Perez lauds ERC’s new rate-setting formula

Energy Secretary Vincent S. Perez lauded yesterday the Energy Regulatory Commission (ERC) for promulgating a new rate-making methodology in determining the transmission charges of the power transmission sector.

"We are pleased to know that the Performance Base Rate (PBR) making methodology of the transmission sector has been promulgated. This is a very significant milestone in our electricity industry restructuring efforts mainly because it now sets the guidelines on how investors in the transmission sector will recover reasonable returns and at the same time ensure efficient and reliable delivery of power service to our consumers," Perez said.

The PBR was signed yesterday in Malacañang and witnessed by President Arroyo during the inauguration of the $1.2-billion San Roque Multi-Purpose Dam Project.

Perez said the new regulatory framework replaces the traditional return-on-rate-base (RORB) methodology in setting charges.

According to Perez, the ERC under the PBR will allow a maximum annual revenue cap pegged to changes in the consumer price index (CPI), but adjusted for productivity and efficiency factors. The proposed methodology will also include a provision for over/under recovery adjustments.

The Electric Power Industry Reform Act (EPIRA) of 2001 authorizes the ERC to adopt alternative forms of internationally-accepted rate-setting methodology from the present RORB mechanism to ensure reasonable price of electricity and to promote efficiency in the transmission sector.

Perez said the issuance of the new guidelines will further boost efforts to proceed with the privatization of the National Transmission Corp. (Transco).

He noted that investors have been waiting for the said regulatory framework that will determine the prospects of investing in the Philippine transmission business.

The Power Sector Asset and Liabilities Management Corp. (PSALM), tasked to execute the Transco privatization, has recently released the bidding package to interested investors.

"Two companies have commenced due diligence of Transco assets. We expect more companies to follow suit with the latest issuance of regulatory guidelines because this is one of the main factors that they are really concerned about," he said.

Perez said he hopes that the issuance of PBR for the transmission sector will pave the way for a similar rate making framework specific to private distribution utilities.

"We anticipate that the ERC will next formulate a similar rate making methodology specifically applicable to private distribution utilities," he added.