Ÿþd Ecision , ERCCASEN O . 2 0
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.~G~\.ATOfflt~~:\ & ~, Republic of the Philippines ,ffj;~pOf'ovedfor\' ENERGY REGULATORY COtylMISSI ~N~8~~t' ~. I A P' "C.t t~\}<> mn S M I an Igue venue, aSlg I y It''-'-~'••. J.llOrt.gO'l.pn:' .. .';1 (b:i IN THE MATTER OF THE APPLICATION FOR APPROVAL OF BUSINESS SEPARATION AND UNBUNDLING PLAN. (BSUP) PURSUANT TO SECTION 36 OF REPUBLIC ACT 9136 AND RULE 10 OF ITS IMPLEMENTING RULES AND REGULATIONS ERC CASE NO. 2014-017 MC ZAMBOANGA DEL SUR I ELECTRIC COOPERATIVE, INC. a 0 ?~ It :r _ }i} (ZAM.sURECO I)., Date: ~''''n'":''>-~ Applicant. ~ ---.iflC-.._-- )(- - - - - - - - - - - - - - - - - - - - - - - - - )( DECISION , , Before the Commission for resolution is the application filed by Zamboanga I EleCtric Cooperative, Inc. (ZAMSURECO I) on February 27, 2014 for approval of its Business Separati<;mand Unbundling Plan (BSUP) pursuant to Section 36 of Republic Act 9136 and Rule 10 of its Implementing Rules and Regulations. .~. In the said application, ZAMSURECO I alleged, among others, that: 1. It is an electric cooperative duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal offices at J.S. Alano Street, Pagadian City, Zamboanga del Sur; 2. It is the holder of an exclusive franchise issued by the National Electrification Commission (NEC), to operate 'an electric light and power distribution service' in the Municipalities of Tambulig, Molave, Mahayag, Dumingag, Josefina, 'Aurora, Ramon Magsaysay, Sominot, Tukuran, , . " ERC CASE NO. 2014-017 MC DECISION /December 1, 2014 J=.)_?g~_~Qf...J~___ _ _ _ _ _ _ ___ _ ___._ .__ ___ _ Labnagan, Dumalinao, Tigbao, San Pablo, Guipos, San Miguel, Lapuyan, Margosatubig, Vincenzo Sagun, Dinas, Dimataling, Tabina, Pitogo, Province of Zambonga del Sur and Don Victoriano, Province of Misamis Occidental; 3. Section 36 of Republic Act No. 9136 otherwise known as the Electric Power Industry Reform Act of 2001 or uEPIRA", provides in part that U 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 ERG 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; 5. Pursuant to and in compliance with the requirements of the foregoing law, rules and resolutions, ZAMSURECO I is submitting herewith 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 as annex to the BSUP an Accounting Separation Statements prepared in accordance with the Accounting and Cost Allocation Manual (ACAM) for Electric Cooperatives, based on its Audited Financial Statements for the Year 2011; 7. In addition to the BSUP, it is likewise submitting herewith for the 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 ERC CASE NO. 2014-017 MC DECISION /December 1, 2014 .e9.g"~_~_Q.LJ1_".." _"._ ".",,.__ ..''''..""""""""""""."".""''''._''_''"""""."_""",,..,,_..___"" .,,,,_. Article V of the Business Separation Guidelines (BSG), and made integral parts hereof as annexes; and 8. Finally, it prays that after due notice and hearing, its proposed BSUP be approved by the Commission. Having found said application to be sufficient in form and in substance, with the required fees having been paid, an Order and a Notice of Public Hearing, both dated March 17, 2014, were issued setting the case for initial hearing on March 31, 2014. In the same Order, ZAMSURECO I was directed to cause the publication of the Notice of Public Hearing, at its own expense, once (1x) 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 date of the scheduled 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. Likewise, the Offices of the Provincial Governors of Zamboanga del Sur and Misamis Occidental and the Mayors of the Municipalities within ZAMSURECO I's franchise area were furnished with copies of the Order and Notice of Public Hearing for the appropriate posting thereof on their respective bulletin boards. On March 21, 2014, ZAMSURECO I filed an "Urgent Motion to Reset Hearing" requesting the Commission to cancel and reset the scheduled hearing on March 31, 2014 because it