Who will end up paying for system losses?

Notes on the beat

MANILA, Philippines — President Marcos earned a standing ovation during his fifth State of the Nation Address (SONA) on Monday after calling for the removal of system loss charges from electricity bills.

For millions of Filipinos, the announcement felt like a long-awaited break, especially in a country grappling with Southeast Asia’s highest average residential electricity rate.

But a lower bill is not guaranteed when one charge disappears. System losses may vanish as a line item on the bill, yet the cost behind them could resurface elsewhere, either buried in another fee or folded into future rate adjustments.

Unless the government absorbs the cost, power companies may simply recover system losses through another billing component, leaving consumers to bear the same burden under a different name.

“That’s exactly why we’re meeting with the ERC (Energy Regulatory Commission) and NEA (National Electrification Administration) in a few days to discuss how this can be addressed,” Energy Secretary Sharon Garin said in a media briefing yesterday.

System loss refers to the electricity lost before it reaches consumers, with the cost currently recovered through a charge on power bills. These losses come in two forms: technical and non-technical.

Technical losses occur when electricity is lost during transmission and distribution, such as when power lines and equipment generate heat due to inefficiencies or poor conditions.

Non-technical losses, on the other hand, result from human-related factors, including electricity theft and unauthorized connections.

Some losses may come from households using submeters that are not registered with their distribution utilities, according to the Department of Energy (DOE).

In Metro Manila and nearby provinces served by power giant Meralco, system loss typically accounts for about five percent of the total electricity bills.

This means that if a household’s electricity bill amounted to P3,000 for the month of July, the system loss is P150.

The share may be even higher for customers served by electric cooperatives.

ERC chairman and CEO Francis Saturnino Juan explained that a large portion of system loss charges goes to generation-related components, which distribution utilities (DUs) pay to their suppliers.

“Since that electricity also flows through the transmission lines, there is also a small component of the proceeds from the system loss charge that is paid to NGCP (National Grid Corp. of the Philippines),” Juan told radio True FM.

Before scrapping system loss charges, Juan said the government must first determine how the underlying costs will be handled and who will shoulder them.

“Will all of these costs be absorbed by the DUs, or will they be shared between the DUs and the government? Or will they instead be passed on to the generation companies (gencos) and NGCP?” he asked.

If the costs are absorbed by gencos, Juan stressed that safeguards must be in place to ensure they do not eventually find their way back to consumers through higher generation charges.

Since generation is outside the ERC’s regulatory scope, he warned that gencos could factor these additional expenses into their pricing, raising the cost of electricity supplied to power utilities.

Generation charges typically account for more than half of power bills.

Juan said power utilities may also absorb system losses but raised concerns over whether they can carry the cost without eventually passing it on to consumers through higher distribution charges.

Without a direct government subsidy, the Philippine Rural Electric Cooperatives Association Inc. (Philreca) said a total ban on system loss recovery would bankrupt non-profit electric cooperatives.

“We can support the complete elimination of system loss charges from electricity billing if and only if the national government directly shoulders these costs through a dedicated subsidy mechanism,” Philreca said in a statement.

Relief may take time

Juan said removing system loss charges would require Congress to amend Section 43(f) of the Electric Power Industry Reform Act (EPIRA), which allows the recovery of the costs, subject to caps set by the ERC.

“Under this provision, the ERC cannot just unilaterally do away with the recovery and imposition of the system loss charge,” the ERC chief told The STAR.

This means the House of Representatives and the Senate would first have to pass an amendment to EPIRA before system loss charges can be removed. The Senate, however, is also currently convened as an impeachment court, adding another item to its legislative agenda.

Amending EPIRA has been a recurring pledge in the President’s previous SONAs. Yet despite years of calls for reform, the law has remained untouched.

Asked when consumers could expect relief from the removal of system loss charges, the DOE could not provide a definite timeline but suggested it may happen before Marcos’ final SONA next year.

“The maximum timeframe is one year,” Garin said.

Consumer group Power for People Coalition, meanwhile, welcomed the move to eliminate system loss charges but said it was “absurd” for Marcos to present it as a novel initiative in his SONA.

“Consumers have been calling for the suspension of unfair charges in our electricity bills for decades. The administration cannot expect a pat on the back for too little too late, especially when it keeps ignoring the biggest extra charge in our power bills: high fuel costs,” the group added.

In the end, consumers are not just hoping for the system loss charge to disappear. They want the cost behind it to disappear as well and not to return under another name.