ERC consults public on TWRG Issues Paper

A public consultation was recently conducted by the Energy Regulatory Commission (ERC) to discuss the Regulatory Reset Issues Paper on the Transmission Wheeling Rates Guidelines (TWRG). Section 7.1.2 of the TWRG requires ERC to draft the Issues Paper that contains the Commission's initial views on the issues to be discussed during the pending Regulatory Reset Process and to specify the information required to be delivered by TRANSCO for the Regulatory Reset Process and the time by which such information must be delivered to ERC.

The major issues discussed include the grouping, classification, valuation, and economic life of the National Transmission Company’s (TRANSCO’s) assets, the planning horizon to be used for asset optimization, components of the Weighted Average Cost of Capital (WACC) and operating and capital expenditures.

In May 2003, the Energy Regulatory Commission (ERC) adopted a Transmission Wheeling Rate Guideline (TWRG) which had been developed through a public consultation process during 2002 and early 2003 (see ERC Case No. 2003 – 34). The final TWRG dated May 29, 2003 outlines a performance based regulatory (PBR) framework which imposes a revenue cap on the National Transmission Corporation’s (TRANSCO’s) revenue recovery from its customers, and adjusts TRANSCO’s tariff rates accordingly.

The TWRG was adopted by ERC as an alternative form of internationally-accepted rate setting methodology under Section 43(f) of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), and Rule 15, Section 5(a) of its Implementing Rules and Regulations (IRR). The Performance Based Rate-making (PBR) regime departs from the traditional Return on Rate Base (RORB) Methodology which has been used in the Philippines for the over 80 years.

The PBR methodology will benefit both investors and consumers by improving efficiency of utility operations and ultimately bring about long-term benefits to consumers in terms of providing more affordable electricity rates and greater quality and reliable electric service.

The Transmission Wheeling Rate Guidelines “will set the tone for predictability and stability of our regulatory policies. The paradigm shift in rate making is well-timed as the government is now focusing on the privatization of the transmission sector”. A stable regulatory environment will encourage more investments into this sector and accelerate the modernization of the transmission and distribution sectors.

October 29, 2004