This position paper examines the implications of suspending the Wholesale Electricity Spot Market (WESM) under emergency conditions, highlighting the need for clear rules, transparency, and accountability in its implementation. It underscores how poorly defined interventions can introduce risks to pricing, investment, and long-term market stability.

The paper puts forward practical recommendations to ensure that emergency measures remain time-bound, predictable, and aligned with broader energy goals-balancing immediate system stability with the need to strengthen energy security and accelerate the transition to more sustainable power sources.

Published
March 31, 2026

Executive Order No. 110 (EO 110) declares a state of national energy emergency in response to rising geopolitical risks in global fuel markets. It identifies the Philippines’ exposure as a net energy importer and signals a whole-ofgovernment commitment to managing potential supply disruptions. The intent is sound, and the urgency is real.

The concern lies in its implementation. As currently designed, EO 110 grants broad authority to intervene in the Wholesale Electricity Spot Market (WESM); however, it does not define measurable indicators, adequate duration limits, or a clear framework for ensuring that administered pricing during any suspension remains fair and regularly updated. While the WESM rules under Chapter 6 provide an established mechanism for market suspension, the risk lies in how that mechanism is invoked, how long it runs, and how compensation is calibrated if the suspension is prolonged.

How a Market Suspension Works

Under normal operations, the merit order mechanism determines market prices through competitive bidding. In competitive bidding, generators submit offers into the spot market, and the offers are dispatched in order of cost, with renewable energy typically dispatched first and higher cost plants, such as diesel or oil-fired power plants, dispatched last, producing a least-cost outcome. A market suspension changes this logic entirely.

During the WESM suspension, the sector shifted from competitive price-based dispatch to administered pricing, with implications for reliability and cost recovery. Under Chapter 6 of the WESM Market Rules, to which all market participants have agreed as a condition of membership, the reliability of supply supersedes cost optimization as the primary dispatch objective. During a market suspension, the normal bidding and price discovery process is set aside; generators may be directed to operate or disconnect from the grid as necessary to maintain system stability.

A market suspension must prioritize system reliability above all else. Administered pricing should serve a dual purpose: protect consumers from potential price spikes during a disruption while providing generators with fair and reasonable compensation to ensure continued operation.

Market suspensions are not new. They have been used for system emergencies such as typhoon-related infrastructure damage and, more recently, in the reserve market when the Energy Regulatory Commission (ERC) deemed prices excessive. The mechanism is established and understood by participants.

Compensation during a suspension is based on an administered price, not a market-clearing price. Under the WESM rules, this administered price is normally computed from the weighted average of the four most recent similar trading days and similar dispatch intervals, a methodology designed to be fair and reasonable to generators. As the WESM suspension is already in effect, it follows the implementation of modified administered pricing that the ERC is set to rule by April 1. Such implementation introduces a technology-specific pricing approach to better reflect prevailing fuel costs and ensure the continued operation of power generators.

Risks Under Current Market Suspension Order

While the WESM suspension mechanism is established, EO 110 presents three specific risks in its current:

1. Absence of measurable indicators and exit pathways. Following the announcement of the State of National Energy Emergency Crisis and the Department of Energy’s recommendation, the ERC suspended WESM operations without clearly defined and publicly communicated conditions that would justify the timing and scope of the intervention. While such measures may be necessary under emergency conditions, the absence of explicit criteria highlights the need for clearer policy parameters.
2. EO 110 does not specify the conditions under which market interventions, including the WESM suspension, should be initiated or litted. The ERC order should address this gap to avoid unbridled discretion of administrative authority. A well-governed mechanism should be anchored on objective and publicly stated thresholds, such as reserve margin levels, sustained price breaches, or verified supply disruptions, so that interventions are applied predictably and only when system reliability is at risk. Without measurable indicators, there is no corresponding basis for determining when normal market operations can safely resume.
3. Risk of prolonged suspension and pricing drift. Emergency measures without defined time limits and criteria may extend beyond their intended purpose. The current four-day averaging formula for administered prices is appropriate for short-term disruptions. However, if applied over longer periods, it may become disconnected from prevailing fuel costs. Under the WESM rules, pricing during an extended suspension is subject to ERC’s discretion. Without clear guidance on how this discretion is exercised, particularly in reflecting significant fuel cost movements, uncertainty arises around cost recovery and operational decisions.
4. Implications for investment and market participation. Uncertainty around how administered prices are set and adjusted during extended interventions can affect how investors view risk. Pricing that becomes less predictable can translate into higher financing costs for new generation projects. Over time, market signals may weaken, potentially reducing incentives for new entrants and limiting competition. Such conditions can influence future price outcomes and investments, including those in renewable energy and battery installation and expansion.

