRATIVE DEPARTMENT

Ensures that policies, rules and guidelines on work improvement and procurement system are strictly followed; ensures the efficiency and effectiveness of the motor pool and general services; leads the department in the conceptualization of programs that will actualize the Mission and Vision of the cooperative

Human Resource Division

This Division assists the ISD Manager in developing personnel management methods and procedures to deal with position descriptions, organizational structure, staffing, ranking, personnel recruitment, selection, appointments and development of personnel; provides personnel program including recruitment, orientation, training, appraisals, counseling, position description, wage/salary administration and information programs related to personnel development and advancement; develops, implements and evaluates policies, systems and procedures pertaining to HR management, administration and development; coordinates the proper implementation of personnel policies, rules and regulations and programs in all departments; ensures the provision of medical and other necessary facilities and services to maintain the health and7Yell- being of employees.

-- -- _. - ...... -- "'" ERC Case No. 2016-023 MC Order /01 September 2016 PageS Of29

Administrative Division

This Division directs and supervises the activities of the general services, property and procurement sections; responsible for the proper maintenance, security, and utilization of the properties of the cooperative and ensures that the service vehicles are available and in good running condition upon use; maintains orderliness and cleanliness of the surroundings, buildings, and premises; adherence to the policy and guidelines on procurement; and acts as custodian of the official documents and records of the cooperative.

7. TECHNICAL SERVICES DEPARTMENT

Responsible for the preparation of the annual budget and work plan of the TSD; responsible for the planning, construction, operation and maintenance of the distributionsystem of the cooperative in accordance with the approved work plan and technical standards to provide a safe, adequate, reliable and economical electric service to member, consumers within the coop coverage area; conducts periodic system analysis and evaluation of distribution lines to minimize systems loss and maintain service reliability and efficiency; prepares 5 to 10 year work plans in collaboration with the FSD and ISD; conducts material planning and maintain the required necessary inventory level of line materials; and comply with the ERC program for the distribution system pursuant to EPIRA.

Asset Management Division

This Division prepares and maintains plans, designs and specifications of electrical system in accordance with NEA standards; assists in the construction and ensures maintenance of safe and reliable line extensions; ensures and implements standard preventive maintenance of transformer, kWh meters and other system equipments and facilities; implements and maintains metering standards; monitors and sees to it that systems loss (technical) is within allowable limits of ERC and NEA; undertakes As-Built plans and reports completed projects; responsible for the maintenance of up-to-date and accurate stock of construction materials in t~~/ warehouse for ready reference and cross-checkin 7ff ERC Case No. 2016-023 MC Order /01 September 2016 Page 9 Of29 responsible for the safekeeping and stocking of equipments/construction and line materials.

Network Management Division

This Division is responsible for the operation and maintenance of the cooperative's substations, including inspections, and recommends preventive measures to avoid substation breakdown; ensures continuous reliable, efficient, and safe delivery of electric service through the conduct of preventive maintenance of substations, distribution system equipment, and all other special equipment including precision instruments; effectively and efficiently manage a well-coordinated substation section team to ensure safe, efficient electric distribution service; develops work procedures to facilitate the execution of assigned tasks as economically and as efficiently as possible.

8. INTERNAL AUDIT DEPARTMENT

Responsible for the installation and implementation of an effective and efficient internal control system in all departments and offices of the cooperative; certifies the accuracy and reliability of financial documents, records and reports; enhances/checks adherence to prescribed managerial policies, laws, rules and regulations of the cooperative/NEA; submits reports and recommendations on findings of any form of misconduct to the GM.

Operation Audit Division

This Division is in charge of auditing financial transactions to ensure accuracy of financial reports; conducts periodic audit of accounts, checks cash advances and liquidation reports; verifies cash on hand, petty cash and revolving funds through conduct of cash count; pre-audit check vouchers, journal vouchers, and other financial documents.

Technical Audit Division

This Division is in charge of auditing cooperative materials and equipment, observes the conduct of inventory of cooperative assets and materials, validates inventory reports; checks receipt and issuance of materials if properly documented, monitors issuance of tools, office furniture a~~ ~ e~ui~ment t~ employees; ~SSiS~Sin the evaluatio~7j ERC Case No. 2016-023 MC Order /01 September 2016 Page 10 Of29 properties for disposal, ascertains that disposal of coop properties through sale or retirement, and duly authorized and recorded; inspects installed meters, transformers, and completed constructions or projects.

