(NAR) VOL. 25 NO. 1 / JANUARY - MARCH 2014
I. RATIONALE
Republic Act (RA) No. 10531 mandates the National Electrification Administration (NEA) to strengthen the electric cooperatives, help them become economically viable and prepare them for the implementation of retail competition and open access. Towards this end, NEA lays down parameters geared towards the preclusion of an EC from being declared as “Ailing” wherein NEA shall exercise step-in-rights.
Specifically, Rule IV, Section 19 (b) of the IRR of RA 10531 provides that the NEA shall develop financial and operational parameters to serve as triggers for intervention of the NEA in the EC operations at least one (1) year prior to being categorized as ailing EC: Provided, that the obligations as set forth in paragraphs (a) and (b) of this section, shall be developed within sixty (60) days from the issuance of the IRR and shall be approved by the DOE: Provided further, That subsequent amendments thereto shall likewise be approved by the DOE.
Likewise, Rule IV, Section 20 of the IRR of RA 10531 provides that the NEA shall, within sixty (60) days from the effectivity of the IRR, submit a set of standards to determine the classification of the ECs guided by the parameters of the IRR: Provided, that the NEA shall classify the ECs based on the standards mentioned in the preceding sentence: Provided further, that the classification shall serve as the baseline and/or benchmark of the particular EC.
II. BACKGROUND
NEA assessment shows that some ECs are confronted with a range of challenges such as mounting liabilities arising from poor governance, low collection efficiency, high system loss, and/or unresponsive rate methodology. Early detection of these problems is necessary to ensure continuous delivery of efficient and reliable service to member-consumers without threat of power supply disconnection. Pursuant to RA 10531, NEA hereby formulates parameters to ensure the ECs’ operational efficiency and financial viability through the provision of appropriate intervention.
III. OBJECTIVES
IV. POLICY STATEMENT
It shall be the policy of NEA to prescribe a mechanism for the assessment of the performance of ECs, to provide financial, institutional and technical assistance if necessary, to institute preventive and remedial measures, and to exercise step-in rights when circumstances warrant.
PARAMETERS
The parameters and standards to be used in the assessment of the EC financial condition and operational performance are as follows:
Parameters Standards 1. Cash General Fund At least one (1) month power cost and non- power cost 2. Collection Efficiency 95% 3. Accounts Payable-Power Current/Restructured-Current 4. Profitability Positive 5. Networth Positive 6. System Loss 13%
VI. CLASSIFICATION OF ECs
a. Has negative networth for the last three (3) years. For this purpose, “Negative Net Worth” shall mean as the financial condition of an EC in which its liabilities are greater than its assets;
b. Has accumulated ninety (90) days arrearages in power supply purchases from generating companies and power suppliers/sources of electricity, and the transmission charges by the TransCo or its Concessionaire;
c. Unable to provide electric service due to technical and/or financial inefficiencies including, but not limited to, high systems loss, low collection efficiency, below standard current ratio, operating loss, huge liabilities and/or institutional problems such as governance, and non-adherence to NEA and EC policies;
d. Unable to efficiently perform its electric distribution utility obligations or continue in business due to organizational, external and internal factors;
e. When an EC has failed to meet other operational standards established by NEA; and
f. Unable to set up or continuously support its Wholesale Electricity Spot Market prudential requirements.
VII. NEA INTERVENTIONS
A. Green ECs
1. Monitor and assess the EC operation based on quarterly reports and historical and projected cash flow template.
B. Yellow ECs - NEA, upon its determination, shall exercise any or a combination of the following actions:
1. Monitor and assess the EC operation based on quarterly reports and historical and projected cash flow template
2. Provide financial, institutional and technical (FIT) assistance
3. Conduct roundtable assessment
4. Conduct special audit/examination on EC operation
5. Monitor the implementation of the EC Operation Improvement Plan (OIP) as supported with Performance Commitment Contract
6. May designate an AGM and /or PS when the interest of the EC so requires pursuant to PD 269, as amended by PD 1645 and RA 10531
C. Red ECs - NEA, upon its determination, shall exercise any or a combination of the following actions:
1. Strictly monitor the EC operation based on monthly reports and historical and projected cash flow template.
2. Appoint or assign a PS or AGM or assign third persons to the Board until the NEA decides that the election of a new Board of Directors to lead or manage the EC is necessary. The NEA may also create a management team for the purpose.
3. May enter into partnership with a qualified private sector investor, under any of the following frameworks:
a. Joint Venture;
b. Investment Management Contract;
c. Management Contract;
d. Operations and Maintenance Contract;
e. Special Equipment and Materials Lease Agreement;
f. Concession;
g. Merger;
h. Consolidation; and
i. Other variants deemed applicable to the EC.
4. If within a reasonable period, not exceeding 180 days from its takeover, the NEA determines that such EC is unable to continue its operation in the ordinary course of business, it may:
a. Institute structural reforms such as conversion of the ailing EC to either a Stock Cooperative registered with the CDA or a Stock Corporation registered with the SEC; or
b. Institute appropriate legal actions such as Extrajudicial Foreclosure and Insolvency (Voluntary/Involuntary) and Bankruptcy proceedings, without prejudice to the right of the creditors.
VIII. GUIDELINES
IX. RESPONSIBILITY
The NEA shall be responsible in the implementation of this policy and submission of required reports to the DOE and JCPC.
X. EFFECTIVITY
These implementing guidelines shall immediately take effect fifteen (15) days following the publication in a newspaper of general circulation. Let three (3) copies hereof be filed with the University of the Philippines (UP) Law Center pursuant to President Memorandum Circular No. 11, dated 09 October 1992.
(SGD) EDITA S. BUENO
Administrator
*Approved by the NEA Board of Administrators on November 6, 2013.
*Approved by the Department of Energy (DOE) per transmittal dated December 12, 2013.