ERC mus call shots fairly
I was watching the recently downloaded videos of Congressman Dan Fernandez of Sta. Rosa City, Laguna in YouTube — (1) Committee on Energy: Briefing on Electricity Market and Power Transmission and (2) Committee on Energy Organizational Meeting.
These contained video clips of two separate meetings of the House Committee on Energy held two months ago. In both videos, Congressman Dan accuses the officials of the Energy Regulatory Commission of not only abandoning their legal duty to protect the interests of Filipino consumers. They are also enablers of the oppression of electricity consumers by the non-computation of the weighted average cost of capital or WACC for the past seven years.
WACC represents the average rate that a company expects to pay to finance its assets. In the case of the National Grid Corporation of the Philippines, Congressman Dan asserts that its WACC should not be higher than 8 percent, but the ERC omitted to review NGCP’s WACC since 2015 which was pegged at 15.04 percent. Instead of reviewing the rates, the ERC gave NGCP an iMAR or the Interim Maximum Allowable Revenue (profits) from the previous P43.1 billion in 2015 to P43.8 billion yearly (2016-2020) and another round of increase in profits of P3.3 Billion in February 2020 at the onset of the Coronavirus pandemic.
The issue on WACC raised by Congressman Dan is a typical pitfall of a traditional monopoly system instituted in the Electric Power Industry Reform Act or EPIRA Law. The EPIRA rode with the wave of privatization of the 90s and the 2000s, which unfortunately also led to the government surrendering the System Operation of the power grid to a private corporation. (I always considered the SO as an important symbol of sovereignty that can’t be dealt with commercially, or abandoned by the government.)
Privatization relatively worked in highly developed countries but it’s a different case for the Philippines where our regulatory institutions are weak. Let us imagine that the Electricity Transmission Sector is a game and the participants are the ERC (as the referee), Team NGCP (private interest in a monopoly business), and the Team Filipino consumers (public interest):
In the WACC game, Congressman Dan effectively (passionately, too) demonstrated to us that the Team Filipino consumers got screwed over by the referee(s). In reply to Congressman Dan’s question on why the ERC — Regulatory Operations Service, the department tasked to do the rate-setting, failed to compute the WACC for seven years when they were mandated to review it in 2016, the officers simply pointed to the Commission or the Board itself for not promulgating the rules for rate-setting. It was as if it was a minor issue without consequences to the Filipino consumers that was simply overlooked and then proceeded to point fingers at the Head referee and its board for their inaction.
The WACC game is just a one-game, among thousands of games that the ERC gets to officiate. It’s a very difficult task to be a referee for the games in the electricity sector. That’s why the legislature made it a high-paying job. The ERC, its chairman, the commissioners, and employees are given above-rate compensation and are exempted from the Salary Standardization Law; with the ERC chairman enjoying the same compensation and benefits as that of the Supreme Court chief justice, and the commissioners, equal to that of the associate justices.
ERC as the referee should be guided by the standard of providing Filipino consumers with cheap and quality electricity. The Filipino household electricity rates are among the highest in Asia, comparable to the Japanese household, but do we get the same quality of electricity, or even just near it? If not, then obviously we are being overcharged.
Fortunately, The Team Filipino consumers are, in my opinion, in good hands with the new ERC Chairman and CEO, Atty. Monalisa Dimalanta. We expect her to call every game with fairness and neutrality and break away from the system (characterized by arbitrariness and capriciousness) solidified since the non-computation of WACC.
“Privatization relatively worked in highly developed countries but it’s a different case for the Philippines where our regulatory institutions are weak.
“The Filipino household electricity rates are among the highest in Asia, comparable to the Japanese household, but do we get the same quality of electricity, or even just near it?