In this interview with National Electrification Administration (NEA), it was clearly noted by Administrator Edita S. Bueno that the country’s electric cooperatives are very much on their shaping-up mode to keep pace with the envisaged competitive environment in the restructured electric power industry.

By Myrna M. Velasco

Overall, how do you assess the performance of the country’s electric cooperatives (on technical, financial and management spheres) – if referenced on their operational state from the passage of the EPIRA in 2001?

ESB: NEA conducts an annual categorization of ECs in order to evaluate their operating performance based on established criteria with Category A+ being the highest and E the lowest. The criteria used for evaluation includes points on amortization payment to NEA, system loss, collection efficiency, payment to power supplier/s, non-power cost (operating expenses), result of financial operation and energization performance.

In 2001, forty-seven (47) were rated Category A+ on top of sixteen (16) Category A ECs while twenty-one (21) were Category E. The latest assessment for performance year 2008 shows that sixty-two (62) ECs attained Category A+, twelve (12) were Category A while twelve (12) remained under Category E or non-complying.

Another system of evaluation had been introduced, which is the Overall Performance Assessment of Electric Cooperatives by Color Coding.  The objective is to measure the overall performance and capability of ECs using critical operational parameters other than the yearly categorization rating, and to determine the level of supervision/assistance which could be extended by NEA. This system covers 70% of the categorization results and presently allotted 30% for performance parameters on governance, particularly on audit findings, institutional strength and financial operating results.  Simply adopted as determining colors are green for good performing ones thus less NEA intervention and more stability in operations; yellow for borderliners with case-to-case basis supervision, and red for poor, performing ECs with definite NEA intervention.  If you notice, the colors follow the traffic lights, thus making the system so easy to understand.  Under this scheme, NEA pays more attention, and provides more assistance to the yellow and red ECs.  Using year 2008, out of 100 ECs, there are 62 green, 29 yellow and 9 red from 2007’s 50 green, 40 yellow and 12 red ECs.

As can be seen, more and more ECs are becoming “star performers”, which increases their value to their stakeholders, particularly to their member-consumers. We, however, recognize our continuing concerns with most ECs in the Autonomous Region in Muslim Mindanao (ARMM) and Region V, which need more attention to turn their operations around.

From pre-deregulation to now, have the concerns and issues of the electric coops changed? Why and how?

ESB: During pre-deregulation, ECs had their captive market: all the consumers in their own respective franchise areas. With the advent of the EPIRA environment, the consumers (ultimately to the household level) will be given the option to choose their power supplier once the Open Access and Retail Competition is implemented.  It is therefore mandatory for the ECs to further improve their service delivery in order to satisfy their customers.

With the present cost recovery tariff methodology (without provision for profit), the ECs are having difficulties in financing their projects to be able to compete with their counterparts in the industry. It is good to note that ERC is beginning to consider an alternative rate methodology for ECs.

Taxation (franchise and business taxes), being imposed to the ECs by the Local Government Units is likewise a major concern. While this is a pass-on cost, it will be an additional burden to the ECs’ member-consumers, of which ninety-two percent (92%) are residential and concentrated in rural areas. Of these residential consumers, records further show that thirty percent (30%) are marginalized or poorest of the poor.

On prospects of introducing competition in the deregulated or restructured power industry, it is widely-perceived that the electric coops would be the “weak link” in the chain, how can that hurdle be addressed? It had been well-known that more than half of the ECs’ performance are on the ‘dismal side’, has the numbers changed positively?

ESB: As mentioned earlier, the profile of the ECs has changed for the better since the start of the EPIRA. The number of Category A+ ECs had increased with the technical, institutional and financial reforms that NEA had introduced. These programs include enhancement of NEA’s lending facilities; the implementation of the Macro Engineering Assistance Program (MEAP), an over-all technical program wherein NEA assists the ECs in system analysis, operation and maintenance, and in the inspection, testing, commissioning and preventive maintenance of their substations; and the formulation and/or enhancement of various institutional policies to strengthen the performance of ECs’ Board of Directors and General Managers.  The ECs’ access to the capital market has further been enhanced through joint efforts of the NEA-LGUGC co-financing partnership where funds are made available to ECs with the necessary guarantees.

As a result, if in the past, the ECs were considered “weak links,” we can now say that the industry and the people are now taking notice of what they have accomplished. Though admittedly, there is more to pursue in terms of institutional strengthening.

In a global energy conference (World Forum on Energy Regulation) in Washington DC in 2006, you have questioned World Bank’s pronouncement on the ‘regulatory weaknesses’ confronting Philippine ECs, if you would assess at this point, do you think there are already valuable lessons that our ECs can share with the world – as far as improving services and performance are concerned?

ESB: The World Bank’s pronouncement of “regulatory weaknesses” of ECs is unfortunate, since its data was 2004, and it was two years late (2006). Since then the ECs have undergone change in several forms.  Its regulator, the ERC, has issued decisions which have affected their operations; some of which were supportive and some were restrictive.  At present, we can give credit to a number of excellent ECs in the major islands of the country, such as those in Cebu, Bohol, Misamis Oriental, Davao, Bataan, among others. Their contributions are very significant to the advancement of the Rural Electrification Program and the ECs. They are generally responding well to the regulation process since the ERC has adopted a strong public consultation system.  In summary, with the achievement of more than 8.417 M consumer connections serving almost 50 M Filipinos and nearing 100% barangay energization, the Philippines now serves as Asia’s Model in the implementation of the Rural Electrification Program.  This can be validated by the number of countries and their officials who have come to study the program.

