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Saint Louis College

City of San Fernando, 2500 La Union
Graduate Studies

COURSE NUMBER: MGMT 113

COURSE TITLE: LEGAL ASPECTS IN THE PHILIPPINES
COURSE FACILITATOR: DR. CLAUDINE B. VALDEZ
PRESENTER: ALMOJUELA, MATTHEW JOSEPH R.
BRITAN, ALEXANDER L.
DE OCAMPO, RODFELYN G.
PARAGAS, BHANDAMME R.

Palawan Electric Cooperative, Inc. (PALECO)

I. COMPANY PROFILE:

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The Palawan Electric Cooperative, Inc. (PALECO) is a non-stock, non-

profit electric cooperative organized and existing under and by virtue of

the provisions of P.D. 269 as amended by P.D. 1645 on January 25,

1974; it was registered with the National Electrification Administration

(NEA) and was granted a fifty-year (50) franchise to operate and supply

electric power services to its member-consumers in its area coverage,

namely the City/Municipalities of Puerto Princesa City, Narra, Aborlan,

Quezon, Brooke's Point, Balabac, Rizal, Roxas, Taytay, El Nido, Araceli,

Dumaran, Cuyo, Magsaysay, Bataraza, San Vicente, Cagayancillo,

Agutaya and Espanola, all in the Province of Palawan.

Table 1 shows the distance of PALECO main office to different municipal

area coverage and the issuance date of its franchise.

MUNICIPALITIES/CIT
DATE FRANCHISED DISTANCE DISTANCE
Y FRANCHISED
ISSUED (KILOMETERS) (NAUTICAL MILES)
AREAS

Puerto Princesa City August 8, 1979 2.5

Aborlan August 8, 1979 62

Narra August 8, 1979 93

Espanola 170

Brookes Point December 8, 1982

Bataraza August 7, 1996 227

Quezon August 10, 1989 157

Rizal August 7, 1996 207

Balabac Island June 9, 1995 147

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Roxas July 11, 1991 145

San Vicente August 7, 1996 166

Taytay July 11, 1991 217

El Nido June 9, 1995 267

Dumaran Island *January 27, 2000 169 91

Araceli Island June 9, 1995 108

Agutaya Island *January 27, 2000 183

Cuyo Island December 8, 1982 156

Magsaysay Island December 8, 1982 170

Cagayancillo Island *January 27, 2000 178

On August 01, 2006, PALECO opted to permanently register with the

Cooperative Development Authority (CDA) under CDA Registration

Number QC-1616-3012. Its By-Laws and Articles of Cooperation were

ratified by the General Assembly on March 10, 2007 conforming to the

provisions of the Cooperative Code of the Philippines otherwise known as

RA 6938. The said By-Laws and Articles of Cooperation were

unanimously confirmed by the member-consumers through district

assemblies conducted by PALECO. PALECO was re-registered with the

CDA on March 17, 2010 under CDA Registration No. CIN-0102040234,

which is in compliance with the provisions of RA 9520 otherwise known

as the Philippine Cooperative Code of 2008. In the Amended Articles of

Cooperation, PALECO is to exist for a term of fifty (50) years from and

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after the date of registration with the CDA. Since its registration with

CDA until present, PALECO has been issued with a Certificate of Good

Standing by the CDA for being compliant with all the requirements under

CDA rules and regulations.

Through this new set-up, PALECO has focused to distribute, promote

and encourage the fullest use of electricity within its franchise area. Its

vision is to be globally competitive and member-customer-owner-focused

electric cooperative. To realize the said goal, PALECO formulated its

mission which serves as the centerpiece of our existence, that is, "To

provide efficient, quality and reliable electric service consistent with

mandated standards.”

II. EXISTING CASE:

The local government of Puerto Princesa, Palawan filed a civil lawsuit

against the city's local electric cooperative over its alleged failure to

provide satisfactory service to consumers.

Parts of the city have been experiencing blackouts for the past 3 weeks.

Mayor Lucilo Bayron led the filing of the case against Palawan Electric

Cooperative (Paleco), armed with the petition signed by over 500

residents of different barangays.

