ERC seeks to limit systems loss charges

MANILA, Philippines – The Energy Regulatory Commission (ERC) is in the process of reviewing billions in so-called systems loss charges that the Manila Electric Co. (Meralco) and other distributors of electricity had been authorized to collect from customers.

“We started this process when I was appointed to ERC in 2004. It is still ongoing,” ERC Chairman Rodolfo Albano told a news forum in Quezon City yesterday.

He said their objective is to limit such charges, which in the case of customers in Meralco’s franchise area amounted to more than P16 billion last year.

“We hope we can resolve this issue before I retire on July 10, or in less than two months,” he said.

He added that the systems loss charges include P531 million worth of electricity that Meralco used last year in its offices.

Asked why it is taking them so long to review the charges, Albano explained that they needed to consult with all distributors and electric cooperatives throughout the country.

He said they are also still conducting a study on how to determine systems losses, which represent pilfered electricity and power that escapes from transmission lines.

“In fact, we have hired an expert from the University of the Philippines to help us, but he has yet to submit his report,” he said.

He pointed out that there has been no study before on how to intelligently quantify systems losses.

He said under the law, Meralco has a systems loss cap of 9.5 percent, while electric cooperatives can recover systems losses of up to 14 percent.

He said what is greatly contributing to the slowness of their review is the “pressure” that they are receiving from congressmen.

“They are telling us to go slow on the electric cooperatives in their provinces because these would close shop if we reduce their systems loss charges. They warn us that that would be contrary to the government’s program to energize the countryside,” he said.

He cited the case of his own province, Isabela, where he said the Isabela Electric Cooperative (Iselco) I owes the state-owned National Power Corp. (Napocor) P300 million in generation charges.

“If we limit their systems loss recovery, they will be forced to shut down, and people there will have no electricity,” he said.

Isabela Rep. Giorgidi Aggabao, also a forum guest, agreed, saying, “If that happens, we will have the spectacle of my district, where the Magat dam is located, supplying hydro power to Napocor but having no electricity.”

However, he said consumers should not be made to pay for systems losses and the 12 percent value added tax the government is levying on these.

He revealed that in April 2006, before he became a congressman, he filed a case with the Court of Appeals challenging the collection by Iselco l of VAT on systems loss charges.

“The case has already been submitted for decision, and a ruling will be out soon,” he said.

Another forum guest, Rep. Roilo Golez of Parañaque, said he supports the move to limit systems losses, “which encourage inefficiencies.”

Responding to questions, Albano said ERC does not intend to limit the profitability of Meralco and other power distributors and the National Transmission Corp. (TransCo) to bring down the cost of electricity.

He said Meralco is allowed to earn a “return on rate base” or profit of 12.5 percent, while the cap on TransCo’s annual net profits is P35 billion.

Last year, Meralco earned about P4 billion, while TransCo raked in more than P18 billion. There have been proposals in the House to temper their profitability to reduce power rates.

A consortium composed of two local companies and the State Grid Corp. of China has won the privilege to run TransCo assets for 25 years with an offer of nearly $4 billion. The consortium has formed National Grid Corp. of the Philippines (NGCP), which has applied for a franchise to operate TransCo’s facilities.

According to Rep. Rodolfo Plaza of Agusan del Sur, NGCP lacks capital to run TransCo, while Golez has expressed apprehensions that NGCP might end up in Chinese hands in violation of the Constitution.