Rules for Transmission Rate Over/Under Recovery

Title, purpose, and policy goals

The resolution adopts the Rules for the Calculation of the Over or Under Recovery in the Implementation of Transmission Rates by Distribution Utilities (DUs).
The rules aim to ensure transparent and reasonable prices of electric power service in a regime of free and fair competition.
The rules aim to achieve greater operational and economic efficiency and to protect public interest as affected by DU rates and services.
The rules require full recovery of the allowable cost of Transmission.
The rules also aim to ensure and maintain quality, reliability, security and affordability of electric power supply.

Scope and who is covered

The rules apply to all DUs connected to the Grid.
A Distribution Utility (DU) is defined as any electric cooperative (EC), private corporation, government-owned utility, or existing local government unit with an exclusive franchise to operate a distribution system under the Act.
The Energy Regulatory Commission (ERC) is defined as the independent, quasi-judicial regulatory agency created under Section 38 of the Act.
The rules apply to transmission-rate over/under recovery involving the transmission cost components determined in a DU’s Unbundling of Rates Application.

Key definitions used in computation

Act refers to Republic Act No. 9136 (EPIRA).
Net Transmission Cost means the total charges of National Transmission Corporation (TRANSCO) (or its buyer or concessionaire), including transmission and sub-transmission costs, ancillary service, connection service, and power cost delivery service net of any imbalance charges, cost associated with availment of One-Day Power Sales (ODPS), and value added tax associated with transmission service.
Net transmission costs are limited to costs that are prudently incurred, actually paid for, verifiable, reasonable, and eligible for recovery under the ERC’s rules and regulations.
Transmission Rates mean the charges associated with transmission cost incurred by the DU that have been determined by the ERC in the DU’s Unbundling of Rates Application.
The computation framework uses:
- Transmission Over or Under Recovery (PhP/kWh) per customer class,
- Transmission Recovery,
- Transmission Cost (actual net transmission cost in PhP for a month),
- and NPFD (Net Power Factor Discount), including a required 50% pass-through rate.

One-time determination and adjustment formula

The ERC allows a one-time determination of over or under recovery on DU transmission charges from when DUs first implemented their unbundled rates up to the effectivity of the Guidelines for the Adjustment of the Transmission Rates by Distribution Utilities (TRAM Guidelines).
The one-time determination covers over/under recovery arising from implementation of unbundled rates that were fixed annually for four (4) years, incorporating removal of intra-grid cross subsidies of TRANSCO under approved unbundled rates.
The adjustment (refund/collection) uses a per customer class formula expressed in PhP/kWh:
- Transmission Over or Under Recovery (N) (PhP/kWh) = Total Over or Under Recovery (N) / (Σ(i=1 to n) KWh Sales of class N in month i), where month 1 is the month the DU implemented unbundled rates and month n is the month prior to implementation of the TRAM Guidelines.
The computation of Total Over or Under Recovery (N) (PhP) is:
- Σ(i=1 to n)[Allowable Transmission Cost (N)i − Transmission Recovery (N)i].
Allowable Transmission Cost (N)i is computed as:
- (Transmission Cost i × NPFD × 50%) / (Total Purchased kWh × Total kWh Sales i × CP(N)) (with the formula as stated and using NPFD and CP(N) as defined by the rules’ defined terms and allocation factors).

Net power factor discount and eligible costs

NPFD is computed as Net Power Factor Discount (NPFD) Multiplied by (Percentage share), with a required 50% pass-through by DUs to customers.
NPFD is derived from the Gross Power Factor Discount availed by the DU from TRANSCO minus:
- (1) the Power Factor Discount Granted by the DU, and
- (2) the amount paid by the DU under a business agreement with a third party for the improvement of its power factor.
The rules require that the business agreement power factor improvement component shall not exceed 50% of Gross PFD.
Total Purchased kWh means kWh purchases from all suppliers corresponding to kWh sales billed the transmission charge for the month less ODPS.
Total KWh Sales i means total kWh sales of the DU for the month i.
The rules require use of CP(N), the Coincident Peak allocation factor for customer class N as reflected in the DU’s last approved unbundled rates.

Transmission charge recovery and customer billing

Transmission Recovery (N)i is computed as:
- (Transmission Charge in PhP/kWh × kWh Sales of class N for month i) + (Transmission Charge in PhP/kW billing demand of class N for month i).
Transmission Cost i is the actual net transmission cost in PhP for month i.
Transmission Charge in PhP/kWh and PhP/kW must be taken as applicable to customer class N from the DU’s Unbundling Decision.
If transmission charge for customer N is expressed in PhP/kWh only, the Transmission Charge in PhP/kW in the formula must be zero (0).
The over/under recovery calculation for each customer class must be expressed in:
- PhP/kWh for customers billed on a per kWh basis, or a combination of per kWh and per kW, and
- PhP/kW for customers billed on a per kW basis,
  in accordance with the formula in Section 2.3.
The DU must implement ERC-approved over or under recovery by incorporating the rate into the DU’s existing transmission rates component in customer bills:
- If the customer class transmission component is PhP/kW, the calculated PhP/kWh is converted to PhP/kW using:
  - PhP/kW = Calculated PhP/kWh / [load factor × {(365 days/yr × 24 hrs/day)/12 mos/yr}].

Filing requirements and supporting documents

The filing for any over or under recovery must be made under Section 1 of Article 6 of the ERC’s Rules Governing the Automatic Cost Adjustment and True-Up Mechanisms for Distribution Utilities.
The application must include:
- (1) Invoices from TRANSCO,
- (2) Vouchers and Official receipts of payment of TRANSCO invoices,
- (3) ERC Forms DU-M-01 and DU-M-02,
- (4) Monthly Financial and Statistical Report (MFSR) for ECs and M-001 and M-002 for PUs (prior to the effectivity of the above forms),
- (5) a Summary of Monthly Purchased KWh from all suppliers corresponding to the monthly kWh sales billed the transmission charge by the DU, and
- (6) other documents deemed relevant by the ERC.
Upon filing, the ERC may issue a Provisional Authority (PA) upon motion based on:
- allegations in the application and attached supporting documents,
- compliance with reportorial requirements,
- comments or pleadings filed by any interested party within thirty (30) days from receipt of a copy of the application by the local legislative body of the local government unit where the applicant principally operates, or from publication thereof, as the case may be.

Monitoring, reporting, fines, and exceptions

After ERC evaluation and approval, the DU must submit to the ERC:
- a report on the status of monthly implementation and the corresponding balance of the approved over or under recovery,
- after six (6) months from implementation, and
- every six (6) months thereafter,
  until the over or under recovery amount has been fully refunded or collected.
Any violation of the rules subjects the DU to fines and penalties under the Guidelines to Govern the Imposition of Administrative Sanctions in the Form of Fines and Penalties Pursuant to Section 46 of Republic Act No. 9136.
Where good cause appears, the ERC may allow an exception from any provision of the rules if the exception:
- is found to be in the public interest, and
- is not contrary to any law, rules and regulations.

Separability and effectivity

If any part or section is declared unconstitutional or invalid, the remaining parts or sections continue in full force and effect under the rules’ separability clause.
The rules take effect fifteen (15) days following completion of publication in a newspaper of general circulation.
Copies of the resolution must be furnished to the UP Law Center–Office of the National Administrative Register (UPLC-ONAR) and all Distribution Utilities (DUs).