Bold DOE, ERC moves vs system loss

by Ernesto Hilario - October 24, 2016

http://www.businessmirror.com.ph/bold-doe-erc-moves-vs-system-loss/

Quizzical eyebrows greeted neophyte Sen. Manny Pacquiao’s recent question widely publicized in media. It was a good question—one that has been asked before by the public and by legislators, past and present.

The question was, “Why are consumers paying for system losses”?

As a consumer, Pacquiao aptly lent his voice to a public long baffled by the practice of “penalizing” them for losses that could have otherwise been shouldered by the entities who are in a better position to prevent and address them— meaning, power firms.

However, as a senator, Pacquiao should have, perhaps, been informed that the reason for the pass-on is an existing law that allows the practice: Republic Act 3832, or Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994. Since the basis for the burdensome pass-on is a piece of legislation, Pacquiao can choose to do something about it rather than simply rant against it.

The controversial pass-on charge is actually now the subject of bold moves by two government agencies: the Department of Energy (DOE) and the Energy Regulatory Commission (ERC).

DOE Spokesman Pete Ilagan said the department is already studying the possibility of “removing the burden on consumers to pay for system loss charges.” We presume that the move would require certain amendments to the law and which is why Ilagan added that a legal team is looking into this possibility now.

The ERC took an even bolder step by commissioning a third-party study on system losses. ERC Chairman Jose Vicente Salazar said they have already tapped a consultant to do two important tasks. First is to find out how the mystery of system losses can be unraveled by separating it into two components: the technical and the nontechnical losses.

The second is to find out if the system losses cap can be further lowered. That cap, or the limit of the amount that can be passed on to consumers, stands today at 8.5 percent for private utilities and 13 percent for electric cooperatives.

The results of that study commissioned by Salazar is worth waiting for. By separating the technical and the nontechnical components of system losses, Salazar should be able to help the public pinpoint which of the losses are due to gaps, failures and lapses in the operations of the power firm, and which ones are due to theft, cheating by customers and pilferages.

This is a bold ERC move since we doubt if the players in the industry are willing to admit that customers could actually be paying for operational incompetence. The ERC third-party study will bring that to light and just might show how unfair this particular component in our monthly bill may have been.

The Salazar-commissioned study should provide the answers to questions, like, could such losses have been prevented had power firms improved their technologies and operations? Could they have been averted if power firms were more efficient? On the nontechnical aspects, we hope to find answers to questions, like, have power firms put in place enough safeguards and measures to prevent theft, pilferage and cheating? Have they been lax in these aspects since part of the cost of the losses are being passed on to us, anyway?

The move is also a bold one since ERC can immediately act on this issue. It has the power to set the cap. Salazar will not require legislation to lower the maximum pass-on should the commissioned study provide him a solid basis. This can happen sooner than a proposed change in the law.

Both the ERC and the DOE moves are very much welcome. The ERC can set a lower cap while a DOE-initiated amendment to existing laws could take the burden away from consumers permanently.

System losses in the power sector is not just a Philippine problem. It is a global concern. And, as far as the World Bank is concerned, technical system losses represent “an economic loss for the country.”

That the World Bank itself has commissioned international studies on system losses in the power sector tells us the significance and the gravity of the problem. Based on these studies, the World Bank points out the technical system losses “in electricity transmission and distribution grids is an engineering issue, involving classic tools of power systems planning and modeling.”

This means the more competent the engineering capabilities of a power firm, the less we pay for system losses.

The World Bank study also pointed out that nontechnical losses “represent an avoidable financial loss for the utility.” These are the amounts of electricity consumed by users who do not pay for them. The report branded as “perverse” the effects of nontechnical losses, noting that “customers being billed for accurately measured consumption and regularly paying their bills are subsidizing those who do not pay for electricity consumption.”

Would the Salazar-commissioned study show whether the power firms were in a position to prevent such a perverse situation? We certainly hope so.

We should not be penalized for “poor management” on the part of the utilities that sell us electricity. Any decisive and permanent solution to the problem of system losses is definitely welcome.