The Extension of Bill Collections of Electric Coops Injected an Unintended Virus that Need Immediate Reassessment….Or it can Put Them and Their Power Suppliers Unnecessarily in ICU.

David Celestra Tan, MSK
11 April 2020
 

While waiting for a COVID-19 Vaccine, the most effective interim measures are social distancing, home-in-place, sanitation, and testing. The government had done a good job, considering the limits of our resources, to move promptly for coronavirus containment strategies and announced a lockdown until April 12, 2020.  Public places and establishments have been closed. And now also public transport. Credit also to the many Filipinos who for the most part cooperated in social distancing regulations…and to our archipelagic country that made it easier to isolate islands of our population.

The government, National and LGU’s, wisely exempted essential services like food, medicines, and utilities like power, energy, and water. And those lockdown toughness to deal with the pasaway’s of our society are welcome for the general good.

There are however well intended government actions that may need to be revisited quickly to avoid their far reaching damage to the electric coops and their ability to provide the vital electricity services during our “shelter-in-place” period and beyond into efforts at economic recovery.

On March 18 the Department of Energy, evidently to mitigate the hardships that will befall our people from the lockdowns, issued an order in “Solidarity with the Country by Deferring payments of obligations and dues for thirty (30) days after April 14, 2020 for the benefit of consumers”.  The Order tried to cover all the bases. Deferred billing by power generators and payment extensions by the fuel suppliers and government agencies. Last in the order, was for “DU’s throughout the country are enjoined to give their electricity consumers a period of thirty (30) days extension of payment for bills falling for the period of 15 March to April 2020. “

It seemed harmless and reasonable enough. However, as a consequence most electric coops in the off-grid areas are not bothering to collect their March billings and not even doing their meter reading. Maybe partly due to the restrictions of the lockdown but mainly because of the DOE order which maybe an over reaction although understandable given the urgency of the pandemic that we all have not experienced before.

Electric power generation companies called NPP’s in these off-grid areas have not been paid their March bill due in the first week of April. Yet they are being asked to continue generating power to serve the customers as also required by the DOE.

 All these in solidarity with the nation in dealing with the coronavirus pandemic that we are suffering but will probably can survive.

A. Lockdown Extension to April 30.

Now it has become necessary to extend the lockdown to the end of the month of April. The NEA and many electric coops are even asking the DOE and ERC to extend the payment extensions virus indefinitely. 

The danger is if the virus of  payment extensions and collection postponements that have been injected into the distribution and generation sector will be extended in its current form without re-calibration, the electric coops will be suffering from its own coronavirus that can be fatal for many of them to the peril of their member consumers. NEA may not be able to provide them enough respirators to keep them alive.

B. Suggested Re-calibration

Before we start talking about recalibration, let us have an understanding on the underlying facts and realities. 

1.Monthly collections are the lifeblood of electric coops. It took decades to instill that community discipline in these islands. Coops are graded for their collection efficiency and for their systems loss. And the willingness to disconnect is critical to the operating health of EC’s. We need to be circumspect before we undo that decades of progress.

2. Electric power service is as essential as food and medicines and very critical like water (and toilet paper?) for the people who are asked to stay home.

3. About 70 to 80% of the electric coop consumers have the ability to pay now. Only 10% are border line and another 10%-15% can be border line after they lose their jobs and close businesses.

4. The problem related to collections during the coronavirus pandemic “ECQ” is the need for social distancing and restriction of public transport. Only 15 to 20% due to marginalized ability to pay.

5. Electric Coops unlike the private distribution utilities do not have sufficient cash reserves to weather a protracted postponement. To start with, as a Coop they are not allowed by the NEA to earn too much money and if they have excessive cash beyond their needs, they are asked to return them to their consumers. Their non-power charge is limited to about 8.5% of sales according to NEA’s “key performance indicators” standards or KPI.  Nonetheless they are required to maintain cash balances equivalent to one to two months operating capital. But that doesn’t include cost of purchased power.  So it is fair to say that, by structure, Electric coops are in a “hand to mouth” cash existence.

6. Power Generators, called NPP’s in the off-grid areas (new power providers), have to buy fuel to keep generating power. This purchased fuel is generally 65% to 75% of their power bill. And under the ERC rules they are not allowed to make money on them. It is purely pass on.  More than half of which they have to wait for a reimbursement from NPC who, although have become increasingly efficient, still takes about 30 days to pay after the end of each month.  This means the more the NPP generates the more cash and credit he incurs for fuel.

7. Fuel suppliers are not necessarily able to extend their collection periods. Many NPP’s will need to go back to their banks to secure additional fuel credit lines. That is hard to do fast under lockdown conditions. It is unlikely that bankers will be sympathetic anyway if you tell him you need more credit lines because you are not able to collect from your customer.

