=== dc2025-08-0010-pages-1.ppm ===
Republic of the Philippines
DEPARTMENT OF ENERGY
(Kagawaran ng Enerhiya)

SACONG PILIPINAS

DEPARTMENT CIRCULAR NO. _DC 2625- O8- Coe

PROVIDING SUPPLEMENTAL FRAMEWORK FOR THE PROCUREMENT OF
ANCILLARY SERVICES, AMENDING THEREBY DEPARTMENT CIRCULAR NO.
DC2021-10-0031, OTHERWISE KNOWN AS “PRESCRIBING THE POLICY FOR
THE TRANSPARENT AND EFFICIENT PROCUREMENT OF ANCILLARY
SERVICES BY THE SYSTEM OPERATOR”

WHEREAS, Section 2 of Republic Act No. 9136, or the “Electric Power Industry
Reform Act of 2001” (EPIRA), declares it a policy of the State to ensure the quality,
reliability, security, and affordability of the supply of electric power, and the transparent
and reasonable prices of electricity in a regime of free and fair competition and full
public accountability to achieve greater operational and economic efficiency;

WHEREAS, the EPIRA provides that the Department of Energy (DOE) is mandated
to monitor private sector activities relative to energy projects, and to exercise such
other powers to achieve the objectives of the EPIRA which includes, among others,
the protection of public interest as it is affected by the rates and services of electric
utilities and other providers of electric power;

WHEREAS, on 04 December 2019, the DOE promulgated Department Circular (DC)
No. DC2019-12-0018, titled “Adopting a General Framework Governing the Provision
and Utilization of Ancillary Services in the Grid”, which introduced the direction for the
procurement of Ancillary Services (AS) by the System Operator (SO) and the
mechanisms to achieve the appropriate kind and level of AS required by the grid;

WHEREAS, DC No. DC2019-12-0018 provides that the SO shall procure Regulating,
Contingency, and Dispatchable Reserves through firm contracts and the Reserve
Market, while Reactive Power Support and Black Start Services shall be procured
through firm contracts only;

WHEREAS, on 04 October 2021, the DOE promulgated DC No. DC2021-10-0031,
titled “Prescribing the Policy for the Transparent and Efficient Procurement of Ancillary
Services by the System Operator’, which outlined the procedures for the conduct of
the Competitive Selection Process (CSP) in the procurement of AS by the SO;

WHEREAS, on 12 August 2024, the DOE promulgated Department Order (DO) No.
DO2024-08-0009, reorganizing the composition of the Ancillary Services -Technical
Working Group (AS-TWG);

WHEREAS, Section 3 of DO No. DO2024-08-0009 mandates the AS-TWG to render
technical assistance and advice to the DOE in developing further policies on AS and
assist the DOE in implementing the provisions of the related policies and regulations
on AS and the Reserve Market;

WHEREAS, on 06 March 2025, in the Special Meeting No. 2025-01, the AS-TWG
unanimously concurred that the major cause of high Reserve Market prices was the

Energy Center, Rizal Drive cor. 34th Street, Bonifacio Global City, Taguig City, Philippines 1632
Tel. No. (Trunkline) (632) 8479-2900
Website: http://www.doe.gov.ph; E-mail: infocenter@doe.gov.ph

=== dc2025-08-0010-pages-2.ppm ===
DC on Providing Supplemental Framework for the Procurement of AS, Amending thereby DC2021-10-
0031

Page 2 of 4
insufficient supply of AS and the expensive resource types of scheduled AS Providers,
particularly in the Visayas region;

WHEREAS, on 28 March 2025, through AS-TWG Resolution No. 2025-01, the AS-
TWG submitted to the DOE and the Energy Regulatory Commission (ERC) its
recommendation to increase the contracted AS levels by the SO to address the price
volatility of the Reserve Market in Visayas;

WHEREAS, on 10 April 2025, the DOE conducted a Virtual Public Consultation for the
Draft DC on Direct Negotiation of AS Procurement. Thereafter, the DOE revised and
updated the draft policy in consideration of the comments and recommendations
received from stakeholders in the Public Consultation; and

WHEREAS, to expedite the procurement of the necessary AS and to ensure the
reliability of the Philippine grid, it is imperative to enact a supplementary framework to
further mobilize the SO in the attainment of a sustainable, reliable, and efficient level
of AS at a cost that is reasonable and fair to all electric power industry participants and
electricity consumers.

NOW, THEREFORE, for and in consideration of the foregoing premises, the DOE
hereby issues the supplementary framework for the procurement of AS by the SO:

Section 1. Section 8 of DC No. DC2021-10-0031 is hereby amended to read as
follows:

“Section 8. Direct Negotiation in the Procurement of AS

8.1. XXX XXX XXX
8.2. XXX XXX XXX
XXX XXX XXX

8.3. Subject to the motu proprio directive of the DOE or its approval of
a request by the SO, the SO may directly negotiate with qualified
AS Providers in the Grid without the need of conducting a CSP for
AS, provided any of the following conditions are met:

a. Insufficiency of any or all types of contracted AS, persisting for
a continuous period of three (3) months, wherein the actual AS
levels scheduled in the Reserve Market are less than 50% of the
requirement, as certified by the Market Operator; or

b. Sustained increase in the cost of providing AS, resulting in: (i)
an average cost for any type of AS greater than or equal to the
75% of the reserve offer cap in the Reserve Market, in at least
one of the major grids, for a period of three (3) months; or (ii) an
average reserve rate of PhPO.25/kWh for any AS type,
persisting for a period of three (3) months, as certified by the
Market Operator.

