Setting the electricity system loss charge cap

THE ENERGY Regulatory Commission yesterday said it will study the reduction of the cap for system losses that the distribution utilities can be passed on to end-users, an issue that has been highlighted during recent the not-so-covert attempt of GSIS head Winston Garcia to wrest control of Meralco from the Lopezes. The ERC also considers the phase-out of the inclusion of utilities’ own use of power in systems loss calculations.

In a press briefing, ERC chairperson and chief executive officer Zenaida G. Cruz-Ducut said that she has directed her staff to study the possible reduction of the system loss caps and the phase out of the company use as part of the determination of system loss.

"It is high time that we review these caps and possibly reduce them in order to help alleviate the burden to the consumer of these charges." Ms. Ducut said.

Well said, but the statement has long been overdue.

At present, the systems loss cap that can be passed on to consumers stands at 9.5% for distribution utilities and 14% for cooperatives. The wide disparity is an open admission that cooperatives are far more inefficient, and our policy makers continue on tolerating it.

Republic Act 7832, or the Anti-Pilferage Law allows distribution utilities and electric cooperatives to recover their costs for system losses, or electricity lost through technical loss or power theft.

Note that the law specifically includes electricity pilferage, which means that we consumers are actually rewarding the thieves by paying for them.

Any electrical or mechanical device, whether it is a refrigerator, a car or the whole distribution grid, would have technical losses due to friction, heat losses, equipment inefficiency, and many others. That is physics.

But if we include avoidable losses such as theft that is a different story altogether. Other avoidable losses also include antiquated power lines and obsolete equipment that add to systems losses.

So, what should the systems loss cap be? Or is it necessary in the first place, and just let the distribution company book it as part of its operating expenses?

In practice there is a wide range of percent systems loss, from an average of 7 % for European Union to as high as 25% or more (one country reported a 43% loss) in poor countries of Africa, Central America and Asia. Note that the low number for EU countries is average; which means some of these countries are doing better than that. Furthermore, the figure includes pilferage, although the instances are far lower than ours.

Also, the Anti-Pilferage Law allows a 1% allowance for the distribution utilities' own use, the so-called house load, which includes not only power for start-up generators and other electrical equipment, but also offices, warehouses and even hospitals ("These are also part of the cost of doing business," as one official from a distribution utility remarked).

To get some idea on the magnitude of this seemingly innocuous amount, assume that Meralco handles 5,000 MW (the actual number is different but this is for illustration). One percent of that is 50 MW, enough to power a mid-sized entire province. Meralco incorporates just 0.27% on its charges.

So, all along, we have been ripped off by the distribution companies with the government, through the antiquated laws still in existence, looking the other way.

Passing on charges to consumers--in effect, subsidizing the distribution companies in this case--has long been a hallmark of the present and all the previous governments. We have noted here all along that subsidies, in any form do not make economic sense.

For subsidies to public utilities, even on the pretext of helping the consumers, only exacerbate inefficiency.

If you were to ask me what the numbers should be, that number should be based on what the physical (from the word physics) practicable, not theoretical, limits allow. Also, ideally it should be a stretch, not a leisure target. It is amazing how one could achieve, if given stretch targets.

By all means let us encourage the distribution companies and cooperatives to be more efficient by giving incentives to technical upgrades and theft reduction.

The cap should also factor out pilferage in the equation.

Just give me the numbers, you say.

Okay, for a start, the number should be less than the average for the cited number from EU countries which we assume should be a working distribution system. What about 5%?

For the own-use number, the Meralco figure of 0.27 % is likely to be bloated. It should have already incuded the power used by Meralco Theater (a good place to watch the performing arts) and its expensive medical facilities. I suggest 0.1 %.

What about the cooperatives?

Nah, the present numbers are already herculean tasks to them. My suggested numbers would be pure theory.

I would rather see these cooperatives sold to the private sector starting with the bigger cooperatives, especially some of the loss-making ones but still charging stratospheric amounts still operating in the Bicol area.

I can sense that the Meralco linesmen are on the way to cut my electricity supply.