Notes on electric coops

September 10, 2006 at 2:37 am Leave a comment

An electric coop (or REC, or rural electric cooperative, the legal nomenclature used) is owned and managed by the consumers who are also its members who elect the members of the board and appoint a GM to manage its day-to-day operation.

An REC can be either a non-profit non-stock or a stock coop. If a stock coop, the member-consumers own stocks and can be paid out dividends when a profit is made. SORECO II (Sorsogon Electric II) is an example of a stock coop where the member consumers buy stocks on monthly installments, many at P5.00 per month. I forgot the maximum limit to the amount of stocks one can buy but there is, so that no one individual can have a controlling share.

A coop can either be registered or not registered with the Cooperative Development Authority (CDA). If registered it is exempted from income and other taxes, which is an incentive for coops to be registered since it reduces the electric rates that will be charged its member consumers. Both are supervised by the CDA as far as their coop legal responsibilities are concerned, like calling for a regular assembly and the like.

A coop belongs to that group called Distribution Utility (DU). Since distribution is still regulated under the Electric Power Industry Reform Act (EPIRA) a coop must file for its power rate with the ERC (Energy Regulatory Commission) before it can bill its customers.

In its application for power rate (or tariff) the coop factors in its O&M (operation and maintenance) expenses, a reinvestment fund (for upgrades and expansion), other expenses that may be allowed by the ERC, and the desired RORB (Return on Rate Base) which is the provision for profit so that members can have dividends. If non-profit, non-stock there is no such provision so that the power rate would be lower. Normally though member/consumers of stock coops would not mind a higher electricity rate because they would share in the profit, if we go by the experience of SORECO II.

The big difference then between an REC and a DU that is privately-owned like Meralco (Lopezes) or Davao Light (Aboitiz) is the nature of ownership and control of the utility.

If the DU is a coop the consumers themselves own and control and manage the utility firm and any profit made (if stock coop) are shared among the consumers who are of course the people in the community. The coop is responsible to the members who are also its consumers who are also its owners. Conflict of interest is very minimal because the owners and the consumers are the same people.

If the DU is a private company a few wealthy individuals own, control and manage the utility firm. Any profit made is shared only among them. Since the objective of businessmen is to maximize their profit you will easily understand why such racket as the overcharging case of Meralco happened, where it had to pay us back P29B in overcharges illegally collected in ten years.

That is not surprising; after all, Meralco in its website says: “Our investors are our principals” and explains that more fully in this wise:

“We believe in honoring the trust they have placed upon us. We therefore have the responsibility to: apply professional and diligent management to ensure the financial viability of the company and maintain a fair and competitive return for our investors; and conserve and enhance our investors’ assets, and respect their interests.”

Replace “investors” with “member/consumers” and you can say that too for a coop. In some ways the coop partakes of some character of socialism because the social character of a distribution company are there for all to see: common ownership, common control through an elected board/committee and sharing of profits (if it is a stock coop).

But since people are not angels there is a lot of educational work to be done among the member/consumers to set up and run a genuine cooperative. The board for example is susceptible to temptation, to use a religious term. Many coops in the 70s, when Marcos issued his PD ordering the setting up of coops, started correctly and with very good intentions. Along the way, “temptations are hard to resist”. That is why, of the 119 coops today, only about 1/3 are classified as Class A, many in Class D and E and mired in debt and operational losses due to inefficiencies and overpricing of materials, etc.

One thing common among these failures is this: in time the local businessmen who are also the rich men in the area and the politicos saw their opportunity in the coops to make money. They devised ways to get into the board and control it. At the same time, they did not conduct educational campaign among the members to make them ignorant of their duties and responsibilities as member/consumers so they can get away with their evil scheme.

With many coops in sorry state and in debt the government, instead of setting things aright through ways of strenthening the coops wants to have thse coops sold to private companies through what is called an Invstment Management Contract (IMC) or outright buy. The IMC is the more clever way of privatization because a private company, after 5 years of managing and controlling a coop operations can buy the coop for a song.

EPIRA as it applies to electric coops

Provision of RA9136:

SEC. 57. Conversion of Electric Cooperatives. -Electric cooperatives are hereby given the option to convert into either stock cooperative under the Cooperatives Development Act or stock corporation under the Corporation Code. Nothing contained in this Act shall deprive electric cooperatives of any privilege or right granted to them under Presidential Decree No. 269, as amended, and other existing laws.

As one can see in the above Section 57, EPIRA says that coops have the option to convert to:
1) stock cooperative under CDA or
2) become a stock corporation under the Corporation Code under which private companies operate.

The problem with this provision is that only stock cooperataives can shift their supervision from NEA with its “martial law power” to the CDA. A non-stock cooperative is not allowed.

But as in the case of SORECOII where members obtain stocks at five pesos per month or more (but there is a limit) a stock coop can always make its bylaws say , for example, that member-consumers will have a stock worth only a certain value that will be affordable to all.

The stock coop can also limit its profit to say 1 or 2 percent, not the 12% allowed by law for utilities so that the consumers will have low electricity rates. The figure can even be lower, depending on the decision of the member-consumers. In fact, the members can decide to put their profits into an additonal fund for upgrading their coops. This will refute the argument of some coops that when a NEA-affiliated coop becomes a stock coop under CDA it shifts from being a service-oriented coop to a profit-oriented coop.

Entry filed under: Contribution. Tags: , , , .

Take Full Control of the Coop For Ochie Baes

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