Sponsorship Speech
Senate Bill No. 1623 / Committee Report No. 190
"AN ACT REDUCING THE CAP OF RECOVERABLE SYSTEM LOSS RATE AND FOR OTHER PURPOSES"
December 4, 2017 at 3 o'clock in the afternoon
Session Hall, Senate of the Philippines, Pasay City

Delivered by HON. WIN GATCHALIAN, Senator of the Republic:

   Mr. President, distinguished colleagues, good afternoon to you all.

   Last week, the Energy Virtual One Stop Shop or EVOSS Act was passed on third reading - a measure that will benefit energy developers by fast-tracking the permitting process of generation projects, and cut down transaction costs by approximately one peso per kilowatt hour. Today's measure on the agenda will also lead to reduced costs, but in a much more immediate way - by providing direct peso savings to consumers in their electricity bills. Allow me to explain how.

   Mr. President, if one had ever taken the time to really study the breakdown of a monthly electricity bill, they would have surely noticed something called the "System Loss" charge. What is system loss exactly? Well, it is defined 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".

   An illustrative example of how system loss works comes from more tangible goods - rice. Just like electricity, rice must travel a long way from the farm to the consumer's dinner table. During the course of transportation, it is inevitable that some grains will accidentally spill along the way. In the end, the amount harvested will not be the same amount that is delivered to consumers for consumption.

   System loss works the same way. Not all the electric energy produced at the power plant makes its way to power the lights in a house or the machines in a factory. This happens for two reasons. The first, called technical system losses, refers to the component of system loss that is inherent in the physical delivery of electric energy. Due to physics and the nature of electricity, some of it will be lost when it goes through the power lines. Meanwhile, non-technical losses refer to the physical characteristics and functions of the electrical system, caused primarily by human action. In simple terms, this refers to electricity theft via jumpers and meter tampering.

   Unfortunately, unlike the loss of rice in the illustrative example which is borne by the producer, consumers are made to pay for the system loss of electric distribution utilities. As such, government started setting caps on the rate of system loss that can be passed on to consumers through Republic Act No. 7832 or the Anti-Electricity Pilferage Act of 1994. Its policy objective is to force utilities to be more efficient in the structure and operations of their distribution systems, thereby cutting down the energy wasted through system losses.

   Upon the passage of the EPIRA Law in 2001, the Energy Regulatory Commission or ERC was given the power to change the cap from time to time. The current cap, set by ERC Resolution No. 17, Series of 2008, allows for a maximum of 8.5 percent of system losses incurred by private distribution utilities, and 13 percent incurred by electric cooperatives, to be passed on to consumers. This cap has 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.

   The main feature of Senate Bill No. 1623, the Recoverable System Loss Act, is the reduction of the system loss caps currently in place. 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. The 5 percent cap for private distribution utilities and the 10 percent cap for electric cooperatives is aligned with the 2017 PowerSolv study commissioned by ERC on Distribution System Loss Caps. As a result of these caps, some electric cooperatives estimate an overall net decrease in the retail rate ranging as low as Php 0.0019 per kWh and as high as Php 0.6586 per kWh.

   Although the 10% and 5% system loss rate caps for electric cooperatives and private distribution utilities respectively are identified in the PowerSolv study as the technically feasible caps, not all distribution utilities will experience a net decrease in the retail rate upon achieving these caps. This is because capital expenditure is needed to decrease system losses, which in turn necessitates an increase in the distribution, supply, and metering or DSM charge of utilities. For some, the increase in the DSM charge is more than the decrease in system loss charge brought about by lowering the system loss rate. In this case, it is important to find the "sweet spot" - the level of system loss rate which will lead to maximum consumer savings - for the distribution utility instead of forcing it to comply with the mandated caps. As such, the bill provides a mechanism for an individualized system loss cap for distribution utilities that can show through a cost and benefit analysis that the mandated caps will not result to net savings for the consumers.

   In addition to these, the bill requires ERC to review, every three years, whether the caps should be decreased and to devise a performance incentive scheme to encourage system loss reduction. It also mandates distribution utilities to annually submit to ERC their segregated system losses - technical and non-technical - and provides for the formula of the computation of the system loss, technical loss, and non-technical loss. Failure to comply with these will subject both the ERC and the DUs to administrative penalties.

   This may all sound very technical, but let me tell you, this legislation will contribute to immediate consumer savings. For example, let's take a look at Camarines Sur IV Electric Cooperative, Inc. or CASURECO IV. A system loss rate of 10% will lead to a reduction of Php 0.2363 per kWh in the cost of electricity For an average 100 kWh household, this results in savings of Php 23.63 per month or Php 283.56 annually, an amount that can buy a family ten kilos of rice. With 61,328 households served, this would mean an estimated total savings of around Php 17.39 million per year for the CASURECO IV franchise alone. Another example, this time from Mindanao, is Zamboanga Norte Electric Cooperative, Inc. or ZANECO. A system loss rate of 10% will lead to a rate reduction of Php 0.1636 per kWh. For a 100 kWh household, this means a savings of Php 16.36 per month or Php 196.32 annually which is equivalent to seven kilos of rice. With 114,590 households served, this would mean an estimated total savings of around Php 22.50 million per year for the ZANECO franchise alone. These are but two examples out of the 148 distribution utilities in the country. Imagine the total consumer savings from reduced system losses that can be brought about by this bill.

   Mr. President, my dear colleagues, allow me to recognize the senators who contributed to this legislation - namely Senator Emmanuel "Manny" Pacquiao, the author of Senate Bill No. 1058; and my fellow Seatmate, Senator JV Ejercito, the author of Senate Bill No. 1388. I hope that you will join us in fighting for the passage of this pivotal legislation. 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. For years now, the Filipino people have had to suffer the burden of outrageously high electricity costs. 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.

   Thank you Mr. President.