At the same time, ERC clarified that it has yet to firm up the decision for Aurora Electric Cooperative Inc. (Aurelco)’s unbundling rate application.
ERC said it will hear the unbundled rate petition of Aurelco based on its audited financial statement.
According to ERC, its primary regulatory responsibility is to balance the interest of the consumers and the investors in deciding the rate applications by electric utilities.
"We are always guided by the just and reasonable standard in electricity rate-making. The bottom line figures we arrived at in our decisions were a result of thorough and judicious evaluation," the Commission said.
The Commission said it has religiously complied with the legal requirement that all parties to the case must be accorded due process. "There was a time when we had to defer action in one unbundling case because we need to hear the view of one cause-oriented group," the Commission added.
ERC issued this statement in answer to the Foundation for National Development’s (FND) call for ERC to rationalize electricity rates and do away with artificially low prices.
In its Meralco unbundling decision, ERC adopted a socialized pricing mechanism to mitigate the impact of a rate increase on electricity users consuming 300kwh or below.
In its recent decisions, ERC adopted the Weighted Average Cost of Capital (WACC) instead of the 12-percent rate of return on rate base (RORB). According to the Commission, the maximum ceiling of 12-percent RORB is no longer reasonable because of the Supreme Court decision that income tax is not allowed as a recoverable item for rate-making purposes.
WACC provides a return sufficient to maintain financial integrity of the company and compensate investors for certain risks that they assumed. The return varies over time to reflect changing economic conditions. ERC applied the principle of conservatism in its decision by adopting the capital stock at cost instead of the market price.