If Congress is reopening the law, it should also address the far larger anomaly embedded in how the Energy Regulatory Commission (ERC) prices the industry's monopoly segments: a framework that guarantees utility returns while simultaneously pricing those returns as though they were at risk.
The question Philippine regulation has never honestly answered is: What risk? Under Performance-Based Regulation as implemented here, the answer is: Almost none.
The building-blocks methodology does not merely allow the recovery of prudent costs—it constructs an annual revenue requirement that, by design, includes a return on the regulated asset base.
Customers are captive, the franchise is exclusive, and cash flows are assured by regulatory design. This is a business whose income statement is, in effect, drafted in advance by its regulator.
The risk question
Here is the dilemma, and it is inescapable. Finance theory — including the very Capital Asset Pricing Model the ERC deploys — says the required return on an investment reflects its non-diversifiable risk.
A cash flow that is assured has a beta approaching zero and the Capital Asset Pricing Model (CAPM) prices it at the risk-free rate.
That leaves the regulator with a choice.
Either returns are genuinely guaranteed, in which case the "reasonable return" required under Section 43(f) of the Electric Power Industry Reform Act (EPIRA) should be set close to the yield on Philippine government bonds, with only a thin margin for residual operating risk. Or returns are genuinely at risk, in which case the assurance mechanisms under performance-based regulation (PBR)—including true-ups, revenue building blocks, and the guaranteed return on the regulated asset base—should be dismantled.
What the current framework does instead is take both: bankable, regulator-assured revenues priced with equity premia borrowed from competitive markets. That is not compensation for risk. It is rent.
Inflated returns
The arithmetic of the abuse compounds. The asset base earning that inflated return was itself inflated — revalued at hypothetical replacement cost under the ODRC scheme the Supreme Court has now struck down in G.R. No. 226443 for violating EPIRA’s least-cost mandate.
Layer an overstated return on an overstated base, and Filipinos end up paying, every month, for infrastructure at prices above what it cost to build, at yields above what its risk justifies.
None of this is radical abroad. The global trend in serious jurisdictions is downward, toward returns that reflect what these businesses actually are: quasi-sovereign cash flows wearing a corporate logo.
The way forward
So the amendment that matters is this: Restore rate-setting to actual, audited cost; anchor the allowed return for monopoly wires to sovereign yields plus a disciplined, evidence-based margin; and end the double game in which the ERC removes the risk and then pays for it anyway.
Electricity is a basic necessity, not an asset class. The systems loss debate is a rounding error beside this. Congress should not settle for the rounding error. —Ed: Corrie S. Narisma
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
