ERC extends comments submission on modified rate setting

By Myrna M. Velasco – July 14, 2019, 10:00 PM
from Manila Bulletin

The Energy Regulatory Commission (ERC) is extending until this week the submission of comments by affected stakeholders on the proposed modification in the setting of electricity rates of regulated power utilities like the Manila Electric Company (Meralco) and other distribution utilities.

In a notice issued by the regulatory body, it stated that all interested parties nationwide are given until today, July 15, to submit their respective comments on the rule-making process in determining the distribution wheeling rates under the precept of performance-based rate-setting (PBR) methodology being employed in the restructured electricity sector.

Through the PBR, the ERC will determine the annual revenue requirement (ARR) of a power utility like Meralco, then that will be the basis of calculation of the distribution charges that will be reflected in the electric bills of consumers.

There is already delay in the reset process of many regulated DUs, including Meralco, hence the plea to ERC is to fast-track their process of instituting the new or modified PBR scheme or formula so they can prudently assess impact on their revenue stream and to prevent cost mismatch also on the pass-on of tariffs to consumers.

As culled from the “issues paper” released by the ERC, the regulatory period will still be over four-year rolling period with annual adjustment on the ARR of the DUs; hence, that will also entail changes or movements in the charges they will pass on to ratepayers.

The ERC stated that the ARR “must be based on a forward-looking analysis of forecast cash flow requirements and must represent the optimal forecast revenue requirement,” of the regulated utility within the covered regulatory years.

The Commission further noted that the ARR “must reasonably compensate the regulated entity for the economically efficient costs and risks it incurs in providing regulated distribution services.”

The primary building blocks in the calculation of the regulated tariffs of power utilities include operating and maintenance expenditures; taxes other than corporate income tax; regulatory depreciation; return on capital; and corporate income tax.