The Energy Regulatory Commission (ERC) said there is no law imposing a 12% ceiling on the allowable rate of return of distribution utilities, as it clarified issues raised in reports about a complaint supposedly filed before the Office of the Ombudsman involving Manila Electric Company (Meralco).

The ERC said neither the Electric Power Industry Reform Act (EPIRA) nor the Public Service Act prescribes a specific 12% cap. It said EPIRA only requires power rates to be “just and reasonable” while allowing the Commission to adopt internationally accepted rate-setting methodologies.

According to the ERC, the 12% figure cited in the complaint came from the old Return on Rate Base regime, specifically a benchmark from a 1993 Meralco rate case decided before EPIRA took effect.

The Commission said that framework was later set aside when the ERC shifted the industry from Return on Rate Base to Performance-Based Regulation beginning in 2003 for transmission and 2004 for privately owned distribution utilities.

Under Performance-Based Regulation, utilities are not regulated simply by applying an old fixed return percentage. Instead, rates are set through a framework that considers allowed revenues, costs, efficiency, investments, and service obligations over a regulatory period.

The ERC said the relevant measure under the current system is the Weighted Average Cost of Capital (WACC), not the old 12% figure.

WACC, refers to the estimated cost of raising money through both debt and equity to fund a utility’s operations and investments. Regulators use it as one input in determining how much revenue a utility may recover through electricity rates.

The Commission said the WACC approved during a rate reset is only one part of a utility’s Annual Revenue Requirement and Maximum Annual Price. It added that a utility’s actual realized return in a given year may differ depending on demand, efficiency, and costs.

The ERC also cited the Supreme Court’s ruling in National Association of Electricity Consumers for Reforms, Inc (NASECORE) v. Meralco, where it said the Court held that the shift from Return on Rate Base to Performance-Based Regulation rendered pre-EPIRA rate-of-return questions “moot and academic.”

The Commission said the Supreme Court separately affirmed the ERC’s approval of a 15.50% WACC for Meralco, which was above the 12% figure now being asserted as a mandatory ceiling.

The ERC also said rate-setting is a technical matter within the Commission’s expertise, adding that its Performance-Based Regulation issuances went through public process and enjoy a presumption of validity.

However, the ERC said it has not been passive on concerns over the decade-long gap in formal rate resets for the distribution sector.

In 2025, the Commission issued Resolution No. 23, which directed distribution utilities to file for confirmation and true-up of actual rates for missed reset years, or the so-called lapsed years. It said any over-recovery should be refunded to consumers.

The ERC also issued Resolution No. 24, adopting the Rationalized Rules for Setting Distribution Wheeling Rates, which sets clearer and time-bound procedures for future rate resets.

The Commission said these measures directly address the regulatory gap without requiring a 12% cap that it said does not exist in law.

The ERC also said the Office of the Ombudsman is not the proper venue to reopen or relitigate the validity of the Commission’s rate-setting methodology and final decisions.

It said parties that disagree with an ERC rate determination have specific legal remedies, including a petition for review before the Court of Appeals or a petition for review on certiorari before the Supreme Court.

“We understand why any suggestion of overpricing draws public concern, and we take that concern seriously,” ERC Chairperson and CEO Atty. Francis Saturnino C. Juan said.

“But the public deserves an accurate picture of the law. There is no 12% ceiling that this Commission ignored. What exists is a rate-setting methodology — reviewed, consulted on, and upheld by the Supreme Court — that this Commission has applied consistently and lawfully,” Juan added.

The ERC said it remains committed to transparent and accountable regulation of the Philippine electricity sector and will continue to protect consumer interests through the lawful exercise of its rate-setting authority.

Can the ERC’s true-up process and new rate reset rules address consumer concerns over distribution utility returns?

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