ERC Suspends Philippine Reserve Market as High Costs Hit Electricity Bills

October 14 freeze targets costly spot reserves

The Philippines' Energy Regulatory Commission (ERC) has ordered the suspension of reserve market operations beginning October 14, 2026, at 00:05, after finding that buying standby power through the market was driving up consumer costs. In the Visayas alone, reserve market purchases totaled P19.59 billion in 2025 and added P1.29 per kilowatt-hour (kWh) to electricity rates, compared with P0.02 per kWh from contracted reserves.

The intervention stops commercial dispatch and settlement of spot reserves, not the electricity spot market itself. Reserves already secured through approved contracts will continue operating. The National Grid Corporation of the Philippines (NGCP), Philippine Electricity Market Corporation (PEMC) and Independent Electricity Market Operator of the Philippines (IEMOP) must propose a redesigned reserve market within six months.

The suspension will remain in force until further ERC orders. That makes the six month deadline a deadline for a proposal, rather than a confirmed date for trading to restart. The regulator said it coordinated the action with the Department of Energy (DOE).

ERC Chairman and Chief Executive Officer Francis Saturnino C. Juan described the decision as a temporary response to prices that had stayed high, particularly in the Visayas, since full market operations began.

"This is a corrective and temporary intervention, not a retreat from the reserves market," Juan said.

The immediate objective is to remove expensive spot reserve purchases from ancillary service charges while keeping enough standby capacity available to stabilize the grid. Whether that produces a large reduction in a household's total bill will also depend on generation costs, remaining reserve charges and other bill components.

What stops and what stays in operation

Ancillary services are the standby capacity and other services used to keep electricity supply and demand balanced. They help the grid respond when a generating plant suddenly stops operating or demand changes. They are distinct from the electricity routinely purchased to serve homes and businesses.

NGCP can obtain these services through the reserve market or through ancillary service procurement agreements (ASPAs). Those agreements secure capacity from providers at approved rates. The reserve market, which began commercial operations in January 2024, allows reserves to be bought and sold through WESM.

IEMOP Vice President for Trading Operations Isidro E. Cacho Jr. said the October suspension applies to spot reserves, while contracted reserves remain in operation. Scheduling and dispatch of the spot reserve component will cease.

Reports differ in how they describe the temporary arrangements. Some describe reserve procurement as limited to capacity under existing contracts. Another account also identifies designated must-run capacity, paid on a cost recovery basis, as an option for needs those contracts do not cover. Such capacity would be required to operate to support reliability rather than earn a reserve market price.

The distinction matters because ending spot purchases does not end the grid's need for reserves. Existing contracts and any designated capacity must still meet that operational requirement.

The regional cost figures behind the decision

The ERC's review identified substantial differences between market purchases and contracted reserves in 2025. Luzon spent P24.53 billion on the reserve market, described as double the cost of ancillary services obtained through bilateral contracts. The Visayas spent P19.59 billion, while Mindanao spent P3.71 billion.

Those three reserve market totals add up to P47.83 billion. Luzon accounted for about 51% and the Visayas about 41%. The largest total expenditure was in Luzon, but the Visayas figures show a particularly sharp effect on electricity rates.

The Visayas rate impact of P1.29 per kWh was 64.5 times the P0.02 per kWh attributed to contracted reserves. Reserve prices there reached around P21 per kWh. The purchase price of a reserve service and its contribution to a consumer's bill are different measures, so P21 should not be read as the amount added to every unit of household electricity.

Mindanao presents a more complicated comparison. Its P3.71 billion in reserve market costs was P190 million below the P3.90 billion incurred through ASPAs, or about 4.9% less. The ERC nevertheless said the market weighed more heavily on consumer rates in all three regions. Total expenditure alone does not establish the relative effect on bills without the corresponding quantities and allocation details.

A separate reported measure puts average Mindanao reserve prices at P21.11 per kWh in 2025, up from P4.39 per kWh in late 2024. That is roughly 4.8 times the earlier level. These reserve prices should not be confused with Mindanao's September WESM energy price of P12.61 per kWh.

Why a lower price cap was not enough

Before suspending the market, regulators lowered the reserve offer price cap from P32,000 to P25,000 per megawatt-hour (MWh). Since one MWh equals 1,000 kWh, those limits correspond to P32 and P25 per kWh. The reduction was about 21.9%, but the ERC said it did not resolve the problem.

