It Jipproved for % ENERGY REGULATORY COMMISSIO Posting Z San Miguel Avenue, Pasig City Wwv 'Rc,G .Ph
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':;;,GIJLATORy c. ~~ O~ ~.Ar\..\:) ~ ~ Republic of the Philippines It Jipproved for % ENERGY REGULATORY COMMISSIO Posting Z San Miguel Avenue, Pasig City wwv 'rc,g .ph IN THE MATTER OF THE APPLICATION FOR APPROVAL OF THE BUSINESS SEPARATION AND . UNBUNDLING PLAN (BSUP) PUSUANT TO SECTION 36 OF R.A. 9136 AND RULE 10 OF ITS IMPLEMENTING RULES AND REGULATIONS ERC CASE NO. 2013-047 Me DOCKBTBD Date:,P.f;~-.QJ .._2O.13 ~y:.._._-f}._ _ ~.. DECISION Before this Commission for resolution is the application filed on April 11, 2013 by Davao del Norte Electric Cooperative, Inc. (DANECO) 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, DANECO alleged, among others, that: 1. It is an Electric Cooperative (EC) duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It has its principal offices at Kilometer 100 National Highway, Municipality of Montevista, Compostela Valley Province; ERC Case No. 2013-047 MC DECISION/November 11, 2013 Page 2 of 18 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 Cities of Samal and Tagum and in the Municipalities of Asuncion, Kapalong, New Corella, San Isidro, Talaingod, all in the Province of Davao del Norte and in the eleven (11) Municipalities of Compostela, Laak, Mabini, Maco, Maragusan, Mawab, Monkayo, Montevista, Nabunturan, New Bataan and Pantukan in Compostela Valley Province; 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 ERG shall ensure full compliance with this provision" ,. 4. Pursuant to the said mandate of the EPIRA as well as Rule 10 of its 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 ECs; 5. Pursuant to and in compliance with the requirements of the foregoing law, rules and resolutions, it 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 and Accounting Separation Statements prepared in accordance with the ACAM for EC, based on its Audited Financial Statements (AFS) for the Year 2011; ERC Case No. 2013-047 MC DECISION/November 11, 2013 Page 3 of 18 7. Finally, it is likewise submitting 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 (BSGt;'')s amended; and ''0 8. It prays that after due notice and hearing, its BSUP and ACAM be approved by the Commission. 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 May 20, 2013, were issued setting the case for jurisdictional hearing, expository presentation, pre-trial conference and evidentiary hearing on June 20,2013. In the same Order, DANECO 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, at least ten (10) days before the scheduled date of initial hearing. It was 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. 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 June 11, 2013, DANECO filed its "Pre- Trial Brief'. During the June 20, 2013 initial hearing, only DANECO appeared. No intervenor/oppositor appeared nor was there any intervention/opposition registered. ERC Case No. 2013-047 MC DECISION/November 11, 2013 Page 4 of 18 At the said hearing, DANECO presented its proofs of compliance with the Commission's posting and publication of notice requirements which were duly marked as Exhibits "A" to "F-1", inclusive. Thereafter, it conducted and expository presentation and presented its lone witness, Ms. Josephine N. Armidilla, its Accountant, who testified in support of the application. In the course of her direct examination, additional documents were presented and duly marked as exhibits. The direct examination having been terminated, the Commission propounded c1arificatory questions on the said witness. DANECO was, then, directed to submit its revised Accounting Separation Statement, BSUP model and formal offer of evidence. On July 11, 2013, DANECO filed its "Compliance with Directives" and "Formal Offer of Evidence". On October 29, 2013, the Commission issued an Order admitting DANECO's "Formal Offer of Evidence" and declaring the case submitted for resolution. DISCUSSION DANECO's BSUP consists of six (6) sections as prescribed in the BSUP Filing Package, as follows: 1) Details of Current Structure DANECO submitted its. profile, the diagrammatic representation of its existing corporate structure, the description of the activities and functions undertaken by each of the different department or juridical entities, as well as the description of the current process enumerated as follows: 1.1 Meter Reading and Billing Process; 1.2 Collection Process; 1.3 Disconnection Process; 1.4 Reconnection Process; 1.5 New Service Connection; 1.6 Complaint Process; 1.7 Procurement Process; '1 ERC Case No. 2013-047 MC DECISION/November 11, 2013 Page 5 of 18 1.7.1 Capital Expenditure Procurement Process 1.7.2 Non-Capital Expenditures Procurement Process 2) Details of Business Segments In compliance with the BSUP Filing Package, DANECO 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: 1) Distribution Services (OS); 2) Distribution Connection Services (DCS); 3) Regulated Retail Services (RRS); 4) Last Resort Supply Services (LRSS); (5) Non-Regulated Retail Services (NRRS); (6) Related Businesses (RB); and (7) Wholesale Aggregation (WA). a. Distribution Services (OS) - This segment has the following distribution services: 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); planning, maintenance, augmentation and operation of the Distribution System; 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); b. Distribution Connection Services (DCS) - This segment has the following distribution connection services - Provision of capability at each Connection Point to a Distribution System to deliver electricity or 'I ERC Case No. 2013-047 MC DECISION/November 11, 2013 Page 6 of 18 to take electricity from the Connection Point and the conveyance of electricity: (a) from the facilities of persons which are directly connected to the Distribution System; (b) from the Connection Point to the facilities of persons which are directly connected to the Distribution System; planning, installation, maintenance, augmentation, testing and operation of Distribution Connection Assets; and provision of other services that support any of the above services. c. Regulated Related Services (RRS) - This segment comprises the provision of regulated retail services, pertaining to the sale of electricity to end-users who are included in the Captive Market, and includes: Billing, collection and the provision of customer services to such end-users in their capacity as electricity consumers; 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; and sale of electricity to end-users who are included on the Captive Market. d. Last Resort Supply Services