Philippine Rural Electric Cooperatives
A Primer
By
James A. Nichols, III
Navigant Consulting, Inc.
August 1999
With supporting Information by
Jose “Viking” Logarta, Jr.
Institutions Involved in Rural Power Supply
The rural electrification program in the country could be said to have formally begun with the National Electrification Administration Act in 1969, which declared as national policy the total electrification of the countryside on an area coverage basis[1]. The National Electrification Administration (NEA), a state corporation, is the core government agency responsible for conducting rural electrification. It accomplishes this through the establishment, coordination, and substantial regulation of Rural Electric Cooperatives (RECs), of which there are currently one hundred nineteen (119) throughout the country. The rural electric system, as it exists today in the Philippines, was completely established under the aegis of NEA.
The 119 RECs themselves, now that they are established, are the institutions that are carrying out rural electrification today, with the assistance and oversight of NEA. They are non-stock, non-profit corporations that provide electric distribution under a franchise issued by NEA for a geographic territory. The RECs purchase power at wholesale (primarily from the National Power Corporation - “NPC”), construct, own, and operate electric distribution facilities, and provide retail electric service to its member-consumers. As a public utility, the retail tariffs of the RECs are regulated by the Energy Regulatory Board, a quasi-judicial body that regulates pricing for all electric utilities in the country.
Most of the capital required for the establishment of the RECs and for the funding of economically-justifiable system extension and rehabilitation projects has been provided through loans by foreign-donor banks to NEA. NEA re-lends these funds, which have historically received a government guarantee, to individual REC’s who are responsible for the repayment. The RECs also receive substantial funds from the Philippine government country-wide assistance programs. These funds are allocated annually by Congress and are coursed through individual legislators for their discretionary spending. NEA coordinates and handles the actual disbursement of these subsidy funds to the individual RECs. Such funds from the Government are considered subsidies to the rural electric program and are used typically for capital requirement portion of “non-viable” line extensions and projects (i.e., projects that do not meet the NEA economic return criteria to qualify for loan-funding).
The National Electrification Commission (NEC) is the franchising authority of the RECs. The existing NEC is composed of the board members of the National Electrification Administration (NEA). The NEA board members essentially serve two distinct functions: as NEA board members and as NEC commissioners. Although its rate regulatory oversight of the RECs has since been transferred to the Energy Regulatory Board (ERB), it was actually the NEC which regulated the tariffs of the RECs under NEA.
NEA, along with the NPC and the Philippine National Oil Company (PNOC), is an “attached” agency to the Department of Energy (DOE)[2]. It effectively comes under the supervision of the DOE and the Secretary of Energy sits as ex-officio Chairman of the Board of NEA. The DOE essentially sets energy sector policy[3], including that on electricity utilization and distribution, and the NEA effectively implements that DOE policy relative to rural electrification. In particular, DOE sets the Government’s agenda on electrification coverage goals and timetable. NEA is tasked as the primary (but not necessarily only) agency for achieving that through the RECs.
NPC, because of its charter, has the obligation for providing the electric bulk power requirements (through generation and transmission) of the country (in general), including that of the RECs. RECs may enter into supplemental power purchase agreements with Independent Power Producers (IPPs) but, to date, relatively very little energy is supplied from entities other than NPC. Most RECs are connected to the integrated network transmission grids of NPC and purchase power at an ERB-regulated rate that varies by major national grid (Luzon – Visayas – Mindanao). Power supply to RECs on isolated islands is provided by the Strategic Power Utility Group (SPUG) of NPC, which installs and operates small diesel engine-generator sets that supply power at a single standard subsidized rate throughout the isolated grids.
As a government corporation, NEA works closely with the National Economic and Development Authority (NEDA), which reviews all of the projects of the RECs to be included in the government’s Medium Term Public Investment Plan. NEDA evaluates the projects against set economic and financial parameters (an economic return of 15% and a financial return of 12%; the EIRR is considered binding) to ensure that the NEA and RECs allocate loan funds to only those that are viable. Non-viable projects are recommended by NEDA for subsidy from the government or other entities. NEDA also plays a major role in fund sourcing, particularly grants and loans from international financing institutions.
The ERB regulates both the tariffs for NPC sales to the RECs as well as the REC’s retail tariffs to their member-consumers. However, the loan agreements between NEA and the RECs specify (pursuant to PD 269) that the borrower’s rates be subject to the approval of NEA also in order to insure achievement of the loan purposes. In practice, NEA approves any tariff modifications prior to submittal to the ERB.
Rural electrification in the country is generally understood to be all of the Philippines except for the metropolitan Manila area and about sixteen other urban centers. These are served by private investor-owned utilities and one municipal utility. To some extent, rural electrification involves more than just the 119 RECs. There are un-electrified communities in the franchise areas of many of the private distribution companies also – but the scope of such is much less than with the RECs.
Relative Importance of the RECs
The RECs are the most dominant retail supplier group of electricity in the Philippines except for Meralco itself. Figures 1 and 2 shows the approximate 1998 peak demands and energy in each major grid for the RECs, the non-Meralco investor-owned utilities (IOUs), and for the direct-served customers of NPC.
Figure 1
Figure 2
As of 1998, the RECs accounted for more than half (51%) of all connections (9.234 million) in the country. The area under their franchises encompassed 61 percent of all potential household connections. Meralco, on the other hand, accounted for 39 percent of all connections and its area for 30.6 percent of national potential connections.
Countrywide, the RECs supply about 1,600 MW and 7,000 GWh (Figure 3 and Figure 4). Meralco, in comparison, provides about twice the peak demand of the RECs countrywide and almost three-times the energy.
Figure 3
Figure 4
