Legal basis and policy framework
- Republic Act No. 7832 (Anti-Pilferage of Electricity and Theft of Electric Transmission Lines/Materials Act of 1994) provides system loss cap rules for Private Utilities (PUs) and Electric Cooperatives (ECs) under Section 10.
- Republic Act No. 9136 (Electric Power Industry Reform Act of 2001) amends Section 10 of Republic Act No. 7832 and authorizes the ERC to determine the new cap on the recoverable rate of system considerations it may promulgate.
- ERC Resolution No. 19, series of 2007 adopts policy declarations on replacing existing system loss caps and is incorporated into the policy declarations adopted by ERC Resolution No. 17, S. 2008.
- The ERC implements system loss cap methodology consistent with its Guidelines for the Approval of Caps on the Recoverable of Distribution System Losses issued on September 29, 2004, which establishes a method for segregating and calculating distribution system losses into technical, non-technical, and administrative components.
Declared policy: how losses are treated
- Actual company use (administrative loss) is treated as an expense of distribution utilities under specified expense-treatment rules.
- The resolution sets a maximum rate of system loss that utilities may pass on to customers, limited by a cap on technical and non-technical losses.
- The resolution requires distribution utilities to submit results of updated segregated system losses through a Sworn Statement and to submit Annual Reports.
- The resolution ties how utilities are rewarded for system loss reduction to the appropriate ERC schemes under Performance-Based Regulation (PBR) and related methodologies.
System loss cap rules for passing to customers
- The maximum rate of system loss (technical and non-technical) that a utility can pass on to its customers is limited to the utility’s actual losses, but in no case exceeding:
- eight-and-a-half percent (8.5%) for private utilities; and
- thirteen percent (13%) for electric cooperatives.
- The cap applies to the total kilowatt-hours (kwhr) purchased and generated.
Treatment of administrative loss (actual company use)
- Actual company use (administrative loss) is treated as Operation and Maintenance expense using different mechanisms depending on the utility type and regulatory status:
- For PUs under PBR, it is treated as Operation and Maintenance expense in its next reset.
- For PUs yet to enter PBR, it is treated as Operation and Maintenance expense in its PBR application.
- For ECs, it is treated as Operation and Maintenance expense in the benchmarking methodology.
Required filings and reporting duties
- Distribution utilities must submit to the ERC through a Sworn Statement the results of updated segregated system losses (ending June 7, 2010).
- The updated segregated system losses (ending June 7, 2010) must be submitted by May 31, 2011.
- Distribution utilities must submit their updated segregated system losses together with Annual Reports.
Rewards for system loss reduction
- The resolution directs that the manner by which distribution utilities are rewarded for their efforts in system loss reduction will be addressed by the ERC through the:
- Performance Incentive Scheme (PIS) under the PBR for Private Utilities; and
- Benchmarking Methodology for Electric Cooperatives.
Effective billing date
- The new caps are effective starting January 2010 billing.