The allowable revenues of transmission firm National Grid Corporation of the Philippines (NGCP) had been pared by more than half to P183.491Billion, or lower by more than P204 billion from the company’s original claims of P387.803 billion as applied for under its fourth regulatory reset.

In a partial ruling rendered by the Energy Regulatory Commission (ERC) on NGCP’s tariff setting that covers 2016 to 2020, it was emphasized that its allowable revenues had been at average P36.7 billion annually, which is indubitably lower than P77.56 billion annual revenues batted for by the transmission company.

The regulatory body further stated that NGCP’s application of P77.56 billion annual revenue had been somehow higher than the P51.47 billion that was initially granted by the ERC in its March issuance last year.

“After thorough evaluation, the ERC has determined the total allowable revenues for Phase 1 of the fourth regulatory period to be, or an average of P36.7 billion annually,” the industry regulator noted.

ERC Chairperson Monalisa C. Dimalanta indicated that they cannot give definitive direction yet if a refund will have to be ordered on NGCP, because the coverage of the rate reset review had just been partial or just until 2020; hence, there would be two more years that has to be completed in the review process.

Compared to the typical forward-looking approach on rate regulation, the ERC qualified that this rate reset undertaking is unique in a sense that the allowable annual revenue requirement (ARR)  for NGCP had been calculated based on historical data because of the regulatory lag that troubled the restructured power sector in recent years.

“The fourth regulatory period is distinct and unique because it covers a past period, thus requiring evaluation of historical data on NGCP’s expenditures and performance,” the Commission specified.

In its evaluation, the ERC said it subdivided assessing the NGCP revenue application in two phases: phase 1 covering January 1, 2016 to December 31, 2020; while phase 2 spans from January 1, 2021 to December 31, 2022. It has been the phase 1 of the rate review that was already completed.

The regulatory body explained that the ARR prescribes “the proper amount that is determined as reasonably compensating NGCP for prudent, economically efficient, reasonable, and validated costs it incurred in expanding and operating the transmission system.”

In drawing up the final calculation, the ERC conveyed that it factored in key building blocks –primarily those on operating and maintenance expenses (OPEX), other taxes, return on capital, and return of capital.

For the OPEX component, in particular, the ERC highlighted that it pored over “payroll costs and network and non-network related operating and maintenance (O&M) costs,” adding that “an independent consultant also analyzed the actual expenditures of NGCP in comparison with the approved OPEX for the previous regulatory period.”

The Commission stressed it “disallowed claims that were not properly supported by the audited financial statements (AFS) of NGCP,” including those on “certain employees’ benefits sought to be recovered by NGCP that were not appropriately itemized and supported in its AFS, as well as non-mandatory employee benefits that should be sourced from the company’s savings or profits instead of recovered from rates charged to consumers.”

The ERC similarly conveyed that “network and non-network related O&M costs  -- such as advertising expenses or COVID-19 donations -- that were not proven to redound to the benefit of consumers were likewise disallowed.”

On that precept then, the regulatory body reckoned that it “made downward adjustments to the amount of OPEX claimed for either being unproperly documented or not recoverable from consumers.”

For other taxes as component in the allowable revenue calculation, the industry regulator underscored that it roped in applicable taxes other than income tax.

On capital expenditures (capex), NGCP originally applied for P145.75 billion; then P3.5 billion additional for asset acquisitions; but the independent consultant engaged by the ERC just recommended an amount of P24.6 billion, as it reckoned that “only completed and commissioned projects can be included in the RAB (regulatory asset base),” while land- acquisitions had to be excluded.

In the end, however, the ERC just allowed P15.13 billion as capex for 2016-2020, plus asset acquisition costs of P2.214 billion as anchored on substantiated disbursements that had been integrated in the company’s application.