The Dance Around the Truth and Reality of the Governments Role in EC Failures

David Celestra Tan, MSK
11 February 2019

We can only solve a problem if we identify, recognize and willing to face them and get to their root causes. In this posting MSK will try to help resolve the issue by bringing up the role of government agencies and offices as institutions in the deterioration of problematic electric coops, something people are not willing to talk about officially. This is not to blame specific individuals but to provide insights for all of those who are in positions to do something to address the institutional problems.

Batobatosalangit.

1. To have stronger Coops, we need a stronger NEA

NEA is first in line mainly because they are first in line in the administration, guidance, and arbitration of Electric Coop problems. In addition to PD 269 they have been mandated by the Epira Law of 2001 under Section 58 to undertake programs to strengthen the Electric Coops in the face of deregulation and privatization. Further, The Epira Law in one stroke strengthened the Coops financially by condoning all their debts. Can you imagine how rich you will be overnight if your home loan, car loan, and business loans disappear?

In 2013 the New NEA Law was passed as RA 10531 that strengthened NEA further in dealing with and rehabilitating ailing electric coops. 10531 provided NEA with a clear path towards the whole range of remedial measures starting with taking over management by putting in Project Supervisors. And all the way towards privatization under conditions spelled out under Section 20 of the 10531 IRR.

In other words all the tools and mandates have been provided for NEA to be stronger as an institution. Epira Law of 2001 even authorized it to increase its capitalization to P25 billion to enable to help Coops in the face of deregulation. So when we say we need a stronger NEA, we mean stronger Administration and implementation of its mandates.

All the management and operational problems of Coops can be addressed in manageable time if NEA acts firmly and effectively. What gets in their way are the other government institutions specially the local politicians, the CDA, and the Local judges. Of course that is not to say that NEA itself is not playing politics and favoritism.

Coop General Managers now have a lot more complex responsibilities and need more skill sets not only in technical management but also in finance, regulatory, power supply procurement, people management and even politics. We wish that in its mandate under Section 58, NEA would have a more proactive system of developing General Managers like an ” NEA Academy”. They should also allow the appointment of Asst. GM’s as we understand they are disapproving. EC’s must be infused with capabilities to operate more as utilities and not just as a Coop.

Nonetheless, as a government agency whose budget is subject to the inquisition and approval of Congress, NEA had to play ball with Congressmen on their concerns with their local cooperative.Then they become part of the problem instead of the solution.

2. The Cooperatives Development Authority or CDA

General Managers and Board of Directors and sometimes with the support of their local elected officials would use a threat of registration with the Cooperative Development Authority or CDA if they wish to keep control of the Coop and cannot get their way with NEA. The extreme case is Daneco where there is now a Daneco-NEA and a Daneco-CDA each operating parts of Daneco. Batelec II and Paleco are other cases.

For a while those who registered with the CDA for the official purpose of availing of tax exemption privileges of Cooperatives, actually got away from the administrative supervision of NEA and abused their independence. The financial tailspin of several coops can be attributed to this lack of supervision. And NEA initially reacted and ostracized these CDA registered EC’s (about 15 of them) and refused them financial assistance without assurance of management oversight.

One of the achievements of the DOE Secretary Almendras was the passing of the new NEA Law under Republic Act 10531 that reiterated NEA’s administrative supervision of all EC’s, including those registered with the CDA, which did not have the organization to provide administration and guidance for electric cooperatives to function and behave properly. Theoretically it clear the air between NEA and CDA.

The CDA as a government agency is also susceptible to political pressure and many times will issue Cooperative registration to a 2nd group even if there it is clearly an adversarial move against a NEA registered cooperative. CDA had contributed to the disruption of restructuring efforts at a problem Coop.

We wish NEA and CDA will coordinate better in registering Coops, and not allow for it to be used as a way to grab control of the Coop just because they disagree with NEA.

3. Napocor’s contributions to the brownouts and/ or high cost of missionary subsidies

A realistic look into the causes of brownouts would show that Napocor, which retained the provision of transmission services, is as much the cause of recurring brownouts as the local cooperatives management of its distribution system. Napocor is known to be slow and unsuited to create new solutions to generation and transmission services. And it is not entirely their fault. As a government agency, they are subject to strict procurement rules and to them “it is better to be legal than to be right” resulting to less than optimum equipment and service decisions. That is to avoid anti-graft cases specially their senior officers who are close to retirement. What kind of bold solutions can be expected from them?

Napocor is observed to have become unmotivated in solving transmission problems and upgrading their substations and transmission lines after their control of dispatching as Systems Operator was removed and transferred to the local EC. This is observed in Palawan where 30% of the brownouts are reportedly due to outdated transmission lines and congested power substations. In Oriental Mindoro, the North South transmission line that was damaged in 2015 and 2016 remain to be unusable after spending hundreds of millions on more than a hundred kilometers of 69kv lines, because a 5 kilometer stretch had a “right of way problem”. Observers feel that had Napocor been inspired enough to look for a solution they could have found an obvious option, saving the residents of seven towns from more than a year of brownouts up to now and the Electric Coop from using temporary generators that do not run steadily and require higher missionary subsidies.

Alarming Rise in Missionary Subsidies

On the subject of Missionary Subsidies,the alarming increase of these subsidies by more than P10 billion in five years from 2015 to 2020 had been noted by the Bayan Muna Party-List. Most of the increase is coming from islands still served by Napocor with rental generators and waiting to be privatized. This could be a case of confusion among the government agencies on which one of them will initiate privatization of power generation. The EC’s themselves seem to have lost interest in holding biddings for their power supply when the DOE under Secretary Cusi steadfastly refused to allow the use of “unsolicited proposals” and “swiss challenge” biddings, a favorite scheme for supply manipulation, as legitimate method of Competitive Selection Process. Meanwhile Napocor is paying an average missionary subsidy of P15 per kwh mostly for rental generators that are not reliable in the first place compared to an average of P5.00 per kwh for those served by private new power providers.

