MANILA Electric Co. (Meralco) expects to refund around P16 billion to its customers once the energy regulator finalizes the fifth regulatory reset, which reviews and sets the distribution rates for 2022 to 2026.

The refund will be issued only if the covered years are deemed a “lapsed period.”

“Our initial estimate, for at least three years, would be around P16 billion. So, that’s a big, big, big relief for the consumers. That’s why we want to have that closure already,” Jose Ronald V. Valles, Meralco’s senior vice-president and head of its regulatory management, said on the sidelines of a briefing on Monday.

Under the Electric Power Industry Reform Act of 2001, or EPIRA, the Energy Regulatory Commission (ERC) is mandated to establish and enforce a methodology for setting transmission and distribution wheeling rates for a distribution utility.

Distribution utilities such as Meralco are subject to a performance-based regulation wherein they are required to undergo a rate reset process prior to the start of the next regulatory year.

The rate reset process is usually a “forward-looking” exercise that requires the regulated entity to submit forecasted expenditures and proposed projects over a five-year regulatory period for the ERC to review and adjust rates.

In March 2022, Meralco filed its application for the fifth regulatory period (5RP), which spans from July 1, 2022 to June 30, 2026.

Mr. Valles said that the P16-billion refund corresponds to the average weighted actual price over the approved maximum average price set by the ERC, which the distribution utility is permitted to charge for its provision of services.

He said that the company is awaiting the official decision from the ERC to start the preparations for the next period of rate reset beginning July 2026.

“We are waiting for the order because the release of that order will trigger the filing of that application for refund and the preparation for the filing of the 6RP because we don’t want the 6RP to be delayed again,” he said.

“We want to prepare this early for the 6RP because we have a full 21-month period under the rules to prepare for the reset,” he added.

Citing deliberations, ERC Commissioner Catherine P. Maceda told a Senate hearing earlier this month that the commission decided to forgo the regular regulatory reset due to the anticipation that it will not be completed until 2026.

The official order has yet to be posted as of press time.

Ms. Maceda said the performance-based regulation process should be based on forecasts and there are no current rules to address the lapsed period for private distribution utilities.

“The commission deliberated on this, and ultimately, the decision that prevailed was for the PBR (performance-based regulation) reset to be applied completely to the sixth regulatory period as two years have already passed under the 5RP,” she said. Ms. Maceda is referring to the years 2023 and 2024 as the lapsed period.

Meralco last underwent a rate reset process for the 4RP covering the period from July 1, 2015 to June 30, 2022, which accounted for a lapsed period.

In a decision dated June 16, 2022 and promulgated July 5, 2022, the ERC ordered Meralco to issue a refund worth a total of more than P40 billion, which is equivalent to 73 centavos per kilowatt-hour (kWh) following recalculations.

The commission resolved to recompute and finalize the provisionally approved Meralco’s rate amounting to P1.3522 per kWh. — Sheldeen Joy Talavera