Regulatory capture must end

Some P55 billion in added burden to consumers since 2009, when the lopsided concession agreement with the National Grid Corporation of the Philippines started, were identified by energy experts due to the inability of the Energy Regulatory Commission to realign the maximum annual revenue of the utility firm.

Despite the huge profits of NGCP over the years, the brownouts still persisted.

The computation of energy experts points to P53.3 billion in excess charges tagged on monthly consumer bills from the start of NGCP’s operations in 2009 until 2020, due mainly to delays in the revaluation of the Maximum Allowable Revenue under its agreement with the government.

As a utility firm, NGCP’s maximum revenue is fixed by the government, but the level provided for NGCP at 15 percent is way over the regional standard.

The simple act of delaying a decision on the periodic review resulted in overcharges, Instead, the previous ERC leadership allowed an interim MAR for NGCP, the computation of which is not based on the market situation.

The Weighted Average Cost of Capital, a component of the MAR, should have been reduced by half, from 15 to seven percent, as a result of the improved economic state, which means higher electricity demand.

The MAR is a fixed revenue regardless of the level of consumption; thus, its adjustment is left to the discretion of the ERC.

The WACC component was set at 15.04 percent, but adjustments that ERC should have made as a result of the favorable conditions before the pandemic should have reduced the WACC to about seven percent based on the experts’ calculations.

The allowable level of WACC rate for NGCP compared with utility firms among the country’s neighbors is between seven to 10 percent.

ERC should have undertaken periodic reviews on the profit determinant, but it sat on its mandate.

Experts are sure that electricity bills will be greatly reduced with a reasonable adjustment of the NGCP profit binge.

For a power plant operator in Luzon, the biggest grid in the country, at 10.4 percent WACC, with a 16 percent return of investment, the generation charge should only be pegged at P3.90, and then eventually lowered to P3.70.

Considering that NGCP operates the electricity network where all the base load plants are connected, a lower WACC will have a multiplier effect.

ERC’s previous head also reasoned that the agency was short of personnel to look into the alleged excesses committed by ERC.

Going through her line of reasoning, the ERC head can make use of the wealth of expertise from the Department of Energy or grid owner National Transmission Corp. in the system operation audit, which it did not do.

Instead, ERC went along with the apparent NGCP scheme for an online audit.

The recent ERC decision to direct NGCP to explain its failure to obtain firm ancillary service contracts to prevent the perennial power shortfalls was a way forward, but more should be done to make up for the neglect of the past dispensation.

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