The regulator identified a contracting concern as well as a pricing concern: high spot market payouts discouraged providers from signing firm ASPAs at lower prices. That left reserve requirements more exposed to volatile market purchases.

A price cap sets the highest permitted offer. It does not, by itself, secure enough capacity under contracts or remove the conditions that keep prices near that limit. The ordered redesign therefore reaches beyond another adjustment to the ceiling, covering reserve requirements, procurement rules and the way costs are passed to consumers.

The ERC also wants procurement based on forecasts of future reserve needs to support investment, including battery storage and other flexible capacity. The challenge is to provide predictable payments for resources the grid needs without repeating the high consumer charges that prompted the suspension.

Thirty days to identify reserve gaps

NGCP has been directed to assess reserve requirements not covered by existing arrangements and designate must-run capacity within 30 days. It must also pursue contracts for the full reserve requirement using forecasts that account for future needs.

That task is separate from the six month redesign assignment shared by NGCP, PEMC and IEMOP. The shorter timetable addresses the immediate operational gap; the longer one concerns the market's structure.

No exact calendar dates for those deadlines are stated in the reported instructions, and the suspension has no fixed end date. The size of uncovered reserve needs, the facilities to be designated and the resulting cost recovery payments have not yet been specified.

Juan said the ERC and DOE intended to retain contracted and must-run reserves while changing procurement and consumer charging rules. He also set out the regulator's stated goal for a reopened market.

"We are suspending the market now so that it can return stronger, with better design and a reliable supply of reserves at a price consumers can bear," Juan said.

Cebu battery contract shows the alternative

A separate ERC approval in Cebu illustrates the regulator's push toward firm reserve contracts. The commission granted provisional authority for a five year ASPA between NGCP and East Asia Utilities Corporation (EAUC) in Mactan, Lapu-Lapu City.

EAUC's 44.72 MW battery energy storage system will provide up to 13 MW of regulating reserve and 13 MW of contingency reserve. Regulating reserve helps manage routine supply and demand changes; contingency reserve supports the grid after a sudden loss of generation. A battery can respond quickly to either need.

The reported Visayas firm reserve position was 40 MW of regulating reserve against a requirement of 67 MW, and 67.3 MW of contingency reserve against 75 MW. Those figures indicate gaps of 27 MW and 7.7 MW respectively. Firm capacity must be made available under the contract, with penalties for failure.

If fully available and additive to those figures, EAUC's 13 MW regulating contribution would reduce that gap to 14 MW. Its contingency contribution would exceed the stated 7.7 MW gap, although actual scheduling and availability still determine how much reserve the grid can use.

The provisional rate is P5.28 per kWh for both services, about one quarter of the roughly P21 per kWh Visayas reserve market benchmark. The comparison suggests a much lower quoted service rate, not a guaranteed reduction of the same percentage in household bills.

The Visayas recorded 123 yellow and red alerts from January to early September 2026. Juan said the application received priority because additional firm reserves could reduce the chance of alerts and disruption.

Energy prices rose despite more supply

The reserve freeze comes alongside a rise in energy prices, showing why lower ancillary service charges may not translate directly into an equivalent fall in total bills. For the August 26 to September 25 billing period, the system average WESM price rose from P7.21 to P7.43 per kWh, an increase of 3.1%.

Average supply increased 2.4% to 20,209 MW, while demand rose 1.8% to 14,188 MW. IEMOP energy market analyst Rica O. Cagnayo attributed the price movement to generation outages, grid constraints and changes in high-voltage direct current (HVDC) power flows.

Reports also give a separately stated average supply margin of 3,957 MW, up from 3,779 MW in August. That margin does not equal the simple difference between the reported supply and demand totals, which is 6,021 MW. The calculation basis is not explained, so the two measures should not be treated as interchangeable.

Luzon's price rose 5.7% from P4.90 to P5.18 per kWh. Supply increased 4.3% to 15,114 MW and demand climbed 2.6% to 9,899 MW. Despite the wider supply position, major plant outages helped push prices higher.

In the Visayas, supply stayed at 2,201 MW while demand edged up 0.2% to 2,099 MW. Prices rose 5.2%, from P11.81 to P12.42 per kWh, amid outages, operator interventions and yellow and red alerts. Outages left as much as 777.2 MW unavailable in the region.

Transmission links help explain the price gap

Adequate electricity in one region cannot always reach another region that needs it. HVDC interconnections move power between grids, but operating limits can restrict transfers and prevent cheaper electricity from reducing prices elsewhere.

