What the Philippine Law Says about the System loss

Too much has been said and many people, mostly politicians, had already expressed their opinions about the distribution system loss. But what really is “system loss”? Can distribution utilities (DU’s) remove it or not to pass it to consumers?

It’s too bad for MERALCO that they have been the subject of this issue, when in fact, all of the distribution utilities (private and cooperatives) in the Philippines have a system loss item in their electric bills and they, themselves, are passing it on to their consumers. This system loss, includes technical loss (power losses in the wires and other equipments), non-technical loss (due to pilferage), and the administrative loss (the consumption of the distribution utility itself). Yes, this is legal because it was approved by the Energy Regulatory Commission (ERC). And Yes, this is legal because it is recognized and allowed by the law (it is just a question of “how much?”);

EPIRA Sec. 43 (f)
… To achieve this objective and to ensure the complete removal of cross subsidies, the cap on the recoverable rate of system losses prescribed in Section 10 of Republic Act No. 7832, is hereby amended and shall be replaced by caps which shall be determined by the ERC based on load density, sales mix, cost of service, delivery voltage and other technical considerations it may promulgate. …

Philippine Distribution Code, Sec. 3.4
3.4 SYSTEM EFFICIENCY STANDARDS FOR DISTRIBUTORS
3.4.1 System Loss Classifications
3.4.1.1 System Loss shall be classified into three categories: Technical Loss. Non-Technical Loss, and Administrative Loss.
3.4.1.2 The Technical Loss shall be the aggregate of conductor loss, the core loss in transformers. and any loss due to technical metering error.
3.4.1.3 The Non-Technical Loss shall be the aggregate of the Energy lost due to pilferage, meter-reading errors. and meter tampering.
3.4.1.4 The Administrative Loss shall include the Energy that is required for the proper operation of the Distribution System and any unbilled Energy for community—related activities.
3.4.2 System Loss Cap
3.4.2.1 The Distributor shall identify and report separately to the ERC the Technical and Non-Technical Losses in its Distribution System.
3.4.2.2 The ERC shall, after due notice and hearing, prescribe a cap on the System Loss that the Distributor can pass on to its End-Users. Separate caps shall be set for the Technical and Non-Technical Losses.
3.4.2.3 The Distributor shall submit to ERC an application for the approval of its Administrative Loss. The allowance for Administrative Loss shall be approved by the ERC, after due notice and hearing, based on connected essential load.

I think that it is prudent to regulate or remove the system loss item in the electric bill by incorporating it in the Maximum Allowable Revenue (MAR) not only of Distribution Utilities but of also, of TransCo – who also collects system loss charge from its customers in Visayas and Mindanao. This way, Transmission Operator and distribution utilities will be forced to improve their system. This item, however, will be effectively included in the distribution charge of the utilities and if we will apply the “law” of unbundling, this item could still appear in the electric bill.

On the other hand, it is very unfair for MERALCO to take all the accusations of irregularities when it comes to the issue of system loss charging since MERALCO is just one of around 20 private utilities and 120 electric cooperatives who also charge system loss, including their own consumption, to their consumers.

The issue of system loss is one of the ironies of being so transparent in the electric bill through the unbundling of rates. Before unbundling, people could not question system loss item in their bill since they cannot see each of every components of the cost of electric bill. But when each components of the bill were itemized, we started questioning every item. And also, since it is now itemized, as long as there is a word to describe that energy that is being lost in the system, technically or not, you cannot remove it in the bill.

Category Filed in: MERALCO, Philippine Electric Power Industry
Local date: February, 2010