ERC urged to order NGCP regulatory reset

By Jordeene Sheex Lagare – May 16, 2018
from The Manila Times

The National Transmission Corp. (TransCo) is urging the Energy Regulatory Commission (ERC) to have the National Grid Corp. of the Philippines (NGCP) undergo a regulatory reset for failing to set appropriate transmission rates.

In a May 8 letter to ERC Chairman Agnes Devanadera, TransCo President Melvin Matibag said these rates “are not adjusted to what they should be, because of the non-resetting of parameters [for]the weighted average cost of capital (WACC).”

According to TransCo, all indications led to a much lower WACC than what was allowed in the third regulatory period.

“Just looking at the yields of 10-year Philippine sovereign bonds and…US government bonds—which factor in the risk-free rate—from the time of the regulatory reset in 2010 until now, there have been significant decline in trends,” it said.

Yields of the local bonds decreased to an average of 4.2 percent in 2016 from 7.1 percent in 2010, TransCo said in a previous letter.

It also noted that the Manila Electric Co.’s (Meralco) WACC in the fourth quarter of 2017 was 7.7 percent—a figure that remained “indicative of trends.”

Although the risk-free rate is among those considered in setting the WACC, a more thorough study would reveal that the current reasonable level of WACC is much lower than 15.04 percent, TransCo said.

Citing its analysis, the company, using the third regulatory period conditions and allowed recoveries, and updating the WACC only to reasonable current levels, said the average transmission rate of about P0.70 per kilowatt hour (kWh) in the period would have gone down by 30 to 35 percent to about P0.20 to P0.25 per kWh.

Asked for comment, ERC Spokesman Florensinda Digal told The Manila Times that the “reset process is ongoing.”

The “commission is making a complete and thorough study of the issues surrounding the reset, the WACC included,” she said.