System losses billed to ratepayers?

Filed under:Uncategorized — posted by admin on May 28, 2008 @ 5:28 pm

I’ve been ranting about line losses and system losses for some time now, and with CapX, one thing that makes now sense is building a system that relies on long transmission, and so costly to operate due to the inherently inefficiency of transmission.  Why propose a system that, to achieve 6,300MW, 8,000MW must be built?  Why would they do this?  Who pays for these losses?

Today there was something in the Google Alerts for transmission from a Philippine blog, Pinoy Barking Hall, that made me sit up and gawk, like my shep with her head cocked, big cartoon bubble over her head, swift handslap to the calabasa, saying “WHAT?!!?”

In the Philippines, electrical system losses are billed to ratepayers!

Once more with feeling, it’s that important:

IN THE PHILIPPINES, ELECTRICAL SYSTEM LOSSES ARE BILLED TO RATEPAYERS.

System’s loss, the distribution utilities like Meralco is charging the consumers, is the much-hated issue of the day. The consumers are so furious when they came to know and understand what system’s losses are. Granting that the loss is contributed by the dissipation of electrical energy through the transmission line due to heating, it is irrational to make the consumers responsible to recover such losses. And compounding such inefficiencies are the losses through pilferages of electricity and thief of transmission line materials and accessories. All these are being charged to the consumers which they do not understand why. What is the reason behind this irregularity?

Where does the proponent of this system get the wisdom, reason, and justifications to have the recovery of these items be shouldered by the customers? It is quite unthinkable how this oppressive scheme was legalized. Why should the cost of inefficiency of a company be charged to unsuspecting clients? The losses are not the fault of the consumers.

This is something which needs more research for sure, but here’s how it appears to work.  Under Republic Act No. 7832, the “anti-pilferage law,” formally known as AN ACT PENALIZING THE PILFERAGE OF ELECTRICITY AND THEFT OF ELECTRIC POWER TRANSMISSION LINES/MATERIALS, RATIONALIZING SYSTEM LOSSES BY PHASING OUT PILFERAGE LOSSES AS A COMPONENT THEREOF, AND FOR OTHER PURPOSES, the utilities started out trying to recover losses from people stealing electricity, but a rider provision was added, which the blog writer characterizes as transferring electrical losses to ratepayers:

The system losses of the company as well as the losses of the government side in the form of taxes are contained and compounded in a single billing statement. All these are being shouldered by the consumers and are at issue these days.

Here’s the language from Republic Act 7832:

Section 10. Rationalization of System Losses by Phasing out Pilferage Losses as a Component Thereof . – There is hereby established a cap on the recoverable rate of system losses as follows:

(a) For private electric utilities:

(i) Fourteen and a half percent (14 1/2%) at the end of the first year following the effectivity of this Act;

(ii) Thirteen and one-fourth percent (13 1/4%) at the end of the second year following the effectivity of this Act;

(iii) Eleven and three-fourths (11 3/4%) at the end of the third year following the effectivity of this Act; and

(iv) Nine and a half-percent (9 1/2%) at the end of the fourth year following the effectivity of this Act.

Provided, That the ERB is hereby authorized to determine at the end of the fourth year following the effectivity of this Act, and as often as necessary taking into account the viability of private electric utilities and the interest of the consumers, whether the caps herein or theretofore established shall be reduced further which shall, in no case, be lower than nine percent (9%) and accordingly fix the date of the effectivity of the new caps: Provided, further, That in the calculation of the system loss, power sold by the NPC or any other entity that supplies power directly to a consumer and not through the distribution system of the private electric utility shall not be counted even if the billing for the said power used is through the private electric utility.

The term “power sold by NPC or any other entity that supplies power directly to a consumer” as used in the preceding paragraph shall for purposes of this section be deemed to be a sale directly to the consumer if: (1) the point of metering by the NPC or any other utility is less than one thousand (1,000) meters from the consumer, or (2) the consumer’s electric consumption is three percent (3%) or more of the total load consumption of all the customers of the utility, or (3) there is no other consumer connected to the distribution line of the utility which connects to the NPC or any other utility point of metering to the consumer meter.

