THE second of the three radical ideas for reshaping the Philippines’ electricity ecosystem, after abolishing or comprehensively restructuring the Department of Energy itself, is to do away with the bastardized concept of electric cooperatives. I say bastardized because, just as with many good ideas the country borrows from elsewhere, the Philippines has managed to make a complete mess of it. In the US, where this particular idea started, electric co-ops have been fantastically successful for nearly a century. Here, they are largely irrelevant and ineffective, and most actually exist illegally.

Electric cooperatives developed in the Depression-era US as a means to carry out rural electrification, which is the exact same reason the model was originally used here, as well as in many other countries. The Rural Electrification Act of 1936 provided for the formation of co-ops and established a federal loan fund to help them get started.

The reasoning for doing this was quite simple, and again, it is no different than that applied here or anywhere else. Electricity distributors were unwilling to connect sparse rural populations located across large areas far from existing infrastructure, as that would be unprofitable. Bundling those individual consumers into one large customer in the form of a co-op, however, was a better business proposition and one that generation firms were eager to accommodate. All the generator would have to do was sell electricity in bulk to the co-op; building and maintaining the distribution network to deliver that electricity to individual customers — who, because they each have a small stake in the co-op are called “member-owners” — were the co-op’s problem, for which it could turn to the federal government for assistance.

In the US, this has been extraordinarily successful. There are an occasional few exceptions, but most co-ops are very healthy financially, even to the point of being able to offer their member-owners additional perks such as credit unions, health insurance programs and scholarship programs for students on top of generally reasonable electricity rates. And more to the point, as a result of the development of electric cooperatives, the US long ago achieved near-total electrification of the entire country.

While 100 percent electrification remains elusive in the Philippines, it must be said that electric cooperatives have contributed substantially to expanding it. Co-ops were a product of the early years of the era of Marcos the Elder, and at the time, several high-level delegations of lawmakers and administration officials even visited the US to see for themselves how to do it right. However, the current messy state of Philippine electric cooperatives can also be attributed to Ferdinand 1st, as it was his Presidential Decree 1645 in 1979 that greatly expanded the authority of the National Electrification Administration (NEA), overriding most of the basic, “democratic” principles that made the concept of co-ops work in the first place.

The existence of the NEA is one reason electric cooperatives do not function as well as they should. For one thing, under the 1987 Constitution, all cooperatives — no exception is made for electric cooperatives — are to fall under the jurisdiction of the Cooperative Development Authority (CDA), a fact that the CDA routinely points out, sometimes in bitter terms (for reference, see the opinion piece from 2020 shared on the CDA’s official website at https:// cda.gov.ph/updates/the-greatest-social-injustice-electric-cooperativesare-not-cooperatives/).

Under the current framework, the Energy Regulatory Commission (ERC) regulates electric co-ops’ activities as distribution utilities, as it should, but the NEA, rather than the better-suited CDA, regulates electric co-ops’ business operations and governance. This rather clunky arrangement has resulted in all sorts of confusion because since the NEA’s main responsibility is electrification, not business management, there is a considerable degree of regulatory overlap. Partly as a result of NEA’s meddling and partly as a result of its basic incapacity to regulate cooperatives’ management and governance in a manner appropriate to the business model a cooperative represents, less than half — 53 out of 121 co-ops across the country — are performing adequately, meeting the set of basic benchmarks spelled out by the NEA itself.

Of course, all that suggests that the best solution might be the elimination or reconfiguration of the NEA rather than eliminating co-ops. However, a point that has been raised by several officials is that co-ops may have simply become obsolete, as their original objective of “rural electrification” has largely been achieved, at least to the extent possible in this country; the considerable part that remains — something around 10 percent of households — is too problematic for even the cooperative model, and needs different approaches.

One bit of evidence that supports this assertion is that almost every existing co-op has a franchise area wherein the significant majority of its customers or “member-owners” are in urban or suburban environments. This causes their management to handle them more like conventional distribution utilities than cooperatives because they have to, but because they are still classified as cooperatives, they are able to skirt all of the rules and standards that apply to regular corporations and turn them into political fiefdoms. Better then, it is suggested, to convert the co-ops into what they really are, distribution utility companies — ideally by making shareholders of the “member-owners” who do not now enjoy the rights and responsibilities that term implies because of the special-interest capture described above; or otherwise letting the co-ops be absorbed, as some have over the past few years, by better-equipped and better-run private sector companies. Then, the NEA, if it is to continue to exist, can be redirected to its original, pre-PD 1645 purpose of expanding electricity access to the remaining hard-to-reach parts of the country.