Viewpoint: UPDATE: WAR ON CORRUPTION IN BUSECO AND OTHER ELECTRIC COOPERATIVES IN MINDANAO

By the Mindanao Coalition of Power Consumers

November 5, 2017

from David Tauli

In the period 2013-2014, sixteen electric cooperatives in Mindanao entered into anomalous contracts for power supply for their consumers with the 405-MW coal power plant of the FDC Misamis Power Corporation, located in Villanueva, Misamis Oriental. Power supplies to consumers under these contracts were started in 2016, and now have resulted in increased rates of two pesos or more per kilowatt-hour being paid by the consumers of the deviant electric cooperatives, compared with the rates in other ECs that have not entered into the exorbitantlypriced contracts.

The power supply contracts with FDC Misamis were entered into by the electric cooperatives without going through a least-cost procurement process, which is required by the Electric Power Industry Reform Act of 2001 (EPIRA) for distribution utility companies to perform in contracting power supply for their captive consumers. As a result of violating the safeguards provided for consumers by the EPIRA, the electric cooperatives contracted for long term power supply from FDC Misamis at a price of 5.40 pesos per kWh at a time when power supply from other coal plants were being offered at a price of around 4.10 pesos per kWh. It is estimated that the exorbitant profits earned by the coal power plant from the anomalous power supply contracts will exceed one hundred billion pesos (PhP 100 billion) during the 25 years of commercial operations of the power plant. Each consumer of the deviant electric cooperatives in Mindanao is now contributing an average of two hundred pesos (PhP200) per month, for the next 15 to 25 years, to the ill-gotten profits of the FDC Misamis Power Corp.

Since 2014, the Mindanao Coalition of Power Consumers (MCPC) has been campaigning among the officers of the electric cooperatives to have the highpriced power supply contracts renegotiated or rescinded. Only one electric cooperative, the SOCOTECO II serving South Cotabato, had the anomalous power supply contract cancelled. The general managers and members of the board of directors of the fifteen other electric cooperatives did not see anything wrong in contracting for exorbitantly-priced power supply for their consumers. So the MCPC redirected its campaign against corruption in electric cooperatives, and worked on the activation of the member-consumer-owners (MCOs) of the electric cooperatives to take up the campaign against corruption in their own ECs.

The member-consumer-owners (MCOs) of the Bukidnon Second Electric Cooperative (BUSECO) are the first group in Mindanao to organize themselves mainly for the purpose of reducing the high prices that they are now paying for their electricity. The leaders of the MCOs will be holding public forums this week in various places in Bukidnon to inform the public about the reasons for the high rate of electricity in BUSECO, and to determine what actions can be carried out by the MCOs to reduce the rates of electricity.

The rest of this paper suggests the next step that should be taken by the MCOs of BUSECO towards reducing the rates of electricity, and discusses the legal grounds for the action.

File a Petition with the RTC to Annul the Anomalous Contract The first thing that the MCOs of BUSECO should carry out is to file a petition with one of the regional trial courts in Malaybalay to annul the power supply contract entered into by BUSECO with the FDC Misamis Power Corp for power supply from the 405-MW coal power plant in Villanueva, Misamis Oriental.

The grounds for the annulment of the high-priced power supply contract with FDC Misamis is that it was entered into by the officers of BUSECO in violation of the requirement of the EPIRA that distribution utility companies should carry out least-cost procurement of power supplies for their consumers. The EPIRA provision to that effect is in Section 23, paragraph 3, of the EPIRA, which states: “A distribution utility shall have the obligation to supply electricity in the least cost manner to its captive market …”

In practice, the “least-cost” requirement means that the DU should carry out public bidding for its power supplies, or implement equivalent means for ensuring that it will contract for the least-cost power supply for the type and quantity that is required for the consumers.

Proof of the Violation of EPIRA by BUSECO in Power Supply Contracting When the petition is filed to annul the BUSECO power supply contract with the FDC Misamis Power Corporation, it should be accompanied by valid proof that the responsible officials of BUSECO violated the EPIRA requirement to carry out least-cost procurement of power supply for consumers. The proof would be provided to the RTC by attaching to the petition a copy of the Decision of the Board of Administrators of the National Electrification Administration in the administrative case (NEA Adm. Case No. 23-03-15) filed against the then OIC General Manager of BUSECO, Deiter Hoff Arellano, that resulted in the dismissal of OIC-GM Arellano for “dishonesty, grave abuse of authority, grave misconduct and conduct prejudicial to the best interest of the cooperative and its memberconsumer-owners”.

The pertinent findings of the NEA on the culpability of OIC GM Arellano for violating the EPIRA requirement for least-least procurement of power supply, as stated in the NEA Decision, are the following:

1. “He [OIC General Manager Deiter Arellano] willfully did not invite GNPower, in particular or other power suppliers for that matter who may have lower rates, to submit a proposal / letter of intent thus depriving the MCOs to avail of a cheaper power rate resulting to the latter’s detriment.” 2, “It is important to note from the documents submitted by the parties, that GNPower offers only PhP4.09 to PhP4.1240 per kWh, as indicated in the Power Purchase and Sale Agreement (PPSA) between BUSECO and GNPower executed on November 22, 2012 and filed with the ERC on February 12, 2014. This rate is significantly lower as compared to the PhP5.40 rate of FDC Misamis as indicated in the ERC applications, ERC Case No. 2014-152 (2-8MW) and ERC Case No. 2014-162 (10MW).”

In their investigation of the charges against OIC-GM Arellano, the NEA found that prior to contracting with FDC Misamis for power supply at a price of 5.40 pesos per kWh, Arellano already knew that power supply can be contracted from GNPower at a price of around 4.10 pesos per kWh. But Arellano did not invite GNPower to submit a proposal to supply the power requirements of BUSECO. Moreover, when Arellano submitted the power supply contract to the Board of Directors of BUSECO for approval, he withheld from the Board the information that power supply can be contracted from GNPower at a price lower than the price “negotiated” with the FDC Misamis Power Corp.

The foregoing facts, discussed in the Decision of the NEA, would constitute valid proof that the power supply contract with FDC Misamis was entered into by BUSECO in violation of the EPIRA, and has been grievously harmful to the consumers of BUSECO. Therefore, the anomalous contract should be annulled. Replication of the Anti-Corruption Campaign in Other Electric Cooperatives

The battle against corruption and for the reduction of rates of power supply is being waged now by MCO’s of BUSECO against the officials of the electric cooperative. But this is just one battle in the anti-corruption campaign against electric cooperatives in Mindanao. The BUSECO case could serve as the model for MCOs in other electric cooperatives in carrying out the campaign against their officers (general managers and the members of board of directors). The manner in which the officers in other electric cooperatives have been cheating their consumers through high-priced electric power supply is the same as the way it was done by BUSECO officers. The way for MCOs to stop being cheated by their officers is to replicate in their own electric cooperatives what is being done by BUSECO member-consumer-owners.

David A. Tauli

President, Mindanao Coalition of Power Consumers