THE Energy Regulatory Commission (ERC) is fully supportive of driving system losses down, but said that removing this component from electricity bills without addressing inefficiencies would merely shift the financial burden elsewhere.
‘The system loss charge simply reflects the true, all-in cost of the electricity that consumers actually use. To remove it without addressing the underlying losses would not lower the cost of power; it would only shift who pays for it,’ said ERC Chairman Francis Saturnino Juan.
The ERC, which regulates this charge, defines system loss as electricity ‘lost’ during transmission and distribution from the power plant to end-users. Since this power is lost and cannot be billed to anyone, the distribution utility (DU) is allowed to pass a portion of this cost to consumers.
The system loss is due to technical and non-technical factors. Pilferage falls under non-technical factors while power that naturally disperses as heat as electricity travels through wires, transformers falls under technical type of system loss.
‘We fully support efforts to drive system losses down and to protect consumers from inefficiencies that are not their burden to bear. But we must distinguish between reducing system losses, which is the right policy goal, and mischaracterizing the system loss charge itself.
The charge is not payment for unused electricity. It reflects the true cost of the power actually consumed-because no electron reaches a consumer’s outlet without first passing through the grid, and that passage has a measurable, unavoidable cost,’ Juan explained.
The ERC currently sets the system loss cap at 6.5 percent for private distribution utilities such as the Manila Electric Company (Meralco) and up to 12 percent for electric cooperatives (ECs). If a DU or EC incurs a higher system loss rate, they must absorb this and cannot pass on the excess cost to the consumers.
Meralco’s system loss levels consistently track well below the 6.5-percent cap.
Juan said the current caps are set on the basis of load density, sales mix, cost of service, delivery voltage, and other technical considerations under Section 43f of EPIRA. These parameters vary across ECs, which is why the agency implements clustering ‘because there is no one-size-fits-all cap.’ If the cap is lowered, this can trigger an increase in capital expenditures that flow back into rates. As such, the ERC stressed that system loss cap via clustering method should be maintained.
There are pending bills to amend system loss cap to anywhere from 5 to 5.5 percent for DUs and 8.25 percent to as much as 12 percent for ECs. The ERC said it implements the three-year review mechanism on system loss cap based on existing parameters.
Meanwhile, the Philippine Rural Electric Cooperatives Association Inc. (Philreca), which represents 121 ECs nationwide, said the imposition of value-added tax (VAT) on system loss charge is difficult to justify since it is intended to apply to the value derived from the consumption of goods or services. ‘In the case of system loss, however, there is no actual consumption by the end-user. The electricity corresponding to system loss is, by definition, energy that was generated but never utilized by the consumer.
‘To subject such losses to VAT creates a logical inconsistency, as it effectively taxes consumers for electricity they did not receive and could not have benefited from,’ the group said.
While Philreca recognizes the necessity of regulatory mechanisms that allow for reasonable recovery of system losses to ensure the sustainability of operations, ‘it respectfully submits that such recovery should not extend to the imposition of VAT.’
A bill seeking to remove the VAT on system loss charges in electricity bills was filed by Senator Risa Hontiveros. Senate Bill No. 2076 aims to amend the National Internal Revenue Code (NIRC) to exempt system loss charges from VAT, amid reports of higher electricity costs during the dry season.
‘VAT is a consumption tax on goods and services. Systems loss charges-which represents losses in the distribution and delivery of electricity, are neither goods nor services purchased by power consumers. Hindi dapat pinapatawan ng VAT diyan ang mga pamilyang nagbabayad ng kuryente [VAT should not be imposed on that for families paying for electricity].
By removing the VAT on systems loss charges, we are not just making our tax policies more fair and just-we are also providing immediate relief to consumers facing higher electricity bills this summer season,’ Hontiveros said during a Senate hearing.