Named respondents in the case are Paleco, its board of directors, and

acting general manager.

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According to Bayron, the city's "electricity crisis" has remained

unresolved since 2009. Paleco acting general manager Nelson Lalas, one

of the respondents, said the cooperative's board will tackle the case

during their upcoming meeting.

Senator Win Gatchalian on Monday backed the plan of the government

to take over the beleaguered Palawan Electric Cooperative (PALECO) to

solve the province's worsening power supply problem.

Gatchalian made the call after President Rodrigo Duterte recently gave

PALECO a stern warning that the national government would be

compelled to take over the power distributor's facilities should frequent

blackouts in Palawan persist until the end of the year.

The senator lamented that exasperated Palaweños have long complained

about the lengthy rotational brownouts they have experienced in their

province, and PALECO's seemingly chronic inefficiency in coming up with

solutions to the problem.

As chair of the Senate Energy Committee, Gatchalian facilitated a

dialogue and held a committee hearing with stakeholders of the PALECO

power situation more than a year ago to determine the cause of the long

brownouts in the province.

The senator said he has been urging the National Electrification

Administration (NEA) to take over PALECO since his committee

conducted a formal dialogue in August 2017 with representatives from

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the Department of Energy, the Energy Regulatory Commission, NEA, the

National Power Corporation, PALECO, Delta P, DMCI Power, and affected

local government units on the frequent lengthy power interruptions in

Puerto Princesa City and the province of Palawan.

"Matagal na natin naririnig ang mga reklamo ng ating mga kababayan sa

Palawan tungkol sa mga mahahabang brownout na nararanasan nila

mula nung ako'y pumasok sa Senado. Bilang chairman ng Senate

Committee on Energy, palagi nating pinupukpok ang PALECO na

solusyunan na itong problema, pero puro pangako na lang ang naririnig

natin sa kanila," Gatchalian said.

PALECO, which has the second largest franchise area in the country,

provides power to 18 municipalities and Puerto Princesa City, serving a

total of 135,284 consumers as of April 2018.

Citing data from NEA, Gatchalian pointed out that each PALECO

consumer experienced an average of 126 power interruptions in 2017,

which he said was beyond the NEA standard of 25 interruptions per

consumer per year. This resulted in an average of 16 hours of power

interruption every month or a total of 187 hours in 2017, according to

Gatchalian. Based on the NEA standard, the acceptable frequency of

power interruption is 45 hours per consumer per year.

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Gatchalian noted that in July 2017 alone, power consumers had to

endure 31 hours of blackouts due to unreliable power providers which

had failed to fulfill their obligations.

During the formal dialogue conducted by the energy committee last year,

the senator found that the frequent brownouts in Puerto Princesa City

were caused by the inability of power plant operator DMCI Power to

provide 25 megawatts (MW) of guaranteed dependable capacity (GDC)

under its 2012 Power Supply Agreement with PALECO. At that point,

PALECO had already slapped DMCI with a total penalty of ?9,949,767.61

from July 2012 to December 2016 due to power generation issues.

For these reasons, Gatchalian has recommended the takeover of

PALECO's operations by the national government to ensure a steady

power supply in the province. However, instead of expropriating the

cooperative and turning over its franchise to more capable entities, the

senator wants NEA to take control of PALECO's daily operations.

"It is the responsibility of NEA to ensure that all covered areas of electric

cooperatives get reliable power. In this case, PALECO's customers are

experiencing serious problems with power outages. NEA needs to step in

now. Let's not prolong this problem further," he said.

Gatchalian also reiterated his call for PALECO to rescind its Power

Supply Agreement with DMCI Power due to the repeated failure of the

latter to deliver the required power capacity for the province. He also

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called for the cancellation of the private power generator's application for

the construction of a new coal plant in the province.

"Underperforming generation companies have essentially robbed the

province of Palawan of its fair share of our country's energy supply.

PALECO should no longer do business with them," he added.

