Knee-jerk reaction

During his State of the Nation Address last month, President Marcos called on Congress to amend the Electric Power Industry Reform Act (EPIRA) to remove system loss charges from consumer electricity bills.

In response, measures have been proposed in the Senate seeking to strengthen the system loss cap and prohibit distribution utilities and electric cooperatives from passing system loss charges to consumers. These measures would also mandate these power distribution companies to treat lost and stolen electricity as an operating cost rather than a separate line item on consumers’ monthly bills.

At present, electricity consumers can see an itemized list of their charges in their electric bills, including one for system loss.

This is because EPIRA was designed around the concept of unbundling electricity rates so that consumers can see what they are paying for.

Republic Act 9136 or EPIRA, requires every DU to identify and segregate the components of the retail rate in its bill to end-users while requiring the rates to be unbundled so they reflect the respective costs of providing electricity services. These costs are also subject to strict regulatory oversight and efficiency standards set by the Energy Regulatory Commission.

However, removing the words “system loss” from the bill and deleting a line item does not eliminate system loss because it is inherent in the system and not the fault of electricity distributors.

System loss occurs because electricity is lost either through physical laws of nature (technical) or administrative factors (non-technical). Thus, not all electricity generated by power plants, which passes through the wires of the transmission utility and distribution utility, is delivered to each home or business establishment.

Technical system losses are naturally inherent in electrical systems. As electricity travels through wires and transformers, a portion dissipates mostly as heat. Longer lines mean more heat and more losses. This can be observed through heat loss in commonly used items such as laptops or cellphone chargers.

Meanwhile, non-technical losses represent electricity unaccounted for by customer meters, resulting from causes such as electricity pilferage, meter tampering, illegal connections and other forms of unauthorized consumption over which DUs have no control and which law enforcement agencies, local governments and communities can address. Eradicating pilferage is akin to eliminating crime, which is nearly impossible.

According to Meralco, all amounts collected from apprehended violators are turned over to customers in the form of bill reductions.

Because of the nature of system loss, it is recognized worldwide as a valid full pass-through cost or is capped at a reasonable level.

This system loss, technical and non-technical combined, varies across the 140 distribution utilities in the country, ranging from three percent to more than 20 percent, as DUs transport electricity coming from the National Grid Corp. of the Phils. through a network of wires and transformers to each end user.

Both Republic Act 7832 or the Anti-Electricity Pilferage Act and EPIRA recognize the nature of system loss as an inherent part of operations but subject to a cap on the recoverability of system loss cost from customers. Any excess over the cap is no longer allowed for cost recovery from customers and must be shouldered by the DU itself. Currently, the distribution feeder loss cap for privately-owned distribution utilities is at 5.5 percent, while electric cooperatives have caps ranging from 8.25 to 12.5 percent.

However, the level of system loss on a national level has actually improved, indicating that DUs are trying their best to address their system losses given their available resources. The Department of Energy’s data shows that the national system loss has been reduced to eight percent in 2025 from 12 percent in 2003.

If smaller DUs and electric cooperatives which already have limited resources are required to absorb the system loss, many of them will definitely run aground. Even Meralco will be bankrupt if this happens. We can’t even start to imagine the impact on businesses, basic services and hospitals. They are, after all, the ones delivering the electricity to all of us and if they cease operations, then we better start hoarding candles and charcoal.

Instead of removing the system loss charge, the ERC should review the system loss caps using a fair and data-driven method. This way, the caps can be lowered in a manner that would ensure the continued viability of electricity distributors while simultaneously reducing electricity rates.

Also, during the recent hearing of the Senate energy committee, both our legislators and the ERC recognized the need to separate unavoidable electricity losses from those caused by preventable factors such as theft and meter defects and that a zero system loss is simply not doable. Committee chair Senator Erwin Tulfo said that reforming the system loss policy should draw a clear line between technical losses inherent in transmitting electricity and those that DUs can prevent or control.

Tulfo likewise emphasized that efforts to reduce electricity costs should allow power companies to remain financially viable and continue investing in better networks and services.

Energy Undersecretary Riolita Inocencio, meanwhile, stressed that DUs and electric cooperatives would need stronger support in combating electricity theft, including possible amendments to the Anti-Pilferage Law to make it easier to identify illegal connections and seek law enforcement assistance.

Meralco, meanwhile, said that it continues to invest in expanding the capacity of substations and power lines to improve the efficiency of the power distribution network to address the issue of technical system loss. For non-technical system loss, it noted that it is not only intensifying efforts to apprehend violators but is also implementing measures and system design improvements to make illegal electricity use more difficult.

As part of modernizing its system, Meralco also sees the use of smart grid and advanced metering infrastructure as the next steps toward reducing system loss and improving service quality. It explained that the use of modern technology will help enable more effective monitoring of electricity consumption, faster identification of system problems and more efficient distribution of energy to homes and businesses.

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