Title
Electric Cooperative Restructuring Program
Law
Executive Order No. 119
Decision Date
Aug 28, 2002
Executive Order No. 119 outlines a restructuring program for electric cooperatives in the Philippines, with the Power Sector Assets and Liabilities Management Corporation assuming outstanding loans to reduce financial burdens and ensure the long-term sustainability of the cooperatives, while emphasizing transparency, affordability, and reliability in the supply of electric power.
restructuring program
electric cooperatives
executive order

Legal basis and referenced reforms

  • Republic Act No. 9136 (Electric Power Industry Reform Act of 2001; EPIRA) is the governing framework for restructuring the electric power industry, including electric cooperatives (ECs) (WHEREAS clauses).
  • Section 60 of EPIRA directs that, upon effectivity of EPIRA, outstanding financial obligations of electric cooperatives to NEA and other government agencies incurred for financing the rural electrification program shall be assumed by PSALM under a presidential program, with a required rate reduction and repayment conditions upon transfer of control (Section 60 as referenced in the WHEREAS clause).
  • Rule 31 of EPIRA’s Implementing Rules and Regulations reiterates PSALM’s assumption and defines “outstanding financial obligations” and “financing for Rural Electrification” as loans and grants for rural electrification facilities and related restoration, upgrading, expansion, and restoration of rural areas status at the time of grant (WHEREAS clauses).
  • Section 58 of EPIRA mandates NEA to strengthen the technical capability and financial viability of rural ECs and to prepare them to operate and compete in a deregulated electricity market with open access and retail wheeling (WHEREAS clause).
  • Presidential Decree No. 269, as amended by Presidential Decree No. 1645, is referenced for NEA’s additional mandates and its enablement through reorganization (Section 2(d) and WHEREAS clauses).

Policy declaration and program purpose

  • The Program adheres to EPIRA policies to accelerate total electrification of the country (Section 1(a)).
  • The Program requires assurance of quality, reliability, security and affordability of electric power supply (Section 1(b)).
  • The Program calls for transparent and reasonable electricity prices with free and fair competition, public accountability, operational and economic efficiency, and global competitiveness of Philippine products (Section 1(c)).
  • The Program encourages efficient use of energy and demand-side management modalities (Section 1(d)).
  • The Program protects the public interest as affected by rates and services of electric utilities and other providers (Section 1(e)).
  • The Program is designed to reduce the spiraling cost of electricity through PSALM’s assumption of eligible EC obligations, paired with meaningful and lasting reforms (WHEREAS clauses).

Coverage and what the Program includes

  • The Program covers only PSALM’s assumption of outstanding financial obligations incurred by ECs for the purpose of financing the Rural Electrification Program (Section 2).
  • The Program’s eligible rural electrification financing is limited to loans and grants extended to ECs for construction or acquisition, operation and maintenance of distribution, generation, and subtransmission facilities for supplying electric service, and loans for restoration, upgrading, and expansion of such facilities in areas considered rural at the time of loan grant (Section 2 definition).
  • The Program includes: (a) financial, institutional, technical, and managerial restructuring of ECs pursuant to Section 58 of EPIRA (Section 2(a)).
  • The Program includes: (b) PSALM’s assumption of Rural Electrification Loans pursuant to Section 60 of EPIRA (Section 2(b)).
  • The Program includes: (c) amortization of payments to NEA and/or other government creditor agencies for Rural Electrification Loans assumed by PSALM (Section 2(c)).
  • The Program includes: (d) reorganization of NEA to perform additional mandates under Section 58 of EPIRA and in accordance with Section 5(a)(5) of Presidential Decree No. 269, as amended by Presidential Decree No. 1645 (Section 2(d)).

Definitions and designated terms

  • The Program uses “Rural Electrification Loans” to refer to loans and grants extended to ECs for the construction or acquisition, operation and maintenance of distribution, generation, and subtransmission facilities for electric service, and loans for restoration, upgrading, and expansion of such facilities in areas considered rural at the time of the grant of such loans (Section 2).
  • The Program uses “Financing for Rural Electrification” to define the scope of Rural Electrification financing covered for PSALM assumption, as described in the definition of Rural Electrification Loans (Section 2).

