Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City
17% CONGRESS
Second Regular Session

7161

House Bill No.

Introduced by Representative Wes Gatchalian

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, ad
inelficiencies 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
8 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.

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.

(ON. WES GATC
Representative
First District Vgfenzuela City



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City
17 CONGRESS
Second Regular Session

House Bill No._7161

Introduced by Representative Wes 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:

SECTION L. Title. - This Act shall be known as the "Recoverable System Loss Act”,

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.

3. Definition of Terms. - For purposes of this Act, the following shall be defined

(a) System Loss refers to the amount of electricity purchased by the di
utility and the amount of electricity paid for by the users;

(b) Technical Losses refer to power dissipation in the components of the electricity

system such as transmission and distribution lines, transformers, and measurement
systems

(c) Non-Technical Losses refer to electricity lost through causes external to the power

system such as pilferage, theft, administrative inefficiencies and costs, and other
analagous causes;

SEC 4. Recoverable System Loss Charges. - For purposes of recoverable systems loss
charges, the following caps are set:

(a) For Distribution Utilities (DUS), a maximum of five percent (5%).
(b) For Electric Cooperatives (ECs), a maximum of ten percent (10%).

The Energy Regulatory Commission (ERC) shall determine, as often as is necessary,
whether the caps shall be reduced further on the basis of load density, sales mix, cost of
service, delivery voltage, and other technical considerations, as well as international


benchmarks, taking into account the viability of DUs and ECs and the interest of the
consumers.

SEC 5. Exclusion From Computation of System Loss Charges. - The following shall be
excluded from the computation of recoverable system loss charges:

(a) Non-technical losses: Provided, That the DUs and ECs shall be given two (2) years
Within the effectivity of this Act to exclude non-technical losses: Provided, further, That
the ERC shall formulate a gradual phase out system of non-technical losses from
recoverable system loss charges within the said period;

(b) Actual use of electricity by DUs or ECs: Provided, That actual use of electricity shall be
treated as operating and maintenance expenses of the DU or EC; and

(©) Such other components which may be determined by the Energy Regulatory
Commission (ERC),

SEC 6. Annual Review of System Loss Charges. - DUs and ECs shall annually submit to the
ERC a sworn statement containing their segregated system losses and all documents
pertinent to system loss charges. The ERC shall strictly verify the system loss charges
determined by the DUs and ECs to ensure that only legitimate costs are borne by the
consumers. Failure to comply with this Section shall subject the DU or EC to
administrative penalties, including but not limited to suspension or revocation of licenses,
permits, or franchise to operate, to be determined by the ERC.

SEC 7. Exemption from Value Added Tax (VAT). - System loss charges shall be exempt from
VAT hereby amending Section 109 of the National Internal Revenue Code of 1997, as
nded,

SEC 8, Performance Incentive Scheme (PIS). - The ERC shall devise a Performance Incentive
Scheme (PIS) under the Performance Based Regulation for DUs and the Benchmarking
Methodology for ECs to encourage system loss charge reduction and compliance with the
provisions of this Act.

SEC 9, Implementing Rules and Regulations. - Within ninety (90) days from the effectivity
of this Act, the Department of Energy, in coordination with the ERC and National
Electrification Administration (NEA), shall promulgate the necessary rules and regulations
to implement the provisions of this Act.

SEC. 10. Separability Clause. - If, for any reason, any provision of this Act is declared to be
unconstitutional or invalid, the other sections or provisions hereof which are not affected
thereby shall continue to be in full force or effect.

SEC. 11. Repeating Clause. - All laws, decrees, orders, rules and regulations or parts thereof
which are inconsistent with or contrary to the provisions of this Act are hereby repealed,
amended or modified accordingly.

SEC. 12, Effectivity. - This Act shall take effect fifteen (15) days after its publication in at
least two (2) national newspapers of general circulation.

Approved,