Energy Regulatory Commission Decision
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Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City /d to IN THE MATTER OF THE APPLICATION FOR THE APPROVAL OF THE BUSINESS SEPARATION AND UNBUNDLING PLAN (BSUP), PURSUANT TO SECTION 36 OF REPUBLIC ACT NO. 9136 AND RULE 10 OF ITS . IMPLEMENTING RULES AND REGULATIONS ERC CASE NO. 201 2-048 MC I: AKLAN ELECTRIC COOPERATIVE, INC. (AKELCO), Applicant. x ----------------------- X DOCKETEO DECISION Before this Commission for resolution is the application filed on Juli 31, 2012 by Aklan Electric Cooperative, Inc. (AKELCO) 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, AKELCO 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 office at Poblacion Lezo, Aklan. 2. It holds an exclusive franchise issued by the National .. Electrification Commission (NEC) to operate an electric light and power distribution service in seventeen (17) municipalities of the Province of Aklan, namely: Malay, . Buruanga, Nabas, lbajay, Tangalan, Makato, Madalag, Libacao, Malinao, NutIa, Lezo, Banga, Kalibo, New ERC Case No. 2012-048 MC DECISION/May 14, 2013 Paqe 2 of 15 Washington, Batan, Altavas and Balete, and two (2) northern towns of the Province of Antique, namely: Pandan and Libertad. 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 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. 5. Pursuant to and in compliance with the requirements of the foregoing law, rules and resolutions, it is submitting for the Commission's evaluation and approval, its proposed 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 together with its BSUP, its Accounting Separation Statements for Year 2011 based on its 2011 Audited Financial Statement (AFS). 7. It prays that after due notice and hearing, its proposed BSUP be approved accordingly. On September 3, 2012, the Commission issued an Order directing AKELCO and all the other Electric Cooperatives (EC5) to submit the following: a) Confidentiality Policies and Guidelines; and b) Board Resolution/s on the Statent of Compliance with the applicable provisions of Article 5 of tkSe)BSG. ERC Case No. 2012-048 MC DECISION/May 14, 2013 Paae 3 of 15 On September 21, 2012, AKELCO filed its "Compliance". On October 10, 2012, AKELCO filed its "Submission of 2010 Trial Balance". In the meantime, 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 November 12, 2012, were issued setting the case for jurisdictional hearing, expository presentation, pre-trial conference and evidentiary hearing on December 7, 2012. In the same Order, AKELCO 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. During the December 7, 2012 initial hearing, only AKELCO appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered. At the said hearing, AKELCO presented its proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "B" to "E-3", inclusive. Thereafter, it conducted an expository presentation and presented its witness, Mr. Grecildo R. Torres, its consultant who testified in support of the application. In the course of his direct examination, additional documents were presented and duly marked as exhibits. The direct examination having been terminated, the Commission propounded clarificatory questions on the said witness. In the same hearing, the CorØiission directed AKELCO to submit the following: 1) Detailed/sttucture per Department; 2) Milestones and Highlights; 3) Sef4ation of Employees; 4) Total ERC Case No. 2012-048 MC DECISION/May 14, 2013 Page 4 of 15 Statement of Income; 5) Total Statement of Assets and Liabilities; 6) Statement of Income, Assets and Liabilities; and 7) Cash Flow Statement and Revenue Schedules for the year ended December, 2011. On December 12, 2012, AKELCO filed its "Formal Offer of Evidence" and "Compliance with Directive". On March 5, 2013, AKELCO filed a "Submission of Additional Documents". On May 7, 2013, the Commission issued an Order admitting AKELCO's "Formal Offer of Evidence" and declaring the case submitted for resolution. DISCUSSION AKELCO's BSUP consists of six (6) sections as prescribed in the BSUP Filing Padkage, as follows: 1) Details of Current Structure AKELCO 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 Service Connection Process 1.2 Disconnection Process 1.3 Reconnection Process 1.4 Meter Reading Process 1.5 Customers Assistance-Inquiries, Complaints, Requests and Concerns Process 1.6 Apprehension Process 1.7 Billing Process 1.8 Detailed Procedures in Preparing Payroll 1.9 Bank Collection Process 1.10 Collection Process 4 1.11 Area Offices Collection-R9#qlttance-Deposit Process 1.12 ProcurementProcess /1 1.13 Meter Testing, Sealing h1Rehabilitation Process ERC Case No. 2012-048 MC DECISION/May 14, 2013 Paqe 5 of 15 1.14 Requisition Process 1.15 Receiving Process 1.16 Inventory, Monitoring and Issuance Process 2) Details of Business Segments In compliance with the BSUP Filing Package, AKELCO 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. 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 (WA), f) Non-Regulated Retail Services (NRRS), and g) Related Business Services (RB). a. Distribution Services (DS) - which consist in the conveyance of electricity through a 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 System; and the provision of other services in support of any of the aboyç services. / ERC Case No. 20 12-048 MC DECISION/May 14, 2013 Paae 6 of 15 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 LRSS services provided by a DU, namely: services pertaining to the sale of electricity to LRSS Customers including billing, collection and the provision of basic customer service. e. Wholesale Aggregation Services (WA) - comprises the Distribution Utility's service of purchasing electricity in bulk and selling this to other Distribution Utilities. f. Non-Regulated Retail Services (NRSS) - 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