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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. 2013-045 MC BOHOL II ELECTRIC COOPERATIVE, INC.(BOHECO II), Applicant. )(- - - - - - - - - - - - - - - - - - - - - - - - -)( DECISION Before the Commission for resolution is the application filed by Bohol II Electric Cooperative, Inc. (BOHECO II) on April 11, 2013 for approval of its Business Separation and Unbundling Plan (BSUP) pursuant to Section 36 of Republic Act 9136 and Rule 10 of its Implementing Rules and Regulations. 'In the said application, BOHECO II 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 Catangay, Jagna, Bohol; 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 certain Municipalities of Alicia, Anda, Bien Unido, Buenavista, Candijay,' CPG Island,' Dagdhoy, Danao, Duero, Garcia ERC CASE NO. 2013-045 MC DECISION/August 4,2014 f.ag ..~_..?_...9f....11_ ___ ___ _ _ _ ___ _ _ _ _ _ .._ .._ _ _ _ _ _ _ _ _ Hernandez, Getafe, Guindulman, Jagna, Mabini, Pilar, San Miguel, Sierra Bullones, Talibon, Trinidad, Ubay and Valencia; 3. Section 36 of Republic Act No. 9136 otherwise known as the Electric Power Industry Reform Act of 2001 or "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 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 Honorable Commission promulgated Resolution No. 49, Series of 2006 otherwise known as uBusiness 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, BOHECO II is submitting herewith for the Honorable 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 Article V of the Business Separation Guidelines (BSG), as amended, and made integral parts hereof as annexes; and , ERC CASE NO. 2013-045 MC DECISION/August 4, 2014 J)~R~_~ QfJ..~:L.. _ _ __ _ ___ ____ _ _ _ _ ___ _ _ __ 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 January 23, 2014, were issued setting the case for initial hearing on February 18, 2014. In the same Order, BOHECO II 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 (08G), 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 Governor of Bohol and the Mayors of the Municipalities within BOHECO II'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 February 13, 2014, BOHECO II filed its "Pre-Trial Brief'. During the February 18, 2014 initial hearing, BOHECO II appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered. At the said hearing, BOHECO 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-1", inclusive. Thereafter, it conducted an expository presentation of its application. BOHECO II presented, Mr. Saturnino A. Forones, its Internal Auditor, who testified in support of the instant application. In the course thereof, additional documents were presented and marked as exhibits. ERC CASE NO. 2013-045 MC DECISION/August 4, 2014 Pa...g~ 1_Qf..J..:!..._ _ _ _ _ _ _ _ _ _ _ _ __ __ _ _ _ _ The direct examination having been terminated, the Commission propounded clarificatory questions on the said witness. BOHECO II, then, was directed to submit its formal offer of evidence within fifteen (15) days from the said date of hearing. On March 6, 2014, BOHECO II filed its "Formal Offer of Evidence". On July 21, 2014, the Commission issued an Order admitting the "Formal Offer of Evidence" filed by BOHECO II for being relevant and material in the evaluation of this case. DISCUSSION BOHECO II's BSUP consists of six (6) sections as prescribed in the BSUP Filing Package, as follows: 1) Details of Current Structure BOHECO 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, as well as the description of its current processes enumerated as follows: 1.1 Billing and Distribution Process 1.2 Collection Remittance and Deposit Process 1.3 Meter Reading Process 1.4 Disconnection and Reconnection Process 1.5 Materials Receiving Process 1.6 Material Issuance Process 1.7 Inventory Monitor and Issuance Process 1.8 Meter Rehabilitation Process 1.9 New Meter Testing and Sealing Process 1.10 Design and Planning Process 1.11 Trouble Response Process 1.12 Project Management Process 1.13 Capital Expenditures Requisition and Procurement Process 1.14 Non-Capital Expenditures Requisition and Procurement Process ERC CASE NO. 2013-045 MC DECISION/August 4, 2014 .page-? .Q.fJ..:'.:L._ __ _ ____ _ _ _. .__ _ __ __ _ _ _ __.._ 1.15 Membership and New Connection Process 1.16 Customer Assistance-Inquiries Process 1.17 Reconnection Process 1.18 Service Connection Large Process 2) Details of Business Segments In compliance with the BSUP Filing Package, BOHECO II 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 In accordance with the provision of the Business Separation Guidelines, as amended, BOHECO II adopted seven (7) distribution business segments classified as Regulated and Non-Regulated business segments, namely: Distribution Services (DS); (b) Distribution Connection Services (DCS); (c) Regulated Retail Services (RRS); (d) Related Business Services (RB); (e) Non- Regulated Retail Services (NRRS), (f) Last Resort Supply Services (LRSS) and (g) Wholesale Aggregation (WA). 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, commission, testing, repair, maintenance and reading of 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 that support any of the above 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- ERC CASE NO. 2013-045 MC DECISION/August 4, 2014 ..E?.g.~~U?...~L1..i _ _ _.__ _ _ __ _ _ ___~_ _ _ _ _ __ _ _ ____ 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 Supplier of Last Resort services provided by the cooperative, namely: services pertaining to the sale of electricity to LRSS customers, including billing, collection and the provision of basic customer service. e. Wholesale Aggregation (WA) - the distribution utility's service of purchasing electricity in bulk and selling this to other distribution utilities, namely: services pertaining to the sale of electricity to other distribution utilities including billing, collection and the provision of basic customer service. f. Non-Regulated Retail Services (NRRS) - services of DU to the sale of electricity to end-users who are included in the contestable market or to other customers who are not end- users including billing, collection and the provision of basic customer service.

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