Institutional restructuring and implementation duties

  • NEA must submit to DOE a reorganization plan within 30 calendar days from effectivity, containing NEA’s redefined institutional, technical, and financial functions for approval by DOE and the Department of Budget and Management (DBM) (Section 3).
  • After approval of NEA’s reorganization plan, DBM must release the necessary funds to implement the plan (Section 3).
  • DOE must monitor the implementation of NEA’s reorganization plan and submit a report to the Office of the President (Section 3).
  • Within 30 calendar days from effectivity, NEA must submit to DOE a plan of action: (a) to implement and comply with Section 58 of EPIRA to prepare ECs to operate and compete in the deregulated market and strengthen ECs’ technical and managerial capability and financial viability; and (b) to ensure full compliance with Section 5 of Executive Order No. 119 (Section 4).
  • Within 30 calendar days from effectivity, the NEA Board must issue guidelines for the submission by ECs of a Performance Improvement Program (PIP) and/or a Rehabilitation and Efficiency Plan (REP), including preventive and/or disciplinary measures prior to PSALM’s assumption (Section 5(g)).
  • Within 30 calendar days from issuance of the PIP/REP guidelines, each EC must submit its PIP and/or REP for NEA approval, and NEA must approve or disapprove within the period stated in its guidelines (Section 5(h)).

Loan assumption conditions and rate reduction

  • PSALM assumes Rural Electrification Loans only upon compliance by the concerned EC with the requirements in Section 5 (Section 7 and Section 5).
  • Each Rural Electrification Loan must be: (a) duly recorded in the books of NEA and/or the corresponding creditor government agencies; (b) validated by the Commission on Audit; and (c) confirmed by the concerned EC as due and outstanding (Section 5(a)).
  • Each Rural Electrification Loan must be audited by PSALM for verification purposes in accordance with generally accepted accounting and auditing practices (Section 5(b)).
  • The ERC must approve a reduction in the EC’s rates commensurate with the resulting savings from removal of the amortization payments on the Rural Electrification Loan/s; PSALM’s assumption takes effect only upon such ERC approval and upon satisfaction of all other terms (Section 5(c)).
  • Each EC must be current and continue to be current in payment of its obligations to the National Power Corporation (NPC) to be eligible for PSALM’s assumption (Section 5(d)).
  • If an EC is not current in its obligations to NPC, the EC must first submit to NEA a duly executed agreement with NPC containing a sustainable payment arrangement acceptable to NPC before eligibility for PSALM assumption (Section 5(d)).
  • Each EC must comply at all times with NEA policies governing the EC’s relationship with NEA, pursuant to Presidential Decree No. 269, as amended by Presidential Decree No. 1645, and its implementing guidelines, rules and regulations (Section 5(e)).
  • Each EC must cooperate with NEA to prepare for operating and competing under the deregulated electricity market within five (5) years from effectivity of EPIRA, including open access and retail wheeling (Section 5(f)).
  • The PIP and/or REP must cover institutional, technical, financial, and managerial reforms, including financial restructuring, to achieve prescribed efficiency levels covering system losses, collections, electric and customer service, cost control, tariff rate competitiveness, and adequacy in capital and/or financing structure (Section 5(g)).
  • The PIP and/or REP must set specific yearly targets and cover at least the five (5) year period prescribed under Section 60 of EPIRA (Section 5(g)).
  • The ERC must ensure a reduction in EC rates commensurate with the savings due to removal of amortization payments on Rural Electrification Loan/s assumed by PSALM under this Executive Order (Section 6).
  • NEA must assist ECs in rate formulation and application to the ERC (Section 6).

PSALM assumption mechanics and payment agreements

  • Upon compliance by the concerned EC with Section 5, PSALM assumes all Rural Electrification Loan/s, and the EC ceases to be a debtor of NEA or other creditor government agencies (Section 7).
  • PSALM and NEA and/or other creditor government agencies must enter into contracts and/or agreements necessary to undertake payment of the assumed Rural Electrification Loans through an amortization schedule agreed between them (Section 7).
  • Such payment contracts and/or agreements may include mutual stipulations on modification and/or amendments of existing contracts of mortgage and other security between ECs and NEA or other creditor government agencies (Section 7).
  • NEA and/or other creditor government agencies must not release any mortgage and/or other security contracts regarding Rural Electrification Loans assumed by PSALM without the written consent of PSALM (Section 7).

Revocation and repayment consequences

  • The assumption by PSALM of the Rural Electrification Loan/s of an EC must be revoked for failure to continually comply with Section 5 (Section 8).
  • The assumption by PSALM must also be revoked if, within five (5) years from the assumption, an EC transfers ownership or control of its assets, franchise or operations, as provided under Section 60 of EPIRA (Section 8).
  • Upon revocation, the EC must repay PSALM the total Rural Electrification Loan/s, including interest thereon (Section 8).
  • With the consent of NEA, an EC may enter into loan or financing agreements to allow flexibility in sourcing funds and improvement of management system for needed rehabilitation and modernization programs (Section 8).
  • Any such loan or financing agreements must not involve any permanent transfer or control of the EC’s assets, franchise, and operations (Section 8).
  • DOE and NEA must jointly issue guidelines to protect member-consumers of ECs in situations involving such loan or financing agreements (Section 8).

Separability and continued validity

  • If any provision of Executive Order No. 119 is declared unconstitutional with finality by a court of competent jurisdiction, the validity of the other provisions is not affected (Section 9).

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