8. This might be a good time for all of us to come to the realization that electric power and Electric Coops are private properties. It is true that EC’s are supervised by the government and they help them in times of need. Nonetheless, EC’s are still private institutions owned by the member-consumers. The power they buy and the electricity they distribute are private commodities. Government has to take care in the extent to which they will interfere in the commercial process. We all understand the pandemic emergency and the need to help our people. From here on, empowering the Coops to not to pay the power supply chain is akin to DTI asking the Supermarkets, Drugstores, and Fast food chains to sell food on credit and asking their suppliers to extend longer credit. And it is not necessary.

C. Fine Tuning Our Approach to Member-Consumer Mitigation

1.One key is not to turn-off the spigot that keeps these Electric Coops going which is their monthly collections. Be mindful that at least 70% of its member consumers have the ability and willingness to pay. Postponing collections is unnecessary and creates bigger problems. After all, using electricity is like buying something. You have to pay for it. The opportunity to not pay is a virus that we don’t want to infect our coop memberships.

2. Instead, help and encourage Electric Coops to adjust their methods of collections under this lockdown and social distancing conditions. Make it easy for member consumers to pay.

a. Keep open their collection counters. Just adopt sanitary and protective procedures. It might surprise many people that more than 50% of the member consumers have their own private vehicle, if you count their motorcycles, to go to a payment center. This is like sending someone to buy food or medicine.

b. Even make emergency arrangements with the remittance centers like Palawan to accept payments. They are so ubiquitous even in remote areas. Absorb the remittance fees if needed.

c. Explore various methods of online payments.

 d. Ask EC managers and directors to campaign to their member consumers not to hold payment. Explain that the Coops buy the power to deliver to them and it needs their support to maintain the services during this difficult time. At the same time encourage them to save on electricity while they are at home.

3. Prorate the payments to their power suppliers

Certainly the EC will not collect their usual level revenue. So in fairness, pay the various power suppliers proportionately.  No favoritism.  Something is better than nothing.

The Pandemic and the ensuing period of recovery is a force majeure event. Electric Coops can be asked to review the impact to their demand and if there is a need to renegotiate temporary reduction in off-take agreements. Once again in a fair and proportionate way.

4. Calibrating the Power of Government

a. Relax the disconnection rules to consumers who are not able to pay due to loss of jobs or lack of access to payment counter. Except for those whose consumption spiked significantly during the lockdown period to discourage excessive consumption when they don’t have to pay…yet. This is something that is within the realm of government to ask public utilities to do but not really to ask them to forego revenue which in the electric service business is one big step towards non-collection and EC insolvencies.

b. Ask the EC’s to offer payment discounts of 3% or so to those who will pay on time.

c. In the immediate future, as part of the recovery period mandate the installation “credit limit” meters similar to prepaid meters. This will encourage electric consumption within the consumers ability to pay. Extend NEA financing for this program. Credit Limit meters are more compassionate to consumers than prepaid meters.

d. A cheaper way is to allow Coops to charge higher for unusual spikes in the consumer’s consumption during this lockdown period and the rest of the year. The surcharge is waived if the consumer pays on time. This will hopefully minimize wasteful consumption beyond their ability to pay.

We are just throwing ideas.  But the main point is that there are things within the government purview to protect the consumers and still minimize the damage to the electric coops. 

Meralco however is another matter. Because they play by different rules.

D. Electric Coops Appeal to Extend the Payment to their Generators and Transmission services providers INDEFINITELY OR UNTIL THE STATE OF THEIR BUSINESS OPERATIONS NORMALIZES.

With due respect to our friends in the EC Sector, this is a very dangerous proposal that unless there are very strict safeguards can lead to serious disappearance of transparency in the finances of the Coop. This will create bigger problems.

Without the pressure of power supply cut-off, who will work hard to collect? And when the virus of no-need to pay mentality seeps into the consumers, it will take years and tough actions for EC to recover. When that happens, the only option is to privatize them or extend major NEA bailouts.   We hope the EC managers who are asking for this, and the NEA that is endorsing it, will rethink the long term negative implications.

What we are proposing above for adjusting methods of collections and proportionate payments to suppliers, instead of outright postponements,  at least addresses the immediate power cut-off problem and does not squander the NEA and the EC’s hard fought gains in collection efficiency and systems loss that took decades to achieve.

It will be a shame if we unintentionally damage the electric coops for the long term in an effort to deal with a short term problem. Let us not take the risk that the government will have to expensively rehabilitate the damaged EC’s that resulted from a miscalculation however well intended. We might damage for the long term the very people that we are trying to help. 

The DOE’s first emergency postponement may be understandable. But a continued postponement of bill collections and payments to power suppliers is unsustainable and will ironically do irreparable damage to the EC system.

We appeal to the DOE and ERC Now to take a more enlightened mitigation program.

Let us encourage the EC’s to collect what they can. And there is a lot out there. It is not too late. 

Keep Safe and Stay Safe everybody!

