The Energy Regulatory Commission (ERC) has approved a lower revenue cap for the National Grid Corporation of the Philippines (NGCP) covering the 2023-2027 period. This reduces the amount the grid operator is allowed to recover from electricity users.

In a decision issued under the Fifth Regulatory Period (5RP), the ERC set NGCP’s Maximum Annual Revenue (MAR) at PHP 374.98 billion, down 15.28% from the company’s initial proposal of PHP 442.60 billion.

MAR refers to the maximum amount NGCP is allowed to earn from providing transmission services over a regulatory period. It serves as a revenue ceiling and does not guarantee any certain income.

The ERC said the approved MAR reflects adjustments made after reviewing NGCP’s costs, investments, and performance as part of the 5RP reset, which is conducted under the Rules for Setting Transmission Wheeling Rates.

One of the key adjustments involved capital expenditures. The Commission approved a 17% reduction in NGCP’s proposed capital expenditure, after excluding projects that had already been accounted for in a previous regulatory period.

The ERC also disallowed NGCP’s recovery of real property taxes (RPT) from consumers, citing existing rulings that exempt NGCP from paying RPT on assets used for its transmission franchise. The exclusion of these costs contributed to the lower approved revenue cap.

While the MAR sets NGCP’s revenue ceiling, the ERC clarified that it does not automatically translate into transmission rates. The conversion of allowed revenue into actual charges paid by grid users is governed by the Open Access Transmission Service (OATS) Rules.

Under OATS, NGCP’s allowed revenue is allocated among transmission system users—such as generators, distribution utilities, and directly connected customers—based on factors including their contribution to system peak demand and their voltage level and connection point.

The ERC also explained that NGCP’s actual collections may differ from the approved MAR in any given year. These differences are addressed through an Annual Revenue Requirement (ARR) true-up mechanism, which adjusts future charges to ensure NGCP recovers only what is allowed over time.

The ARR true-up ensures that any over- or under-recovery in a given year is corrected in future periods, preventing prolonged overcharging or under-collection.

The Commission said the decision seeks to balance the need to fund critical transmission infrastructure with the protection of consumers, while also supporting reliable power supply and long-term grid sustainability.

How will the ERC’s tighter revenue cap affect future transmission charges and grid investment plans?

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