The Energy Regulatory Commission (ERC) on Friday rejected allegations that it unlawfully allowed Manila Electric Co. (Meralco) to earn returns above a supposed 12 percent cap, saying no such limit exists under Philippine law and that the industry's rate-setting framework has long since changed.

A complaint was reportedly filed with the Office of the Ombudsman, accusing the regulator of allowing Meralco to exceed a purported maximum allowable rate of return.

However, the ERC argued neither the Electric Power Industry Reform Act (EPIRA) nor the Public Service Act imposes a 12 percent ceiling on the allowable return of distribution utilities.

Instead, the EPIRA requires electricity rates to be "just and reasonable" and authorizes the Commission to adopt internationally accepted rate-setting methodologies.

"We understand why any suggestion of overpricing draws public concern, and we take that concern seriously," ERC Chairperson and Chief Executive Officer Francis Saturnino C. Juan said.

"But the public deserves an accurate picture of the law. There is no 12% ceiling that this Commission ignored. What exists is a rate-setting methodology — reviewed, consulted on, and upheld by the Supreme Court — that this Commission has applied consistently and lawfully. We will address the complaint fully before the Ombudsman if we are asked to. In the meantime, we did not think it right to let a mistaken legal premise stand unanswered in the public record."

The regulator said the 12 percent figure cited in the complaint came from a 1993 Meralco rate case under the old Return on Rate Base (RORB) system, which was replaced after the EPIRA took effect.

The ERC shifted the industry to the Performance-Based Regulation (PBR) framework in 2003 for the transmission sector and in 2004 for privately owned distribution utilities.

Under the system, allowable returns are determined using the Weighted Average Cost of Capital (WACC), an internationally recognized methodology.

The Commission said the WACC framework underwent public consultation and has been applied consistently across the power sector. It added that WACCs above 12 percent have been approved over the years not only for Meralco but also for other distribution utilities and the National Grid Corp. of the Philippines.

The ERC also cited the Supreme Court's ruling in NASECORE v. Meralco, which upheld both the shift to the PBR framework and the Commission's approval of a 15.50 percent WACC for Meralco, declaring issues under the pre-EPIRA rate-setting system "moot and academic."

It stressed that an approved WACC is only one element of rate-setting, with a utility's actual earnings still dependent on electricity demand, operating efficiency and costs.

Separately, the ERC said it is addressing the decade-long delay in distribution utility rate resets.

In 2025, it ordered utilities to file for confirmation and true-up of rates covering missed or "lapsed" reset years, with any over-recoveries to be refunded to consumers. It also adopted new rules setting firm timelines for future rate resets.

The Commission added that parties challenging its rate-setting decisions may seek relief before the Court of Appeals or the Supreme Court, which are the remedies provided under the law, rather than through the Office of the Ombudsman.