The unreliability of Napocor’s transmission system and their use of rental generators cause frequent power interruptions that many customers blame on the EC because they are the service provider to the customers.

4. The EPIRA Law IRR.

Part of the problem of Napocor is its confused identity. The Epira Law mandated it to be the provider of power delivery services in the off-grid areas. After the sell-off of its assets, the residual Napocor will become mainly a provider of power in the missionary areas. The Epira IRR however mandated it to privatize the power generation in the off-grid areas whenever possible without being clear on where it will privatize and where it should continue for the long term.

That put Napocor in a quandary on whether to privatize or install more efficient permanent power generation facilities. To be safe they ended up only contracting temporary rental generators that have limited operating hours and high fuel costs.

We wish the Department of Energy will initiate the clarification in the IRR that Napocor will privatize power generation in the remaining 7 of the 14 largest islands where Napocors average missionary subsidy is P15 per kwh compared to P5 per kwh for the privatized islands. Napocor should be mandated clearly to be the provider of power generation in the small and unviable areas so that it can install more efficient and permanent long term facilities, of course with safeguards and added requirement to reduce missionary subsidies. The next wave of medium sized islands can also be identified and be reviewed for privatization in say 10 years. Perhaps Senate Energy Committee Chairman Win Gatchalian can help?

5. The Energy Regulatory Commission

The inability of the ERC to handle efficiently the applications of the EC’s for capex and facilities improvements have caused significant delays in the repair and upgrading of power distribution facilities. We wish they can set up a special department and Commissioner who will specialize in Electric Coop matters. They can improve the process of applications and approvals including faster issuance of Provisional Authorities for Capex programs already reviewed and endorsed by NEA.

Many Coops are dying on the vine waiting for ERC. Meanwhile, they are crucified by their member consumers.

6. The Local Politicians

Many Coops would feel that the interference of Philippine style politics as a democratic institution in their affairs must be listed as the first contributor of Coop failures. But no one would dare talk about it for fear of reprisal. No one also seems to take seriously the prohibition in the RA 10531 that EC’s must be“ insulated from local politics.”

Many politicians appear to consider the EC in their area as a government unit that they can meddle with because EC’s structurally look like government units. Their board of directors is elected by its members, it is administered by the government through NEA, whom the Congressmen can pressure through the budget hearings, and it gets government fundings many times. But Coops are private and owned by its members.

We can understand if local politicians express concern over the bad electric services and get involve in solutions. However, it is only a matter of time before they elect their proteges to the Board of Directors and its General Manager, many times using their influence to make election opponents back out.
Actually, it should be noticed that local politicians bother to get involved in having influence in the EC and assuring that its management is in the “right hands”because they have vested interests and in areas where power generation is supposed to be privatized, that include sponsoring power generation contractors.

Worse, these sponsored power generation contractors more often than not are overpriced and not guaranteed to provide reliable service. In several islands the political protection of these non-performing power generators precluded the local Coop from requiring contract performance or contract rescission, resulting to continuing brownouts that are then blamed on the Electric Coop.

In many areas the local government officials are enticed by politically powerful entrepreneurs who view the power generation business as purely a profit making venture and not as a public service. Then the local EC is on its way to Board takeover and eventual ruin.

The provision in RA 10531 that EC’s must be “insulated from local politics”, is reciprocal meaning local politicians should not get involved in EC elections and EC’s similarly should not get involved in local elections. There are also local politicians who claim that it is the EC managers and directors who are seeking their involvement in getting Barangay support.
However it starts, the intrusion of local political influence and meddling leads to Coop mismanagement and bad decisions and eventual ruin.

7. The local justice system

When the NEA decides to replace bad and corrupt management and even directors, many of them go to the local judges and secure TRO’s specially when there is a support from the local politicians. While most of the TRO’s have merit, many Judges issue TRO’s that clearly lacked basis and obviously intended only to impede the NEA.

In one island it took a year before the unfortunate TRO was lifted and reported to have caused further losses in the tens of millions while the undesirable managers were able to keep themselves in control of the Coop.

8. The Department of Energy

The Department of Energy for its part is supposed to be the supervising authority over NEA per PD269 and Epira Law Section 58. For many years the DOE tended to keep its hands off how NEA deals with the EC’s specially in resolving turmoils in problem EC’s. Many times NEA needs a directional push and policy support in dealing with EC situations with resolve. For example, in cases where the problem in an island is the slow remedial measures from NPC in fixing transmission services, NEA’s appeal to NPC would have greater impact if the DOE is lending its moral support. After all NPC is supposed to be also under the DOE.

The DOE is known to have willingly or unknowingly participated in political intrusion into the EC in power supply contracting by approving Swiss Challenge CSP’s lobbied for by local politicians even if they know that it is a mechanism for CSP manipulation, and prescriptions for high rates and missionary subsidies.

But then, reforms can be made and the current DOE seems to have awakened to this reality and started the process of looking into deep-seated problems at the Coops that hopefully can lead to long needed solutions.

We heard that DOE Secretary Alfonso G. Cusi will push for an enlightened way to strengthen problem Electric Coops and that is not by take over of the private sector but by the take over by successful and stronger electric cooperatives. Of course, good rules still have to be made to really make it work but this would be a new and logical era for ailing coops rehabilitation.Let us hope he can make it really happen.

Then the government starts becoming part of the solutions instead of the problems.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
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david.mskorg@yahoo.com.ph