ERC finalizes accreditation rules for distribution utilities auditors

MANILA, Philippines - The Energy Regulatory Commission (ERC) has finalized its rules on the accreditation of external auditors that will verify proper cost adjustments of distribution utilities (DUs).

New rules will ensure transparency in the cost adjustments through competent and authorized auditors, the power sector regulator said.

In a decision dated June 4, the ERC said it approved and adopted the guidelines for auditors to systematically confirm cost adjustments of DUs.

The rules aim for “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.”

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.

Under the new rules, 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 professional conduct, ERC said.

Auditing firms and individual practitioners should not have been found guilty by a court of any case involving criminal or unethical practices.

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

“The accreditation of an external regulatory auditor shall be valid for a period of three years,” the ERC said.

The rules also pointed out several measures to ensure the independence of auditing firms.

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, ERC added.

For reporting of the audit, the ERC said it 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.