Impact on Electricity Prices

Short-term stabilization is the intended outcome of EO 110’s provisions. Administered pricing can help limit price volatility and ensure that electricity remains available and affordable during a period of uncertainty. However, the WESM only forms part of the distribution utilities generation cost; the amount of exposure depends on individual procurement strategies of distribution utilities. The bulk of power supplied to consumers by distribution utilities still comes trom contracted volumes under power supply agreements which, for coal and natural gas plants, have fuel pass-through provisions. In this light, the WESM-administered pricing will not produce the intended effect of mitigating electricity costs; it merely gives a false sense of comfort to consumers and consequently incentivizes more consumption under the artificially suppressed WESM prices. If the suspension is prolonged without adequate pricing adjustments that reflect prevailing costs, medium- to long-term price pressures become a foreseeable consequence.

The structural drivers of electricity costs, namely, the structure of power supply contracts, automatic fuel passthrough provisions, and the system’s deep exposure to imported fuels, should be addressed. These considerations underscore the need for emergency measures to be carefully designed with clear rules, predictable pricing, and complementary supply strategies. Properly bounded interventions can safeguard reliability and affordability in the short term while supporting a more secure and sustainable energy pathway over the long term.

Ensuring Market Safeguards During This Emergency Response

To support the effective implementation of EO 110 while minimizing unintended consequences, the following actions are recommended:

1. Define clear and transparent market suspension parameters. Objective and publicly communicated measurable indicators for market intervention, including reserve margins, veritied supply disruptions, and sustained price thresholds, should be defined. They should be paired with clearly defined exit conditions to ensure that interventions remain time-bound and are lifted once system conditions stabilize.
2. Establish guidelines for administered price updates during extended suspensions. A transparent framework for how administered prices will be set and adjusted during prolonged suspensions, particularly to reflect significant movements in fuel costs, must be provided. Doing so will help maintain confidence that pricing remains fair while ensuring that supply continues to be available.
3. Strengthen energy security and accelerate renewable energy deployment. Short-term price interventions must be complemented with actions that directly support energy security. They include strengthening power procurement planning and contracting strategies, ensuring that power plants remain operational in line with the Grid Operating and Maintenance Program schedule and are able to deliver dependable capacity, maintaining sufficient emergency fuel inventories across terminals and generating companies, and accelerating the development and integration of indigenous renewable energy resources to reduce continued exposure to global price volatility in imported fuels. Priority should also be given to scaling up distributed renewable energy capacity, supported by battery energy storage systems, clear dispatch signals, appropriate investment frameworks, and contract structures that move beyond the traditional baseload, mid-merit, and peaking classification.
4. Provide targeted and time-bound consumer support. Relief measures should be clearly funded, target the most vulnerable, and be limited in duration. Open-ended support risks creating structural distortions and can undermine investment in long-term renewable energy and energy security.

The Path Forward

The Philippines’ dependence on imported fuel makes it structurally vulnerable to global price volatility, and a coordinated government response is both appropriate and overdue. The Institute tor Climate and Sustainable Cities (ICSC) emphasizes that emergency powers must be well-bounded and intentional, with due consideration of both WESM operation and existing energy procurement structures. With proper design, these measures will achieve their purpose and preserve market confidence and consumer stability. However, open-ended interventions risk undermining investment, delaying renewable energy development, and weakening long-term energy security.

The current situation should serve as a catalyst to prioritize projects that strengthen long-term energy security, highlighting the risks of reliance on imported fuels and broader structural vulnerability. Reducing import dependence must proceed in parallel with emergency measures. Expanding solar, wind, and other indigenous resources can deliver more stable costs and strengthen energy security, supported by streamlined permitting, improved grid integration, and procurement frameworks that prioritize least-cost and indigenous resources.

EO 110 provides the authority to act. Its effectiveness will depend on how these powers are exercised, that is, whether they are implemented with clear parameters and in a manner that balances short-term stabilization with the country’s long-term goal, one that ensures system reliability, safeguards consumers, and positions renewable energy at the center of the country’s energy security strategy.