9. CORPORATE PLANNING TRADING & INFORMATION TECHNOLOGY DEPARTMENT

Creates and executes actionable plans that support strategic goals and objectives; assist in Strategic Planning Conference; in charge of Energy Retail Trading and Supply, Power Contracting and Load Forecasting; assist in the management of departments especially in billing and collection service for Contestable Market and to customers not classified as end-users of Captive Market; performs legal function and services on power supply contracts and obligations; performs asset valuation and monitoring of asset values utilized for CAPEX preparation; provides representation for all matters related to information technology; provides inter-departmental access to specialized computer systems; administers activities relating to processes, machines and hardwares; plan system concepts for theoretical models and other hardware requirements

Trading Division

This Division formulates measures to develop, encourage, protect "and enlarge captive/contestable markets where end-users are afforded the choice of their electricity suppliers/providers; formulates guidelines and procedures by which captive markets can be converted to contestable markets; formulates policy regarding gradual expansion of the contestable market or retail competition to all consumers; supervises preparation of all communications, queries from electricity consumers and participants in the electricity industry and other interested parties regarding the operation of captive and contestable markets.

Information Technology Division

The Information Technology (IT) Division Supervisor is tasked with the overall management of the cooperative's computer and information systems; network administration, seeing to it that the cooperative's networking is running smoothly; keeps all copies of software used in order to make sure t~~;/ peopleare .not uplOad~ngprogr:~s for which there 7( ERC Case No. 2016-023 MC Order /01 September 2016 Page 11Of29 no licenses; keeps records of maintenance work and repairs, trains users on new software packages and systems, installs and configures computer and Internet security software, and troubleshoots help- desk and internet connectivity issues; analyze network performance issues and breakdowns of systems and peripheral equipment, and draws up preventive maintenance checklists in conjunction with other members of the IT team; performs analysis, testing and installing of computers and large hardware systems, connects PCs in a network and sets up peripheral equipment, hardware components and allied devices.

d.) DESCRIPTION OF CURRENT PROCESS

1) Membership and Service Connection Process

Any applicant who wants to avail electric service connection may inquire in any of the area offices or main office. The Area Office thru the Consumer Welfare Desk Officer (CWDO) shall provide the needed information and requirements.

The potential consumer submits the requirements and attends the membership briefing seminar on any of the scheduled day of the area office. The membership seminar aims to inform the applicant of his duties, responsibilities, and rights as a member consumer of PELCO III. Upon completion of the requirements, inspection will follow. The inspection includes not only the technical/electrical standards but also the veracity of documents submitted by the applicant. Upon certification by the inspection team, the applicant pays applicable fees for the service connection including the membership fee. An account number will be assigned to the new member/consumer to be inputted by the records clerk in the CMIS. A photo shoot is required for a membership ID before a request for the issuance of kWh meter and service drop will be approved by the Area Manager. This ID will serve as proof that he/she is a bona fide member of PELCO III.

Linemen shall install the kWh meter and service drop of the new customer. A report shall be accomplished which includes the date and ~ of accomplishment fo, inputting in th, CMlSr ERC Case No. 2016-023 MC Order /01 September 2016 Page 120f29 2) Consumer Complaints & Dispatch Process

Any complaints or service request of a consumer maybe made personally in all the offices of PELCO III or thru telephone (landline or mobile) which can be attended by the CWDO or the Help Desk Support. PELCO III provides this service 24 hours on a daily basis. Through the CMIS, the complaint type as well as the time of receipt is recorded. The assigned CWDO or Help Desk Support prints an Acknowledgement Receipt to be given to customer and a Service Order to be forwarded to the Area Engineer or Maintenance Foreman if maintenance related, which will be dispatched to the maintenance crew. For non- maintenance-related complaints, the Service Order is forwarded to the concerned personnel for appropriate action. The maintenance crew or concerned personnel signs the Service Order, indicating the time accomplished and/or action taken. The CWDO then inputs the action taken and date and time of accomplishment. Monthly/quarterly consumers' complaints reports are printed for evaluation and also for submission to government agencies like ERC and NEA. For the cooperative, evaluation involves the time involved in resolving a complaint, so that proper measures will be made to expedite such complaints.

3) Billing, Collection, Meter Reading System

This system facilitates the billing of monthly statement of accounts, payment thru the tellers, and evaluation of kWh reading of consumers. Daily collections and deposits as well as summary reports of consumer payments are uploaded to the system. Likewise, monitoring of unread and unbilled consumers can be done through this system. Finally, the sales/revenue summary report for the month as to kWh and amount billed, type of consumer, breakdown of charges(unbundled) of each Area Office and PELCO III as a whole, as well as system loss report will be available at the end of the billing process.

