Are NGCP Rates Padded?

Concerns are mounting over the transmission charges imposed by the National Grid Corporation of the Philippines (NGCP), with critics calling for an urgent government audit into questionable expenses that are reportedly being passed on to consumers.

Calls are growing for a government audit. I Photo: NGCP

This includes advertising costs and forecasted capital expenditures (CapEx) for projects not yet initiated.

It is imperative for the administration of President Ferdinand "Bongbong" Marcos Jr. to scrutinize the rates NGCP imposes, as these significantly contribute to the high energy prices in the Philippines—a major deterrent for foreign investors who view the country's power costs, at times higher than those in Japan, as prohibitive.

A closer examination of NGCP’s regulatory model reveals a glaring loophole: the company is allowed to charge consumers for forecasted Capex, even if the projects included have not yet begun.

For instance, if NGCP submits a project proposal, such as building new transmission lines to Batanes, the proposed expenses can immediately be incorporated into its revenue requirement—even if actual construction may start years later.

This mechanism enables NGCP to inflate its rate base by including future projects, contributing to higher transmission charges.

As a result, the Philippines continues to suffer from among the highest energy prices in Asia, second only to Japan, further undermining its attractiveness as an investment destination.

The current system allows NGCP to recover provisional rates from consumers long before a final audit by the Energy Regulatory Commission (ERC) is completed.

These audits, intended to determine if there were overcharges and mandate refunds, often take years—allowing NGCP to benefit from potentially inflated rates in the interim.

President Marcos is in a strong position to address this transparency and governance issue. He can push for reforms requiring greater scrutiny of NGCP’s revenue requirement, ensuring that only actual, not speculative, costs are passed on to consumers.

Moreover, the President can tap into existing legal precedents to support regulatory reform.

One such precedent is the Supreme Court’s ruling in G.R. No. L-38690, promulgated on June 30, 1986, which capped the allowable rate of return for public utilities at 12% of the rate base.

The decision underscored the principle that utilities must maintain a balance between earning reasonable profits and protecting consumers from excessive charges.

Executive Secretary Lucas Bersamin, a former Supreme Court Chief Justice, could play a key role in revisiting the implications of this jurisprudence for current utility regulation.

Addressing the practices surrounding NGCP’s rate-setting mechanisms is crucial if the Marcos administration wants to shed the Philippines' reputation as an investment pariah and pave the way for sustainable, investment-driven economic growth—rather than relying on the fragile consumer-led growth model.