ERC puts gas power costs on a tighter leash

Natural gas power developers will face tighter limits on costs passed on to consumers under new Energy Regulatory Commission (ERC) rules requiring them to shoulder expenses beyond approved caps and receive payments only for electricity actually delivered to the grid.

In a statement over the weekend, the ERC said its newly approved Gas Auction Implementing Rules (GAIR) establish price ceilings, fuel cost safeguards and payment mechanisms for the Department of Energy’s (DOE) Mid-Merit Natural Gas Capacity Auction Program.

“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,” ERC Chairperson and CEO Francis Saturnino Juan said.

The ERC said the framework seeks to balance the need to attract investments in natural gas generation with safeguards against excessive electricity charges.

Under the rules, developers cannot submit bids above the ERC-approved ceiling, which covers plant construction, financing, maintenance, taxes, and reasonable investor returns.

Fuel costs will be recovered separately but only within approved benchmarks.

For imported liquefied natural gas (LNG), the ERC will use the three-month average of the Japan/Korea Marker, a widely used Asian LNG price index.

The regulator said transportation, storage, regasification and other logistics expenses will also be subject to separate caps, with any excess costs shouldered by power plant operators rather than consumers.

It also prohibits developers from recovering the same expense twice through their auction bids and fuel charges.

Winning power producers will be paid based on electricity actually delivered through the Wholesale Electricity Spot Market.

Under the payment mechanism, the ERC said any shortfall between market earnings and a plant’s approved entitlement will be collected from electricity buyers covered by the auction. Conversely, excess earnings will be returned to those buyers.

“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,” Juan said.

The ERC has separately released preliminary auction price ceilings for public comment until 13 November, ahead of a public consultation on 20 November.

The rules will take effect upon publication.