NERA was retained by Meralco to advise on the Energy Regulatory Commission’s (ERC’s) proposals, including its proposal to retroactively adjust tariffs and the methodology it proposed for calculating Meralco’s allowed rate of return going forward.

The NERA team, consisting of Senior Managing Director Richard Hern and Consultant Tarek Badrakhan, reviewed international best practice for setting allowed rates of return and analyzed market data relevant to the Philippines’ economy—including forecasted government bond rates and inflation expectations. NERA published a series of reports with its findings, in which it argued the ERC’s inconsistent approach to updating the allowed rate of return risks creating uncertainty for investors, as it had become difficult to predict ERC policy. NERA also assessed ERC’s cost of capital calculation for alignment with best practice, with a particular focus on the “risk adjustment factor,” which the ERC proposed using in place of the more commonly used equity beta parameter in the cost of equity capital calculation.

Dr. Hern testified at hearings held by the ERC in August 2022.