Energy regulator cuts NGCP's allowable revenues for 2016-2020

Metro Manila (CNN Philippines, November 9) —The Energy Regulatory Commission (ERC) slashed the proposed total allowable revenues of the National Grid Corporation in the Philippines (NGCP) by more than half — from ₱387.8 billion to ₱183.4 billion — for the years covering 2016 to 2020.

“This amount is significantly lower than NGCP’s claims of P387.803 billion for Phase 1, or an annual average of P77.56 billion – which was higher than the interim Maximum Annual Revenue (iMAR) of P51.47 billion for 2020 initially granted by ERC to NGCP in a previous March 2022 issuance," ERC said Wednesday in its partial review that is still subject to final comments from NGCP.

In December last year, the NGCP filed its application for its proposed Annual Revenue Requirement (ARR) for Phase 1 of the 4th regulatory period (RP) covering Jan. 1, 2016 to December 31, 2020.

Its Phase 2 will cover Jan. 1, 2021 to Dec. 31, 2022, the ERC said.

"Considering, however, the non-occurrence of the rate-reset for NGCP since the lapse of the Third Regulatory Period 2011-2015, the current ERC is constrained to evaluate for the 4th RP whether the costs already incurred by NGCP for the previous years were prudent, reasonable, and economically efficient," the ERC added

Since the power industry is regulated, the ERC sets the amount that players are allowed to earn annually to recover their operational and capital investments.

Under the ERC’s order, the 4th RP is "distinct and unique" because it covers a previous period which is 2016 to 2022.

It added that “the regular rate-reset process is usually a forward- looking exercise that requires the regulated entity to submit forecasted expenditures and proposed projects,” which should regularly resets in a five years period.

For operating and maintenance expenses of Phase 1, the ERC decreased the adjustment due to the "unproperly undocumented" claims of NGCPs for its payroll costs and network and non-network related operating and maintenance costs. These include unitemized employee mandatory and non-mandatory benefits, advertising expenses, and COVID-19 donations.

"For the building block of other taxes, the ERC considered applicable taxes other than income tax," it said. "Any recovery of NGCP’s payment of RPT was disallowed considering that RPT payments were made under protest and thus may be refunded."

Meanwhile, the low weighted average cost of capital for the NGCP's building block of return on capital determined the ERC's decision to put it at ₱99.74 billion for 2016 to 2020.

In a separate statement on Thursday, NGCP Assistant Vice President Cynthia Alabanza said the decision of the ERC to disallow some of its expenses is unfair, noting that those expenses were caused by ERC's failure to conduct regulatory reset.

“Iniisip namin na kulang sa fairness iyong ganung desisyon [We're thinking that its decision is lacking fairness],” Alabanza said in a statement as response to ERC Monalisa Dimalanta’s admission that the commission failed to conduct regulatory reset.

She reiterated that ERC's decision will have a significant effect on consumers and businesses.

Albanza said the grid's expenses are all legitimate businesses under the same rules applied to the National Transmission Corporation (TransCo).

The unproperly documented expenses for employees were already included in the operational expenses of each particular business, NGCP said.

The unitemized advertising are not their "marketing initiative" but information campaigns and clearances being disseminated through radios and local ads, it added.