3.1) Meter Reading, Billing & Handling of Bills (S/A) Process

The cooperative is implementing a 7-day reading period. Monthly, meter readers of each area office are provided with mobile computers, wherein route and account number of consumers for reading are provided in reading the kWh consumption of consumers. Data uploading of kWh readings from the mobil ERC Case No. 2016-023 MC Order /01 September 2016 Page 13 Of29 computers is being done by the data controllers for evaluation. The Billing Section then uploads the evaluated readings at the Main Office. The Billing Section then process the statement of accounts, with summary reports of the processed bills. The Area Office receives the S/A for delivery to the consumers of their respective area by the Meter Readers.

The Office Services Supervisor sees to it that the reading schedule is strictly being followed, all consumers are billed and statement of accounts are being delivered to consumers on time.

3.2) Collection Process

Each area office has its own tellers, number of which depends on the number of consumers covered by the area, as per approved plantilla. There are no field collectors. A consumer has his/her option to pay directly to the office or to any designated collection center or paying stations like EC Pay, banks, on line payments, or any accredited establishment.

For payments made thru PELCO III offices, the designated teller issues Official Receipt to the customer. At the end of the day, the teller prints the collection report and prepares the corresponding deposit slips. The Office Services Division Manager checks the accuracy of the deposits cash/checks vis-a-vis deposit slips, then takes charge of depositing the same to the depository banks of the cooperative. Daily pick up of deposits is being done by the depository banks as per deposit-pick up agreement with the cooperative. Daily collection reports together with the bank validated deposit slips are forwarded to the Finance Department for checking and final recording in the books of accounts.

For banks, paying stations, or any accredited establishment, a Memorandum of Agreement (MOA) is being executed citing provisions where both parties agree to terms, such as mode of payment, deposits of collection, submission of reports, collection fee, etc. Accredited banks and paying stations issue acknowledgement receipts to the paying customer. Collections are then deposited to cooperative's depository banks by the collecting establishments. Daily collectio ERC Case No. 2016-023 MC Order /01 September 2016 Page 14of29 reports are then sent via email for uploading by the cooperative's IT personnel to update customer ledger and reflect payments made. The internal audit checks the reports, then the FSD verifies the corresponding deposits made and issues official receipts. Collection reports as per issued ORs will be printed and recorded in the Cash Receipt Register (CRR).

3.3) Disconnection and Reconnection Process

Following the provisions of Magna Carta and DSOAR on disconnection of consumers, the cooperative's disconnection process starts from generating of the list of consumers for disconnection. These listings are checked by the OSS and are dispatched to the concerned disconnection crews. At the end of the day, the disconnection crew submits accomplishment reports for consumer status updating in the BCMS. Reconnection of electric service to a disconnected consumer is only made once the consumer pays the reconnection fee and settles the unpaid electric bills wherein a Service Order will automatically be forwarded to the CWDO for printing of the Reconnection Order. Upon reconnection, the date and time of accomplishment shall be posted in the BCMS.

4) Requisition and Procurement Process

PELCO III sets the guidelines and procedures on contracts, procurement, or purchase of goods and services based on RA 10531. No procurement shall be undertaken unless it is within the approved Work Plan, CAPEX,or Cash Operating Budget.

This process starts with the requisition to be made by the requesting department. It applies to both CAPEX and NON-CAPEXexpenditures.

Upon the General Manager's approval of the request, the procurement officer prepares the requisition voucher and determines or estimates the amount involved. Purchases of goods or services amounting to Php1 Million and above shall be subjected to public bidding, procedures and process of which will be handled by the Bids and Awards Committee (BAC) which includes the evaluation, preparation of bid docs, publication of bidding, awarding of winners and recommendation to the General Manager. The B ERC Case No. 2016-023 MC Order /01 September 2016 Page 15 Of29 consists of four (4) members representing the OGM, TSD, lSD, and FSD departments, and appointed by the General Manager, a Chairman, Vice Chairman and Secretary. In order to enhance transparency, one from the Internal Audit Department act as observers in all the stages of the bidding process. Also to assist the BAC in the evaluation of the procured item/s, a Technical Working Quality Control Group is created. Upon the recommendation of the BAC, the GM approves the BAC Recommendation, Notice of Award and Purchase Order. Repeat order from a winning bidder is allowed as long as the price is the same or lower than the original bided price and is valid for a period of 6 months from the date of bidding. For services, renewal of contract is allowed as long as the . quality of service provided did not diminish.

