NGCP defends expenses disallowed by ERC

The National Grid Corporation of the Philippines (NGCP) on Thursday defended several expenses which were disallowed by the Energy Regulatory Commission (ERC) as recoverable from consumers.

In a statement, NGCP spokesperson and assistant vice president Cynthia Alabanza said the company’s expenses cited by the ERC in its partial ruling are “legitimate business costs under the same rules applied to the National Transmission Corporation (TransCo).”

On Wednesday, the ERC disclosed the partial results of its ongoing review of the performance and operations of the grid operator, in which it determined that the total allowable revenues of NGCP for the Phase 1 of the fourth regulatory period to be P183.491 billion for years 2016 to 2020 or an average of P36.7 billion annually.

The amount, however, was significantly lower than NGCP’s claims of P387.803 billion for Phase 1, or an annual average of P77.56 billion – which was higher than the interim Maximum Annual Revenue (iMAR) of P51.47 billion for 2020 initially granted by ERC to NGCP in a previous March 2022 issuance.

Maximum Allowable Revenue (MAR) refers to the maximum amount that NGCP is allowed to earn annually to recover its operational expenses like OPEX (operating expenditures) and CAPEX (capital expenditures), as approved by the ERC in accordance with the rules.

In determining the partial allowable revenues of NGCP, the ERC excluded employees' benefits that were sought to be recovered from consumers.

Moreover, the regulator disallowed the recovery from consumers of advertising expenses or COVID-19 donations “that were not proven to redound to the benefit of consumers.”

Alabanza said such expenses were legitimate as these were allowed under TransCo before the private operator took over the operations of the grid.

The NGCP took over the operations and management of the national transmission system from TransCo in 2009 due to the privatization of the power grid operations and maintenance.

Alabanza said employees’ bonuses are legitimate business expenses as they are part of operational expenses that are usually included in the cost of a product being charged by a business for a particular service or product.

“Ito ay ginagawa ng TransCo, noong panahon ng gobyerno pero hindi naging kuwestiyonable,” she said.

As for the public relations and advertising expenses, the NGCP official said that is not a marketing initiative, but they cover information campaigns, including safety and right-of-way clearance.

Alabanza added that ERC rules also mandate the NGCP to conduct corporate social responsibility (CSR) efforts to give back to the communities affected by the transmission lines and towers.

Sought for comment, ERC chairperson Monalisa Dimalanta said that the power industry regulator will “still have to take another look if indeed these were allowed for TransCo.”

Dimalanta, however, said “it may not be reasonable to compare TransCo and NGCP because one is a government company and another is a government concessionaire.”

“If you recall, the government privatized the transmission operations not to simply continue doing what TransCo has been doing but to improve on it, be more efficient and cost-effective and pass on to consumers the benefits of privatization,” the ERC chief said.

Dimalanta also emphasized that the issue was not whether the expenses were legitimate or not as “the question is: should consumers pay for these expenses?”

The NGCP official pointed the blame on ERC for its failure to conduct a regulatory reset.

For her part, Dimalanta said, “Even if we were to keep arguing on who is to blame, we cannot ignore the fact that the Commission is now doing the reset and NGCP is given all the opportunity to participate in the process and justify expenses.”

“We want to complete this reset and fulfill our mandate,” the ERC chief said.

The regulator had said earlier that the fourth regulatory reset period is “distinct” and “unique” because it covers a past period, thus requiring evaluation of historical data on NGCP’s expenditures and performance.

The regular rate-reset process is usually a forward-looking exercise that requires the regulated entity to submit forecast expenditures and proposed projects over a five-year regulatory period.