Energy Regulatory Commission Decision
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IL Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City IN THE MATTER OF THE APPLICATION FOR THE APPROVAL OF THE BUSINESS SEPARATION AND UNBUNDLING PLAN (BSUP), PURSUANT TO THE PROVISION OF SECTION 36 OF R.A. 9136, AND RULE 10 OF ITS IMPLEMENTING RULES AND REGULATIONS ERC CASE NO. 201 3-011 MC CAGAYAN II ELECTRIC COOPERATIVE, INC. (CAGELCO II), DO CRETED Applicant. Date: x----------------------- x DECISION Before this Commission for resolution is the application filed on January 25, 2013 by Cagayan II Electric Cooperative, Inc. (CAGELCO II) for approval of its Business Separation and Unbundling Plan (BSUP) in accordance with Section 36 of Republic Act No. 9136 (the Electric Power Industry Reform Act of 2001 or the EPIRA) and Rule 10 of its Implementing Rules and Regulations (IRR). In the said application, CAGELCO II alleged, among others,. that: 1. It is an Electric Cooperative (EC) duly organized and existing under apt by virtue of the Republic of the Philippines with /pfincipal office at Macanaya, Aparri, Cagayan. GL/ / I ERC Case No. 2013-011 MC DECISION/June 10, 2013 Pacie 2 of 14 2. It is the exclusive holder of a franchise issued by the National Electrification Commission (NEC) to operate an electric light and power distribution service in seventeen (17) municipalities namely: Abulug, Allacapan, Aparri, Ballesteros, Buguey, Camalaniugan, Claveria, Gattaran, Gonzaga, Lal-lo, Lasam, Pamplona, Sanchez Mira, Sta. Ana, Sta. Praxedes, Sta. Teresita and Calayan Island, all in the Province of Cagayan, and four (4) municipalities, namely: Flora, Sta. Marcela, Luna and Pudtol in the Province of Apayao. 3. Section 36 of Republic Act No. 9136 (R.A. 9136) otherwise known as the "Electric Power Industry Reform Act of 2001" or the EPIRA, provides in part that "any electric power industry participant shall functionally and structurally unbundle its business activities and rates in accordance with the sectors as identified in Section 5 hereof. The ERC shall ensure full compliance with this provision". 4. Pursuant to the said mandate of the EPIRA as well as Rule 10 of its Implementing Rules and Regulations (IRR), the Commission promulgated Resolution No. 49, Series of 2006, otherwise known as "Business Separation Guidelines, as Amended' as well as Resolution No. 07, Series of 2012, Adopting the Accounting and Cost Allocation Manual (ACAM) for Electric Cooperatives (EC5). 5. In compliance with the requirements of the foregoing law, rules and resolutions, it is submitting for the Commission's evaluation and approval, its proposed Business Separation and Unbundling Plan (BSUP) for the business separation and structural and functional unbundling of its business activities, with the end in view of separating its distribution activities into appropriate business segments and to have a clear separation of operations and accounts between its regulated and non- regulated activities. 6. It is, likewise, submitting herewith for the Commission's consideratiptp and approval, a set of Confidentiality Policies qh4 Guidance to be observed by concerned personnq(, bgether with a Board Resolution adopting certain tj ,of 4gations imposed upon Distribution - ERG Case No. 2013-011 MC DECISION/June 10, 2013 Page 3 of 14 Utilities (DUs), among others, as provided under Article V of the Business Separation Guidelines (BSG), attached hereto and made integral parts hereof as Annexes "B" and "C", respectively. 7. It prays that after due notice and hearing, its BSUP be approved accordingly. Having found said application sufficient in form and in substance with the required fees having been paid, an Order and a Notice of Public Hearing, both dated March 18, 2013, were issued selling the case for jurisdictional hearing, expository presentation, pre-trial conference and evidentiary hearing on April 15, 2013. In the same Order, CAGELCO II was directed to cause the publication of the Notice of Public Hearing, at its own expense, once (lx) in a newspaper of general circulation in the Philippines, at least ten (10) days before the scheduled date of initial hearing. The Office of the Solicitor General (OSG), the Commission on Audit (COA) and the Committees on Energy of both Houses of Congress were furnished with copies of the Order and Notice of Public Hearing and were requested to have their respective duly authorized representatives present at the initial hearing. On April 10, 2013, CAGELCO II filed its "Pro-Trial Brief'. During the April 15, 2013 initial hearing, only CAGELCO II appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered. At the said hearing, CAGELCO II presented its proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "B" to "E", inclusive. Thereafter, it conducted an expository presentation of its application and presented Ms. Teresita F. Ordillo, Officer-In-Charge of its Internal Audit Department (lAD), who testified in support of the application. In the course of her direct examination, additional documents were prese,ned and duly marked as exhibits. The direct examinations having,be4n terminated, the Commission propounded clarificatory question othe said witness. I. ERC Case No. 2013-011 MC DECISION/June 10, 2013 Pafle 4 of 14 On May 6, 2013, CAGELCO II filed its "Formal Offer of Evidence". On May 7, 2013, CAGELCO II filed its "Compliance with Directive". On May 13, 2013, the Commission issued an Order admitting CAGELCO Il's "Formal Offer of Evidence" and declaring the case submitted for resolution. DISCUSSION • CAGELCO Ii's BSUP consists of six (6) sections as prescribed in the BSUP Filing Package, as follows: 1) Details of Current Structure CAGELCO II submitted its profile, the diagrammatic representation of its existing corporate structure, the description of the activities and functions undertaken by each of the different departments or juridical entities, as well as the description of the current process enumerated as follows: 1.1 Meter Reading Process on Low Voltage and High Voltage Consumers 1.2 Billing Process. on Low Voltage and High Voltage Consumers 1.3 Collection Process 1.4 Disconnection Process 1.5 Reconnection Process 1.6 New Service Connection Process 1.7 Consumer Complaints Process 1.8 Procurement of Capital Expenditures and Non-Capital Expenditures Process 2) Details of Business Segments In compliance witIjthe BSUP Filing Package, CAGELCO II had adequately cØrplied with this requirement and provided the details of its lfu#iness segments including the allocation of costs for each s1rjft4ent, asfollows: ERC Case No. 2013-011 MC DECISION/June 10, 2013 Paae 5 of 14 2.1 Business Segments Its business segments are classified and defined according to the BSG. These are grouped into seven (7) business segments, namely: a) Distribution Services (DS), b) Distribution Connection Services (DCS), c) Regulated Retail Services (RRS), d) Last Resort Supply Services (LRSS), e) Wholesale Aggregation Services (WAS), f) Non-Regulated Retail Services (NRSS), and Related Business Services (RB). a. Distribution Services (DS) - which consist of the conveyance of electricity through the distribution system and the control and monitoring of electricity. The provision for Ancillary Services; planning, maintenance, augmentation and operation of the Distribution System; Provision, installation, commission, testing, repair, maintenance and reading of the Wholesale Electricity Spot Market (WESM); the Billing, collection and the provision of customer services directly related to the delivery of electricity. b. Distribution Connection Services (DCS) - provides for the capability at each Connection Point to a Distribution System for conveyance to facilities of persons directly connected to the Distribution System; Planning, installation, maintenance, augmentation, testing and operation of Distribution Connection Assets; and the provision of other services in support of any of the other services. c. Regulated Retail Services (RRS) - the sale of electricity to end-users who are included in the Captive Market; the billing and collection and the provision of customer services to end-users; Energy trading, including the purchase of electricity and hedging activities; and the Sale of electricity to end- users who are included among the Captive Market. d. Last Resort Supply Services (LRSS) - the provision of,X\RSS services provided by a DU, namely: serv/c4 pertaining to the sale of electricity to LRSS Cust m rs including billing, collection and the provision ,somer service. ERC Case No. 2013-011 MC DECISION/June 10, 2013 Paqe 6 of 14 e. Wholesale Aggregation Services (WA) - comprises the Distribution Utility's Services of purchasing electricity in bulk and selling this to other Distribution Utilities. f. Non-Regulated Retail Services (NRRS) - 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. g. Related Business Services (RB) - the provision of all other services and the carrying out of all other activities that utilize distribution assets, facilities or staff personnel including: Electricity related services such as the design construction and maintenance of customer installation; and non-electricity related services such as rentals for telecommunications services, testing and rental fees for special equipment rental of vehicles. 2.2 Segregation of Employees to Business Segment The BSUP Filing Package requires the details