ERC flags NGCP for PR expenses recouped as pass-on charges

The Energy Regulatory Commission (ERC) on Thursday flagged the National Grid Corp. of the Philippines (NGCP) for spending billions of pesos on public relations and corporate social responsibility (CSR), representation and entertainment, advertising, COVID-19 donations, charitable contributions, and other miscellaneous items that should not be included in the operating and maintenance costs it passed on to consumers from 2016 to 2020.

According to the ERC, these expenditures, which the country’s lone power grid operator had collected from consumers, were disallowed and were among the expenses it had taken out of NGCP’s maximum annual revenue (MAR) for the period.

MAR is the maximum amount approved by the ERC as regulator that NGCP is allowed to earn to recover its operating expense and capital expenditures.

Only P36.7B

Based on the ERC’s partial review of NGCP’s expenditures for the fourth regulatory period covering 2016 to 2022, NGCP’s annual MAR from 2016 to 2020 was only P36.7 billion, as opposed to the P77.56 billion that the company had applied for and earned.

The review tackled only the years 2016 to 2020, as the ERC has yet to complete assessing the second phase covering 2021 and 2022 later this year.

The ERC found out that NGCP should have a MAR of only P183.49 billion for the five-year period, or 52.7-percent lower than the P387.8 billion in actual revenues made by the company.

“Once the Commission finalizes the determination, after NGCP and the public give comments on the findings, we will finalize the allowable revenues and revise the rates. If there are no revisions to the amounts under the initial determination, then refunds will be due. We are targeting to complete the process within the year,” ERC Chair Monalisa Dimalanta said in a statement.

The State Grid Corp. of China owns 40 percent of NGCP, while business tycoons Henry Sy Jr. and Robert Coyiuto Jr. each control 30 percent of the company.

Among the disallowed expenses, the ERC noted that more than P3.7 billion was spent by NGCP on CSR projects and advertisements from 2016 to 2020.

Dimalanta explained that while it was mandated to give back to communities affected by its projects through CSR efforts, the budget for these programs should not be taken from consumers’ pockets through the transmission charge in electricity bills.

‘Legitimate costs’

NGCP’s transmission charge accounts for 3.5 percent of what consumers pay in their monthly electricity bills.

“How can you give back [to the community] if you also collect the budget for donations, for CSR, from them? We’re just trying to align principles in reviewing these items and making sure that what’s passed on will be reasonable and prudent costs,” Dimalanta told reporters.

In its defense, NGCP clarified that the CSR and public relations expenses were part of business expenses applied for and approved by the ERC.

“Just remember that our revenues are controlled, regulated. [CSR] has an effect because your good relations with your community also impact how we operate and maintain [the grid],” NGCP spokesperson Cynthia Alabanza clarified.

As the ERC did not set its rates in advance for the 2016 to 2022 period, NGCP said it had to assume that it could apply the rates approved in the previous regulatory period covering 2011 to 2015.

NGCP reiterated that its expenses were “legitimate business costs,” saying that these were the same rules applied to the National Transmission Corp., which controlled the country’s transmission backbone before it was privatized in 2009.

Employees’ benefits

“That shouldn’t be bad, especially if it’s within the rules that were applied when we entered the business,” Alabanza noted.

The ERC had also found that NGCP failed to provide a breakdown of employees’ benefits it had claimed in its application, and that these expenses were also disallowed.

Alabanza countered, however, that the ERC review was rushed, and that the templates provided for their application did not specify line items.

“It’s not fair for us. The regulatory [review] was admittedly rushed. A lot of it, we feel, are misrepresentations,” she said, adding that the bonuses and salaries provided for their employees were “not exorbitant,” especially as NGCP was a “highly technical company” that had to hire employees with specializations, particularly engineers.

Project delay

At the same time, NGCP announced that there would be an indefinite delay in the completion of the Cebu-Negros-Panay Stage 3 backbone project (CNP3) that is crucial to the full-capacity operation of the P52-billion Mindanao-Visayas interconnection project.

According to NGCP, the Supreme Court issued on Sept. 11 a temporary restraining order (TRO) against the construction of the Cebu-Magdugo 230-kilovolt (kV) line, a component of CNP3 that would help fully utilize the 450 megawatts of power shared through the interconnection of Mindanao to the Visayas grid.

This resulted from the petition of the Tourism Infrastructure and Enterprise Zone Authority to stop the construction of the 230-kV line, as two tower sites fell under its property, which it intended to develop into a golf course.

NGCP submitted its response to the petition for certiorari to the Supreme Court on Sept. 26.

“We might not meet the target of completing CNP3 by December 2023 because of the TRO. Until that is resolved, we can’t enter the property and we can’t give an estimated time of completion,” Alabanza explained.