The Energy Regulatory Commission (ERC) is currently reviewing the plea of Manila Electric Company (Meralco) for a deferment of the implementation of system loss cap reduction supposedly due for implementation effective January 2010.

“We have not released our response yet. Maybe next week,” ERC Executive Director Francis Juan said.

Meralco officially wrote ERC on its bid for deferment of the system loss cap reduction, citing factors that may go beyond its control as to meeting the prescribed ceiling.

The company also divulged that it is currently drafting a petition that shall seek amendments to the resolution previously issued by the ERC setting new caps on system loss. It has been prescribed that system loss cap for private distribution utilities must go down to 8.5 percent next year from 9.5 percent currently; while electric cooperatives are required to pare down theirs to 13 percent from 14 percent.

Initial calculations made by the country’s giant utility firm showed probable reduction of P0.10 per kilowatt hour (kWh) in the system loss line item billed to its customers.

Meralco vice president and utility economics head Ivanna G. dela Pena noted that among the reasons they have cited in their correspondence to the ERC has been “the change in sales mix, with the growth coming mainly from residential while industrial sales are shrinking.”

Regulatory ruling also set forth that the distribution firms’ electricity use shall be treated as part of operations and maintenance (O&M) expenses in the next reset for utilities under performance-based regulation (PBR).
Additionally, it was emphasized that the manner by which the utility will be rewarded on its efforts toward system loss reduction be addressed in the performance incentive scheme (PIS) under the PBR methodology.

In conjunction with the lower system loss caps prescribed by the ERC, several legislative measures are also being deliberated to set firmer amendments to Republic Act 7832 or the Electricity Pilferage Act. One of the proposed revisions in the law is to introduce a provision that “the maximum recoverable rate of system loss shall be the actual but not to exceed 8.5 percent for private utilities and 13 percent for electric cooperatives of the total kWh purchased and generated.”

Several proposed bills are still pending for deliberations and plenary discussions in both houses of Congress.

For some distribution utilities, proposals have been advanced that instead of reducing system loss caps, the regulator must instead introduce an incentive scheme that will encourage power utilities to improve on their system loss figures.

It was noted that any abrupt policy geared toward reducing the caps is tricky because power utilities would need to invest so they can immediately trim down their system loss. In the end, it was noted that the cost of these investments, may also be passed on to consumers.

Additionally, it was emphasized that system loss reduction is a difficult and time-consuming process, and at the same time, needs additional investment and improvements in management systems and regulation.