For purchases of goods or services below Phpl Million but above three hundred thousand, the Bids and Awards Committee handles the procurement by securing sealed quotations/canvass from at least 3 suppliers, after which, a Purchase Order shall be approved by the GM before purchasing the same.

Emergency procurement is undertaken only in times where immediate action is necessary to avoid any delay in project/activity that would cause the coop imminent loss of life and/or property. All emergency procurement will be based on canvass of prices from at least 3 suppliers.

Procurement through direct purchase or negotiation may be allowed in cases where the competitive bidding is not feasible like in cases of sole distributorship and when there is failure in the bidding process for 3 times. Splitting of contracts/purchases is strictly prohibited.

5) Materials Inventory System Process

This process involves the system of receiving materials as a result of procurement and issuances as requested by the different departments.

The Warehouse Section Chief, after checking as to quality and quantity based on the approved Purchase Order of the coop, receives the materials from the suppliers. The checking/inspection is being done with the presence of the acceptance committee which is composed of 1representative each from the TSD, FSD, and lAD. The warehouseman will enter/input the materials received in the inventory system. Copies 0 ERC Case No. 2016-023 MC Order /01 September 2016 Page 160f29 Receiving Reports (RR) shall be printed and signed; together with the invoice and delivery receipt, 1copy is furnished to ISD for complete documentation then forwarded to FSD for processing of payments and another copy to lAD for monitoring and control. The work order officer generates from the inventory system a monthly summary of RR for recording to Material Receipt Register (MRR). Those items requiring technical inspection shall be tested and TSD shall issue a certification on testing that will be used as supporting document before complete payment is to be made. Items that failed the said testing will be issued back to the supplier for replacement.

Issuance by the Warehouse Section Chief is based on the Request of Materials by the Department or Area Office approved by the General Manager. Material Charged Tickets (MCTs) are prepared for every requisition, recorded and updated into the system.

Receipt of materials by the Area Office on the other hand will be recorded as inventory first of the requesting area office. Every issuance that will be made will be done by the area engineer using MCTs duly approved by the Area Manager.

All MCTs are pre-numbered which will serve as reference in recording into the system. From the system, the work order officer records, generates and prints the Material Register (MR).

6) Disbursements Process

This process is done manually from check preparation up to recording of disbursement into the Check register (CR).

Payables with complete supporting documents will be paid thm checks. Petty expenses and emergency purchases on the other hand will be paid using the coops Petty Cash Fund (PCF).

Replenishment of the PCF is to be done by the petty cash custodian.

The Finance Services Department is responsible for the preparation of check disbursements. Mter the supporting documents have been verified and checked, a check voucher will be prepared by an accounting clerk. Authorization of voucher will be done by the Accounting Division Manager, to be recommended by the clerk using Finance Servic ERC Case No. 2016-023 MC Order /01 September 2016 Page 170f29 Dept. Manager, audited by the Internal Audit Dept. Manager and approval by the General Manager. All checks must be signed by the General Manager and countersigned either by the Board President or Board Treasurer.

All checks and check vouchers prepared are summarized monthly and recorded in the Check Register (CR).

7) Preparation of Monthly Financial Statements

Monthly Financial Statements particularly the Monthly Financial & Statistical Report (MFSR) shall be prepared monthly. As stated above, recording in the books namely the Cash Receipt Register (CRR), Check Register (CR), Sales Register (SR), Materials Receipt Register (MRR) and Material Register (MR) are done during the different processes of the cooperative.

The General Journal (GJ), which involves the recording of entries that cannot be recorded in any other books, completes the books of PELCO III. Duly approved journal vouchers are recorded by the Accounting Division Supervisor.

All cooperative's book balances are consolidated in the Working Trial Balance prepared by the Accounting Division Supervisor. From the Trial Balance, the Monthly Financial Reports such as the Income Statement, Balance Sheet, and Statement of Cash Flow are prepared.

Other reports like Collection Efficiency, Accounting of RFSC Collections, Details of Capital Projects Disbursements, and other reports to NEA and ERC are also prepared using the said trial balance.

