Press Release
February 5, 2018

Reduced cap on 'systems loss' charges gets Senate approval

The Senate today approved on third and final reading a bill that would reduce the cap on the recoverable systems losses charged by distribution utilities to consumers and increase savings by Filipinos in their electricity bills.

Senate Bill No. (SBN) 1623, or the proposed "Recoverable Systems Loss Act," was sponsored by Senator Sherwin Gatchalian, chair of the Senate Committee on Energy, and was approved with 16 affirmative votes, zero negative vote and no abstention.

"Aside from forcing distribution utilities to adopt more efficient practices in delivering energy to our offices and homes, this legislation provides real and immediate relief to our countrymen who are struggling to keep up with the ever rising cost of every day goods and services," he said. Apart from Gatchalian, SBN 1623 was co-authored by Senators Manny Pacquiao, Joseph Victor Ejercito and Cynthia Villar. It was a consolidation of bills filed earlier by Gatchalian, Pacquiao and Ejercito.

According to Gatchalian, the bill would primarily reduce the cap in systems losses of electric distribution utilities, which consumers are made to pay for.

"From 8.5 percent, private distribution utilities will now only be allowed to pass on 5 percent of system losses. Meanwhile, the cap for electric cooperatives will be lowered from 13 percent to 10 percent," he said.

Systems loss is formally defined in the bill as the "difference between the electric energy delivered to the distribution system and the energy delivered to the end-users and other entities connected to the system."

Gatchalian said that with the new proposed rates, the bill would contribute to immediate consumer savings, noting that a systems loss rate of 10 percent for an electric cooperative in Mindanao, for example, would translate to a rate reduction of P0.1636 per kWh, or an annual savings for the consumer worth P196.32 - equivalent to seven kilos of rice.

"With 114,590 households served, this would mean an estimated total savings of around P22.50 million per year for one franchise alone," he said.

Gatchalian said that the bill provided specific formula for the proper computation of the system losses, technical losses, and non-technical losses incurred by distribution utilities.

The bill would also require such distribution utilities to quarterly submit their systems losses indicating their technical and non-technical losses along with other pertinent documents to the Energy Regulatory Commission, which in turn, would annually review such losses to "ensure that only allowable costs within the system loss caps are recovered."

Gatchalian said that the bill would mandate the ERC to implement a performance incentive scheme to encourage system loss reduction. However, failure to comply with the caps imposed in the bill would "subject both the ERC and the distribution utilities to administrative penalties."

The senator pointed out that over the years, Filipinos "have had to suffer the burden of outrageously high electricity costs."

He said that while the Electric Power Industry Reform Act (EPIRA) of 2001 gave the ERC the power to change the cap on the rates passed on by electric distribution utilities to consumers, the said rates have not been changed for nine years.

"Nine years that private distribution utilities and electric cooperatives have not been incentivized to improve their facilities and operations to reduce system losses... Nine years that consumers have been paying for a greater amount of system losses which could have resulted to savings with a lower cap," he said.

"This measure is a crucial step toward alleviating this burden and improving the standard of living in the Philippines, and I hope you will support its passage," Gatchalian concluded. (JC)

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