ERC: Power firms can withstand financial impact of removing portion of system loss

Power firms will not go bankrupt if the government pushes to scrap the non-technical system loss in electricity bills, as it accounts for only 1.5 percent of the entire system loss, the Energy Regulatory Commission (ERC) told a Senate panel Thursday.

There are two types of system loss. Non-technical system losses are caused by human factors and operational issues, such as jumpers or illegal connections, meter tampering, and administrative errors.

Technical system loss, meanwhile, is natural or caused by the laws of physics and occurs when electricity flows through power lines, transformers, and equipment.

Since non-technical system loss accounts for about 1.5 percent of power utilities’ entire system loss charges, the financial impact will be minor, and power firms would also improve enforcement against electricity theft, reducing the effect on their profit.

“This would trim their revenue. However, it is relatively small compared to the total system loss,” ERC Chairperson and Chief Executive Officer Francis Saturnino Juan told the Senate energy committee.

“The ERC believes that if this regulation is implemented, our utilities will adjust and adapt, and they may become more diligent in apprehending electricity thieves. This way, the impact of removing—for instance—non-technical system losses would not be extreme for them,” he added.

The panel, chaired by Senator Erwin Tulfo, resumed hearings on proposals to amend the 25-year-old Electric Power Industry Reform Act (EPIRA).

The move follows President Marcos Jr.’s marching order in his penultimate SONA to scrap the system loss and VAT on electricity bills to help reduce power costs, as the country struggles with sharply rising fuel prices driven by the war in the Middle East, now in its fifth month.

Juan’s remark was in response to Tulfo’s queries about whether removing a portion of the system loss would cause a big hit to the power firms’ revenue, as they raised reservations about the President’s proposal.

Stakeholders warn of bankruptcy

Tulfo argued that forcing private distribution companies to absorb these technical and non-technical losses will compel them to improve their grid infrastructure and efficiency, rather than having consumers bear the cost of their operational inefficiencies.

Meralco, the largest power distributor, warned that the energy industry “may not survive” as the removal will entail “tens of billions of pesos” that a utility cannot shoulder alone.

System loss charges account for about 5 percent of a Meralco bill.

In the same vein, PHILRECA—a coalition of 121 electric cooperatives—warned that scrapping system loss without a subsidy from the government will drive non-profit electric cooperatives to bankruptcy.

Meralco and PHILRECA, although supportive of Marcos’ plan, cautioned against the government’s swift action to materialize it absent a prior determination of how and who will bear the costs.

Juan said that the ERC is prepared to enforce the removal of system loss. However, because system loss is currently protected as a "pass-through" cost under existing laws, Congress must first amend Section 43(f) of the EPIRA.

Juan explained that under the current framework, utilities are allowed to recover the costs of electricity that is procured from power plants but lost during transmission or through pilferage before reaching households.

Senators Tulfo, Win Gatchalian, Risa Hontiveros, and JV Ejercito all called for the removal of system loss charges, arguing that consumers should not be held financially responsible for losses caused by theft or operational inefficiencies within the control of distribution utilities.

Hontiveros emphasized that the Philippines remains the country with the highest residential electricity rates in Southeast Asia, even after more than two decades since the enactment of EPIRA.

She pointed out that the generation charge, including fuel costs and other industry expenses passed on to consumers, accounts for a portion of electricity bills, making it the primary driver of high power rates.