III. RECOMMENDATIONS:

In the course of more than a decade PALECO have repeatedly

unsatisfactorily served its electric consumers forcing the community and

their local LGU to file a case against them. The petition has over 500

signatures coming from different barangays as the basis and evidence to

prove that PALECO have not been doing a satisfactory service. Due to the

filed case against to them, PALECO now must think ways to get over it or

addressed the issues they are facing. In order to fix PALECOs

underperformance they could try and sell their assets to become a

privatized corporation and or allow the NEA (National Electrification

Administration) to categorize them as an ailing EC (Electric Cooperative)

under SECTION 3 AILING ELECTRIVE COOPERATIVES RULE IV STEP IN

RIGHTS OF REPUBLIC ACT 10531. Both the privatization program and

allowing NEA to takeover PALECO may enter the following to address the

cooperative’s underperforming issues:

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 Joint Venture;

 Investment Management Contract;

 Management Contract;

 Operations and Maintenance Contract;

 Equipment Lease Agreement; and

 Concessions.

Joint Venture – is a business entity created by two or more

parties, generally characterized by shared ownership, shared

returns and risk, and shared governance. Companies

typically pursue joint ventures for one of four reasons: to

access a new market; particularly emerging markets; to gain

scale efficiencies by combining assets and operations; to

share risk for major investments or projects; or to access

skills and capabilities.

In the case of PALECO, the cooperative may or should they

enter such venture they might want to sell their assets or

join with MORE POWER since they are already being eyed by

that private company. Joining a venture with MORE POWER

would allow the cooperative to gain funds from the

“investment’ of MORE. PALECO may also choose not to

cooperate with MORE if they wished to make a joint venture

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with neighboring electric producing companies that have

power surplus.

Investment Management Contract – is the professional

asset management of various securities (shares, bond, and

other securities) and other assets in order to meet specified

investment goals for the benefit of the investors. Investors

may be institutions (insurance companies, pension funds,

corporations, charities, educational establishments, etc.) or

private investors.

One of the quickest way to address any organizations issues

is to procure funds and use this funds in the best way

possible and maximize profit in return. As a cooperative it is

relatively much easier to procure funds because they are

already being funded by their members unlike private

institutions with limited funds especially for those sole and

partnership businesses. However, the setback is that the

members also have limited funds and they might not

necessarily have the required finance required to fund and

fix the cooperative’s underperformance. So to gather funds

without needing to ask from outsiders the cooperative

should provide incentives or increase the return of

investment of the members. By increasing the return of

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investment it will serve as a counter-deterrent thus the

members will likely to invest more.

Management Contract – is an arrangement under which

operational control of an enterprise is vested by contract a

separate enterprise that performs the necessary managerial

functions in return for a fee. Management contracts involve

not just selling method of doing them. A management

contract can involve a wide range of functions, such as

technical operation and of a production facility, management

of personnel, accounting, marketing services and training.

Management contract is usually approached by many

organizations and corporations. Organizations may use other

companies to act as proxy for them may it be marketing

services that promotes the organizations and or agencies

that employ temporary workers for the company which is

usually called “agencies” in the Philippines common labor

context. By applying management contract and allow the

other party to recruit and employ employees for them the

cooperative not only don’t need to post job postage to hire

skilled and competitive workers anymore the cooperative

may also be able to cut salary expenses due and employee

maintenance.

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Operation and Maintenance Contract – The term

“management contract” has been applied to cover a range of

contracts from technical assistance contracts through to

full-blown operations and maintenance agreements and so it

is difficult to generalize about them. The main common

features are that the awarding authority engages the

contractor to manage a range of activities for a relatively

short time period (2 to 5 years). Management contracts tend

to be specific and input rather than output focused.

Operation and maintenance agreements may have more

outputs or performance requirements.

Operation and management contract is usually deployed by

the government to handle their infrastructure building

programs. In the water and electricity production operation

contracts generally lasts longer. Operation and management

contract is almost the same as the previous one because

both needs to employ people in order to do the cooperatives

jobs. In this case the techniques in operating the electric

cooperative is given to the contractor and the contractor will

act accordingly. The cooperative is also tasked into paying

the contractor in doing their service.