The Luzon-Visayas link operated under price separation conditions for 77.6% of the September billing period. Operations limited for system security accounted for 73.5% of the period. These conditions help explain why Visayas energy prices remained much higher than Luzon's despite the national increase in average supply.

The Mindanao-Visayas link operated under free flowing conditions for 92.82% of the period, up from 91.16% in August. Stronger transfers helped bring the two regions' prices closer: Mindanao averaged P12.61 per kWh, just P0.19 above the Visayas.

Mindanao's price fell 1.4% from P12.79 per kWh, while outages left 1,022.6 MW unavailable. Reports disagree on the supply and demand changes. One account gives supply of 2,190 MW, down 0.2%, and demand of 2,893 MW, down 5%. Another reverses the percentage movements, saying supply fell 5% and demand fell 0.2%. Both describe declining supply and demand, but the exact movements require clarification.

Cacho said returning major plants could bring Visayas energy prices toward P9 to P10 per kWh, while cautioning that the decline might not be large. That outlook concerns energy availability, rather than a guaranteed result of suspending reserve trading.

Lower reserve charges do not settle the whole bill

Cacho expects the removal of spot reserve payments to lower ancillary service charges passed to distribution utilities and electric cooperatives. He described the immediate effect on transmission charges.

"Effectively, transmission charges will go down because we will no longer have to pay for the reserve market," Cacho said.

Contracted reserve costs will remain, and any must-run arrangements may create cost recovery payments. No quantified reduction for a typical household or confirmed billing schedule for that reduction has been announced.

The September energy figures also show that a smaller spot market share does not necessarily mean a lower spot settlement price. Spot volume fell from 13.4% to 12.2% of traded quantity, while the effective spot settlement price rose from P8.48 to P9.32 per kWh. Total trading amount increased from P13.94 billion to P26.62 billion.

Generation composition changed too. Renewable energy supplied 28% of generation. Coal's share fell from 56% to 51.7%, while natural gas reached 17%, hydro 11.3%, solar 5.3% and geothermal 8.3%. Those changes occurred alongside outages and transmission restrictions, so they do not alone explain the price increase.

A second suspension after the 2024 restart process

The October intervention follows an earlier pause shortly after the reserve market began commercial operations. The earlier suspension concerned pending compliance with ERC requirements for pricing methodology, rather than the same stated rationale of persistent reserve costs.

• January 2024: The reserve market began commercial operations.
• March 26, 2024: The ERC suspended reserve trading, except reserves offered and dispatched under ASPAs covered by its rulings.
• July 26, 2024: An ERC Notice of Resolution found that the grounds for that suspension no longer existed after PEMC and IEMOP complied with directives.
• July 30, 2024: The ERC announced the lifting of the suspension on Section 8, covering billing and settlement, of the WESM Price Determination Methodology.
• October 14, 2026, at 00:05: IEMOP said the latest suspension of spot reserve operations would begin.

During the 2024 process, IEMOP was ordered to recalculate reserve trading amounts for the February and March billing periods and adjust the remaining 70% for March. Then ERC Chairperson Monalisa Dimalanta explained that DOE controlled operations while ERC implemented the pricing methodology; DOE was to announce the effective resumption date.

The Philippine Independent Power Producers Association welcomed the 2024 lifting as a step toward energy security. Its president, Anne Escoro Montelibano, represented an association of 28 power firms with 18,132 MW of installed grid capacity. The latest suspension now places investor certainty alongside affordability and reliable reserve coverage at the center of the redesign.

Key Points

• Spot reserve dispatch and settlement are suspended from October 14, 2026, at 00:05, until further ERC orders.
• Contracted reserves continue; must-run capacity is also identified as an option for uncovered requirements.
• Reserve market purchases totaled P47.83 billion across Luzon, the Visayas and Mindanao in 2025.
• The Visayas reserve market rate impact was P1.29 per kWh, compared with P0.02 from contracted reserves.
• NGCP has a 30 day reserve assessment task, while NGCP, PEMC and IEMOP must propose a redesign within six months.
• A Cebu battery contract has provisional rates of P5.28 per kWh and can provide up to 13 MW each of regulating and contingency reserve.
• September WESM energy prices rose to P7.43 per kWh nationally. The size and timing of household bill savings from the reserve freeze are not yet specified.