Stop transferring all risks to consumers

I have spent almost two decades in the Philippine energy sector—as an engineer, lawyer, executive, chair of the National Renewable Energy Board (NREB), and now senior policy adviser to Institute for Climate and Sustainable Cities (ICSC), which recently launched Presyo-PH, a price-watch platform helping consumers understand what drives their electricity bills. The single biggest driver, month after month, is the generation charge—fuel cost, priced in dollars, sourced from abroad, subject to disruptions we do not control.

The Iran conflict has made that vulnerability impossible to ignore.

When the Strait of Hormuz was shut in late February, roughly 20 percent of global oil supply was disrupted overnight. We import 98 percent of our oil from the Middle East. With the peso already past P61 to the dollar, the Energy Regulatory Commission (ERC) suspended Wholesale Electricity Spot Market trading to prevent what the National Association of Electricity Consumers for Reforms Inc. estimated could have been a P9 per kilowatt-hour (kWh) spike—an increase of P1,800 to a typical household’s monthly bill.

The exposure is systemic and will keep recurring. About 80 percent of Philippine electricity comes from fossil fuels. The automatic fuel cost pass-through mechanism means rising fuel prices are recovered from consumers almost automatically—billed first, then reviewed later. The intent is defensible: generators need cost recovery assurance to operate. However, the mechanism raises this question: are electricity rates still “just and reasonable,” as the Electric Power Industry Reform Act (Epira) of 2001 mandates, when consumers absorb not just market risks but also the consequences of decisions generators and distributors made—or failed to make—long before the crisis arrived?

Epira never promised generators full recovery regardless of how they managed their risks—yet that is precisely what billing-first, review-later delivers.

Generators that skipped hedging made a business decision. They should own it—not charge consumers for it. By tracking the generation charge month by month, Presyo-PH shows that the relationship between fuel price movements and consumer billing is fast going up but slow coming down. That asymmetry reflects a system where cost recovery precedes accountability—and consumers carry the gap.

The fix is not to dismantle fuel pass-through. Review must always precede billing.

The ERC has demonstrated this is achievable. Under Executive Order No. 110, it required distribution utilities to submit invoices, computations, and staggered recovery schemes at least five days before passing any blended generation rate increase exceeding P1/kWh to consumers. This is the correct sequence. That threshold must be codified as a permanent standing rule.

Prior review must also extend to procurement. The ERC should require generators to prove—before any fuel cost increase qualifies for pass-through—that competitive sourcing was conducted, price risk assessed, and hedging either used or rejected on documented grounds. In 2024, when First Gen’s Sta. Rita and San Lorenzo plants shifted from Malampaya gas to imported liquefied natural gas, the ERC refused to allow Manila Electric Co. to pass on the cost difference until it validated the charges. The order directed a refund of P0.05/kWh previously collected, as the new gas agreement was deemed inconsistent with the underlying power purchase agreement. Make that the rule, not the exception. Power supply agreements with uncapped fuel indexation clauses and no hedging obligations should face ERC scrutiny before they take effect.

Rate design must also include a structured volatility band. A ±5 percent band around the previous month’s fuel price should be the normal operating range, absorbed equally by generators and distributors. Beyond it, pass-through applies—but only after prior ERC review.

Did Epira’s proponents envision a system that prioritizes private profits while passing every conceivable burden onto the household budget? Charges now run the gamut—from system losses due to pilferage and lifeline subsidies for the marginalized, to senior citizen discounts and renewable energy levies—exceeding 11 percent of a typical bill.

A recent Philippine Daily Inquirer editorial put it squarely: keeping these as automatic pass-through outsources the state’s welfare mandate to the private sector, conscripting the middle class as financier to every beneficiary. The lifeline subsidy is legitimate and should remain. Senior citizen discounts and renewable energy levies belong in the national budget, not on electricity bills. As to system losses and pilferages, a pending bill in Congress will prohibit electric utilities from passing them to consumers.

Filipinos cannot opt out of a flawed mechanism. But the cure is straightforward—prior review before billing—always, not only in a crisis.

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Pete Maniego is senior policy adviser to the ICSC. He is a lawyer, engineer, economist, professor, and corporate executive. He was the fomer chair of the NREB, University of the Philippines Engineering Research & Development Foundation, Institute of Corporate Directors, and Energy Lawyers Association of the Philippines.

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