THE Energy Regulatory Commission (ERC) is studying the viability of forward and futures contracts for power distribution utilities, chairman and CEO Saturnino Juan said on Monday.
Forward and futures energy contracts both lock in the buying or selling of electricity, natural gas, or oil at a predetermined price on a future date.
The difference is, forwards are customized, private over-the-counter (OTC) agreements with higher counterparty risk, while futures are standardized, exchange-traded, and settled daily (mark-to-market), mitigating risk and offering higher liquidity.
Speaking at an event in Taguig and later talking to reporters, Juan said that offering such contracts will manage the financial risk associated with spot market volatility, which the utilities ultimately pass on to customers.
“If found viable and prudent to implement, the benefits of this framework will be significant. In terms of consumer protection, a well-designed framework could allow utilities to mitigate extreme price spikes, which will contribute to greater price stability, predictability for end-users, and avoidance of bill shocks,“ Juan said.
“This could [also] provide utilities an additional instrument to manage their portfolio, and could lead to more prudent financial and procurement planning for them,“ he added.
But it requires more discussions, Juan noted.
“For example, regulations are needed because this [is not yet part] of the Department of Energy’s competitive selection process policy,“ Juan said. “We have heard about some platforms facilitating this initiative in other countries, but these involve generators and retail energy suppliers, and are not an issue in terms of regulation.“
What’s important, Juan stressed, is that aside from savings, forward and futures contracting will bring in new factors on what consumers’ electricity bills will look like if stakeholders decide to avail of them.
A few years ago, energy stakeholders held meetings with the Securities and Exchange Commission and the Philippine Stock Exchange to try to establish a derivatives market for forward and futures contracts, but nothing conclusive has been reached.