cannot possibly attend said hearing on the ground that it will be conducting its Annual Membership Assembly which will be held per municipality/city level from April 1 to May 15, 2014. It alleged that the preparations for said undertaking is very tight at that point in time, and is more taxing considering that there are twenty four (24) local government units (LGUs) concerned, which will be the respective venues of the general assembly. On July 14, 2014, the Commission issued an Order granting said urgent motion and setting the case anew on August 27, 2014. ERC CASE NO. 2014-017 MC DECISION /December 1, 2014 .E.9..g.~4 Qf !4 _._ _ _ _ _._._._ On August 22,2014, ZAMSURECO I filed its "Pre-Trial Brief'. During the August 27, 2014 initial hearing, ZAMSURECO I appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered. At the said hearing, ZAMSURECO I presented proofs of its compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "B" to "E-5", inclusive. Thereafter, it conducted an expository presentation of its application. ZAMSURECO I presented Ms..Charina M. Arabejo, its Finance Manager, who testified in support of the instant application. In the course thereof, additional documents were identified and marked as exhibits. The direct examination having been terminated, the Commission propounded some c1arificatory questions on the said witness. ZAMSURECO I, then, was directed to submit additional requirements together with its formal offer of evidence within fifteen (15) days from the said date of hearing. On September 10, 2014, ZAMSURECO I filed its "Formal Offer of Evidence" then on September 23, 2014, its "Compliance with Directive" . On December 1, 2014, the Commission issued an Order admitting the "Formal Offer of Evidence" filed by ZAMSURECO I for being relevant and material in the evaluation of this case. DISCUSSION ZAMSURECO I's BSUP consists of six (6) sections as prescribed in the BSUP Filing Package, as follows: 1) Details of Current Structure ZAMSURECO I submitted its profile, the diagrammatic representation of its existing corporate structure, the description of the activities and functions undertaken by each ERC CASE NO. 2014-017 MC DECISION /December 1, 2014 _E_9.g_~.~..9._f_1.~t__ _ _ __.. __. __ _. _ _ of the different department or juridical entities, as well as the description of the current process enumerated as follows: 1.1 Application for New Applicant/Member; 1.2 Consumers Complaints/Request; 1.3 Application for Large Load Consumer; 1.4 Meter Reading and Billing Process; 1.5 Collection Remittance and Deposit Process; 1.6 Disconnection and Reconnection Process; and 1.7 Requisition and Procurement Process (Capital Expenditures & Non-Capital Expenditures). 2) Details of Business Segments In compliance with the BSUP Filing Package, ZAMSURECO I had adequately complied with this requirement and provided the details of its business segments including the allocation of costs for each segment, as follows: 2.1 Business Segments Its business segments are classified and defined according to the BSG, as amended. These are grouped into four (4) business segments, namely: 1) Distribution Services (OS); 2) Distribution Connection Services (DCS); 3) Regulated Retail Services (RRS); and 4) Related Businesses (RB). a. Distribution Services (OS) - consist in 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, commissioning, testing, repair, maintenance and reading of Wholesale Electricity Spot Market (WESM) related meters; the Billing, collection and the provision of customer services directly related to the delivery of electricity; b. Distribution Connection Services (DCS) - provide for the capability at each Connection Point to a Distribution System for conveyance to facilities of persons directly connected to the Distribution System; planning, : ~.. " fl,' ERC CASE NO. 2014-017 MC DECISION /December 1, 2014 _pa.ge 6 .9..f J..1 _____-'-._._ ______..__.______.._ ..__ _ 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.