Among the valuable lessons true only to the ECs is Task Force Kapatid (“Brotherhood”) Program which has been institutionalized. The program pools together volunteers, equipment, and other resources from different ECs to mobilize immediate response in times of crisis and other undertakings within the energy industry.  We can all remember the 2006 horrifying devastation brought by four super typhoons which hit the Bicol Region, including Southern Tagalog, Samar/Leyte and Panay.  It was the ECs through this Task Force which had been able to quickly restore power in these areas right before Christmas.  There are many more testimonies on this undertaking. This covers raising hope, uplifting spirits, helping people and the economy to get back to its feet, among others.

Another is the involvement of the local community on how ECs can improve the delivery of their services. This is through the establishment of a Multi-Sectoral Electrification Advisory Council (MSEAC), which promotes private sector and civil society’s participation in policy and decision-making on EC concerns.  This also helps develop and search for new and emerging leaders in the community.

The ECs are not perfect, but it is a fact that they have contributed significantly in the literacy, economic uplift, and betterment of the country, and our people’s lives.  They should be given the full support and the chance to show what they can do and deliver.  The ECs do represent local governance-a set of people determining their future and what they can contribute to the country’s overall growth.

On the regulatory front, how will the ECs be able to cope up with policy changes on tariff setting (like migration to PBR) and reduction on system loss?

ESB: The ERC has recently established the Rules for Setting the Electric Cooperatives Wheeling Rates or RSEC-WR, which is a new rate-setting methodology for ECs to migrate from their current cash flow regulatory basis. As such, NEA is working closely with the ERC to help the ECs adapt this new system. In addition, our partnership with the National Engineering Center (NEC) of the University of the Philippines has likewise made possible the conduct of Certification Programs in Electric Power Distribution System Engineering and Utility Economics, making the ECs more confident in facing the current changes on rate-setting.

These programs likewise contributed to the reduction of the national average system loss from 15.68% in 2001 to 12.92% as of November 2009. It is worth mentioning that a good number of ECs have so far recorded impressive system loss namely: CEBECO III (5%), MORESCO I (5.52%), BOHECO I (6.98%), DASURECO (7.06%), CEBECO II (8.17%), TARELCO II (8.76%), TARELCO I (8.92%), DORECO (9.05%), PRESCO (9.25%), MOELCI II (9.32%), NEECO II-Area II (9.43%),  PENELCO (9.55%) and CEBECO I (9.69%), among others.

With the much-anticipated advent of open access, do you think the electric coops are now ready to face up with that phase of reforms in the industry? What are the preparations being undertaken to position them as ‘worthy players’ in a competitive marketplace?

ESB: The ECs are ready to face up with the reforms in the industry; in fact, some of them are being proactive by engaging with local and foreign partners to make them more competitive in the industry. A number of ECs have engaged in renewable energy projects: INEC’s 25 MW wind energy, BOHECO I’s 2.5 MW Sevilla and ROMELCO’s 900 KW Cantingas mini-hydro projects, and ILECO I and II’s biomass project. ECs in Regions VI, VIII and X have likewise formed aggregations to contract their power requirements. These efforts are aimed at reducing power rates in preparation to open access.

What about their chances as prospective trading participants or as off-takers from the WESM?

ESB: There are thirteen (13) ECs that are registered as direct WESM  participants, namely: ALECO, BENECO, CASURECO II, INEC, ISELCO I, KAELCO, SORECO I, TARELCO I, TARELCO II, NEECO II-Area I, PENELCO, BATELEC I, and MOPRECO. Four (4) ECs have pending applications with PEMC (CANORECO, FLECO, BATELEC II, CENPELCO) while five (5) ECs are registered as indirect participants (PANELCO I, ABRECO, SORECO II, PANELCO III and ISECO).

These ECs are of different classifications and categorization – their success at the WESM will only encourage other ECs to participate.

Moreover, a Memorandum of Agreement (MOA) was signed on May 28, 2009 between NEA and the Philippine Electricity Market Corporation (PEMC) to promote the empowerment of the ECs under the jurisdiction of NEA to manage efficiently their electricity supply requirements in a competitive power industry through market-based initiatives.

I understand that multilateral lenders, like ADB and IFC, have been extending help on the EC’s capacity-building initiatives and on improving their performance, can you share more info on these.

ESB: The proposed ADB loan for the Rural Electric Cooperatives Development Project (RECDP) amounting to Php 2.3 B will be extended to selected ECs for use in their respective distribution system upgrading programs. NEA is waiting for the National Credit Council (NCC) clearance/endorsement as a requirement prior to NEDA’s approval and subsequently the ADB Board.

NEA has also signed a Memorandum of Agreement (MOA) with ERC and IFC, in addition with PHILRECA and NRECA and various EC Associations to collaborate on the crafting and formulation of the “Electric Cooperative Distribution Planning Manual,” for use in the preparation of their Capital Expenditure projects and programs and for the institutional planning and development of ECs.

What are the probabilities that mergers or consolidations would become the ‘order of the day’ for ECs?

ESB: The existing law on ECs, specifically Presidential Decree 269, Section 30, allows the merging of any one or more cooperatives provide certain conditions are met, such as the approval of two-thirds of the total votes cast by each cooperative.

Aside from complying with the above administrative requirement and other possible political concerns, mergers would further find difficulty with the requisites for the grant of the ECs’ franchise, which authority is now vested in the House of Representatives.

Merger and consolidation of ECs at this time may be considered bloody and divisive, thus unhealthy for the country.

As such, NEA continues to consider other possible options and thus had developed and implemented programs to help reduce power rates particularly in the area of system loss reduction, being a component of the EC’s tariff.  This is a continuing concern.