This assessment is accurate. At $0.21 per kilowatt-hour (kWh), electricity costs in the Philippines are 57 percent higher than Malaysia’s, after adjusting for subsidies, putting pressure on businesses and households alike.
However, the report fails to identify the underlying cause because it does not scrutinize the policy framework itself. By maintaining an unchanged regulatory framework across its analysis, the study does not assess whether the framework is a fundamental contributor to the current issues.
The Bank’s own numbers point to the regulator
The report reveals that power supply agreements are priced at 1.5 times the levelized cost of electricity from solar and coal, and about twice the cost of gas-generated power. The World Bank notes that if contracts reflected actual costs, residential electricity rates would be 26 percent lower.
The Energy Regulatory Commission (ERC) approved all these contracts as reasonable. This is not a procurement issue. Instead, the regulator relies on financial formulas rather than actual costs to set electricity rates.
The financialization of the regulatory framework
Financialization has influenced the regulatory framework in several ways. Utilities are valued using the Optimized Depreciated Replacement Cost (ODRC), which reflects what a new company would pay today rather than what investors actually spent.
In January 2025, the Supreme Court ruled in G.R. No. 226443 that ODRC is unlawful because it shifts wealth from consumers to shareholders. Meanwhile, the allowed rate of return for generators and utilities is based on the Capital Asset Pricing Model (CAPM), a financial theory that some critics have described as "useless."
The ERC determines a key input—the utility's expected cash flow—which means the regulator itself creates the risk under CAPM.
Performance-Based Regulation (PBR) allows utilities to earn returns based on forecast spending relative to a benchmark. If the benchmark is set higher than actual costs, it rewards savings that never really happened. The World Bank notes that utilities completed only a tenth of planned transmission investments from 2016 to 2022 but still collected returns.
PBR works elsewhere but the evidence says it has failed here
In other countries, PBR depends on three key elements: regularly scheduled resets, an audited asset base reflecting actual costs, and returns assessed against market data. Without these safeguards, the incentive system risks becoming a guarantee.
Electricity rates in the Philippines, among the highest in ASEAN, suggest that PBR has failed to deliver its intended benefits here. The system needs to be replaced immediately.
What should replace it?
Rate setting should be straightforward enough for ordinary households and small and medium-sized business owners to understand. The Return on Rate Base method had its shortcomings, but at least it was easier to understand.
The World Bank report says this is "not a subsidy story," and I agree. The real issue is pricing.
Using technology to improve electricity supply is a step in the right direction. But until the regulatory framework is fixed, I suggest that consumers consider going off-grid. —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.
