ERC releases new rules on pass-through charges

MANILA, Philippines — The Energy Regulatory Commission (ERC) has revised the rules on pass-through charges to ensure the protection of all electricity consumers and promote transparency and accountability among the distribution utilities (DUs).

With the adoption of Resolution 14 Series of 2022 or “A Resolution Adopting the Revised Rules Governing the Automatic Cost Adjustment and True-Up Mechanisms and Corresponding Confirmation Process for Distribution Utilities,” the ERC said it would enable more transparent collection of pass-through costs or charges by DUs starting next year.

“We are looking forward to 2023 as the beginning of an era of greater transparency in electricity pricing,” ERC chairperson Monalisa Dimalanta said.

“The new uniform reportorial requirement will allow more information to be available and accessible. This is the first step to the digital transformation we are undertaking in the Commission to speed up our processes and allow more predictability in regulation,” she said.

Pass-through costs are amounts collected by DUs, which include electric cooperatives and private utilities, for charges other than the distribution charge or the payment for use of the DUs facilities.

“Simply put, the DUs collect these amounts from electricity consumers and pay the generation companies for energy generated and the system operator for the use of transmission facilities,” the ERC said.

Other pass-through charges include taxes, feed-in tariff allowance, and universal charge which are all remitted by the DUs to the government.

The principle of pass-through dictates that the DUs shall not gain or lose from these charges.

According to the ERC, the pass-through costs to be collected under the 2022 revised rules cover generation charges or the payment for the supply of electricity, transmission charges or the payment for the use of the high voltage transmission grid, and other subsidies and mandatory payments, such as lifeline and senior citizen subsidies, system loss, and other pass-through costs as may be approved by the commission.

The ERC said the 2022 revised rules aim to update the regulatory framework on recovery of costs by promoting transparency in prescribing detailed calculation of different components of the power bill.

It will also reinforce DUs’ accountability by ensuring accuracy and completeness of information provided to the ERC through more frequent submission of reports to facilitate confirmation of the DUs charges to consumers vis-à-vis the ERC authorized rates.

In addition, it sets a limit which, when exceeded, prompts an adjustment to correct over or under recovery of the pass-through charges.

Lastly, it will streamline the process and reduce regulatory lag for more efficient rate reviews.

The ERC said a timely confirmation process strikes a balance between protecting electricity consumers from over charging and DUs from under recovery.

Recent policy developments that affect consumer bills such as distributed energy resources, green energy option program, net metering, and lifeline program for marginalized end-users, among others, are also included in the 2022 revised rules, according to the ERC.

The revised rules also directs the creation of a restricted fund by the DUs, in which over-collections are maintained and earmarked for the specific purpose of being used as repayment to customers in subsequent billing months.

The ERC said this results in a mechanism whereby DUs effect more timely refunds without being subjected to regulatory lag, under certain conditions.

“Through these initiatives, the ERC looks forward to 2023 in earnest anticipation of an era of strong, transparent and efficient regulatory governance, all towards the fulfillment of its mandate to give the consuming public the quality of service it deserves,” it said.