TARGET PRACTICE: Of pseudo cooperatives and power aggregation

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DAVAO CITY (MindaNews/20 April) – In this country, power distribution is dominated by cooperatives. In Mindanao, there are only three big power distribution companies while the rest of the island is being served by cooperatives.

Under Section 37 of Republic 6038, these electric cooperatives must be non-profit “for the mutual benefit of its members and patrons.” This mechanism is specified so that their members, who happen to be their main consumers, will not be in a disadvantaged position in relation to setting up rates and implementing services.

Under that section, a cooperative is not allowed to “give, pay or receive any rebate or bonus, directly or indirectly, or mislead its members in any manner as to rates charged for its services, and shall furnish service on an area of coverage basis.”

The same law grants the National Electrification Administration (NEA) the authority to oversee these cooperatives in terms of borrowing money or disposing of their properties, based on its Section 18.

But mismanagement is also prevalent in electric cooperatives, just like in other forms of cooperatives. Some have found it hard to pay their debts to power generators and the grid operator, the National Grid Corp. of the Philippines.

Because it failed to manage its cash flow, a cooperative in Luzon has even tapped a private company to run its operations. In Mindanao, many cooperatives have failed to pay their debts because 1) they mismanaged their operations; 2) they failed to collect from their member-consumers.

But are these operating as cooperatives? Hardly. This is mainly because they involve their members only during elections, which by the way are only done annually during general membership meetings. Consumers do not even know about their membership in these cooperatives.

Involving the members in the operations of a cooperative is important because they can ensure that it functions based on its mandate. However, most of the time, only members of the board of directors are involved in its operations and this is very dangerous because there are no safeguards to make sure that it will not go wayward.

Power aggregation

Recently, the Association of Mindanao Rural Electric Cooperatives formed the Power Supply Aggregation Group Corp. as its arm in securing power contracts from power generators.

The idea is that with a big aggregator, it can arm-twist the power generator to sell power at a much lower price, putting the latter at its mercy.  One must remember that in this country, power is a heavily regulated commodity.

Of course, the idea is good if this will bring power rates down. But will it really bring rates down?

For one, setting up another entity is just adding another layer that needs another huge cash vault to run it. Being a corporation, its main goal is to earn profit, but how can it earn if it will sell power to its buyers, the cooperatives, at cheaper prices? Logically, adding another layer is adding more burden to consumers.

Another huge issue is that can the aggregator compel its rogue buyers to pay when they are its members? How will those that are in good financial standing feel when they are made to carry the burden of the others? Naturally, the existence of the aggregator will be threatened even before it could start.

In one of its rulings last year, the Energy Regulations Commission pointed out that cooperatives should directly deal with the generators in securing power contracts as the aggregator still has no personality to negotiate in their behalf.  The commission is aware that if the cooperatives falter in their obligations the generators cannot rely on the aggregator to shoulder the burden. (Next: Cut-throat competition)

(MindaViews is the opinion section of MindaNews. Carmelito Q. Francisco is managing editor of the Davao City-based Mindanao Times.)

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