ERC urged to simplify “consumer unfriendly” power rate-setting tool

Published March 11, 2021, 6:29 PM by Hannah Torregoza
https://mb.com.ph/2021/03/11/erc-urged-to-simplify-consumer-unfriendly-power-rate-setting-tool/

The Energy Regulatory Commission (ERC) should simplify its power rate-setting mechanism as its complex and ambiguous nature leads to questionable over-recoveries, making it “consumer unfriendly.”

Senator Risa Hontiveros made the call after the Manila Electric Company (Meralco) slashed its power rates for a second straight month in March, factoring in the approved refunds ordered by the power regulator.

But while Meralco’s P13-billion refund to consumers is good news, the decision to grant the power distributor’s petition “obscures the original sin” that created the problem of over-recovery, if not fraud, in the power industry.

“Magandang balita sana na bababa ang babayaran natin sa kuryente. Pero kung tutuusin, soli-bayad lang naman ito sa sobra nilang nasingil,(it should have been good news since it will lower our electricity bills. But in reality, this is just return payments for their overcharging),” Hontiveros explained.

The senator is referring to the rate-setting methodology called Performance-Based Regulation (PBR) that the ERC adopted in early 2000, replacing the old but tested Return on Rate Base (RORB) method.

Consumer groups have assailed the PBR as “too complex to understand.”

The Supreme Court also described it as “transferring wealth from electricity consumers to utilities’ shareholders.”

Hontiveros noted that consumer groups have long been calling on ERC to revert the rate-setting mechanism back to the RORB. According to consumer groups precisely ERC itself cannot explain why power utilities like Meralco is charging 15.50 percent weighted average cost of capital (WACC) under the PBR.

“Lagpas ito sa 12 percent return na itinatakda ng batas para sa mga public utilities (This is greater than the 12 percent return set by law for public utilities),” she said.

She also added that during the Senate hearing on the Chinese control of the national grid, it was revealed that ERC granted the National Grid Corporation of the Philippines (NGCP) the same WACC of 15 percent when NGCP’s market risks are much lower than that of Meralco’s.

Hontiveros said she is challenging ERC to use a regulation easily understandable by consumers, is consistent to the directives of the EPIRA and allow a methodology that allows the recovery of just and reasonable costs and not based on inflated forecasted costs which is happening under the PBR.

“Imbis na bumaba ang singil, mas tumaas pa gamit ang PBR (Instead of enjoying lower costs, electricity charges got higher due to PBR,” the lawmaker noted.

“Public utilities, such as the power sector, are imbued with public interest. Tungkulin ng gobyerno, ng ERC bilang regulatory body na proteksyunan ang interes at kapakanan ng publiko mula sa anumang pagmamalabis o pananamantala (The government, especially the ERC, as a regulatory body, should proect the interest of the public against any manipulation and abuses),” she stressed.