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Manila Bulletin devider Business devider Trade & Industry devider ERC rules power firms must absorb inflation, forex risks in gas bids

ERC rules power firms must absorb inflation, forex risks in gas bids

Published Aug 19, 2026 02:12 pm
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The Energy Regulatory Commission (ERC) is imposing a strict “no-adjustment” policy on upcoming natural gas supply agreements, mandating that electricity rates remain fixed for up to 25 years to insulate consumers from future power bill shocks.
Under rules set for the upcoming natural gas competitive selection process, power generation companies participating in the supply auction will be required to manage their own inflation and foreign exchange risks rather than passing them on to end-users.
According to the document obtained by Manila Bulletin, the ERC regulatory directive aims to make electricity generation costs predictable over the life of the supply contracts, similar to fixed-rate service subscriptions.
Addressing concerns raised by industry stakeholders regarding the absence of price indexation once a power plant begins commercial operations, the ERC stated that prices locked in at the start of the award will remain fixed for the entirety of the 25-year contract term. The policy prohibits any subsequent cost escalations or adjustments even if developer operating overhead increases over time.
Regulators clarified that the Gas Auction Threshold—the maximum allowable price bid in the tender—will be pegged exclusively in local peso. While the framework permits a single adjustment for initial construction costs prior to commercial operation, the ERC noted that electricity tariffs will not be subject to foreign exchange indexation, inflation escalation, or cost pass-through mechanisms once the facility goes online.
The ERC maintained that the policy safeguards retail customers by ensuring they pay strictly for electricity delivered to the power grid, mitigating the financial risks associated with ungenerated capacity.
The strict pricing mandate comes amid lingering concerns among power generation developers regarding long-term project viability.
Industry participants pointed out that construction and operational expenditures are largely denominated in US dollars, arguing that an unadjusted peso-based tariff offers limited relief against potential macroeconomic volatility over two decades.
To prevent duplicate charges, the ERC also clarified that captive electricity consumers currently paying for natural gas supplies through existing contracts—such as those serviced by Manila Electric Co.—will be exempt from auction shortfall collection costs.
The Department of Energy plans to launch the gas supply auction by year-end, positioning natural gas as a mid-merit transition fuel to support grid stability alongside intermittent renewable energy capacity. Total capacity targets for the mid-merit natural gas tender remain under evaluation.

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