System loss charge: Why are consumers paying for electricity they didn't use?

System loss charge: Why are consumers paying for electricity they didn't use? A charge that appears on every electricity bill is now facing renewed scrutiny as the government looks at whether consumers should continue paying for system loss. According to the report of "Kapuso Mo, Jessica Soho," system loss refers to electricity that is lost before it reaches consumers, either because of natural losses as electricity travels through transmission grid or because of non-technical losses such as electricity theft. The issue has gained renewed attention after President Ferdinand "Bongbong" Marcos Jr. called for the amendment of the Electric Power Industry Reform Act (EPIRA) so system loss would no longer be passed on to consumers. But why is it on electricity bills in the first place, and who should pay for it? Where does system loss come from? In an interview with Jessica Soho, Energy Regulatory Commission (ERC) Chairperson and Chief Executive Officer Atty. Francis Saturnino Juan explained that an electricity bill contains several charges. "If you look at our electricity bill, it contains charges such as generation, transmission, system loss, distribution, government taxes, universal charges, and more," he said. Before electricity reaches homes and businesses, it goes through generating companies, the transmission grid, and distribution utilities such as Meralco and electric cooperatives. Some electricity is naturally lost as it travels through power lines and equipment. This is called technical system loss. "The loss is natural; it cannot be stopped or avoided," Juan said. Another type is non-technical system loss, which can come from electricity theft, including illegal connections, jumpers, and meter tampering. For private distribution utilities such as Meralco, the ERC allows a maximum system loss of 5.5%. For electric cooperatives, the cap ranges from 8.25% to 12%, depending on the cluster. Juan said the cap for private utilities used to be higher. "We started as high as 9.5%. If we look at the utility's performance in other countries, the richer ones are down to 5%", he said. Asked if private utilities are performing poorly by international standards, Juan answered, "Not when it comes to private utilities." Why do consumers have to pay for it? While consumers do not directly use the electricity that is lost, Juan explained that system loss is part of the cost of delivering electricity to them. "If you're the businessman, you won't price your product based on how much is delivered, knowing that there's loss in the process of safekeeping and delivery," Juan said. He said the ERC keeps system loss as a separate charge on the bill for transparency. "It can be charged as generation, but the Commission separated it for transparency. That's really the cost per kilowatt-hour of electricity that's delivered to end-user." The charge can still be significant for some households. Dennis and Christine, for example, told KMJS that their electricity bill increased from around P1,000 to P1,300 monthly to about P8,000 in June and July. Their bills included system loss charges of P292.86 and P433.17. "This P200 plus is equal to two diapers for my two kids. The 400 plus, that's a large pack of milk," Christine said. Another consumer, John from Cavite, said his bill increased from around P3,000 to P25,000, with P1,302 attributed to system loss. "It's a lot. We shouldn't be the ones to shoulder this cost because we are not the one consuming it," he said. However, Meralco said it found no billing error in John's case. After conducting meter testing and inspection, Meralco said it found that the load-side wires inside his home were "heavily grounded." The company said the problem appeared to be with the household wiring, which is beyond its metering point. Meralco said its verification showed that the meter reading and bill were correct and advised John to have his wiring checked by a licensed electrician. How is Meralco addressing system loss? Meralco said it is already below the ERC's system loss cap and continues to work on reducing both technical and non-technical losses. Meralco Executive Vice President & Chief Operating Officer Engr. Ronnie Aperocho said the company's non-technical system loss is below 1%. Aperocho added that Meralco continues to invest in its facilities and equipment to improve efficiency. "The published income is consolidated income of the entire Meralco group, not just distribution utility. Every year, we invest in facilities for a more efficient distribution system," he said. He also pointed to smart metering as one way of addressing non-technical losses, while investments in transformers and other equipment can help reduce technical losses. For the ERC, however, distribution utilities must continue improving their operations. "The reason behind high system loss is inefficiency. And the answer is distribution utilities need to fix their operations." Juan also said modernization is important in order to achieve this. "There are available technologies such as smart meters and advanced metering infrastructure," he said. What happens if the charge is removed? During his recent State of the Nation Address, Marcos called for the immediate amendment of EPIRA to stop system loss from being passed on to consumers, including the VAT applied to the charge. Congress and the Senate subsequently held hearings on the issue. Meralco Chairman and CEO Manuel V. Pangilinan, however, warned about the cost of removing the charge from consumers. "It is not a question of inefficiency. It is the way it is. The real question is: Who bears the cost? Who's going to pay for that? The industry? It's going to cost tens of billions of pesos. We will not survive," he said. Juan said removing the system loss line from the bill would not eliminate the actual loss. "The transparency that we see on the bills will disappear, but the system loss won't. You cannot legislate the system loss to go away, especially the technical system loss," he said. He added that any changes must also consider the financial viability of distribution utilities, else consumers suffer when operating their electrical lines. Why is there VAT on system loss? The report also looked into the 12% value-added tax applied to the system loss charge. The Bureau of Internal Revenue cited Section 105 of the National Internal Revenue Code as the legal basis for including the charge in the taxable base. Juan explained that the Department of Finance and BIR consider system loss part of the taxable base because it represents the cost of generation and associated transmission of the electricity that is lost. Meralco's Aperocho confirmed that the charge is currently subject to VAT. "The ones who should answer to that are the ERC, Department of Finance, and BIR," he said. What do consumer advocates and the government say? Consumer group kuryente.org has also called for changes to the system and amendments to EPIRA. Its national coordinator, Jorge Umali, said consumers should not shoulder system loss, particularly losses caused by electricity theft. "The electricity that's stolen, I think that can be covered by businessmen or the DUs. That's their business, they need to be on top of it as part of their management to ensure they have income. Should that be charged to consumers?" The group is also pushing for greater consumer participation in the energy sector and more transparency in electricity charges. The Department of Energy, meanwhile, said it is looking at ways to help distribution utilities reduce system losses. DOE Undersecretary Rowena Guevarra said private distribution utilities would be consulted, while electric cooperatives may need access to lower-interest financing to modernize their systems. "We will gather the private distribution utilities and discuss how to lower their system loss. We really need to modernize our systems." —JCB, GMA News