Terry Ridon (Facebook)

Former Kabataan Party-list Rep. Terry Ridon is prodding the Energy Regulatory Commission (ERC) to immediately resolve the long overdue tariff review of the Manila Electric Company (Meralco), the country's biggest power distributor.

With the pending review, Meralco customers are being deprived of the benefits of a timely rate reset process, reckoned Ridon, now convernor of think thank Infrawatch PH.

In a letter to the ERC, Ridon urged the release of the reported decision that considered the 5th Regulatory Period (5RP) as Lapsed and proceed with the 6RP to avoid further delays consistent with the Performance Based Regulation (PBR).

“This will not only ensure that the benefits promised under PBR are realized by customers but will also send the appropriate signals for investors to come in,” Ridon, a lawyer, said.

Infrawatch pointed out that ERC Chairperson Monalisa Dimalanta herself made public declarations that the 5RP of Meralco’s has been concluded, hence it is high time that the ERC issues the formal order to set the tone for the parties to proceed to the 6RP.

Ridon pointed out the complexity of the rate reset process of private distribution utilities (PDUs) like Meralco is enshrined under the  Performance Based Regulation (PBR) adopted by ERC which requires the submission of revenue requirements for the next four years to meet customer growth, performance standards set by ERC and other regulatory compliances.

The ERC evaluates the application for rate adjustment by PDUs based on the Rules for setting Distribution Wheeling Rates (RDWR) that it promulgates before the start of the reset pursuant to PBR. 

Under this rule, the ERC is required to issue a decision on the application in the form of a Final Determination prior to the start of the applicable regulatory period which in the case of the 5RP began last July 1, 2022 — which was already more than two years ago. 

“The rationale for this strict timeline is not difficult to understand. PBR is a forward-looking rate-setting methodology based on forecast of revenue requirements, such as capital expenditures, operating expenditures, sales, taxes, other regulatory requirements, and return on the asset base,” Ridon said.

He argues that it is not legal to apply the rules to a period that already lapsed as actual costs have already been incurred. 

“To hold otherwise would be to deprive the PDUs and the consumers of PDUs alike of substantive and procedural due process,” he added. 

Moreover, Ridon says that the decision to consider the 5RP as lapsed is correct and fair, and is consistent with the ERC’s own rules and practice. 

“Obviously, a rate reset for the 5RP cannot anymore legally happen since 28 months have already lapsed making the 5RP RDWR clearly and legally inapplicable…. this entire process takes 18-21 months to complete, if we are to afford a genuine due process to all parties involved in the case,” he said, adding that “this course of action is even dangerous as any delay would consequently affect the timeline of the 6RP.”

According to Infrawatch, all PDUs are already delayed by 10 years in the implementation of their rate reset and therefore, it is imperative to have a legally acceptable and practical solution to stop the delays and esnure they implementation of PBR in the next regulatory resets of PDUs. 

The think tank highlighted the stark difference between the rate reset of PDUs and the National Grid Corporation of the Philippines (NGCP). 

NGCP operates under a revenue cap that guarantees its income regardless of demand fluctuations, while distribution utilities like Meralco are regulated under a price cap based on actual sales volumes. 

In addition, while NGCP benefits from a tax exemption under its Congressional franchise, PDUs pay a 25 percent income tax, which cannot be passed on to consumers.

“It is evident that while it may be true that both Meralco and NGCP are governed by PBR, there are stark differences which led the ERC to decide the reset of said entities in a manner that best fit the situation or regulatory landscape. 

In our review of the specific case of Meralco and the regulated entities under PBR, one thing is for sure--there needs to be changes and it has to start with strict adherence to timelines,” Ridon said.