Newly approved rate determination has no impact on electricity bill yet - ERC

The ERC (Energy Regulatory Commission) issued on 31 August 2007 the Decision on MERALCO (Manila Electric Company) and DECORP’s (Dagupan Electric Corporation) applications for their annual revenue requirements and performance incentive schemes using the performance based rate-setting (PBR) methodology that covers the Second Regulatory Period from July 1, 2007 to June 30, 2011. In the Decision, the ERC directed MERALCO and DECORP to file their respective petitions to convert their approved MAP (maximum average price) into their distribution tariffs by 15 October 2007. Only after the filing is acted upon by the ERC will the final tariff structure of MERALCO and DECORP be determined.

“This shift to the new internationally-accepted PBR methodology is another breakthrough in the electric power industry,” ERC Chairman and CEO Rodolfo B. Albano, Jr. said. Section 43 (f) of the EPIRA (Electric Power Industry Reform Act) and Rule 15, Section 5 (a) of its IRR (Implementing Rules and Regulations) authorize the ERC to adopt alternative forms of internationally accepted rate-setting methodology. “With the PBR in place, (which replaces the old RORB [Return on Rate Base] mechanism), the electricity distribution pricing system will be anchored on improved customer service. It will be linked to the Philippine inflation rate and an efficiency factor will be used to ensure that service standards will improve. An incentive component is included to reward utilities when their performance levels improve and penalize them when they underperform,” Chairman Albano added.

The PBR has long been adopted by international energy regulators. This internationally accepted methodology seeks to achieve a balance between efficient price levels and improved network service performance levels. It provides strong incentives to improve operational efficiencies which international experience has proven to lead to reductions in the real price of electricity distribution over time while improving service levels.

In a related development, ERC denies having received any directive to hold in abeyance the implementation of the PBR. “The ERC is a strong and independent regulator of the electric power industry that adheres to the mandate of the law,” Chairman Albano stressed.

September 5 , 2007