Dumb and dumber

Posted: May 16, 2008 in Socio-Political
Tags: , ,

The power debate rages on. This time, government officials are talking about systems losses and the “ghost deliveries” of electricity.

The case of the systems losses is an interesting one. There’s been so much finger-pointing and accusation, it tends to get confusing. What is this charge called “systems loss”? Who or what allowed it? Who should be made accountable for it?

The collection of systems losses is allowed by law, by the anti-pilferage act of 1994 as well as the Electric Power Industry Reform Act through its implementing rules and regulations. This item in our Meralco bill, which is around 8% of our total payments, has three components. First are the technical losses, then the pilferage losses then lastly, Meralco’s “company use”.

Technical losses represent electricity lost in the course of its delivery, from heat caused by friction or resistance in cables, or from worn-out equipment that are no longer as efficient as before. These leakages, according to engineers, are normal and can be limited by making the system more efficient. Still, this is electricity lost that we end up paying for.

Then there’s electricity lost to pilferage, lost to people who consume electricity but have no meters and therefore do not pay for their consumption. They don’t pay, but we do. Legitimate customers are actually shouldering the cost of electricity used by pilferers. Consumers ask, why do we pay for electricity stolen by other people? Why does Meralco and the government allow this?

It should be noted that Meralco, when it apprehends pilferers, is entitled to recover the lost payments from the offenders. This amount is supposed to be credited to customers through the lowering of rates.

Since Meralco can actually recover the cost of electricity lost to pilferage, then it can sit back and just wait for the collections to come instead of running after the pilferers. Someone told me that about 1/3 of Meralco’s systems loss charge actually covers pilfered electricity. That’s a huge amount of electricity we did not use but we end up paying for.

The last component of systems loss is what industry people call “company use”. Meralco passes on to consumers the cost of the company’s electricity consumption. In one year, Meralco passed on to consumers the cost of 75 million kWh or P427.5 million worth of electricity. First thing that comes to mind is, “Aren’t they lucky?”

Ok, to be fair, as in all businesses, the cost of electricity is computed as part of the operating expenses and is generally passed on to customers. If we buy a pair of tsinelas, chances are, the cost of electricity used in making the tsinelas is already computed in its selling price. I guess Meralco is entitled to pass on some of its electricity use to consumers if the consumed electricity is essential to the delivery of services. BUT, this doesn’t and should not reflect as systems losses. Second, and more importantly, how exactly do we know if the cost of electricity being passed on to us is actually essential in the delivery of Meralco’s services.

For example, I go to Ortigas in December and I see Meralco’s building having all these Christmas lights on its building façade. Is the electricity used for the Christmas lights essential to the delivery of services? Why should I pay for Meralco’s Christmas lights? Surely that sucks, especially if you yourself don’t have Christmas lights at home.

Meralco passed on to consumers 75 million kWh in one year. This is legal, they say. True, it is legal. Wanna know how much Meralco can legally pass on to consumers in the form of company use? Meralco is allowed to recover “company use” up to 1% of its total kWh sales. How much is the kWh sales? Just a whopping 25 billion kWh last year. One percent of that is 250 million kWh. Technically, Meralco is far away from the actual cap. It’s company use is probably less than 1/3 of the 250 million. And for all intents and purposes, they can turn on all their lights and air conditioning 24/7, and it still would fall within the allowable recoveries. The cap is just too high and Meralco can just pass on to consumers just about anything, including the electricity used by the Meralco theater when Tuck and Patti performed in the Philippines.

How did all of this happen? Well, the government let it happen. The regulators said it was ok. The authors of the anti-pilferage law said it’s ok. So when Meralco says that everything is legal, they are actual right. But as I said before, being legal doesn’t make it just.

Should technical losses be charged to consumers? Perhaps a portion of it can be allowable, though that still has to be determined. The cap has to be very low so as to encourage efficiency. At least that’s what some engineers think. But until they determine what constitutes this, they should stop charging technical losses to consumers.

Should the cost of pilfered electricity be passed on to consumers? Definitely not!

Should Meralco’s “company use” be passed on to consumers? Meralco first has to define what part of its electricity consumption is essential to the delivery of services. If ever they are allowed to recover some costs, it should not be as an item called systems loss but maybe as part of its operating costs (distribution). And only if it is truly essential in the delivery of services, and that excludes electricity for Christmas lights, the Meralco theater, and so on. This has to be limited and defined carefully. A sky-is-the-limit cap of 250 million kWh is out of the question.

And if you think charging systems losses is dumb, government has managed to do something dumber. It applied the Value Added Tax on systems losses. This made one businessman, Jess Arranza of the Federation of Philippine Industries to remark that the application was “absurd”. Former senator Ralph Recto, the author of the R-VAT also thought that the law did not provide for the taxing of systems losses.

We estimate the VAT on systems loss to be about P4 billion, from 2006-2007. Remember, systems losses comprise 8% of our bill. If you slap a 10.5% VAT on this, that’s already a significant amount. Remember also that Meralco sells 24-25 billion kWh a year so that’s a huge base from which to get the VAT.

Meralco enjoys the benefits of charging the systems losses so it is not blameless in this mess. Government meanwhile was the one who allowed the collection of these unjust charges, both systems losses and the VAT. What irks me is that the government pretends to be innocent when in fact it is the one supposedly regulating the industry and protecting consumers. If it weren’t for the political crisis and the need for the Arroyo government to score populist points, these matters would not have been given attention by the administration and its allies.


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