ERC gives new rules on distribution rates
Manila Times, Wednesday, January 12, 2005
THE new power-distribution guidelines approved by the government last month are expected to lower electricity rates for consumers, the Energy Regulatory Commission said on Tuesday.
Energy chair Rodolfo B. Albano Jr. said the guidelines will be based on the Distribution Wheeling Rates Guidelines (DWRG), which the ERC adopted recently.
The DWRG, an alternative rate setting method for power-distribution firms using international standards, uses performance-based rate making, in contrast to the traditional return on rate base, which has been used in the Philippines for over 80 years.
“The return-on-rate-base methodology allows a distribution utility to set rates or charges for regulated activities to recover costs,” Albano said.
“The DWRG, on the other hand, is a performance-based rate-setting approach which employs incentives to induce cost-cutting that is expected to result in lower electricity rates in the long term.”
Besides consumers, the new guidelines will also benefit investors in the power sector, Albano said, adding that the DWRG provides incentives to distribution firms to improve services and efficiency.
The price of electricity under DWRG is controlled through an average price cap mechanism under which a limit is placed on the average revenue that a power firm is allowed to earn in any period, Albano said.
The maximum average price that a firm is permitted to charge incorporates all the relevant price measures such as the change in weighted index, the correction factor for over- or under-recovery of revenues in the previous year, the tax adjustment to adjust for over- or under-recovery of corporate income tax in the previous year, among others.
Albano said the ERC has drawn up an entry scheme to ensure the smooth implementation of the new rules particularly for power-distribution firms.
THE new power-distribution guidelines approved by the government last month are expected to lower electricity rates for consumers, the Energy Regulatory Commission said on Tuesday.
Energy chair Rodolfo B. Albano Jr. said the guidelines will be based on the Distribution Wheeling Rates Guidelines (DWRG), which the ERC adopted recently.
The DWRG, an alternative rate setting method for power-distribution firms using international standards, uses performance-based rate making, in contrast to the traditional return on rate base, which has been used in the Philippines for over 80 years.
“The return-on-rate-base methodology allows a distribution utility to set rates or charges for regulated activities to recover costs,” Albano said.
“The DWRG, on the other hand, is a performance-based rate-setting approach which employs incentives to induce cost-cutting that is expected to result in lower electricity rates in the long term.”
Besides consumers, the new guidelines will also benefit investors in the power sector, Albano said, adding that the DWRG provides incentives to distribution firms to improve services and efficiency.
The price of electricity under DWRG is controlled through an average price cap mechanism under which a limit is placed on the average revenue that a power firm is allowed to earn in any period, Albano said.
The maximum average price that a firm is permitted to charge incorporates all the relevant price measures such as the change in weighted index, the correction factor for over- or under-recovery of revenues in the previous year, the tax adjustment to adjust for over- or under-recovery of corporate income tax in the previous year, among others.
Albano said the ERC has drawn up an entry scheme to ensure the smooth implementation of the new rules particularly for power-distribution firms.
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