DOF: NEA, not PSALM, should resolve power supply issues of electric cooperatives

The Department of Finance (DOF) has thumbed down the proposal of the Department of Energy (DOE) for the Power Sector Liabilities and Management Corp. (PSALM) to resolve the power supply concerns of ailing electric cooperatives (ECs) in Mindanao as it is not within the state-run firm’s mandate to subsidize their energy requirements.

Finance Secretary Carlos Dominguez III said that the National Electrification Administration (NEA), and not PSALM, should be the Default Wholesale Supplier (DWS) of the cash-strapped Lanao del Sur Electric Cooperative Inc (LASURECO) and the Maguindanao Electric Cooperative Inc. (MAGELCO). This is pursuant to the mandates of NEA under the law.

“While we recognize DOE’s earnest efforts in finding possible solutions for LASURECO and MAGELCO, we also need to take into account the possible consequences of DOE’s proposed arrangement,” Dominguez said in his letter to Energy Secretary Alfonso Cusi.

The DOE has proposed to designate PSALM as the DWS of LASURECO and MAGELCO in the Wholesale Electricity Spot Market (WESM) in Mindanao for 3 months starting Dec. 26, 2021.

Dominguez, who chairs PSALM’s board of directors, said requiring PSALM to be the default supplier of the two ECs would result in additional financial obligations for the firm estimated to reach P218.9 million for this brief 3-month period alone.

As DWS, PSALM will also shoulder additional WESM charges, aside from the WESM prices, every month if the proposed 3-month transition period is extended.

These additional fees include, but are not limited to, market fees, line rental fees, value-added tax (VAT), and other billing adjustments, Dominguez said.

“It is imperative that we come up with a solution to address the continuing challenges posed by LASURECO and MAGELCO in the Mindanao grid the soonest possible time. Delaying further the resolution of the problem would only result in irreparable losses and unfavorable consequences to the National Government,” Dominguez said in his letter.

Dominguez pointed out that PSALM does not receive any subsidy from the government for absorbing the costs of unpaid electricity consumed by the two Mindanao ECs as the national budget does not allocate any funds for this expense.

“PSALM should not be the Default Wholesale Supplier of LASURECO and MAGELCO. To require PSALM to be the Default Wholesale Supplier would essentially result in additional financial obligations for PSALM, contrary to the pronouncement of the Electric Power Industry Reform Act (EPIRA) and its Implementing Rules and Regulations (IRR),” Dominguez said.

He said that PSALM as a power provider does not have any contractual relationship with LASURECO and MAGELCO, and would have to resort to borrowings to fund the expenses of the Agus and Pulangi power plants due to the losses it will incur from the non-payment of energy consumption and additional WESM charges of the two ECs.

Based on relevant laws, Dominguez said it is the NEA that should be the DWS of the two ECs, given that it has the power to act as a guarantor for the purchases of electricity in the WESM by any EC or small Distribution Utility (DU) to support their credit standing, consistent with the provisions of the EPIRA.

With respect to electric coops, the DOE, through NEA, is mandated under the EPIRA to facilitate and encourage reforms in the structure and operations of a distribution utility for greater efficiency and lower costs.

Under the law and IRR creating NEA, it is also tasked to exercise supervision, including over management and operations, of all ECs; and to restructure ailing ECs with the end view of making them economically and financially viable, Dominguez said.

In an earlier statement, PSALM said that as of Oct. 31, 2021, LASURECO’s unpaid obligation to the firm amounted to P12.40 billion, while MAGELCO’s unpaid obligation totaled P 2.91 billion.

PSALM President-CEO Irene Besido Garcia said that because NEA has lending, monitoring, and regulatory powers over ECs, it will be in a better position to guarantee the purchases of electricity of LASURECO and MAGELCO in the WESM in Mindanao. (DOF)