HOUSE Committee on Ways and Means Chair Joey Salceda of Albay on Tuesday presented a compelling argument for a refund mechanism of the amount of P204.3 billion in alleged excess revenues for power consumers in light of regulatory lapses and tax exemptions of the National Grid Corporation of the Philippines (NGCP).
In a presentation he made to the committee members, Salceda revealed NGCP’s staggering excess revenues and cited the need for legislative reforms to address issues unique to the corporation and protect Filipino consumers from excessive costs.
From 2016 to 2020, Salceda said ERC-approved revenues were P183.5 billion, while NGCP’s actual revenues totaled P387.8 billion, resulting in P204.3 billion in excess. Salceda argued that this underscores the urgent need for legislative action and direct these excess revenues in refunds.
“There is a 204.3 billion that has been computed by the ERC as being in excess of each WACC (Weighted Average Cost of Capital). And, there is no provision in law. That’s the problem,” Salceda said.
“Ever since I became a congressman, almost every law I put that pertains to regulated industries, I always make sure that anything above WACC belongs to the people or belongs to the state. If it’s PPP, it belongs to the state, because they’re actors on behalf of the state,” he said. “If it’s a franchise that deals with the consumers, then the excess revenues belong to the consumers. And, there should be a process of disgorgement, of repayment.”
To bolster his argument, Salceda highlighted that NGCP is the only major player in the power sector that does not pay Corporate Income Tax (CIT), Value-Added Tax (VAT) and Real Property Tax (RPT).
Instead, it operates under a 3% franchise tax, the lowest among utilities with legislatively imposed rates, including PAGCOR and Cebu Air, which pay 5%, and horse racing entities paying up to 8.5%.
He pointed out that unlike its predecessors, such as NAPOCOR and TRANSCO, NGCP’s income tax exemption does not come with conditions.
NAPOCOR was mandated to reinvest its returns for expansion, while TRANSCO was required to remit net profits to PSALM Corp.
NGCP, in contrast, is exempt from income taxes without any stipulation for reinvestment or public benefit.
The absence of an explicit reasonable rate of return mechanism for NGCP was another critical point raised, as Salceda noted that NGCP is unique among sensitive sectors, as its profits are not capped by law.
Instead, the ERC regulates its revenues under EPIRA, using the Performance-Based Regulation (PBR) system, which depends heavily on an accurate WACC.
“Can Congress still amend the NGCP franchise to make its tax and profit structure fair? Yes. Section 2, terms and conditions. This franchise shall be for a term of 50 years from date of effectivity. It is by granted and unconditionally shall be subject to amendment, alteration or repeal by Congress when the common good so requires,” said Salceda.
Salceda questioned the existing WACC of 15.04%, which he described as “highly excessive.” He recommended reducing this to around 10.3%, aligning it with international standards and providing significant consumer relief.
To address these issues, Salceda presented five legislative proposals. First, he recommended using NGCP’s compliance with listing rules as a market benchmark for cost of equity.
Salceda argued that Synergy Grid of the Philippines (SGP), NGCP’s listing proxy, should also serve as the basis for determining its WACC to ensure transparency and fairness.
Second, Salceda proposed subjecting NGCP to a national security review under the Interagency Investment Promotion Coordination Committee (IIPCC). He underscored concerns over foreign control and the need for stricter oversight.
Third, he advocated shifting NGCP from a franchise tax regime to a regular tax regime, similar to water utilities, to ensure equitable tax contributions. He suggested that revenues from this shift could be used for a Pantawid Kuryente subsidy or a universal reduction in electricity rates.
Salceda’s fourth proposal involved exploring a fixed reasonable rate of return for NGCP, akin to the customary 12% maximum IRR for strategic industries before PBR adoption.
Finally, Salceda called for a windfall tax on NGCP’s excessive profits, which could be earmarked for consumer subsidies. He cited EPIRA provisions allowing for disgorgement of excess profits as justification.
The lawmaker emphasized that Congress has the authority to amend NGCP’s franchise to make its tax and profit structures fairer. He urged colleagues to act decisively to ensure that NGCP operates transparently and in the public interest
