MANILA, Philippines – The Energy Regulatory Commission (ERC) has allowed Manila Electric Company to recover from its customers P3.37 billion for spot market electricity purchases that were previously not allowed.

The additional generation costs covering the period August 2006 to May 2007 will translate to an increase of P0.03 per kilowatt-hour in the utility's rates, effective in the next billing month, until the full amount (including interest) is collected.

“Meralco already paid these generation costs to WESM on behalf of its customers. Meralco had to buy power from WESM during this period to enable it to provide continuous supply of power to its customers,” said Meralco regulatory affairs head Ronald Valles.

He explained that, “since WESM prices are determined in accordance with law and regulations, the ERC deemed these purchases from WESM as prudent and valid. To mitigate the impact, however, the ERC allowed the recovery of these costs over a three-year period. Incidentally, the generation charge is expected to go down in October.”

In September 18, 2008, Meralco had asked the ERC to reconsider its June 4, 2008 decision disallowing a portion of the generation cost it incurred for the supply months of December 2006 to May 2007 amounting to P2.7 billion.

Meralco said its purchases from the wholesale electricity spot market are in compliance with the Electric Power Industry Reform Act of 2001 and requiring the firm to limit its energy purchases from the WESM to exactly 10 percent of its total demand "would be impossible and would defeat objectives of the WESM."

It said the disallowed P2.7 billion representing part of Meralco's generation cost for WESM purchases in excess of the mandatory 10 percent requirement are pass-through charges and its disallowance would undermine its viability as a distribution utility.

After reviewing the legal arguments of Meralco, the ERC said it became convinced that there is merit in revisiting the legal basis cited in support of the adoption of the 10 percent cap policy and reconsidering the decision it issued in June 2008.

ERC imposed the 10 percent cap policy citing Sec. 45 of the EPIRA that for the first five years of the establishment of the WESM, "no DU shall source more than 90 percent of its total demand from bilateral power supply contracts." WESM was established in 2006.

ERC said that since DUs are prohibited under Sec 45 (c) from contracting more than 90 percent of their total demand from power suppliers, it follows that even if the cost of power that is not sourced from bilateral contracts are higher than the transition supply rate of National Power Corp. (which is the benchmark rate), DUs committed no violation.

"Assuming that this portion is taken entirely from the WESm at prices higher than those stipulated in the DUs bilateral supply contracts with generation companies or the TSC rate and since there is no violation of Sec 23 committed for such WESM purchases, it should follow that the DUs should be allowed to recover the cost of these purchases," ERC said.