Asian Energy Advisors

Attended yesterday ERC’s Luzon Public Consultation on their revised rules for Capex approvals. Good crowd - about 90+. I understand they had about that many from Visayas and Mindanao at the Cebu PubCon the prior day. Commissioner Reyes presided and was there the whole afternoon.

All of the attendees were from the ECs, except for one private utility. Plus Meralco dropped in for about 10 minutes. None of the Luzon group had submitted comments or questions ahead of time - so we went through pages and pages of comments/questions submitted by the Visayas and Mindanao groups.

A lot of comments had to do with harmonization with NEA requirements. ERC asserted the point that the ERC has a different purpose (and therefore different filing requirements) - a purpose that is focused on validating the appropriateness of cost incurrence that will have an impact on electric rates and they further asserted that NEA seemed to have more of a planning focus.

I don’t believe NEA was there - there was no rebuttal. But it does seem a valid argument. I think we’re still in the throes of thrashing out the regulatory oversight of the ECs between NEA and ERC - a transition that began around 1993/94. ERC is actively establishing itself as the dominant regulating entity on many facets of the ECs operations, it seems to me.

When the ERB first assumed tariff authority over ECs from the NEA, they initially gave substantial weight to whether the tariff requests had been approved by NEA. Now, I’m not even sure that’s an ERC consideration at all. NEA rules and regulations are becoming less and less relevant in ERC’s eyes - just my take. ERC now is establishing firm control of capital expenditures and plans - at least if the ECs want rate recovery for those investments.

But of course, both the private DUs and the ECs are all moving toward types of performance-based ratemaking which will pre-empt most (but not all) of the capex issues. Even if (or when) the ECs move to the new Benchmarking methodology for tariffs, there will still be special circumstances where emergency or special capex expenditures will have to be made that fall outside of the PBR proceedings - and it is those cases that will continue to be covered by these new Capex Rules.