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
david.mskorg@yahoo.com.ph
matuwid.org

TAKEOVER OF ELECTRIC COOPERATIVES – DOE NEEDS TO ESTABLISH RULES…QUICKLY. (Part 2)

David Celestra Tan, MSK
19 July 2019

Part 2

There are many unclear issues that any takeover by the private sector of an electric coop would be messy. It behooves the Department of Energy to establish clear rules soonest before target areas are thrown into chaos. Some profound aspects that need clarity are the following:

1. Due process – In taking away or not renewing franchises, there has to be due process. The legislative Franchising Committee does not appear to provide for a due process for denying renewals of incumbent franchise holders much less for cancelling an existing franchise and giving it to someone else. The acrimonious state of the PECO takeover of its assets could have been less so had there been true due process in the franchise denial.

2. Valuation and Definition of Distribution Assets
As we have seen, it is not enough to rely on the power of eminent domain to force the take over. At the same time, the right of the former public utility franchise holder to hold on and value its distribution assets may not be absolute because the consequent rates to the consumers will need to be considered especially when the government is effecting a change of franchise holder. It needs to assure the consumers that it is to their better interest and that includes the rates will be better. Only Distribution lines and substations should be part of eminent domain. Expensive real estate and buildings accumulated over the years should not be part of the rate base. Allow the new franchise holder to lease from the owner to avoid disruption of operations while he is looking and setting up his own buildings and base of operations within say five (5) years. Instead of just handing out franchises, the LFC might want to include these provisions in the franchise.

3. Standards of DU Failure – When does an incumbent franchise holder deserve not to be renewed? And when does an EC’s franchise deserve to be cancelled? The term “ailing” is not clear and if we go by the definition of RA 10531, it means an EC is bankrupt and not able to operate. It is not enough for the area Congressmen, Governor, and Mayors to declare that an EC is ailing. (we have a long running joke. Before you can privatize and rehabilitate a coop, you must destroy it first!).

4. Other Policy issues on the takeover of an electric coop?

a) Who makes the decision on whether the coops franchise should be defended? The Coop Board or its member-owners? If you are an owner and your business franchise is being taken away which will marginalize your business value, would you not have a right to fight for it?

b) Who makes a decision on whether the coops assets should be sold? Should it not be the member-owners?

c) If your coop management has been taken over by the NEA, can the member-owners not demand that NEA rehabilitate the coop as required by law under RA 10531? What are your options if NEA is not doing enough to address the problems of the EC under its management?

d) What happens if your EC Board is not doing enough to protect the coop franchise and assets, can the member-owners call for an emergency stockholders meeting and elect a new Board? What are the rules if the EC is registered with the CDA? Would you not remove your Board if they are not protecting the interest of the stockholders?

e) Should the DOE not establish guaranteed service level improvements as a condition for the entry of the private sector? What happens if they fail? Can they also be replaced?

f) Will the consumers in these islands still be entitled to missionary subsidies? How much time is the new private franchise holder allowed to reduce his true cost of generation and the phase out of the government subsidy?

g) What will happen to the IPP’s who have long term contracts with the EC’s? Will their power supply agreements be rescinded or renegotiated by the new franchise holder?

h) Assuming the member-owners are willing to sell, Who determines what is the fair value of their shares and the distribution assets?

i) How about the employees of the EC’s? Will they get fair retirement packages?

j) Will the DU service compliance standards to their franchises obligations be the same for the off-grid and on-grid Distribution Utilities? Will our legislators hold Meralco to the same franchise compliance standards? And will they dare to even suggest a grab of Meralco’s franchise?

DOE and NEA as White Knights

Actually at this stage only the Department of Energy appear to be trying to do something to rehabilitate Paleco through a Task Force created by Secretary Alfonso G. Cusi and had recently issued orders for Paleco, NEA, and NPC to correct the problems that have been identified. Will the provincial and City officials impede the rehabilitation? (The DOE we understand had created similar task forces also for Mindoro and Masbate)

NEA under RA 10531 is mandated to step in when there are management problems of electric coops and service is deteriorating. They then are legally obligated to rehabilitate the EC like Paleco. With the DOE Task Force showing the way for Paleco problem corrections, will NEA, and NPC whose outdated transmission facilities on the 400km long island is part of the brownout problem, step up to really solve the problems on the ground? Or will they be tacit parts of the political campaign to make poor Paleco look terrible to justify its disenfranchisement?

Meanwhile, the DOE needs to see the writing on the wall that the big conglomerates, who can fund lobby campaigns to take over EC franchises of plum areas, will continue to launch hostile takeovers of EC’s and clear rules are needed quickly, and leadership provided, to assure the service to the public does not deteriorate. Maybe all it will take it to tighten and update the rules under the IMC program. (and delete that MC option for Christ’s sake!). Will it not be a wonderful EC world if we also find a solution to the unspoken “politically ailing” coops? Just kidding.

The Epira Law under Section 37 specifically mandates the DOE to supervise the restructuring of the power sector. And the takeover of the franchise areas of Electric Coops is a major tectonic power sector restructuring affecting millions of marginalized consumers.

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