To pare down its system loss level to the required 8.5 percent starting this 2010, utility giant Manila Electric Company (Meralco) has earmarked P1.2 billion worth of investments to upgrade and make its distribution system more efficient.

Prior to the 2010 timeframe in meeting the 1 percent reduction in system loss cap, Meralco president Jose P. de Jesus noted that the company has already started investing for improvements in its system aimed at reducing technical losses.

“To reduce our system loss by 1 percent, the estimated investment will be P1.2 billion,” the chief executive of the utility firm said.

He added that the company already made inroads on investments since last year, and that covered even the elevated metering centers (EMCs) to comply with the standards set forth by the industry regulator.

Given the density of its residential end-users and for factors beyond its control, Meralco earlier petitioned the Energy Regulatory Commission (ERC) for the deferment of implementation of the ceiling on recoverable system loss, but its bid was subsequently junked by the Commission.

Prior to the revised rules laid down by the ERC, the recoverable system loss for private distribution utilities was at 9.5 percent; while electric coops were at 14 percent and ordered to be slashed to 13 percent.

System loss components include technical loss or the electrical energy lost in the process of distributing power to its customers; while non-technical losses are normally incurred due to pilferage activities.

De Jesus noted that investments they will pour in will also eventually shore up their revenues because of lower system loss, although he is not anticipating that there would be some sort of full cost offsetting.

He said the initial investment will relatively be heftier, but capital outlay will ease as the system gets improved gradually.

The ERC ruling on system loss cap revisions has been hinged on the provisions of the Electric Power Industry Reform Act (EPIRA), which effectively modified the cost ceiling recovery originally prescribed under Republic Act 7832 or the Electricity Pilferage Act.