QuestionsQuestions (NEA)
The guidelines are anchored on Republic Act (RA) No. 10531, which mandates the National Electrification Administration (NEA) to strengthen electric cooperatives, support economic viability, and prepare for retail competition and open access. The document also specifically references Rule IV, Sections 19(b) and 20 of the IRR of RA 10531 regarding parameters/standards for intervention and the classification baseline/benchmark.
NEA identified that some ECs face mounting liabilities and operational issues (e.g., poor governance, low collection efficiency, high system loss, and rate methodology problems). Early detection is intended to ensure continuous delivery of efficient and reliable service without threatening power supply disconnection.
The objectives are: (1) formulate and prescribe standards for classifying ECs by financial, technical, and institutional performance; (2) ensure early detection of adverse condition as triggers for NEA intervention; (3) institute preventive, remedial, and mitigating measures before an EC is declared ailing; and (4) implement alternative options for ailing ECs.
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%.
Green ECs are those that meet and comply with all the standards in the parameters table, thus needing less NEA intervention.
Yellow ECs are those that do not comply with any of the listed parameters and fall under a watchlist group. If an EC fits any of the circumstances under Section 20 of the IRR of RA 10531 but has not yet been declared ailing by NEA, it is classified as Yellow.
Examples include: (1) negative networth for the last three (3) years; (2) accumulated ninety (90) days arrearages in power supply purchases and transmission charges; (3) inability to provide electric service due to technical/financial inefficiencies (e.g., high system loss, low collection efficiency, below standard current ratio, operating loss, huge liabilities) and institutional problems (e.g., governance, non-adherence); (4) inability to perform distribution utility obligations or continue business due to internal/external factors; (5) failure to meet other operational standards established by NEA; (6) inability to set up or continuously support Wholesale Electricity Spot Market prudential requirements.
It is defined as the financial condition of an EC where its liabilities are greater than its assets.
A Red EC is one that has been declared and classified by NEA as an “Ailing EC” after observance of due process under the policy to be issued for that purpose.
Green: primarily monitor and assess based on quarterly reports and historical/projected cash flow template. Yellow: monitor/assess, provide financial/institutional/technical (FIT) assistance, conduct roundtable assessment, conduct special audit/examination, monitor implementation of an EC Operation Improvement Plan (OIP) with a Performance Commitment Contract, and may designate an AGM and/or PS when required. Red: strict monthly monitoring; appoint/assign a PS or AGM or third persons to the Board and/or create a management team; may partner with a qualified private sector investor under various frameworks; and if unable to continue within 180 days from takeover, may institute structural reforms or legal actions (e.g., extrajudicial foreclosure and insolvency/bankruptcy) without prejudice to creditors.
The OIP is a remedial/mitigating plan required when the EC’s condition deteriorates to fall under Section 20 circumstances but before declaration as ailing. NEA may afford a recovery period of not more than one (1) year to implement a doable OIP submitted to NEA for approval.
It must include any one or more of: (1) Debt Repayment Plan; (2) Capital Expenditures Plan; (3) Operating Expenditures Plan; (4) System Loss Reduction Program; (5) Collection Efficiency Improvement Program; (6) Manpower Reorganization Plan.
Within 180 days from implementation, if there is no concrete or significant improvement, the OIP is set aside and becomes wholly inoperative. NEA shall then declare the EC as an ailing EC.
Yellow: monitor and assess based on quarterly reports and historical/projected cash flow template. Red: strictly monitor based on monthly reports and historical/projected cash flow template.
For Yellow, NEA may designate an AGM and/or PS when the interest of the EC and the program so requires pursuant to PD 269 as amended by PD 1645 and RA 10531. For Red, NEA may appoint or assign a PS or AGM or assign third persons to the Board until NEA decides that election of a new Board is necessary, and NEA may create a management team.
They include: (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.
NEA may 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; and/or institute appropriate legal actions such as extrajudicial foreclosure and insolvency (voluntary/involuntary) and bankruptcy proceedings, without prejudice to the rights of creditors.
ECs must submit Monthly Financial and Statistical Report (MFSR), Monthly Engineering Report (MER), and other relevant reports within prescribed periods. NEA must create a composite group to review/assess/validate performance using 5-year historical performance and 10-year monthly projections (cash flow template), recommend interventions, and enforce performance standards. NEA must submit quarterly compliance reports to the Department of Energy (DOE) and Joint Congressional Power Commission (JCPC), including summary of compliance and recommendation for rehabilitation or takeover.