From AB Capital's The Opening Bell: Three Moves
Event
The ERC suspended reserve market trading indefinitely to curb persistently high prices. In 2025, reserve market procurement added P1.29/kWh to Visayas electricity rates, versus just P0.02/kWh under ASPAs (long-term reserve contracts). NGCP must rely on existing contracts while NGCP, PEMC and IEMOP propose a market redesign within six months.
View
The move removes a source of earnings upside for gencos with reserve market exposure, notably AP, SMC and FGEN. Visayas reserve prices reached over P20/kWh, versus ASPA rates of P5-6/kWh. Displaced capacity can still earn from WESM energy sales (which are still elevated), must-run arrangements or ASPAs, but at potentially lower rates.
Catalyst
NGCP's contracting of its full reserve requirements over the next 30 days will establish new ASPA rates. The six-month redesign will determine future pricing, while potential WESM price caps could limit upside.
Action
We would stay defensive and favor earnings visibility. MER is least exposed to commodity price volatility, given its regulated distribution business and highly contracted generation portfolio. AP's diversified portfolio provides some cushion, with ancillary services accounting for an estimated 9% of sales.
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