ERC clears P31.3-B pass-through charges starting March 2026
From AB Capital's The Opening Bell: Three Moves
Event
The ERC approved a total of P31.34bn in Change in Circumstance (CIC) recoveries to be passed through Meralco customers beginning March 2026, translating to an average ~P0.2816/kWh increase in generation charges. Approved recoveries cover extraordinary 2022–23 fuel cost increases and include SMEC (P13.36bn), SPPC (P15.85bn), ACEN (P1.75bn), and PEDC (P0.38bn).
View
The decision affirms regulatory recognition of CIC provisions under PSAs, providing clearer recovery visibility for contracted gencos. Recoveries support cash flow, liquidity and balance sheet normalization. For MER's DU business, the increase is largely pass-through and therefore broadly earnings-neutral, although sustained higher headline rates modestly increase regulatory and public sensitivity.
Catalyst
We would monitor the implementation starting March 2026. Key risks include consumer backlash and stretching of recovery periods.
Action
While not a near-term earnings catalyst, the ruling materially improves cash flow visibility and downside protection for contracted generation portfolios. In our view, this supports a continued preference for highly contracted gencos (AP, MER), where pass-through mechanisms help stabilize earnings and cash flows against price volatility and exogenous shocks over the cycle.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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