DU System Loss Caps Lowered by 1% Nationwide and Lifeline Rate Structure System in Metro Manila Updated

The Energy Regulatory Commission (ERC) on December 8, 2008 approved its Resolution “Adopting a New System Loss Cap for Distribution Utilities (DU)” that lowered the maximum recoverable rate of system losses (technical and non-technical) of the total kilo-watt hours (kWh) generated, purchased and distributed by electric DUs nationwide.

For privately-owned utilities (PU), the threshold was lowered from 9.5% to 8.5%. On the other hand, rural electric cooperatives (EC) recoveries were capped at 13% from a previous rate of 14%. The existing system loss cap of 9.5% for PUs has not been adjusted since 1999 (or 9 years) while the cap of 14% for the ECs was unchanged since 2000 (or 8 years). The new system loss caps will be effective starting January 2010.

The ERC Resolution also provided that the electricity consumption of a DU for company use (administrative loss) should now be treated in the following manner: (1) PUs that are under the Performance-Based Rate-setting (PBR) methodology will start treating system loss as Operation and Maintenance (O&M) Expense in their next reset applications; (2) PUs that are yet to enter PBR will do the same when they file their PBR applications; and (3) ECs will treat system loss as O&M Expense in the benchmarking methodology that will be adopted by the ERC for the rate-setting of the ECs.

In a related development, the ERC promulgated on December 10, 2008 its Decision in ERC Case No. 2008-016 RC on the Bureau of Trade Regulation and Consumer Protection – Department of Trade and Industry’s (BTRCP-DTI) petition for the approval of a new lifeline rate for marginalized end-users of Manila Electric Company (MERALCO) and other measures to achieve reduction of power rates. In the Decision, the ERC granted MERALCO’s marginalized customers whose consumption levels fall below 21 kilowatt-hours (kWh) per month a 100% discount. The old level was set at 50%. The following table spells out the entire coverage of the lifeline system:

On the other hand, the BTRCP-DTI’s prayer to direct MERALCO to purchase its power requirements from the Wholesale Electricity Spot Market (WESM) during off-peak hours was denied. However, in line with the prayer of BTRCP-DTI to lower MERALCO’s generation charge, MERALCO was directed to negotiate and contract with the National Power Corporation (NPC) for an increase in its Transition Supply Contract (TSC) contracted volume for it to match its updated demand forecast figures less the quantities under its IPP contracts and to report to the ERC within thirty (30) days from receipt of the Decision the results of its negotiations with NPC.

With respect to the preferential treatment of poor households and power intensive industries sought, the ERC observed that there is no need to direct MERALCO to extend preferential treatment to poor households and provide incentives to power intensive industries as the existing rules and regulations already allow it to do so and in fact it has done so as evidenced by a number of discount programs it is implementing.

Finally, the ERC denied the prayer to direct MERALCO to charge distribution rates at least equal to or lower than the distribution charges of other private utilities. The ERC ruled that there are standards, which must be complied with, in setting the rates. It is unlikely for two (2) distribution utilities to have the same cost of providing service to justify the adoption of the same rates for them.

“Rest assured that the ERC is continually and comprehensively reviewing other existing policies pertaining to rate-setting, including efficiency models, lifeline components of other DUs and the different cost-recovery adjustment mechanisms towards the promotion and protection of the long-term interests of Filipino electricity consumer,” ERC Chairperson Zenaida G. Cruz-Ducut said.

December 10, 2008

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