ERC issues Final Determination for TransCo's MAR
The Energy Regulatory Commission (ERC) released on June 16, 2006, its Final Determination on the National Transmission Corporation’s (TransCo) application for approval of its Maximum Allowance Revenue (MAR) for the second regulatory period. The period covers the regulatory years 2006 to 2010. The said final determination embodies the ERC’s ultimate position on the price control arrangements that will apply to the customers during the second regulatory period.
“The ERC would like to clarify that what it has determined is just the MAR which shall be the basis for determining the transmission cost that will be passed on to the electricity end consumers in the second regulatory period. Rest assure that the final outcome in terms of rates to consumers will be fair, just and reasonable. Also, the ERC will conduct annual verification to monitor that the rates imposed by TRANSCO are in accordance with the approved MAR,” Chairman Rodolfo B. Albano, Jr. said.
The MAR allowed by the ERC for TransCo for the year 2005 is PhP 27,086.0 billion. The ERC has determined that this revenue cap will rise by PhP 6,415.0 billion in 2006, prior to the over or under recovery adjustments for 2005. “The ERC believes that this outcome will lead to stable average transmission rates for the TransCo over the last four (4) years of the second regulatory period,” the chief regulator expressed.
It will be recalled that on September 22, 2005, the ERC received the application of TransCo and the Power Sector Assets and Liabilities Management Corporation (PSALM) for revenue reset for TransCo and/or its future concessionaire on the second regulatory period covering the years 2006 to 2010. The rate application of TransCo and PSALM is based on the Transmission Wheeling Rates Guidelines (TWRG), a performance-based rate-setting (PBR) methodology promulgated by the ERC.
The TWRG sets the tone for predictability and stability of ERC’s 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.
The said
application sought, among others, the approval of TransCo’s proposed Revenue
Asset Base (RAB), Capital Expenditure (CAPEX), Operating Expenditures (OPEX),
and Weighted Average Cost of Capital (WACC). The regulatory reset will pave
the way to revised rates that TransCo will be authorized to charge its customers.
June 27, 2006