Forward power contracting eyed to avoid bill shock

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January 28, 2026 | 12:00am

MANILA, Philippines — The government is exploring the viability of “forward contracting” for electricity deals, enabling power utilities to hedge against price volatility and shield consumers from sudden bill shocks.

The Energy Regulatory Commission (ERC) is reviewing the current legal framework for this mechanism intended to help distribution utilities and electric cooperatives cushion the impact of future spikes in power costs.

“The identified potential benefits of such a framework, should it be found viable and prudent to implement, are significant,” ERC chairman and CEO Francis Saturnino Juan said at a roundtable discussion yesterday.

Under this framework, power utilities may lock in their future supply from power producers at a predetermined price, with rates reflecting projected electricity demand and generation costs.

This means consumers may continue to benefit from consistent electricity prices under bilateral contracts and the spot market, even amid factors that could drive costs higher in the future.

“For consumer protection, a well-designed framework could allow utilities to mitigate extreme price spikes, contributing to greater price stability, predictability for end-users over time and avoidance of bill shocks,” Juan said.

“In addition, there is also the benefit of enhancing energy security and investment. Forward contracts can, in theory, provide the revenue certainty that facilitates the financing of new power generation projects,” he said.

However, it becomes complicated if future market costs are lower than forward prices, which could lead to higher rates for consumers.

The ERC chief also raised concern over the absence of competitive bidding for forward contracts, which could result in limited transparency and reduced consumer awareness.

Forward electricity contracting is different from power supply agreements, which require the conduct of a competitive selection process before utilities can secure deals with generation firms.

“When applied responsibly, hedging can smooth out electricity costs over time, giving both consumers and businesses more certainty,” said Carlos Korten, president of Singapore-based fintech firm Green Tiger Markets (GTM).

“By using tools such as contracts for difference, companies can reduce the impact of short-term market swings on consumers’ monthly bills without changing how electricity is physically delivered,” GTM CEO and founder John Knorring said.