Scrapping of PBR power rate-setting pushed

By Myrna M. Velasco –  June 25, 2017, 10:01 PM

from Manila Bulletin

Consumer and advocacy groups are pushing for the scrapping of the performance-based regulation (PBR) on electricity rate-setting, with them noting that it had only been the profit-taking power utilities benefiting from it but had been a “lowdown” to Filipino consumers.

Among the groups that banded together on raising this call to the Energy Regulatory Commission (ERC) had been the United Filipino Consumers and Commuters (UFCC), and the Freedom from Debt Coalition (FDC), backing the questions raised on the matter by Matuwid na Singil sa Kuryente (MSK) group.

They stressed that instead of continuing with the PBR scheme of tariff setting for regulated power utilities, it might be better for regulators to explore the adoption of a modified return on rate base (RORB) tenor on setting the power rates.

The groups primarily indicated that in the case of Manila Electric Company (Meralco), income tax was integrated as a building block in the PBR rate setting; whereas in the RORB, that has already been disallowed as a rate component by a ruling of the Supreme Court (SC).

According to Romeo Junia, president of UFCC and FDC, PBR “was conceived as an alternative to RORB in 2002-2003 when the Supreme Court ordered the P32 billion Meralco refund.” The amount refers to the income tax component that had been disallowed by the high court to be part of Meralco’s rate base, thus, subsequently ordered to be refunded to its customers.

“At that time, the SC excluded Meralco’s corporate income tax from chargeable or recoverable expenses and capped its return or earnings at 12 percent,” Junia explained. The consumer groups inferred that based on the reasoning set out by the SC, “corporate income tax was disallowed because it benefited the shareholders and investors, not the consumers.”

They emphasized that “whoever enjoys the income should pay the tax on it… the ERC, however, made income tax a revenue building block under PBR.”

Notably, the recovery of costs under RORB is based on historical and actual investments; while the PBR sets a forward-looking approach on rate setting based on forecast energy sales and projected expenses and investments.

Consumer groups decried, however, that power industry regulators seem to have been remiss on the “audit or verification” of the rates being passed on by the power utility firm to consumers.