Energy Regulatory Commission Caps REC Cost Recovery For Philippine Distribution Utilities Under RPS

The Energy Regulatory Commission (ERC) has issued an advisory clarifying the treatment of Renewable Energy Certificate (REC) purchase costs under the Renewable Portfolio Standards (RPS) framework. The advisory follows ERC Resolution No. 12, Series of 2024, which provides rules for cost recovery by on-grid Distribution Utilities (DUs) complying with the Philippine Renewable Energy Market System (PREMS) and least-cost procurement requirements.

The ERC recognized that some distribution utilities entered into REC contracts under tight deadlines, changing market conditions, and operational difficulties. Applying least-cost rules strictly in such cases could result in unfair outcomes. To address this issue, the Commission invoked the exception clause under Section 12 and introduced a market-based price cap for eligible transactions.

Under the approach, REC purchases priced at or below the verified lowest-cost benchmark at the time of execution may qualify for full recovery, subject to complete supporting documents. However, when a REC purchase is priced above the verified lowest PREMS price, the utility can recover only up to the verified benchmark. Any amount above the price cap must be absorbed by the distribution utility and cannot be passed on to captive consumers.

The ERC also said transactions made through off-board or alternative certification arrangements may qualify for full recovery when their prices are below the public benchmark and the utility can demonstrate that the transaction benefits consumers.

For example, if a distribution utility purchases 100 RECs at PhP200 each, the total cost would be PhP20,000. If the verified lowest PREMS price is PhP195 per REC, the utility can recover only PhP19,500 from consumers. The remaining PhP500 must be absorbed by the utility.

Affected utilities must submit recomputed tariff pass-through calculations within 15 days of receiving the relevant ERC directive or response letter. The documents must be uploaded as a single PDF through the Online Uniform Reportorial Requirement System (OURRS) under “Other Documents.” The prescribed file name is `RPS_DU name_month of upload`.

The ERC stressed that the market-based price cap is a transitional measure applicable only during the first year. It does not establish a permanent precedent or remove the least-cost procurement requirement.

For future REC purchases, distribution utilities must comply strictly with least-cost principles, maintain complete documentation, and ensure proper PREMS postings to support cost recovery.