II. DETAILS OF BUSINESS SEGMENTS

PELCO III is purely engaged in distribution and related activities. There are seven (7) distribution and related activities business segments. These segments are further classified into Regulated and Non-Regulated Business Segments. Although at present PELCO III is involved in the four (4) business segments, this BSUP includes the other three (3) business segments in the event that the cooperative will be engaged into such, using the same methodology on sepa ion. Below is the description of each business segment: ERC Case No. 2016-023 MC Order /01 September 2016 Page 18 Of29

A. REGULATED BUSINESS SEGMENTS

1. DISTRIBUTION SERVICES BUSINESS SEGMENT

This segment has the following distribution services:

1.1) Conveyance of electricity through a Distribution System and the control and monitoring of electricity as it is conveyed through the Distribution System (including any services that support such conveyance, control or monitoring or the safe operation of the Distribution System).

1.2) Provision of Ancillary Services (if any) that are provided using assets which form part a Distribution System (an example of such Ancillary Services is services provided by a series reactor or a static var compensator);

1.3) Planning, maintenance, augmentation and operation of the Distribution System.

1,4) Provision, installation, commissioning ,testing, repair , maintenance and reading of WESM- related meters that are not used to measure the delivery of electricity to end-users or other customers; and

1.5) Billing, collection and the provision of customer services that are directly related to the delivery of electricity to end-users or to that relate to the connection of such persons to a Distribution System (whether such services are provided to those end-users or to Suppliers or to any other person).

The assets included in this Business Segment are all the facilities and assets used to provide the distribution services of this particular business segment.

The liabilities included in this Business Segment are all the liabilities incurred directly or a relevant share of the shared liabilities which are incurred to provide the services or undertake the operational activities of this particular business segment.

Revenues include all revenues derived from the provision of the distribution services, including revenues derived from the sale of related faciliti , plants or assets. ERC Case No. 2016-023 MC Order /01 September 2016 Page 19 Of29

Costs include all costs associated with management, maintenance and operation of Distribution System facilities and other assets in order to provide the distribution services of this particular business segment, as well as the related depreciation of these assets.

2. DISTRIBUTION CONNECTION SERVICES BUSINESS SEGMENT (DCS)

This segment has the following distribution connection servIces:

2.1) The provision of capability at each Connection Point to PELCO Ill's Distribution System to deliver electricity or to take electricity from the Connection Point and the conveyance of electricity:

2.1.1) from the facilities of persons which are directly connected to the Distribution System;

2.1.2) from the Connection Point to the facilities of persons which are directly connected to the Distribution System;

2.2) Planning, installation, maintenance, augmentation, testing and operation of Distribution Connection Assets; and

2.3) Provision of other services that support any of the above services.

The assets included in the Business Segment are all the facilities and assets used to provide the distribution connection services of this particular business segment.

The liabilities included in this Business Segment are all the liabilities incurred directly or a relevant share of the shared liabilities incurred to provide the Services or undertake the activities of this particular business segment.

Revenues include all revenues associated with providing the distribution connection services, as well as revenues derived from the sale of related facilities, plant, or assets.

Costs include all costs associated with the management, maintenance, and operation of the Distribution conn~~~~ Assets in order to provide the distribution conn/y ERC Case No. 2016-023 MC Order /01 September 2016 Page 20 Of29 services,including the corresponding depreciation of the Distribution Connection Assets.

3. REGULATED RETAIL SERVICES BUSINESS SEGMENT

This segment comprises the proVIsIOn of regulated retail services, namely; services pertaining to the sale of electricity to end-users who are included in the Captive Market of PELCO III and includes:

3.1) Billing, collection and the provision of customer services to such end-users in their capacity as electricity consumers;

3.2) Energy trading (including the purchase of electricity and hedging activities) undertaken in connection with the sale of electricity to end- users who are included in the Captive Market;

3.3) The sale of electricity to end-users who are included on the Captive Market of PELCO III;and

Regulated retail services also comprise the prOVISIOn, installation, commissioning, testing, repair, maintenance and reading of meters that are used to measure the delivery of electricity to end-users who are included on the Captive Market.

The assets included in this Business Segment are all the assets used directly, or a relevant share of the shared assets used to provide the regulated retail services.

The liabilities included in this Business Segment are all the liabilities directly incurred or a relevant share of the shared liabilities incurred to provide the services or undertake the operational activities of this particular business segment.

Revenues include all revenues associated with providing the regulated retail services.

Costs include all costs associated with the provision of the regulated retail services, including the relevant share of the operating and maintenance costs and the depreciation costs of the assets used to provide the services or undert::t~ t% operational activities of this particular business segm/" --/ ERC Case No. 2016-023 MC Order /01 September 2016 Page 210f29 4. LAST RESORT SUPPLY BUSINESS SEGMENT

This segment comprises the provision of Supplier of Last Resort (SOLR) services provided by PELCO III, namely: services pertaining to the sale of electricity to SOLR Customers, including billing, collection and the provision of basic customer service.