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Equipment Leasing Agreement – Leasing is also used as a

form of financing to acquire equipment for use and

purchase. Many organizations and companies use lease

financing for the acquisition and use of many types of

equipment, including manufacturing and mining machinery,

vessels and container, construction and off-road equipment,

medical technology and equipment, agricultural equipment,

aircraft, rail cars and rolling stock, trucks and

transportation equipment, business retail and office

equipment, IT equipment and software.

This will most likely the path that PALECO should take in

order to solve their underperforming issue. While it is the

best solution it is also served as the problem maker which

make them receive a file case against them. PALECO and

DMCI Power is under contract that DMCI Power should

produce 25 megawatt power to be provided to PALECO

however DMCI has not been able to produce the necessary

power which is indicated in the contract. Since DMCO has

not been able to produce the necessary power they have

been given penalty by PALECO. So for the mean time

PALECO should use the penalty money to lease equipment

and produce electricity from it. While PALECO is under a

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contract with DMCI the cooperative should not limit

themselves to a single provider as electricity is a necessity

and having more would be just much better than having

less.

Concession – a contractual right to carry on a certain kind

of business or activity in an area, such as to explore or

develop its natural resources or to operate a “concession

stand” within a venue.

This will be the case that allows MORE to be in the picture.

For some time now, MORE have been eyeing many electricity

producing organizations and companies. With PALECO

underperforming every year it will be for the best if they let

other electric producing organizations to takeover and allow

to them operate in PALECO’s area. However, this way would

mean that PALECO will cease to exist.

When applying these suggestion and recommendation to solve PALECO’s

underperforming file case it must be taken note that there will be a

restructuring that must be done. If PALECO changes from cooperative to

a private companies the most likely changes is that the management will

be change and or the officers will be laid off or there will be additional

officers. The members will most likely become stockholders instead and

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will lose major of their powers in the company because their voting power

will now be limited to the numbers of shares they have in the company.

In the case of NEA taking over, NEA will need to send a “supervisor” that

will monitor and check the cooperatives operations in order for the

cooperative to still reach the ratings needed to be not categorize as an

ailing cooperative.

In Republic Act No. 6038 (An Act Declaring a National Policy Objective

For the Total Electrification of the Philippines), electric cooperatives must

be demandable and has an adequate service, however, due to frequent

power interruptions in Palawan, residents of different barangays

petitioned and filed a case against Palawan Electric Cooperative

(PALECO), for failure to provide satisfactory service to consumers. In

here, the National Electrification Administration (NEA) can take over

since according to Republic Act No. 10531, Section 4, NEA has the

power, function and priviledges to interfere to electric cooperative to

strengthen and help them become economically viable. NEA can take

over on the daily operation of PALECO, regulate and fix their governance

problem. But it is not necessarily that NEA will immediately allow other

company to exproriate instead they must partner with Department of

Energy to come up with possible remedy or solutions. The reasons of

power interruptions identified by PALECO are failure to maintain their

lines especially line clearing and old and overloaded transmission lines.

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In here, they can consult NEA and have guidelines regarding these

matters. Since it is hard to get a clearing permit, PALECO must regularly

check their lines so that they will know when they will be needing to file

the necessary documents in getting their permit to avoid obstruction of

trees to their distribution lines; if not, PALECO will be liable under

Presidential Decree 705 (Forestry Reform Law) and/or other existing

environmental laws. Furthermore, for the old and overloaded

transmission lines, they can ask their contractors or have some

amendment on their contract regarding the lifespan of their IPP so that if

it is not already beneficial, they can upgrade or install a new one to avoid

breakdown from time to time due to old-aged engines and excessive

usage. In connection with the above-mentioned problems, the NEA

together with DOE can ask PALECO to develop Sustainability Roadmap

wherein it will indicate there the strategies and rehabilitation activities

for its power distribution system for improving their services, operations,

and economic viability. It will also help the PALECO to identify their main

challenges and work in determining long-term and sustainable solutions.

IV. REFERENCES:

https://www.paleco.net/aboutus.php?page=1

https://www.google.com/amp/s/news.abs-
cbn.com/amp/news/06/24/19/puerto-princesa-city-files-civil-lawsuit-
vs-electric-cooperative

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https://www.senate.gov.ph/press_release/2018/1112_gatchalian1.asp

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