The Energy Regulatory Commission (ERC) is soliciting inputs from industry stakeholders on the targeted modification of the tariff-setting scheme that will be enforced to power distribution utilities on the rates that they will pass on to consumers.
The regulatory body is currently reviewing the performance-based rate setting (PBR) scheme for DUs, such as that of Manila Electric Company (Meralco) and other private power utilities as well as electric cooperatives (ECs), following a pause on approval of their tariff adjustments since 2015.
As defined, PBR is an internationally accepted methodology that enables industry regulators to employ projections or forecasts (often on a four to five-year rolling period) on operating and capital expenditures, which will then become the basis to evaluate the investment in facilities that the DUs must pursue to meet their customer requirements as well as guarantee prescribed quality of service levels. The resulting figure reckoned from such factors will then be the core of the rate to be passed on to DU customers via the electric bills.
For the reframing of the rate-setting system, the ERC specified that the initial regulatory reset period will be from July 2022 to June 2026 – and this shall account for the 5th regulatory period for the first entry group of privately owned DUs, including that of Meralco.
Relative to the stakeholder inputs and comments being sought, the industry regulator has recently made public the draft Issues Paper for the proposed recasting of the PBR.
In her plea to the relevant industry players, ERC Chairperson Agnes T. Devanadera asserted that “the comments shall become part of the records of the rule-making proceeding and shall be considered in the finalization of the proposed RDWR (Rules for Setting Distribution Wheeling Rates).”
The second draft of the RDWR, according to the ERC, already “considered and addressed the comments and concerns submitted by industry stakeholders in the first draft that was published in June 2019.”
The ERC stated that once the adjusted RDWR will be finalized and promulgated, this will “provide the framework for the ERC’s evaluation of the private DUs’ revenue applications and ensure that the rates that will be charged to their customers are just and reasonable.”
Parallel to the ongoing industry consultations, the regulatory agency is likewise seeking “the assistance of prospective technical consultants,” to aid the ERC in its review of the various PBR building blocks integrated in the calculation of the rates to be passed on by the DUs.
These components include the roll-forward determination of the regulatory asset base (RAB); capital expenditure (capex) and operating expense (OPEX) forecasts as well as the regulatory weighted average cost of capital or WACC.
Devanadera qualified that the review of the existing tariff-setting policies and rules “is aimed at making the rate setting mechanism simpler, less complicated and more responsive to the evolving electric power industry.” (MMV)