5. WHOLESALE AGGREGATION

This segment comprises the Distribution Utility's service of purchasing electricity in bulk and selling this to other Distribution Utilities. It also comprises the provision of Wholesale Aggregation services provided by a distribution utility, namely services pertaining to the sale of electricity to other Distribution Utilities including billing, collection, and provision of basic customer service.

The assets included in this Business Segment are all the assets used directly, or a relevant share of the shared assets which are used, to provide the Wholesale Aggregation services. The liabilities included in this Business Segment are all the liabilities incurred directly, or a relevant share of the shared liabilities which are incurred, to provide or undertake the activities of this particular segment.

Revenues include all revenues associated with providing the Wholesale Aggregation services.

Costs include all costs associated with the provision of the Wholesale Aggregation services, including the relevant share of the operating and maintenance costs and the depreciation costs of the assets used to provide the services or undertake the activities of this particular business segment.

B. NON-REGULATED BUSINESS SEGMENTS

6. NON-REGULATED RETAIL SERVICES BUSINESS SEGMENT

This segment comprises the provision of non-regulated retail services provided by PELCO III, namely: services pertaining to the sale of electricity to end-users who are included in the contestable market or to other customers who are not end- users and includes:

6.1) Billing, collection and the provision of customer services to such end-users in their capacity as electricity consumers; or to such other customers in their capacity as purchasers of electricity; ERC Case No. 2016-023 MC Order J01 September 2016 Page 22 Of29 6.2) Energy trading (including the purchase of electricity and hedging activities) undertaken in connection with the sale of electricity to end- users who are included in the contestable market or to other customers who are not end- users; and

6.3) The sale of electricity to end-users who are included in the contestable market or to other customers who are not end-users; and

Non-Regulated retail services also comprise the provision, installation, commissioning, testing, repair, maintenance and reading of meters that are used to measure the delivery of electricity to end-users who are included in the contestable market or to other customers who are not end- users ( whether such services are provided to those end- users or other customers , to Suppliers or to any other person).

The assets included in this Business Segment are all the assets directly used or a relevant share of the shared assets used to provide the non-regulated retail services.

The liabilities included in this Business Segment are all the liabilities directly incurred or a relevant share of the shared liabilities incurred to provide the services or undertake the operational activities of this particular segment.

Revenues include all revenues associated with providing the non-regulated retail services.

Costs include all costs associated with the provision of the non-regulated retail services including the relevant share of the operating and maintenance costs and the depreciation costs of the assets used to provide the services or undertake the operational activities of this particular business segment.

7. RELATED BUSINESSES BUSINESS SEGMENT

This segment comprises the provision of all other services, and the carrying out of all other activities that utilize distribution assets, facilities, or staff including:

Electricity related services such as the construction and maintenance of customer installations; and

Non-electricity related s~rvi/'isuch as ,d"ommunk,tinn, "

The liabilities included in this Business Segment are all the liabilities incurred directly or a relevant share of the shared liabilities incurred to provide the services or undertake the operational activities of this particular business segment.

Revenues include all revenues generated from the provision of the services or the undertaking of the activities for this particular business segment.

Costs include all the relevant share of operating and maintenance costs and depreciation costs apportioned III accordance with the principles set out in the ACAM.

III. SEGREGATION OF EMPLOYEES

Under the relevant business segment, the guidelines require the number of individuals who are engaged in the activities of the business segment and the other business segments or business activities in which such individuals are engaged. This is to ensure that the costs of regulated services and activities are allocated on a fair and reasonable basis and reflect the efficient costs of the respective services and activities. PELCO III employees are hereby reasonably allocated to the business segment where his workload and man hours are attributable. Employees whose services are commonly shared by the business segments are allocated accordingly.

PELCO III has a total of 175employees to be allocated into the different business. Employees who are being utilized by 2 or more business segments are referred to as Support group. Likewise, in the event that PELCO III opt to engage into the other business segments, namely, WA, LRS, and NRSS, services of concerned employees will be allocated into such services.

The executive summary contains a more detailed summary of the segregation of employees.

