ERC issues rules on accreditation of power utilities' external auditors

MANILA, Philippines – The Energy Regulatory Commission (ERC) has issued draft rules on the accreditation of external auditors that will verify distribution utilities’ (DU) compliance to regulatory filings.

The new rules will “put in place a fair and transparent process for the accreditation of external auditors and auditing firms that may be engaged by the DUs to audit their automatic cost adjustments and true-up charges subject of the ERC’s confirmation process,” the ERC said.

It will also ensure that the external auditors possess the professional qualifications while defining the extent of the authority of the auditing firms.

Under Republic Act 9136 or the Electric Power Industry Reform Act of 2001, the ERC needs to check the automatic cost adjustments and true-up mechanisms of the DUs.

DUs are allowed to implement automatic adjustments based on movements of cost components that are beyond their control like supply procurement, fuel price fluctuations and foreign exchange rate adjustments. These adjustments are reflected in customers’ monthly bills.

DUs refer to holders of an exclusive franchise to operate an electricity distribution system in an area like electric cooperatives, private corporations and government-owned firms.

Auditing firms and individual practitioners should have an accreditation from the Board of Accountancy and Professional Regulation Commission, respectively, at the time of application to the ERC.

These entities should also have at least five years of experience in the industry while having no outstanding complaints with regulatory agencies involving criminal or unethical conduct.

Auditing firms and individual practitioners found guilty by a court of any case involving criminal or unethical practices will not be accredited, the ERC said.

Only auditors accredited by the ERC can be tapped by DUs for the verification process.

Members of the independent auditing firm should not have any direct or indirect financial interest in the DU that will be examined, the ERC said.

Members of the auditing firm should not also be related up to the fourth degree civil of consanguinity or affinity to any office of the DU.

Auditors should have also not held any position in the DU in the past three years, the ERC added.

For reporting of the audit, the ERC can order auditors to submit specific reports before, during and after the examination.

Fines and penalties will be slapped to auditors that fail to submit reports required by the ERC.

Any misrepresentation in documents, refusal to submit requested documents and gross negligence in the verification process will also merit sanctions, ERC said.

Furthermore, failure of auditors to settle penalties within a prescribed period will result in revocation of the ERC accreditation.

The ERC said it will accept comments from stakeholders until March 6.