ERC suspends reserve market to curb power costs

The Energy Regulatory Commission has suspended commercial dispatch and settlement in the Wholesale Electricity Spot Market Reserve Market after persistently high ancillary service prices pushed up electricity costs, with consumers in the Visayas bearing the heaviest burden.

In a press statement, the ERC said the intervention targets a component of electricity bills that it found remained expensive even as regular spot-market power prices declined, raising questions about whether the Reserve Market was delivering reserves at a reasonable cost to consumers.

For households and businesses, the suspension could limit exposure to unusually high reserve-market charges while regulators redesign the system, although the ERC said grid reliability must still be maintained through contracted and must-run capacity.

The move also comes as consumers face broader cost-of-living pressures, with headline inflation rising to 7.2% in September from 6.1% in August and inflation among households in the lowest 30% income group reaching 9%.

The ERC approved the suspension on Oct. 8 after consultations with the Department of Energy and announced the action in an Oct. 12 press release.

The suspension takes effect upon receipt of the order by the Philippine Electricity Market Corp., Independent Electricity Market Operator of the Philippines and National Grid Corp. of the Philippines, and will remain in force until further ERC orders.

The decision followed the commission’s review of market data since the Reserve Market began full commercial operations in January 2024.

The sharpest disparity was recorded in the Visayas in 2025, where reserve-market purchases cost PHP 19.57 billion compared with PHP 1.69 billion for capacity obtained through long-term Ancillary Service Procurement Agreements, or ASPAs.

Reserve-market purchases therefore cost more than 11 times as much as contracted ancillary services in the Visayas.

The corresponding impact on Visayas electricity rates was PHP 1.29 per kilowatt-hour from the Reserve Market compared with PHP 0.02 per kWh from ASPAs.

That means the reserve-market rate impact was about 64 times the ASPA charge based on the figures released by the ERC.

In Luzon, ASPA costs totaled PHP 12.75 billion in 2025, while Reserve Market costs reached PHP 24.53 billion.

The respective impacts on Luzon electricity rates were PHP 0.09 per kWh for ASPAs and PHP 0.30 per kWh for Reserve Market purchases.

In Mindanao, ASPA costs reached PHP 3.90 billion, slightly higher than the PHP 3.71 billion spent through the Reserve Market.

Despite the lower absolute Reserve Market cost in Mindanao, its rate impact was PHP 0.21 per kWh compared with PHP 0.13 per kWh for ASPAs.

Ancillary services are reserve capacities kept available to balance electricity supply and demand and respond when power plants suddenly go offline or demand unexpectedly rises.

NGCP obtains these reserves through long-term contracts at ERC-approved rates and through the Reserve Market, where additional capacity is bought at spot prices.

Both costs are ultimately passed on to consumers through the ancillary service charge in electricity bills.

During the suspension, NGCP must first obtain reserves from existing ASPAs at their approved rates.

Any remaining reserve requirement will be supplied by capacities designated as must-run, with compensation based on a cost-recovery method approved by the ERC.

The commission said this arrangement is intended to preserve grid reliability while reducing the burden of elevated reserve prices on electricity consumers.

ERC Chairperson and CEO Francis Saturnino C. Juan described the intervention as temporary and aimed at addressing flaws in the Reserve Market’s design.

“The ERC could not stand by while these costs piled up on consumers’ bills,” Juan said.

The ERC ordered NGCP to submit within 30 days a regional assessment identifying reserve requirements that are not covered by existing contracts and detailing how it intends to meet them.

NGCP must also pursue contracts covering its full ancillary service requirements through competitive selection and, where allowed, direct negotiation.

The grid operator was further directed to publish forward-looking forecasts that could help prospective reserve providers, including battery storage developers, plan investments.

Within six months, NGCP, PEMC and IEMOP must jointly submit a proposed redesign of the Reserve Market.

The redesign must take into account the growing contribution of renewable energy and battery storage to the power system.

It must also prevent spot-market bids from displacing reserves already secured through contracts.

Regulators want the review to examine more granular regional arrangements for the Visayas, where the cost gap between contracted reserves and Reserve Market purchases was most pronounced.

The review must also consider different price caps depending on technology or reserve type.

Another option under study is allowing generators connected to distribution utilities to provide reserve services.

A proposed reduction in the reserve offer price cap has been placed on hold while the broader redesign is underway.

Transactions covering billing periods before the suspension order will not be affected.

The ERC said it will evaluate the proposed reforms before deciding whether and when commercial dispatch in the Reserve Market can resume.