The Energy Regulatory Commission (ERC) has adopted the Trending Method to determine the asset base of Manila Electric Company (Meralco) for its long-pending Unbundling of Rates case. This replaces the Optimized Depreciated Replacement Cost (ODRC) approach, thus creating a more balanced, transparent, and predictable regulatory framework.

The change applies to ERC Case Nos. 2001-646 and 2001-900 and follows a Supreme Court ruling that found the ODRC method inconsistent with the “least-cost supply” principle. The Court also directed the ERC to use a new approach in finalizing MERALCO’s application, which was filed in 2001 when rate-setting still followed the Return on Rate Base (RORB) methodology.

To carry out the decision, the ERC will require MERALCO to submit a new Regulatory Asset Base (RAB) Valuation Report prepared by an independent valuation expert using the Trending Method. This report will be used together with the Commission on Audit (COA) findings for 2004 and 2007 to complete the ERC’s review of MERALCO’s rate unbundling case.

According to the ERC, the Trending Method is a transparent and data-driven valuation system that uses verified historical costs and official inflation data to determine fair asset values. The approach ensures that only necessary, functional, and service-related assets are included in the rate base, thus protecting consumers from paying for idle or non-essential assets while still allowing utilities a fair return on their investments.

ERC Chairperson and CEO Francis Saturnino C. Juan said the move marks a critical step in improving public confidence in the commission’s regulatory process.

“The adoption of this valuation methodology marks a crucial step in bolstering public trust and enhancing regulatory fairness, while finally resolving MERALCO’s long-standing RORB application,” Juan said. “This decision guarantees that MERALCO consumers pay only for assets that are useful, functional, and utilized to deliver electricity efficiently.”

What are your thoughts on the ERC’s move to modernize its valuation process for power distribution rates?

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