IV. ACCOUNTING SEPARATION

In order to achieve accounting separation, accounts must be maintained for each business segment as if that business segment were carried on by a separate company so that the revenues, costs, assets, liabilities, reserves and provisions of or reasonably allocable to, each business segment is separ y identifiable in the books. ERC Case No. 2016-023 MC Order /01 September 2016 Page 240f29 PELCO III shall prepare its Accounting Separation Statements in accordance with the ERC approved Accounting and Cost Allocation Manual (ACAM) for ECs, which provides full and proper documentation of the accounting policies and principles used to prepare the required Accounting Separation Statements, , including:

i. Allocation methodologies used to allocate costs and revenues to and between segments;

ll. Interpretation of the Philippines Financial reporting Standards (PFRS) and Philippine Accounting Standards (PAS) as applicable;

iii. Depreciation policies and methodologies for each class of assets;

IV. Transfer pricing policies used for transactions between business segments or between a business segment and another activity undertaken by the coop, consistent with the inter-segmental transactions and transfer pricing principles applicable to the industry;

v. Procedures to be adopted for whatever changes that shall be made in the ACAM in accordance to the guidelines set by the ERC;

vi. Guidance to accounting areas with differences in accounting treatment for rate-regulated industry as necessary.

IV. DESCRIPTION OF SEPARATION

Pursuant to the unbundling requirements of Section 36 of the Electric Power Industry Reform Act (the EPIRA), PELCO III shall comply through this Business Separation and Unbundling Plan (BSUP) by allocating its accounts and employees to the appropriate business segment.

PELCO III will remain as of this filing a single entity and will be unbundled through separation of employees and its assets as deemed appropriate. The separation will be through evaluation of workloads, job descriptions, qualifications and usage in the case of the fixed assets.

It will allocate its departments to its business segments. Likewise, departments with un- attributa Ie costs, allocation shall be made using the approPJ"allocation factors as p""crib,d ;n th, ACAM. I ERC Case No. 2016-023 MC Order /01 September 2016 Page 25 Of29

V. MILESTONES AND HIGHLIGHTS

Details of PELCO III's milestones and highlights are fully documented in the BSUP executive summary.

VI. PROGRAM FOR CODE OF CONDUCT

The BSG sets out the structural and unbundling requirements that must be complied and implemented by the coop, including compliance with the code of conduct to be promulgated by the ERC. In order to promote consumer confidence in the retail electricity industry and to protect consumers against discriminatory access to regulated services, the Energy Regulatory Commission, in its Res. No. 31, series of 2006, approves and adopts, the "Code of Conduct for Competitive Retail Market Participants".

Printed as well as electronic copies of PELCO Ill's proposed BSUP are being submitted herewith and made integral parts hereof as Annexes "A"and "A-I", respectively.

7. PELCO III prepared Chart of Accounts (ACAM), Accounting Separation Statements in accordance with the Accounting and Cost Allocation Manual (ACAM) for Electric Cooperatives, based on its Audited Financial Statements (AFS) for the Years 2014 and 2015. Copies of the Accounting Separation Statements and AFS are attached hereto and made integral parts hereof as Annexes "B". "B-1" and "C", respectively.

8. In addition to the BSUP, PELCO III is likewise submitting herewith for the Honorable Commission's consideration and approval, a set of Confidentiality Policies and Guidance to be observed by concerned personnel, together with a Board Resolution adopting certain sets of obligations imposed upon Distribution Utilities (DUs), among others, as provided under Article V of the Business Separation Guidelines (BSG) and Employees Job Description, attached hereto and made integral parts hereof as Annexes "D-1". "D-2 and E" respectively.

PRAYER

WHEREFORE, premises considered, it is respectfully prayed of this Honorable Commission that after due notice and hearing, PELCO III's proposed Business se;rarati and Unbundling Plan (BSUP) be approved accordingly .

. ------.. . - - . - _. - - . ERCCase No. 2016-023 MC Order /01 September 2016 Page 26 Of29

Other reliefs,just and equitable under the premises, are likewiseprayed for.

Finding the said Application sufficient in form and in substance with the required fees having been paid, the same is hereby set for initial hearing, expository presentation, Pre-trial Conference and evidentiary hearing on 10 October, 2016 (Monday) at two o'clock in the afternoon (2:00 P.M.) at the ERC Hearing Room, 15th Floor, Pacific Center Building, San Miguel Avenue, Pasig City.

PELCO III is hereby directed to cause the publication of the attached Notice of Public Hearing, at its own expense, once (lX) in a newspaper of general circulation in the Philippines, with the date of the publication to be made not later than ten (10) days before the scheduled date of initial hearing. It is also directed to inform the consumers within its franchise area, by any other means available and appropriate, of the filing of the instant application, its reasons therefor, and of the scheduled hearing thereon.

