The Energy Regulatory Commission (ERC) has approved the Gas Auction Implementing Rules (GAIR).
These Rules set the price ceiling, the fuel cost safeguards and the payment system for the Department of Energy’s (DOE) Mid-Merit Natural Gas Capacity Auction Program.
The Commission adopted the Rules at its recent meeting. It did so under DOE Department Circular No. DC2026-06-0013, which tasked the ERC to set the Gas Auction Threshold (GAT) Price, to benchmark and cap the fuel and other costs passed on to consumers, and to approve how winning bidders are paid through the Wholesale Electricity Spot Market (WESM).
“In approving these Rules, the Commission is discharging the mandate entrusted to it as rate regulator under the EPIRA.”
“In approving these Rules, the Commission is discharging the mandate entrusted to it as rate regulator under the EPIRA, and providing the necessary regulatory support to the policies and programs of the DOE,” ERC Chairperson and CEO Atty. Francis Saturnino Juan said.
“The DOE runs the auction.”
“The DOE runs the auction. The ERC makes sure the price ceiling is fair, that fuel costs are checked against market benchmarks, and that plants are paid only for power they actually deliver,” Juan added.
The Rules cover five areas:
• the price ceiling for bids (the GAT Price);
• benchmark prices for fuel and caps on logistics costs;
• monthly checking, certification and audit of fuel costs;
• payment of winning bidders through the WESM; and
• reporting, inspections and penalties.
Under its Gas Auction Program, the DOE sets the hours that count as the “mid-merit operating period” in each auction’s Terms of Reference, and may review them every three years. To compute the ceiling or the GAT Price, the ERC assumes a plant running about as often as they can based on the auction’s TOR or Invitation to Bid released by the DOE and based also on existing gas plants’ actual dispatch based on at least 24 months of historical data. However, these are only computing assumptions and does not guarantee dispatch at these levels.
The GAT Price is the highest price, in pesos per kilowatt-hour, that a bidder may offer. Any bid above it is automatically disqualified. The Gas Auction Price (GAP) is the winning bidder’s own offer, which can only be equal to or below the ceiling.
The ceiling covers only the cost of the plant itself: building and financing it, operating and maintaining it, overhead, taxes and a reasonable return to investors. The ERC computes it from a model of a typical plant for each technology, such as combined-cycle turbines, open-cycle turbines or gas engines. The ceiling is the price per kilowatt-hour computed based on the assumed mid-merit run that would still let that plant earn the required return over its useful life.
Fuel cost is not part of the GAT Price or the winning bidder’s GAP. Plants recover it month by month at actual cost, but only up to an ERC benchmark. Fuel cost has two parts: the price of the gas and the capped cost of getting it to the plant or the logistics costs.
Under the Rules, for imported LNG, the benchmark is the three-month average of the Japan/Korea Marker (JKM), the main Asian LNG price index. Other international indices are to be used only if JKM is unusually volatile or unavailable. Long-term contracts, including oil-linked ones, are allowed if they cost less. The ERC will publish the LNG benchmark monthly.
For indigenous gas, the benchmark is the average of verified local supply contract prices, DOE price determinations and the JKM-based value of local gas. It may not exceed the cost of importing LNG, unless the ERC finds after hearing that local production genuinely costs more. In line with the Philippine Natural Gas Industry Development Act (Republic Act No. 12120), the Rules support the priority use of indigenous gas and apply zero VAT to it. For blended gas, the benchmark to be used is the average of the two, weighted by the actual volume of each type used.
Logistics costs such as for regasification, pipeline transport, delivery by ship or truck, storage, gas conditioning and metering each have their own ERC cap. Any amount above a cap and any cost not included on the list are shouldered by the plant owner and are not recoverable. No cost may be charged twice, both in the bid or GAP and in the fuel cost pass-through.
The winning bidders in the DOE’s Gas Auction Program are to be paid their GAP and allowable or capped fuel and logistics costs based on the energy actually generated and delivered through the WESM under the settlement mechanism approved for the gas auction.
The market operator, Independent Electricity Market Operator of the Philippines (IEMOP), computes each winning plant’s monthly entitlement as follows: the energy it delivered, multiplied by its GAP plus its ERC-certified fuel costs. This is then compared with what the plant already earned from selling that energy in the WESM.
In case of shortfall or if WESM earnings fall short of the entitlement, IEMOP collects the difference from all WESM buyers in the grid covered by the auction, in proportion to the energy each one draws. If WESM earnings are higher than the entitlement, there is flowback and IEMOP returns the excess to those same buyers on the same basis.
The Rules take effect immediately after their publication in the Official Gazette or a newspaper of general circulation. In a separate resolution, the ERC has posted the preliminary GAT Prices for comment until November 13, 2026, with a public consultation on November 20, 2026.
