Every Filipino wants lower electricity rates. Industry wants them. Consumers need them. Government rightly seeks them.
But if we are serious about bringing down the cost of electricity, we must distinguish between actually reducing a cost and merely removing that cost from the electricity bill. This distinction is important in the ongoing discussion on the proposed removal of the system loss charge.
The Coconut Refiners Association has called for a careful and comprehensive review of system loss charges. We support measures that will make electricity more affordable, but reforms must be based on the technical realities of delivering electricity and must produce genuine-not merely apparent-savings for consumers.
System loss is a physical reality
System loss refers to electricity that is lost as power travels through the distribution network before reaching customers. Part of this is technical loss, arising from the physical characteristics of electrical systems-such as resistance in wires, transformers and other network equipment. Another part is non-technical loss, which may result from electricity theft, meter tampering and other unauthorized consumption.
The distinction matters. Technical loss cannot simply be legislated out of existence. Electricity is lost whenever it passes through conductors and electrical equipment. Distribution utilities must continuously invest in better equipment, network upgrades and improved system design to minimize these losses, but they cannot bring technical loss down to zero. More importantly, every kilowatt-hour that is technically lost must first be purchased.
A distribution utility cannot tell a generation company: ‘We will not pay for this electricity because some of it was lost while traveling through our network.’ The generation company supplied that electricity, and somebody must pay for it.
This is why I agree with the Energy Regulatory Commission’s (ERC) fundamental position that legitimate technical system loss is a cost of service. Prohibiting its recovery from customers does not make the underlying cost disappear. It merely raises the question of where that cost will ultimately be recovered.
Transparency creates accountability
EPIRA was designed around the concept of unbundling electricity rates so that consumers can see what they are paying for.
Section 25 of Republic Act No. 9136, or the Electric Power Industry Reform Act, requires every distribution utility to identify and segregate in its bills to end-users the components of the retail rate. Section 36 likewise requires the unbundling of rates so that the rates reflect the respective costs of providing electricity services.
Under Section 43(f), the Energy Regulatory Commission exercises its authority to regulate distribution wheeling rates and retail rates. Consistent with this framework, Rule 15 of the EPIRA Implementing Rules and Regulations provides for the identification and separation of the individual charges for generation, transmission, distribution and supply, with the ERC establishing efficiency standards that expressly include system losses.
The principle is straightforward: let consumers see the costs.
If system loss remains a legitimate cost but the system loss line item is simply removed from the bill, where will the cost go? If it is incorporated into another rate component, consumers may see a lower or disappearing ‘system loss’ charge, but that does not necessarily mean they are paying less. That would risk creating artificial savings on paper rather than real savings in the monthly bill.
I would rather have system loss clearly disclosed, measured and scrutinized than hidden inside another cost component.
Today, consumers can see how much system loss contributes to their electricity bill. In Meralco’s case, system loss accounts for roughly 5 percent of the bill. Regulators and the public can also examine the utility’s system loss performance and distinguish between technical and non-technical losses.
If we backtrack from this transparency, consumers may eventually lose sight of how much electricity is being lost, how much they are paying for it, and whether utilities are becoming more efficient. That would be a step backward.
There is no shortcut to reducing system loss
None of this means distribution utilities should be given a blank check. Quite the opposite.
System loss must remain subject to strict regulatory oversight and efficiency standards. Utilities should continuously be challenged to reduce technical losses through investments in better conductors, transformers, substations, network configuration, advanced metering and other technologies.
Non-technical losses likewise deserve aggressive attention, particularly electricity theft, meter tampering and illegal connections.
The objective should therefore be to reduce system loss itself-not merely remove the words ‘system loss’ from the bill. There is no shortcut.
If we want lower technical losses, we need efficient networks and sustained investment. If we want lower non-technical losses, we need stronger enforcement against electricity theft and better cooperation among utilities, law-enforcement agencies, local governments and communities.
These are harder solutions than deleting a line item from an electricity bill. But they are also the solutions that produce real and lasting results.
Focus on the biggest part of the bill
AT the same time, our national discussion must maintain perspective.
System loss represents only around 5 percent of the electricity bill. The generation charge, by comparison, accounts for roughly 64 percent and is by far the largest component.
If our collective objective is to achieve a meaningful and sustainable reduction in electricity prices, then this is where much of our attention must be directed.
Recent increases in electricity bills have been driven primarily by higher generation costs. These are affected by international fuel prices, movements in the peso-dollar exchange rate and geopolitical developments that disrupt global fuel and energy markets.
A weaker peso makes imported fuel more expensive. Higher international coal, oil and gas prices increase the cost of producing electricity. Wars and geopolitical tensions can disrupt supply chains and send global energy prices upward.
These factors are largely beyond the control of distribution utilities, which purchase electricity from generation companies and pass through generation costs to consumers subject to regulation.
This is why the debate on electricity affordability should go beyond one component of the bill.
We need to ask the larger questions: How do we secure more competitive generation? How do we reduce our vulnerability to imported fuel prices? How do we attract investments in reliable and least-cost power supply? How can government taxes, regulatory policies and other charges be reviewed without compromising reliability and energy security?
These are difficult questions. But difficult questions are exactly what we must confront if we want meaningful reductions in electricity prices.
A bayanihan approach to electricity costs
The Coconut Refiners Association has long believed that complex national problems cannot be solved by government or the private sector acting alone.
We have seen this in our campaign against smuggling.
For many years, CORA has worked with government agencies, legitimate manufacturers, industry associations and other stakeholders to fight illicit trade and protect Philippine industries. The campaign succeeds when government and industry stop viewing each other from opposite sides of the table and instead recognize that they share a common national interest.
We need the same bayanihan spirit in addressing high electricity costs.
Government, regulators, distribution utilities, generation companies, consumer groups and Philippine industries should work together – not to defend particular interests, but to identify where costs can genuinely be reduced without compromising reliability, investment and energy security.
Instead of asking who should be blamed for every component of the electricity bill, let us ask what each sector can contribute to bringing the total bill down.
Distribution utilities must improve efficiency and reduce system losses.
Generation companies must compete to provide reliable electricity at the lowest reasonable cost.
Regulators must ensure that only prudent and reasonable costs are recovered while maintaining a regulatory environment capable of attracting the investments our power system needs.
Government must examine taxes, policies and regulatory requirements that contribute to electricity costs and accelerate reforms that can strengthen competition and energy security.
Consumers, businesses and communities must also support efforts against electricity theft and promote responsible energy use.
This is what bayanihan means in the energy sector: shared responsibility toward a common objective.
The author is the Chairman and President of the Coconut Refiners Association, and Chairman Emeritus of FPI.