m m
o f f h e ^ i  r r H a r y
SEVENTEENTH CONGRESS OF THE 
]
REPUBLIC OF THE PHILIPPINES 
]
f ir s t Regular Session 
]
SENATE
1188
•16 OCT-4 P5 26
S.B. No.
Introduced by SEN. WIN GATCHALIAN
AN ACT REDUCING THE CAP OF
RECOVERABLE SYSTEM LOSS CHARGES PASSED ON TO THE CONSUMERS 
BY PRIVATE DISTRIBUTION UTILITIES AND ELECTRIC COOPERATIVES AND 
EXEMPTING THE SYSTEM LOSS CHARGE COMPONENT 
FROM THE COVERAGE OF VALUE ADDED TAX
Explanatory Note
Despite being a third world nation, the Philippines has been reported to have 
one of the most expensive electricity rates in the world and the highest in Asia. A 
perusal of a household’s electricity bill shows that consumers are paying for a number 
of components such as charges for generation, transmission, and distribution; taxes, 
subsidies, and universal charges; and system loss charges.
System loss charges represent the cost of electricity lost in the distribution 
system from the receiving point of private distribution utilities and electric 
cooperatives to the consumer’s metering point. 
It may be further classified into 
‘technical’ (when electricity dissipates over power lines) or ‘non-technical’ (pilferage, 
theft, administrative inefficiencies and costs). However, despite being electricity not 
actually used by the consumer, this charge has been integrated in electricity bills by 
virtue of Republic Act No. 7832 or the “Anti-Electricity and Electric Transmission 
Lines/Materials Pilferage Act of 1994”. Furthermore, the implementing rules and 
regulations of the said law allowed private distribution utilities and rural cooperatives 
to retrieve their own electricity costs as part of system loss.


It makes no sense to let consumers pay for what should be the responsibility of 
the private distribution utilities and electric cooperatives. Thus, this measure seeks to 
lower the current cap of system loss charges set by the Energy Regulatory Commission 
in accordance with R.A. No. 7832 from 8.5% to 5% for private distribution utilities and 
from 13% to 10% for electric cooperatives and to exclude non-technical system losses 
and electricity used by the private distribution utilities and electrical cooperatives from 
what may be passed on to consumers as system loss charges.
This bill also seeks to exempt system loss charges from value-added tax (VAT). 
VAT is a form of sales tax and is a tax on consumption levied on the sale, barter, 
exchange or lease of goods or properties and services and on importation of goods into 
the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, 
transferee or lessee of goods, properties or services. System loss charges represent 
electricity which is lost and not actually used or consumed and yet the burden of 
paying for the VAT is passed on to the consumers.
Lowering the system loss cap from the current 8.5% to 5%, with Meralco 
currently at 6.5%, will possibly lower the cost of electricity by 9.55 centavos per kWh. 
Furthermore, removing the VAT on system loss charges will lower the cost of electricity 
by 4.12 centavos per kWh. Given that Meralco is able to sell 2,824.2 GWh for the 
month of August, removing the VAT will save consumers a total of Php 
116,473,510.01 per month and lowering the cap will save consumers a total of Php 
269,756,020.22 per month or a total of Php 386,229,530.23 per month.
Electricity is an integral part of contemporary Filipino life. With the rising costs 
of food, education, and other necessities, making reliable electricity more affordable 
will improve the lives of millions of Filipinos.
Hence, the immediate passage of this bill is sought.
tATCHAl


