Electric coops

President Marcos’ populist promise to remove the system loss charge is facing severe backlash, given the complexity of the problem.

It is clearly not the answer to our problem of high power rates. For one, and as I’ve said, the distribution utilities will not absorb the cost. The cooperatives said they will go bankrupt.

In the end, if the system loss charge is removed, it will just be another additional cost charged to consumers.

Tycoon Manny Pangilinan, chairman of distribution utility giant Meralco, said the bill is too big for the industry to absorb in full.

“So, there’s got to be that discussion. It’s going to impact the entire power industry in this country... Who is going to pay for that? The industry? It’s going to cost tens of billions of pesos. We will not survive,” Pangilinan said.

What is system loss? This is the amount of electricity that is 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 refer to electricity that 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.

Non-technical losses can be remedied, such as by preventing the use of jumpers, especially in slums or impoverished communities.

But the non-technical causes are just a small part of the total system loss, according to power players.

The majority of the losses are technical, resulting from resistance in power lines and transformers or, in short, they are a function of science.

In any case, BBM’s SONA pronouncement on system loss at least puts the spotlight on the high cost of power in the country, the highest in Southeast Asia today, and on governance failures in the energy sector.

Problematic coops

One problem in the power sector is the fact that some of our electric cooperatives are problematic. This is due to mismanagement and corruption.

In my trips to the provinces, I have almost always experienced a power blackout. Even in posh hotels in major cities in the Visayas or Mindanao, there are power interruptions. They would always attribute these to their cooperative’s quality of service.

It’s time for regulators such as the Energy Regulatory Commission and the National Electrification Administration to really crack the whip on erring cooperatives, which for years have been bogged down by corruption.

There are many private companies that could very well take over and provide more efficient service to far-flung areas, perhaps at a higher cost, but that’s better than no electricity.

Reducing the country’s power problem solely to regulatory bottlenecks, generation shortages, transmission inflation and fiscal hurdles presents a distorted view of the energy landscape.

Regulatory delays

The cooperatives say they also face regulatory hurdles.

The Philippine Rural Electric Cooperatives Association Inc. (PHILRECA) cited several reasons for its members’ woes, including lagging capital expenditure (Capex) spending as proof of electric cooperative shortfall.

PHILRECA, however, said that these funds face disbursement delays.

“Unlike private investor-owned utilities that can easily leverage commercial financing, ECs operate under strict regulatory supervision of the ERC and the NEA. Every major upgrade, from new substations to advanced metering infrastructure, requires prior approval from government regulators,” PHILRECA said.

PHILRECA lamented that most applications across the country have remained stagnant in regulatory review pipelines for years.

“Without official approval, ECs are legally prohibited from utilizing capital funds to support modernization without facing severe penalties, which, in turn, will further strain their limited cash flows. Based on PHILRECA’s records, 107 applications from 62 ECs filed between 2011 and 2023 are still under evaluation by the ERC.”

If true, this tedious process needs revisiting. Regulators must clean up this mess and remove bureaucratic cobwebs.

Beyond Capex approvals, ECs face mounting fiscal and cash-flow challenges due to conflicting tax interpretations and regulatory directives, PHILRECA said.

Sources, however, also point to corruption among some ECs as a reason for their cash problems.

This is how mismanagement and corruption in ECs happen:

Some leaders and board members divert funds into fake projects, engage in rigged bidding or favor contractors or grant themselves high salaries and benefits at the expense of the cooperatives’ coffers.

VAT

PHILRECA also points to the VAT as one reason for high electricity prices in the country. VAT is slapped on generation, transmission and distribution, adding nearly P200 monthly, or over P2,000 annually, to average households.

Against this backdrop, the group is lobbying for the passage of House Bill 864 to completely exempt electricity sales from the 12 percent VAT and exclude non-value-adding pass-through components.

“We support proposals to eliminate VAT on system loss charges, as consumers should never be taxed on unutilized energy that never reached their homes. However, 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.

“System losses on rural distribution networks – arising from extended feeder lines and challenging terrain – are governed by the law of thermodynamics rather than inefficiency.”

It said that without a direct government subsidy, a total ban on system loss recovery will bankrupt non-profit ECs.

Efforts to lower electricity costs should also target the generation charge, as it comprises the bulk of the pass-on charge.

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