The DOE shall issue its approval or directive in the form of an
Advisory and shall be posted on the DOE website immediately upon
approval of the Secretary.

=== dc2025-08-0010-pages-3.ppm ===
DC on Providing Supplemental Framework for the Procurement of AS, Amending thereby DC2021-10-

0031
Page 3 of 4

The directive or approval of the DOE shall be valid for six (6)
months. Within such period, the SO shall conduct and complete the
negotiation and testing stage with AS Providers. Otherwise, the SO
shall immediately commence CSP for the AS if it fails to complete
direct negotiations with qualified AS Providers.

All ASPAs directly negotiated by the SO pursuant to this subsection
shall authorize the SO to immediately implement these ASPAs by
virtue of the directive or approval of the DOE, without prejudice to
the evaluation and final decision of the ERC on the application for
the approval of such ASPAs.

In case there is no available or qualified AS Provider, the SO may
negotiate with a Generation Company possessing a generation
plant with potential for AS capability. The SO shall prioritize and
expedite the AS capability testing of such a plant, if qualified, prior
to the execution of an ASPA under this subsection. Pursuant
thereto, the SO shall issue its decision on the AS capability testing
within thirty (30) calendar days from receipt of the complete
application from the prospective AS plant.

The SO and the AS Provider shall jointly apply with the ERC for the
approval of directly negotiated ASPA within fifteen (15) working
days from signing thereof, ensuring full compliance with all the filing
requirements of the ERC to initiate the proceedings thereof.

The terms and conditions of directly negotiated ASPAs under this
subsection shall include the following minimum provisions:

i. The capacities directly contracted shall not exceed the
required AS levels in the grid at the time of the execution of
the ASPA. As such, the SO shall, as much as practicable,
enter into good faith negotiations with any counterpart to avoid
any stranded AS in the grid;

ii. The term of the ASPA shall not exceed five (5) years;

iii. The ASPA cannot be renewed or extended. As such, the SO
shall conduct a CSP for the replacement of such agreements
before the expiration of the directly negotiated ASPA.

iv. The rate of AS under the ASPA shall be equivalent to the latest
ERC-approved ASPA tariff for the same technology and AS
type in the same major grid at the time of its execution, or the
latest ERC-approved AS rates in a CSP, whichever is lower.

In the absence of any of the comparators above, the rate of
AS under such ASPA shall be based on the mutual agreement
between the SO and the AS Provider at the time of execution,
taking into consideration prevailing market conditions, cost
structures, and the urgency of procurement, subject to the

=== dc2025-08-0010-pages-4.ppm ===
DC on Providing Supplemental Framework for the Procurement of AS, Amending thereby DC2021-10-

0031
Page 4 of 4

strict scrutiny of the ERC as to the reasonableness of the
proposed tariff, and whether it provides an improvement to the
prevailing AS conditions in the concerned grid; and

v. Any provision for cost increase, acceleration, or escalation
shall be subject to the approval of the ERC.

The SO shall submit a status report on its compliance with the
directive or approval of the DOE within thirty (30) days from receipt
thereof and every fifteenth (15) of the succeeding semester until
the required AS levels for the grid have been achieved, or upon the
completion of the CSP for AS, as may be advised by the DOE.”

Section 2. Regulatory Support. The ERC shall issue all necessary rules and
regulations, or amendments thereof, and ensure the timely evaluation and processing
of applications, authorizations, and other approvals for the effective implementation of
this Circular.

ERC shall prioritize and expedite the approval of all pending ASPA applications and
provide an official status report to the DOE every quarter. This report shall include the
total accounted capacities and the status of the approval of such ASPAs, which shall
serve as additional consideration for the DOE in allowing the negotiated procurement,
pursuant to Section 8.3 of DC No. DC2021-10-0031, as hereby amended.

Section 3. Continuing Obligations. This Circular shall be an exception to the
conduct of the AS-CSP, but shall not be construed to excuse the SO from its primary
responsibility of conducting the necessary CSP for AS or any of its obligations under
DC Nos. DC2019-12-0018 and DC2021-10-0030, and other relevant rules and
regulations on the procurement of AS.

Section 4. Separability Clause. If for any reason, any section or provision of this
Circular is declared unconstitutional or invalid, such parts not affected shall remain
valid and subsisting.

Section 5. Repealing Clause. All issuances, rules, and regulations inconsistent with
this Circular are hereby repealed, amended, or modified accordingly.

Section 6. Effectivity. This Circular shall take effect immediately upon its publication
in two (2) newspapers of general circulation. A copy of this Circular shall be filed with
the University of the Philippines Law Center-Office of National Administrative Register
(UPLC-ONAR).

Issued this JUL 2 g 2025 at the DOE, Energy Center, Rizal Drive cor. 34
Street, Bonifacio Global City, Taguig City.

Secretary