Let copies of the Application, this Order and the attached Notice of Public Hearing be furnished the Office of the Solicitor General (OSG), the Commission on Audit (COA), and the Committees on Energy of both Houses of Congress. They are hereby requested, if they so desire, to send their duly authorized representatives at the scheduled hearing.

Likewise, let copies of this Order and the attached Notice of Public Hearing be furnished the Offices of the Provincial Governors, the City and Municipal Mayors, and the Local Government Unit (LGU) Legislative Bodies within PELCO Ill's franchise area for the appropriate posting thereof on their respective bulletin boards.

PELCO III is directed to furnish all those making requests therefor with copies of the Application and its attachments, subject to reimbursement of reasonable photocopying costs.

On the date of the initial hearing and Pre-trial Conference, PELCO III must submit to the Commission its written Compliance with the jurisdictional requirements attaching therewith, methodically arranged and duly marked, the evidences on the actual posting and publication of the Notice of Public Hearing consisting of certifications issued to that effect, signed by the aforementioned Administrator/Responsible Officer, bearing the seals of their offic~es, and the affidavit of the Editor or Business Manager of the newspaper where the said Notice of Public Hearing was published _togethe ! ERC Case No. 2016-023 MC Order /01 September 2016 Page 270f29 with the complete issue of the said newspaper, and such other proofs of compliance with the requirements of the Commission.

PELCO and all interested parties are directed to submit, at least five (5) days before the date of initial hearing and pre-trial conference, their respective Pre-trial Briefs containing, among others:

a) a summary of admitted facts and proposed stipulation of facts;

b) the issues to be tried or resolved;

c) the documents or exhibits to be presented, stating the purposes and proposed markings thereof; and

d) the number and names of the witnesses, with their written testimonies in an individual affidavit form, to be attached to the Pre-trial Brief.

Failure of PELCO III to submit the required Pre-trial Brief and Judicial Affidavits of its witnesses within the prescribed period shall be a ground for the cancellation of the scheduled hearing, and the resetting of which shall be six (6) months from said date of cancellation.

As part of the Pre-trial Conference, PELCO III must also be prepared to make an expository presentation of its application, aided by whatever communication medium that it may deem appropriate for the purpose, in order to put in plain words and explain, for the benefit of the consumers and other concerned parties, what the application is all about and the reasons and justifications being cited in support thereof.

SO ORDERED.

Pasig City, 1st of September, 2016.

FOR AND BYAUTHORITY OF THE COMMISSION:

< ~ ~~..••. - ~ --- JOSE VICENTE B. S Chairman ERC Case No. 2016-023 MC Order /01 September 2016 Page 28 Of29 Copy furnished: 1. Atty. Jeremiah D. Francisco Counsel for PELCO III Dechaves and Evangelista Law Offices Units 1609-1610, Tycoon Center, Pearl Drive Ortigas Center, Pasig City

2. Pampanga III Electric Cooperative, Inc. (PELCO III ) Sampaloc, Apalit, Pampanga

3. Office of the Solicitor General 134 Amorsolo Street, Legaspi Village Makati City, Metro Manila

4. Commission on Audit Commonwealth Avenue Quezon City, Metro Manila

5. Senate Committee on Energy GSIS Bldg. Roxas Blvd., Pasay City Metro Manila

6. House Committee on Energy Batasan Hills, Quezon City, Metro Manila

7. Office of the ProVincial Governor Province of Pampanga

8. Office of the Municipal Mayor Apalit, Pampanga

9. Office of the Sangguniang Bayan Apalit, Pampanga

10. Office of the Municipal Mayor Macabebe,Pampanga

11. Office of the Sanguniang Bayan Macabebe Pampanga

12. Office of the Municipal Mayor Masantol, Pampanga

13. Office of the Sangguniang Bayan Masantol, Pampanga

14. Office of the Municipal Mayor San Simon, Pampanga

15. Office of the Sangguniang Bayan San Simon, Pampanga

16.Office of the Municipal Mayor Sto. Tomas, Pampanga

17.Office of the Sangguniang Baya~ Sto. Tomas, Pampanga / K ERC Case No. 2016-023 MC Order /01 September 2016 Page 29 Of29

18. Office of the Municipal Mayor Minalin, Pampanga

19. Office of the Sangguniang Bayan . Minalin, Pampanga

.2o.PSA-lWG Energy Regulatory Commission, itv / / Pacific Center, San MiguelAvenue, Pasig C/ (