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.Renats'
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(§ ffire  of t h e fJ ? " n  riTr ^
SEVENTEENTH CONGRESS OF THE 
]
REPUBLIC OF THE PHILIPPINES 
]
First Regular Session 
]
SENATE
1188
*16 OCT-4 P5:26
K l-'.ri,!’. 
; WY:
S.B. No.
Introduced by SEN. WIN GATCHALIAN
AN ACT REDUCING THE CAP OF
RECOVERABLE SYSTEM LOSS CHARGES PASSED ON TO THE CONSUMERS 
BY PRIVATE DISTRIBUTION UTILITIES AND ELECTRIC COOPERATIVES AND 
EXEMPTING THE SYSTEM LOSS CHARGE COMPONENT 
FROM THE COVERAGE OF VALUE ADDED TAX
Be it enacted by the Senate and the House of Representatives of the Philippines 
in Congress assembled:
1 
SECTION 1. Title. -  This Act shall be known as the “Recoverable System Loss Act”.
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SEC 2. Declaration of Policy. - It is hereby declared the policy of the State to ensure 
the affordability of supply of electric power while taking into consideration the viability 
of private electric distributors. Towards this end, the State shall ensure that the 
imposition of distribution expenses to the public is justifiable and equitable.
SEC 3. Definition of Terms. - For purposes of this Act, the following shall be defined 
as:
8 
(a) System Loss refers to the amount of electricity purchased by the distribution
9 
utility and the amount of electricity paid for by the users;


1 
(b) Technical Losses refer to power dissipation in the components of the electricity
2 
system such as transmission and distribution lines, transformers, and measurement
3 
systems;
4 
(c) Non-Technical Losses refer to electricity lost through causes external to the power
5 
system such as pilferage, theft, administrative inefSciencies and costs, and other
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analagous causes;
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SBC 4. Recoverable System Loss Charges. -  For purposes of recoverable systems
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loss charges, the following caps are set;
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(a) For Distribution Utilities (DUs), a maximum of five percent (5%).
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(b) For Electric Cooperatives (ECs), a maximum of ten percent (10%).
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The Energy Regulatory Commission (ERC) shall determine, as often as is
12 
necessary, whether the caps shall be reduced further on the basis of load density,
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sales mix, cost of service, delivery voltage, and other technical considerations, as well
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as international benchmarks, taking into account the viability of DUs and ECs and the
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interest of the consumers.
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SBC 5. Bxclusion From Computation of System Loss Charges. -  The following shall
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be excluded from the computation of recoverable system loss charges:
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(a) Non-technical losses: Provided, That the DUs and ECs shall be given two (2)
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years within the effectivity of this Act to exclude non-technical losses: Provided,
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further, That the ERC shall formulate a gradual phase out system of non-
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technical losses from recoverable system loss charges within the said period;
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(b) Actual use of electricity by DUs or ECs: Provided, That actual use of
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electricity shall be treated as operating and maintenance expenses of the DU or
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EC; and
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(c) Such other components which may be determined by the Energy Regulatory
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Commission (ERC).
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SBC 6. Annual Review of System Loss Charges. -  DUs and ECs shall annually
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submit to the ERC a sworn statement containing their segregated system losses and
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all documents pertinent to system loss charges. The ERC shall strictly verify the


1 
system loss charges determined by the DUs and ECs to ensure that only legitimate
2 
costs are home by the consumers. 
Failure to comply with this Section shall subject
3 
the DU or EC to administrative penalties, including but not limited to suspension or
4 
revocation of licenses, permits, or franchise to operate, to be determined by the ERC.
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SBC 7. Exemption from Value Added Tax (VAT). -  System loss charges shall be
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exempt from VAT hereby amending Section 109 of the National Internal Revenue Code
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of 1997, as amended.
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SEC 8. Performance Incentive Scheme (PIS). -  The ERC shall devise a Performance
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Incentive Scheme (PIS) under the Performance Based Regulation for DUs and the
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Benchmarking Methodology for ECs to encourage system loss charge reduction and
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compliance with the provisions of this Act.
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SBC 9. Implementing Rules and Regulations. -  Within ninety (90) days from the
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effectivity of this Act, the Department of Energy, in coordination with the ERC and
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National Electrification Administration (NEA), shall promulgate the necessary rules
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and regulations to implement the provisions of this Act.
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SEC. 10. Separability Clause. -  If, for any reason, any provision of this Act is
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declared to be unconstitutional or invalid, the other sections or provisions hereof
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which are not affected thereby shall continue to be in full force or effect.
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SEC. 11. Repealing Clause. -  All laws, decrees, orders, rules and regulations or parts
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thereof which are inconsistent with or contrary to the provisions of this Act are hereby
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repealed, amended or modified accordingly.
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SEC. 12. Effectivity. -  This Act shall take effect fifteen (15) days after its publication
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in at least two (2) national newspapers of general circulation.
Approved,