The Energy Regulatory Commission (ERC) has amended its rules to ensure that consumers are charged reasonable rates for electricity. The changes will affect privately-owned distribution utilities (DUs) starting with the Fifth Regulatory Period (5RP) of Meralco.
The Energy Regulatory Commission (ERC) amended its 2021 Resolution (No. 10) through Resolution 17 (Series of 2024) to address delays in the rate-setting process and ensure consumers are charged reasonable rates. The amendments aim to ensure the immediate conduct of the reset process for privately-owned distribution utilities (DUs), starting with the Fifth Regulatory Period (5RP) of the Manila Electric Co. ( Meralco ), which runs from July 1, 2025 to June 30, 2029.
The modified rules for setting distribution wheeling rates (RDWR) state that the ERC will adopt the Risk Adjustment Factor (RAf) in calculating the Weighted Average Cost of Capital (WACC). Meralco's current WACC is 14.97 percent, and it has not been updated since 2015. The WACC determines the return a company is entitled to. The RAf aims to determine a regulated entity's estimated overall risk exposure. This RAf will be used instead of the traditional equity beta to arrive at individually determined risk-based compensation for the use of investors' equity, the ERC said. Once these modified rules take effect, the formula for calculating WACC and its components must not be altered by the ERC during the regulatory period. However, the ERC may amend the manner in which it determines the underlying parameters on which its calculation of the WACC is based and shall issue the corresponding document in the form of an amendment to these rules and shall apply the same in subsequent regulatory periods. ERC Chairman Monalisa C. Dimalanta said via Viber that the amended ERC resolution simply means that the commission would review and set the rates of Meralco to make sure that these reflect only prudent and efficient levels of service required of a public utility
ENERGY REGULATION RATE SETTING MERALCO RISK ADJUSTMENT FACTOR DISTRIBUTION UTILITIES
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