Removal of system loss charges from electricity

Removal of system loss charges from electricity | Daily Tribune

“I’ll make sure that it’s not only a press statement [of the President],” Tulfo said in Filipino in a radio interview, adding that the panel will finish the deliberations in two months.

The Presidential Legislative Liaison Office, which is responsible for facilitating the President’s legislative agenda, has reportedly expressed strong interest in collaborating with the committee and suggested streamlining the proceedings by holding a single hearing.

Thereafter, the bills will be consolidated by a technical working group, proceed to the bicameral conference committee to harmonize the Senate version with that of the House of Representatives, and subsequently be sent to Malacañang for the President’s signature.

“If it's really that fast, then perhaps the system loss will be removed by the end of September,” Tulfo stated.

The chair pointed out, however, that this would also be challenging for Congress due to strong pushback from power distributors, who cautioned against the government’s swift action to implement the proposal without a prior determination of how and who will absorb the costs.

For instance, Meralco—the country’s largest power distributor—warned that the energy industry “may not survive” as the removal of the system loss will entail “tens of billions of pesos” that a utility cannot shoulder alone.

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.

In a Meralco bill, system loss accounts for about 5 percent of a customer’s monthly electricity bill. This is on top of the 12 percent value-added-tax being charged to consumers, which drives up power costs.

Senators have argued that consumers should not be held financially responsible for losses caused by theft or operational inefficiencies within the control of distribution utilities.

However, power firms countered that system losses are an inherent and unavoidable part of the process, and if the government pushes to scrap it without a clear alternative adjustment and subsidy, the power industry may collapse due to bankruptcy.

During a Senate hearing on Thursday, ERC Chairperson and Chief Executive Officer Francis Saturnino Juan told senators that scrapping the non-technical system loss could lower the monthly electricity bills.

Although he noted that it would only be a minor reduction in the bills, since non-technical losses account for about 1.5 percent of the power utilities’ total system loss charges.

As for the power firms, Juan said removing the non-technical loss would trim their revenue, but not enough to drive them to bankruptcy.

Furthermore, if the regulation is implemented, power distributors like Meralco would also improve enforcement against electricity theft, reducing its impact on their profits.

The bills in question aim to amend the 25-year-old Electric Power Industry Reform Act (EPIRA), which allows distribution utilities to automatically recover pass-through costs from consumers, including system loss charges.

If the push to amend EPIRA materializes, system loss and VAT will be removed from monthly bills, lowering power costs and easing the financial burden on consumers grappling with sharp increases in fuel prices driven by the war in the Middle East, now in its fifth month.

The Department of Energy ramped up the government's effort by forming a joint task force with the ERC, the National Electrification Administration, and electric cooperatives to eliminate system loss charges and associated VAT from consumer bills.