Republic of the Philippines


A world class and independent electric power industry regulator that equitably promotes and protects the interests of consumers and other stakeholders, to enable the delivery of long-term benefits that contribute to sustained economic growth and an improved quality of life.

ERC Lowers System Loss Cap To Reduce Electricity Rates

The Energy Regulatory Commission (ERC) prescribed a lower system loss cap to be charged by distribution utilities (DUs) in the customers’ monthly electricity bill through its Resolution No. 20, Series of 2017.  The new lowered system loss cap will be effective starting May 2018 billing.

“The lowering of the system loss caps is a move to bring down the power rates and help electricity consumers mitigate the impact of rising costs of commodities and services. This will encourage distribution utilities (DUs) to improve their distribution system and facilities so that they adhere to the newly-prescribed system loss cap,” ERC Chairperson and CEO Agnes VST Devanadera explained.

The pertinent ERC Resolution entitled “A Resolution Adopting the ERC Rules for Setting the Distribution System Loss Cap and Establishing Performance Incentive Scheme for Distribution Efficiency” embodied the new Distribution System Loss (DSL) cap that can be recovered and charged by distribution utilities to its customers, starting May 2018 billing period.  Private DUs, such as MERALCO, shall charge a 6.50% DSL cap for 2018 and shall be gradually reduced annually until it reaches the 5.50% DSL cap level by the year 2021.  Meanwhile, Electric Cooperatives (ECs) are grouped into three (3) clusters based on similar technical considerations and shall charge a 12.00% DSL cap in 2018.  ECs shall charge within the range of 12.00% to 8.25% DSL cap until 2022 onwards , based on the cluster grouping that they were assigned in.  

The subject Rules also specified a particular methodology in computing for the Technical Loss and Non-Technical Loss or pilferages.  Distribution utilities’ electricity usage shall be treated as an operation and maintenance expense of the DU under the appropriate rate-setting methodology.  A Performance Incentive Scheme (PIS) is also devised to motivate the DUs to reduce the Technical and Non-technical Losses in their distribution systems.

The ERC, pursuant to Section 43 (f) of the Electric Power Industry Reform Act of the EPIRA, is mandated to establish and enforce a methodology for setting transmission and distribution wheeling rates and retail rates for the captive market of a distribution utility, taking into account all relevant considerations, including the efficiency and inefficiency of the regulated entities. To achieve the said objective, the cap on the recoverable rate of system loss prescribed in Section 10 of Republic Act No. 7832 or the Anti-Pilferage of Electricity Act is amended and shall be replaced by caps which shall be determined by the ERC based on load density, sales mix, cost of service, delivery voltage and other technical considerations it may promulgate.

“The ERC is mandated to study and update the Distribution System Loss caps charged by the Distribution Utilities to electricity consumers.  The newly-prescribed system loss cap is a by-product of a well-thought study taking into account the relevant technical criteria and will promote the Distribution Utilities’ efficient operation and service.  The ERC will keep on looking for measures to bring down the electricity rates which are considered as among the highest in Asia,” ERC Chair Devanadera said.


© 2020 - Energy Regulatory Commission