Part of Meralco’sP19 Billion Profit Comes From Improper Systems Loss Charges

David Celestra Tan, MSK

Updated from 5 December 2014

How much is Meralco charging you for the electricity they buy butlose in their distribution system either through technical or pilferage reasons?

Most people think it is about 6.46% which is the only systems loss percentage shown in the front page of your monthly electric bill and computed as a percentage of your total electric bill.  That appears to be quite impressive because the ERC allows up to 8.5% under their Resolution 17 passed in 2008?

Meralcohowever has been charging residential and commercial consumers about 10.2% recently and it had been as high as 14 to 15% in 2010 to 2012.

What do the Epira Law and the ERC Resolutions say about Systems Loss limits?

The Epira Law of 2001 empowered ERC under Section 43(f) to adopt alternative rate setting methodologies that will result to a reasonable price of electricity. The “caps shall be determined by the ERC based on load density, sales mix , cost of service,  delivery voltage, and other considerations it may promulgate.”

The ERC passed its Resolution 17 series of 2008 providing that the  systems loss (technical and non-technical) that the utility can pass on to itscustomers shall be the actual but not to exceed 8.5% for private utilities and 13% for electric cooperatives of the total kwh purchased and generated.

A reasonable reading of the provision can only mean that the pass on charge to the customers shall be actual and not exceed 8.5%, absolutely. No ifs and buts. However, ERC’s implementation apparently has been loosely interpreting this 8.5% to be an overall average for the DU, thus giving Meralco the flexibility to play with the numbers and made it legal for them to charge residential and commercial customers, which comprise more than 60% of its customers, up to 15%. On the other hand, the systems loss charge to industrial customers has been lowered to 3.7%, as long as their overall average is not more than 8.5%.

To make matters worse for the consumers, the ERC passed in 2011 its Resolution 11 to  “clarify that Resolution 17 of 2008 only require the DU to submit to the ERC, through a Sworn Statement, the results of their updated annual segregated systems loss”.

Yes, “sworn statement” only.  No validation for such an important charge amounting to billions a year to consumers. What a regulatory abdication! It should be noted that ERC’s own Resolution 17 said that the systems loss that the utility can pass on to its customers shall be the ACTUAL but not to exceed 8.5%.  How then can ERC assure the public that Meralco is only charging the ACTUAL systems loss on a monthly basis, if it only relies on Meralco’s own statement, even if sworn?

At the back of your electrical bill, Systems Loss is shown as about P0.4027 per kwh. It was as high as 0.75 per kwh in 2011.Systems loss charge must be a percentage of the generation charge which is currently P3.93 per kwh. This should have been only P0.3345 per kwh if we are to stay at 8.5%. And it should only be P0.2543 per kwh if it is true that Meralco’s systems loss is only 6.46% as they have been publicizing.

Meralco sells approximately 18 billion kwh a year to residential and commercial customers. An overcharge of 0.0682 per kwh translates to P1.23billion a year. That’s at least P6 billion excess charges for the last five (5) years.

We are lucky now that the generation rate is lower at P3.93 per kwh. In Dec 2011 it was higher at P4.7439 and the systems loss was P0.6179 per kwh or 13%.  If world fuel prices normalize and Meralco’s generate go back to P5.20 per kwh, our systems loss will be P0.5304 based on 10.2% or an excess of P0.09 per kwh or P1.62 Billion a year.

Why is that being allowed by the ERC? Well, they are saying that the 8.5% is the allowed overall systems average. What has been happening is Meralco has been reducing their systems loss charge to their industrial customers to only 3.5 to 3.7%. They have to recover that from the residential and commercial customers and that is why you and I, the captive customers, have been paying way more than the allowed 8.5%.In fact 10.2%.

It does not look like there is any solid data and monthly process to determine whether 3.5% is the true systems loss to the industrial customers and that it should really be 10 to 15% to residential and commercial customers. It is very non-transparent.

It is the right of Meralco to charge less to industrial and higher voltage customers but why should they recover the difference from residential and commercial customers?This is a form of inter-class subsidy, something abhorred and prohibited by the Epira Law of 2001.

Meralco is now only using “delivery voltage” instead of considering also load density, sales mix, and cost of service as provided by the Epira law that ERC professes to be implementing.  It is allowed to use “other considerations that it may promulgate”, to which we suggest  “public interest”.

The Energy Regulatory Commission must tighten the rules and declare that 8.5% is the absolute maximum that distribution utilities are allowed to charge ANY customer. No one should be charged more than that.  This would be a truer form of “performance based rating making” where Meralco will be made to absorb any systems loss beyond 8.5% if they don’t perform and manage their system to stay under that limit.

To the question why do they charge residential and commercial customers in high density areas of Makati, Ortigas, Metro-Manila, the same as those in remote areas in Quezon and Laguna and even Rizal, ERC itself said Meralco is allowed a uniform percentage for the same class of customers.  The problem with this is Meralco can choose to neglect their distribution system efficiency and collection in the remote and sparsely populated service areas because the consumers in Makati, Ortigas, and Quezon City are covering the inefficiency. For transparency and accountability, Meralco should be made to distinguish at least two classes of residential and commercial customers and present technical and pilferage data on actual systems losses for each group to support their monthly charge. The modern and highly compact service areas will probably have actual systems loss of not more than 6%, about their average.  If it is more than that then it is the fault of Meralco for being inefficient in such modern and high density areas.

Our suspicion is the actual systems in the CBD areas including Forbes Park, Dasmarinas, BGC and etc would be less than 4%. Of course these affluent consumers cannot be bothered by a thousand peso overcharge here and there. But how about the rest of us?

Systems Loss is supposed to be a pass-on charge where they should not profit from their own inefficiency and inability to collect their bills. For now there is no way to determine whether Meralco is over-recovering specially from the metro residents and businesses because there is no more oversight as long as they keep their average lower than 8.5%. And they have been saying it is 6.46%.

Your systems loss charge is not 6.4%. It is more than 10% and it used to be up to 15%.

The erroneous and unfair burden to consumers of VAT on Systems Loss

Consumer groups and some legislators are correct in questioning the VAT charge on systems loss. At P0.40 per kwh systems loss, VAT is P0.048 per kwh. That’s P1.68 Billion a year in erroneous charge to consumers.

A value-added tax (VAT) is a type of general consumption tax that is collected incrementally, based on the value added, at each stage of production and is usually implemented as a destination-based tax, where the tax rate is based on the location of the customer.(Wikipedia)

Systems loss is power that the distributor loses in its systems and NEVER reaches the consumers for use. Obviously it should not be subjected to a consumption tax such as VAT.

Practitioners in the power industry like to say the devil is in the details. In the case of systems loss charges, the devil is in the averages. Sad that the Energy Regulatory Commission that is supposed to be safeguarding the public was the one who opened the door for the devilish averaging. And who is that great patriot who loosened the rules further by passing ERC Resolution 11 in 2011?

MSK will file a petition to correct the inequities and lack of transparency in the systems loss rules. And perhaps seek a refund of the excess charges since 2009.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

Updated from a December 2014 issue.