System Loss Limitation Act

Senata Offire of the & TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session 26 MAY 18 A11,:11 SENATE RECEIVED BY: 2131 S. B. No. _ Introduced by Senator Rodante D. Marcoleta AN ACT LOWERING THE CAP ON THE RECOVERABLE RATE OF SYSTEM LOSSES CHARGEABLE TO CONSUMERS, AMENDING FOR THIS PURPOSE SECTION 10 OF REPUBLIC ACT NO. 7832, OTHERWISE KNOWN AS THE ANTI- ELECTRICITY AND ELECTRIC TRANSMISSION LINES/MATERIALS PILFERAGE ACT OF 1994 EXPLANATORY NOTE Electricity rates in the Philippines remain among the highest in Asia, with the country ranking third, next to the developed economies of Singapore and Japan, with residential users bearing a particular heavy burden. Residential consumers, in particular, bear a disproportionately heavy burden. A significant portion of an average residential electricity bill consists of charges for System Loss and the corresponding System Loss Tax. Components of System Losses include technical losses or losses which are inherent in the transmission and distribution of electricity, and non-technical losses or losses which are not related to the physical characteristics and functions of the electrical system, and are caused primarily by human error or deliberate pilferage. Under Republic Act No. 7832 or the Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994, utilities are allowed to recover system losses from consumers up to 14% for rural electric cooperatives and 9.5% for private electric utilities, phased over a period of five and four years, respectively, following the effectivity of the said law. However, since the law's enactment, the issues of pilferage and other non- technical losses were not addressed by electric utilities, secure in the knowledge that they could pass on the losses to the consumers. Moreover, cases of billing errors and meter misreadings, often stemming from the negligence of power distributors, further inflate consumer costs without accountability.

On the other hand, technical losses are a natural and unavoidable consequence of power transmission, particularly over long distances. The longer the distance traveled, the higher the system loss will be. These are part of the normal course of business in the energy sector and should rightly be considered legitimate business risks. Yet, the burden of these risks has been disproportionately shifted to consumers, deterring power firms from pursuing operational efficiency and quality service delivery. This bill seeks to remedy the injustice in the current cost-recovery mechanism by capping the recoverable system loss rate to a uniform one percent (1%) for both private electric utilities and rural electric cooperatives, and by completely prohibiting the passing on of non-technical system losses to consumers. This reform not only promotes fairness and accountability in the power sector but also ensures that electricity pricing becomes more equitable, particularly for poor and marginalized families who struggle to make ends meet. In view of the foregoing, the passage of this bill is earnestly sought. RODANTE D. MARCOLETA

Offer of the TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES ) First Regular Session ) 26 MAY 18 A11:11 SENATE 2131 RECEIVED BY: S. B. No. - Introduced by Senator Rodante D. Marcoleta AN ACT LOWERING THE CAP ON THE RECOVERABLE RATE OF SYSTEM LOSSES CHARGEABLE TO CONSUMERS, AMENDING FOR THIS PURPOSE SECTION 10 OF REPUBLIC ACT NO. 7832, OTHERWISE KNOWN AS THE ANTI- ELECTRICITY AND ELECTRIC TRANSMISSION LINES/MATERIALS PILFERAGE ACT OF 1994 Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled:

Section 1. Short Title. - This Act shall be known as the "System Loss Limitation

Act".

Sec. 2. Declaration of Policy - It shall be the policy of the State to provide

equitable and affordable electricity to the consumers without compromising the economic viability of the energy stakeholders. It is imperative for the energy sector to ensure that there is a justifiable distribution of expenses as among the consuming public and the distribution utilities so as not to hamper the continuous and reliable electrical distribution.

Sec. 3. Section 10 of Republic Act No. 7832 is hereby amended to read as

follows: "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: ONE PERCENT (1%) FROM THE EFFECTIVITY OF THIS ACT. E(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 Aet: (iii) Eleven and three fourth percent(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 the account the viability of private electric utilities and the interest of the consumers, whether the caps herein or therefor established shall be reduced further which shall in no case be lower than nine percent (9%) and according 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 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 (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: ONE PERCENT (1%) FROM THE EFFECTIVITY OF THIS ACT. E(i) Twenty-two percent (22%) at the end of the first year following the effectivity of this Aet; (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 Aet; (iv) Sixteen percent (16%) at the end of the fourth year following the effectivity of this Aet; 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 ERC to reduce or phase out technical or design losses as a component of system losses."

Sec. 4. Implementing Rules and Regulations (IRR). - Within ninety (90) days

from the effectivity of this Act, the Department of Energy (DOE), as the lead agency, together with the Energy Regulatory Commission (ERC), and other public and private stakeholders representing consumers and sectors affected by this Act, in consultation with other agencies involved in the implementation and monitoring thereof, shall promulgate the necessary implementing rules and regulations of this Act: Provided, That prior to its effectivity, the draft of the IRR shall be posted at the DOE website for at least one month, and shall be published in at least two newspapers of general circulation.

Sec. 5. Separability Clause. - If, for any reason, any provision of this Act or any

part thereof shall be held unconstitutional and invalid, the other parts or provisions of this Act, which are not affected thereby, shall remain in full force and effect.

Sec. 6. Repealing Clause. - All laws, decrees, issuances, orders, letters of

instructions, administrative orders, rules and regulations, or parts thereof, contrary to or inconsistent with any of the provisions of this Act are hereby repealed, amended, or modified accordingly.

Sec. 7. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in a newspaper of general circulation. Approved,