The Philippine Energy Regulatory Commission (ERC) is preparing to impose a secondary price cap (SPC) on the trading of power reserves, a safeguard drawn up after the regulator suspended the reserve market in response to persistently high prices.

“We are putting this safeguard on the table now so that it is ready before the reserve market resumes,” ERC Chairman and Chief Executive Officer Francis Saturnino C. Juan said in a statement at the weekend.

The proposed move forms part of the government’s plan to revise the policy and regulatory framework for ancillary services (AS).

Ancillary services, also known as power reserves, are used by the grid operator to support power transmission and maintain grid reliability. They are procured either through the reserve market or from providers through ancillary service procurement agreements (ASPAs) with the National Grid Corp. of the Philippines, helping stabilize the grid when electricity supply and demand become imbalanced.

The reserve market began commercial operations in January 2024 with an interim limit on offers of P0 to P25,000 per megawatt-hour (MWh). The regulator, however, found that power reserves bought from the spot market in 2025 were more expensive than those secured under ASPAs.

An ERC review determined that power reserves purchased from the reserve market added an estimated P1.29 per kilowatt-hour (kWh) to electricity rates in the Visayas, while those bought under ASPAs added only P0.02 per kWh. Because reserve costs feed into electricity rates, that gap translated into visibly higher charges for Visayas consumers — the kind of outcome the planned safeguard is designed to prevent.

That disparity prompted the ERC to suspend reserve market operations on Oct. 14 to curb high ancillary service prices and review the rules governing the mechanism.

Modeled on the Wholesale Electricity Spot Market, where electricity is traded as a commodity, the draft rules would impose an SPC on the reserve market to limit price spikes once a specified cumulative price threshold is breached. Where the interim framework capped each offer from the market’s first day of operations, the SPC works differently: it is a backstop meant to intervene only after pricing stays elevated across a sustained window.

Under the proposal, the Independent Electricity Market Operator of the Philippines will monitor average prices over a three-day period, with the length of the monitoring period depending on the type of reserve. An SPC will be triggered when the three-day average price breaches the prescribed threshold, effectively limiting how high prices can rise.

The draft sets SPC levels at P14,115 per MWh for regulating-up reserves, P14,548 per MWh for regulating-down reserves, P5,187 per MWh for contingency reserves, and P3,216 per MWh for dispatchable reserves. These caps will take effect once the respective trigger thresholds of P15,816, P16,104.75, P8,940.89, and P7,830.07 per MWh are breached.

The ERC noted that the caps trigger independently across Luzon, the Visayas, and Mindanao, ensuring that localized price spikes do not penalize neighboring regions.

The proposed price caps were based on actual reserve prices recorded between February 2024 and December 2025, according to the ERC. When tested against market prices between Aug. 26 and Sept. 25, 2026, the regulator said the mechanism could have reduced average reserve prices by 12% to 50% in the Visayas and by 17% to 33% in Mindanao.

“This shows the cap acts only where prices stay excessive and leaves normal pricing alone,” the ERC said.

The milestones to watch from here are finalization of the revised ancillary services framework and the resumption of reserve market operations, with the cap intended to be in place before trading restarts.

Reporting by Sheldeen Joy Talavera; source: BusinessWorld Online.