Caution urged on scrapping system loss charge

MANILA, Philippines — In the face of President Marcos’ push to scrap system loss charges, Manila Electric Co. (Meralco) is seeking a careful assessment of how the reform could affect the viability of power utilities.

Meralco executive vice president and COO Ronnie Aperocho said the company is ready to participate in discussions on the proposed amendments to the Electric Power Industry Reform Act (EPIRA).

“We look forward to productive discussions, which we hope will carefully consider the impact of reforms on the operations and sustainability of distribution utilities (DUs),” Aperocho said in a statement yesterday.

He stressed that any reform should not only provide relief to consumers but also ensure that DUs and electric cooperatives (ECs) remain capable of investing in critical infrastructure, strengthening system resilience and maintaining reliable electricity service.

“We believe it is important to recognize that system loss is not unique to any distribution utility but is a common operational aspect of the delivery of electricity – which affects the entire power industry,” Aperocho said.

“While DUs like Meralco continue to invest in modernizing and upgrading facilities and deploying technologies that reduce system losses, a certain level of technical losses remains inherent in operating an electric distribution system.”

System loss refers to the electricity lost before it reaches consumers, with the cost currently recovered through a separate line item on electricity bills.

In the Meralco franchise area comprising Metro Manila and nearby provinces, system loss typically accounts for around five percent of consumers’ power bills.

In practical terms, this means that for every P100 on an electricity bill, at least P5 goes to recovering the cost of system losses.

According to Meralco, its continued investments in network modernization and operational efficiencies have helped keep its system loss level below the 6.5 percent cap set by the Energy Regulatory Commission.

ERC chairman and CEO Francis Saturnino Juan said Congress should first amend Section 43(f) of EPIRA before system loss charges can be removed from electricity bills.

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

Energy Secretary Sharon Garin has yet to provide a definite timeline for when consumers could see system loss charges removed from their power bills, noting that the process could take about a year.

The Philippine Rural Electric Cooperatives Association (PHILRECA) is backing the removal of value-added tax (VAT) on system loss charges, but warned that scrapping the fee altogether without a direct government subsidy could put ECs at risk of financial collapse.

“Technical system loss is a natural and unavoidable part of delivering electricity to far-flung areas, where ECs often provide service. It is an operational cost and will never become additional income for them,” the group said in a statement.

PHILRECA urged Congress and tax authorities to adopt zero-rating or tax exemption mechanisms across the entire power supply chain for electricity lost in transit, saying the VAT cut must be “real tax relief, not a hidden cost transfer.”

The National Grid Corp. of the Philippines (NGCP), meanwhile, said it does not charge consumers for transmission technical system loss, or the natural loss of electricity as it flows through power lines.

Meralco, SGP shares drop

A day after Marcos’ State of the Nation Address, shares of Meralco and Synergy Grid and Development Philippines Inc. (SGP), the listed firm behind NGCP, fell as investors reacted to uncertainty over potential policy changes.

SGP shares ended 0.36 percent lower at P28 each yesterday, while Meralco’s stock price tumbled by 4.66 percent to P562 by the closing bell.

“Investors generally dislike regulatory uncertainty because it makes it more difficult to estimate future earnings and returns,” Globalinks Securities and Stocks Inc. head of sales trading Toby Allan Arce told The STAR. — Mark Ernest Villeza, Artemio Dumlao, Daphne Galvez