Power distributors will have to absorb the cost of renewable energy certificates (RECs) purchased above prevailing market rates instead of passing the difference on to consumers, under a new recovery treatment approved by the Energy Regulatory Commission (ERC).

In an advisory on Thursday, the ERC said distribution utilities (DUs) may recover from captive customers only the amount corresponding to the verified lowest-cost benchmark for certain REC purchases made to comply with the Renewable Portfolio Standards (RPS).

Consumers will be protected from paying the premium when a utility buys RECs at a price higher than the lowest verified price available in the Philippine Renewable Energy Market System (PREMS).

“For avoidance of doubt, only amounts corresponding to the approved recoverable rate shall be passed on to end-users,” the ERC said.

“Any disallowed variance between the actual REC contract price and the applicable verified lowest-cost benchmark shall be for the account of the concerned DU and shall not be recovered from captive end-users,” it added.

RECs are certificates representing electricity generated from eligible renewable energy sources. Power industry participants use them to meet RPS requirements, which mandate a certain share of electricity supply to come from renewable energy.

The ERC has had rules governing the recovery of RPS compliance costs since 2024.

Under the latest treatment, REC purchases made at or below the verified lowest-cost benchmark at the time of the transaction may be fully recovered from consumers at the actual contract price, subject to supporting documents and ERC verification.

If a utility pays more than the verified lowest PREMS posted price, however, it can recover only up to that benchmark. The utility must shoulder the difference.

For instance, a DU that buys 100 RECs at P200 each would spend P20,000. If the verified lowest PREMS price at the time was P195 per REC, the utility could charge consumers only P19,500.

The remaining P500 would have to come out of the utility’s own pocket.

The ERC may also allow full recovery for certain REC transactions conducted outside the regular market or through alternative certification if their price is below the verified lowest public benchmark and the deal can be shown to be more advantageous to consumers.

The regulator said it adopted the temporary flexibility after finding that some REC transactions were made “in good faith under compressed compliance timelines, real-time market movements, and PREM's operational constraints.”

According to the ERC, strictly applying the least-cost certification requirement to these transactions could result in inequitable outcomes, although consumers must still be protected against unreasonable procurement costs.

The treatment is being implemented under the exception provision of the RPS Cost Recovery Rules, which allows the ERC to grant exemptions for good cause when these serve the public interest and do not violate existing laws and regulations.

Affected utilities must now recompute the amount they intend to pass on to customers based on the ERC-approved recoverable rate.

They must submit their revised tariff pass-through calculations, including any amount the utility will instead shoulder, within 15 days of receiving the applicable ERC directive or response letter.

The ERC stressed that the arrangement is temporary and applies only as a transitional measure for the first year of implementing the RPS Cost Recovery Rules.

“This treatment is a first-year transitional measure only and shall not be treated as a continuing exception, precedent, or waiver of the least-cost requirement for future REC transactions,” the ERC said.