The Energy Regulatory Commission (ERC) said that they are studying how financial hedging tools such as derivatives and forward contracts could be regulated, while stressing that such instruments do not guarantee lower electricity bills.

ERC chairperson Francis Saturnino C. Juan cautioned that hedging shifts risk rather than eliminates it. “There’s still a risk,” he said, explaining that poor forecasting could result in consumers locking in higher prices instead of avoiding price spikes.

The derivatives and forward contracts in question are financial agreements that allow buyers and sellers to lock in electricity prices ahead of time, instead of relying solely on prices that change daily or monthly in the spot market. 

By fixing a price in advance, these tools can help provide price stability and predictability, making it easier for utilities—and ultimately consumers—to plan budgets. However, because they are based on future price assumptions, they can also backfire if market conditions move in the opposite direction.

He emphasized that the ERC has not approved the use of financial hedging tools for rate-setting and that any future move would require clear rules and safeguards. “We have to study this very carefully,” Juan said, reiterating the need for transparency and consumer protection.

The comments were made on the sidelines of the Green Tiger Market roundtable, held at Fifth on the 5th at the PSE Tower and hosted by Power Philippines. The event brought together regulators, market participants, and industry stakeholders to discuss the drivers of electricity bill volatility and the potential solution of hedging mechanisms.

Juan said financial hedging tools are being discussed as a way to manage volatility, but pointed out that these instruments are fundamentally different from traditional power contracts. “These are financial contracts. They are not physical supply of electricity,” Juan said, referring to them.

Because of that distinction, Juan said there is a regulatory gray area on whether such instruments fall under the ERC’s current authority. “Our laws are really geared toward physical supply and rates,” he stressed, noting that financial contracts may not be covered in the same way as power supply agreements approved by the Commission.

Juan explained that sudden increases in electricity bills are often driven by volatility rather than a simple lack of supply. “There are many factors that affect prices—fuel costs, the spot market, congestion, outages, even weather,” he said, making sure to note that while power supply agreements help, they do not fully insulate consumers from short-term price swings.

Juan also pointed to the possible role of other regulators, including the Securities and Exchange Commission, since derivatives are financial mechanisms. He said coordination may be needed to determine how these contracts are regulated and how their costs could be reflected in electricity bills.

Consumer protection remains a key concern, according to Juan, particularly in cases where financial contracts fail. “If there is default, who do you go after?” he said, noting that unlike power suppliers, financial counterparties may not have licenses that regulators can suspend or revoke. “There has to be accountability.”

How should regulators balance the use of financial instruments for price stability with the need to protect consumers from new and unfamiliar risks in the power sector?

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This article was originally prepared for January 27, 2026 and published later due to temporary site downtime.