Oil and Power Advisory No. 003
31 March 2026
1. The Iran war is hitting Filipino consumers on two fronts simultaneously. The first, discussed in our Oil and Power Advisory No. 001, is the spike in the dollar price of crude oil caused by the Strait of Hormuz closure, with Brent crude surging past USD 115 per barrel as of mid-March 2026. The second, less understood but equally severe, is the simultaneous depreciation of the Philippine peso against the US dollar, which recently broke through the P60-per-dollar barrier for the first time in history. These two forces compound each other: because oil is priced in dollars globally, every centavo the peso loses adds directly to the peso cost of every barrel imported, independently of what happens to the dollar price itself. A country paying more dollars per barrel and getting fewer pesos per dollar is being squeezed from both ends at once, and Philippine energy law has a specific regulatory mechanism designed to manage exactly this problem.
2. The peso depreciates during an oil crisis. The Philippines imports roughly 98 percent of its crude oil, almost all of it priced and settled in US dollars. When oil prices spike, the country’s dollar import bill balloons, widening the current-account deficit and draining dollar reserves. At the same time, global investors flee to the dollar as a safe-haven currency during geopolitical uncertainty, which strengthens the dollar against most emerging-market currencies including the peso. The Bangko Sentral ng Pilipinas (BSP) faces a dilemma: raising interest rates would support the peso but would slow an economy already under pressure from higher energy costs, while holding rates steady or cutting them would provide economic relief at the cost of further currency weakness. The BSP intervened in the foreign exchange market in mid-March to prevent a complete freefall, but the peso’s structural vulnerability to an oil shock cannot be resolved by intervention alone.
3. Within the electricity sector, the ERC addresses the foreign exchange problem by implementing the Incremental Currency Exchange Rate Adjustment, or ICERA. The ICERA was established alongside the Generation Rate Adjustment Mechanism (GRAM), and its authority derives from the Electric Power Industry Reform Act of 2001 (EPIRA, Republic Act No. 9136), which empowers the ERC to set methodologies for the recovery of fuel, purchased power, and incremental foreign exchange costs. Under ICERA, power generators incur significant costs denominated in foreign currency, principally in relation to fuel procurement and the servicing of foreign-currency-denominated debt. When the peso depreciates, those costs rise in peso terms even if nothing else has changed. The ICERA allows these incremental peso costs attributable to exchange-rate movements to be reflected as an adjustment in the generation charge that distribution utilities collect from their customers, subject to ERC approval.
4. In practice, an ICERA filing works as follows. NPC or PSALM (the Power Sector Assets and Liabilities Management Corporation, which administers NPC’s legacy obligations) files a petition with the ERC demonstrating that its actual foreign-exchange-related costs over a given period exceeded what was already recovered through the base generation rate. The ERC reviews the computation, conducts a procedural hearing including expository presentations and a pre-trial conference, and, if the costs are found to be prudent and reasonable, authorizes a per-kilowatt-hour charge to be collected by distribution utilities from their captive consumers over a defined recovery period. The adjustment is expressed in peso per kWh and appears as a line item on electricity bills, alongside GRAM adjustments. Because ICERA goes through a formal ERC proceeding, there is a built-in time lag between the exchange-rate movement and the point at which consumers see it on their bills, a feature that provides some smoothing of the impact but does not eliminate it.
5. A parallel forex adjustment mechanism exists in the renewable energy sector. Under ERC Resolution No. 16, Series of 2010 (the FIT Rules), feed-in tariffs for eligible renewable energy plants are adjusted annually to account for, among other things, foreign exchange rate variations between the peso and the US dollar, measured against a base exchange rate established at the time the FIT was set (the base year being 2009, with an average rate of P47.8125 to the dollar). As the peso weakens, the peso-equivalent value of the FIT rises to compensate RE developers for the increased local-currency cost of their foreign-denominated capital expenditures and loan obligations. This adjustment is published by the ERC on or before January 15 of each year and is incorporated into the calculation of the FIT-All, the uniform charge collected from all on-grid electricity consumers to fund the FIT system. In a sustained depreciation scenario such as the present one, the FIT-All component of consumers’ bills will also trend upward.
6. The electricity bill increase driven by the current crisis is not a single adjustment. It is the sum of at least three separate regulatory pass-throughs arriving at different times, namely the GRAM adjustment for higher fuel costs (discussed in our Oil and Power Advisory No. 001), the ICERA adjustment for peso depreciation on foreign-currency costs, and the FIT-All adjustment for RE developers’ forex exposure. Large industrial and commercial consumers whose electricity contracts contain their own foreign exchange indexation clauses face an additional layer of exposure at the contractual level. Companies that procure fuel or other energy inputs directly in dollars and have not hedged their peso-dollar exposure should urgently review that position. And stakeholders who believe that any ICERA or GRAM filing before the ERC overstates actual costs, or reflects imprudent procurement, have the right to intervene in ERC proceedings and contest those amounts on the record.
Geronimo Law advises clients on energy regulation, oil and power law, DOE and ERC proceedings, and energy contracting. For inquiries, contact us at attorney@geronimo.law, +63 9999329836, or through www.geronimo.law. We are located at 6/F Valero One Center, Valero St., Salcedo Village, Makati City.
This advisory is for general information only and does not constitute legal advice. Consult counsel for advice on specific situations.
