ERC urged to review power rate-setting mechanism

Senator Risa Hontiveros on Thursday urged the Energy Regulatory Commission to review its power rate-setting mechanism, saying its complex and ambiguous nature leads to questionable over-recoveries, making it ‘consumer unfriendly’.

The statement came after Manila Electric Company slashed its power rates for a second straight month in March, factoring in the approved refunds ordered by the power regulator.

Hontiveros said while the P13-billion Meralco refund to consumers is good news to welcome, the decision of ERC to grant Meralco’s petition “obscures the original sin” that created the problem of over-recovery, if not fraud, in the power industry.

That original sin, the senator pointed out, was the rate-setting methodology called Performance-Based Regulation that the Commission adopted in early 2000, replacing the old but tested Return on Rate Base method.

The PBR is assailed by consumer groups as “too complex to understand” and by the Supreme Court for “transferring wealth from electricity consumers to utilities’ shareholders.”

She said consumer groups have long been demanding to return to the old RORB the rate-setting mechanism because the ERC cannot explain why the weighted average cost of capital of a utility like Meralco reached 15.50 percent. This is more than the 12 percent return imposed by the law for public utilities,” Hontiveros said.

The Senator added that during the Senate deliberations that she initiated on the Chinese control of the national grid, it was revealed that ERC granted the National Grid Corporation of the Philippines the same WACC of 15 percent when NGCP’s market risks are much lower than that of MERALCO’s.

She said utilities, such as the power sector, are imbued with public interest.

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