(b) For rural electric cooperatives:

(i) Twenty-two percent (22%) at the end of the first year following the effectivity of this Act;

(ii) Twenty percent (20%) at the end of the second year following the effectivity of this Act;

(iii) Eighteen percent (18%) at the end of the third year following the effectivity of this Act;

(iv) Sixteen percent (16%) at the end at the fourth year following the effectivity of this Act; and

(v) Fourteen percent (14%) at the end of the fifth year following the effectivity of this Act.

Provided, That the ERB is hereby authorized to determine at the end of the fifth year following the effectivity of this Act, and as often as is necessary, taking into account the viability of rural electric cooperatives and the interest of the consumers, whether the caps herein or theretofore established shall be reduced further which shall, in no case, be lower than nine percent (9%) and accordingly fix the date of the effectivity of the new caps.

Provided, finally, That in any case nothing in this Act shall impair the authority of the ERB to reduce or phase out technical or design losses as a component of system losses.

In addition to pilferage losses and system losses, the utilities are also charging ratepayers for the electricity that they use!  Really, here’s the article:

Meralco defends passing on of own consumption

The concept didn’t go over well, so the regulators asked utilities to separate it out:

In 2004, the ERC came up with an order asking DUs and ECs to come up with applications to segregate the components (technical, non-technical and administrative) of systems loss.

However, it was noted that the ERC found the applications of DUs and ECs “insufficient”.

This prompted the commission to issue a resolution in 2007 to suspend the submission of application and instead gave the DUs and ECs three years or up to 2010 to gather more data.

Yet here is their resident utility expert,  Dr. Francisco Viray, and he’s saying that there are inherent losses in transmission, and that they should be allowed to charge for that:

…  There’s a component in the systems loss that is due to heat. That is part of business. You cannot just say, don’t charge that. Because when you transmit from one point to another, there will always be a loss there. If you don’t allow that to happen, he will just increase his price anyway, if you allow him a certain return. At least, this is transparent.

Q. This is happening also in other businesses, but in the utilities, it’s more transparent.

A. Yes, it’s more transparent. Actually, I’m surprised why they don’t want unbundling of rates. When it was unbundled, people learned about their bill. That was the clamor before, transparency. It’s as transparent as you can see. And now, they can question everything, which is good, like where are you passing on losses. That’s good. To me, it’s working because it’s really transparent. They know how to attack the problem. What ERC wants to do is to segregate the loss into three, what they call technical; non-technical, which is pilferage, and then administrative. This is where they’re questioning the 70 million kilowatt hours of Meralco.

Q. But is that true, that they pass it on?

A. That’s true, because it’s allowed. It’s part of the systems loss. ERC wants to segregate it into three such that for each of this grouping, in each sub-group, there’s a cap. But I think that’s still pending. That was part of the plan, but I don’t know the status of that. That will be good because the administrative losses of Meralco will have a cap. So even if they are able to lower in one sub-group, it still cannot pass on the losses to the other sub-group.

Q. There should be no value-added tax (VAT) on Meralco’s losses, right?

A. That should not be covered by VAT. But if you look at it now, that’s 70 million kilowatts, divided by the total sales. That’s even less than one centavo per kilowatt hour. So they’re also barking at the wrong tree. Even if you remove that, people will not feel the reduction. Even if you remove all the salaries of Meralco executives, nobody will feel it because it’s less than one centavo per kilowatt hour. Of course, if you look at the absolute amount, it’s big. But on a per kilowatt hour, it’s only a small percentage of total cost. If you attack that, remove all of it, then lo and behold, what?

Now, knowing utilities, this seems to me a concept they’d love to use here, charge us for system losses.  Is this happening?  How would we know?

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image: detail of installation by Bronwyn Lace