What system loss standards tell us about inefficient electric cooperatives

For years, unreliable power has been a fact of life in my hometown of Eastern Samar and other towns served by inefficient electric cooperatives. What’s even worse is how frequent blackouts are paired with bad service and spiking utility costs.

These electric cooperatives are mostly afflicted with aging infrastructure, and yet the high power bills seemingly aren’t used to fund repairs, upgrades, and improvements, hence perpetuating the cycle and worsening the lives of everyone in their service area.

With all the talk over system loss — or losses incurred during the transmission and distribution of electricity — few have questioned why inefficient electric cooperatives aren’t subjected to higher performance standards. Case in point, the fact that they still enjoy higher system loss allowances than your typical well-performing utility company.

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Total system loss is made up of real technical losses, which is natural and inherent when electricity travels across wires and cables due to the laws of physics, as well as non-technical losses due to theft, underinvestment, and inefficiency, all of which are caused by people.

Aging wires, transformers, and substations (and not replacing them) can contribute significantly to system loss. Moreover, in some areas, including BARMM and Central Luzon, the National Electrification Administration or NEA said that some local officials fail to pay their power bill, which turns into costs passed on by the electric cooperative to the customer via system loss. The nerve!

Under the Electric Power Industry Reform Act or EPIRA, customers pay for total system loss, which accounts for about 5-10% of a power bill depending on where you are, even if you don’t use that power.

Whereas private distribution utilities are only allowed to recover system loss costs of up to 5.5%, most electric cooperatives are given 8.25%, while off-grid and lower-performing cooperatives enjoy even higher thresholds — as high as 12%! The incentive to repair, upgrade, and improve is thereby lower for those who actually need it the most. In other words, system loss is one way of covering for an inefficient electric cooperative’s incompetence and inefficiency.

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Following the President’s proposal to eliminate system loss charges and the attached 12% value-added tax or VAT to customers, the Philippine Rural Electric Cooperatives Association or Philreca immediately issued a statement, saying that electric cooperatives (in general) would then need government support in the form of higher subsidies. Without it, they said that they face bankruptcy.

If that is the case, then it defeats the purpose because the system loss cost is just being passed from the customer to the taxpayer. By using tax money, subsidies are raised through higher taxes, more borrowing, or foregone spending in the national budget. Plainly said, it’s still the people who will shoulder the burden.

Even then, considering the current subsidies electric cooperatives already have, when has an inefficient one ever proven that it is capable of spending money effectively and efficiently, especially when it comes to improving its distribution systems? How can their customers be assured that it will now modernize facilities, upgrade technologies, and truly deliver moving forward?

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“Should the government choose not to shoulder these costs, we move for a comprehensive and holistic review on the total prohibition and urge Congress to instead adopt a performance-driven transition model with customized, feeder-specific technical loss caps set by the ERC [the Energy Regulatory Commission] alongside government-backed funding for grid upgrades and anti-pilferage enforcement,” Philreca said.

Subsidies, to begin with, must be tied to high performance standards. Otherwise, continued dependence on the government without actual improvements would just perpetuate complacency and inefficiency, manifesting in unreliable power, bad service, and spiking costs, including high system loss. I wonder how much of today’s existing subsidies to inefficient electric cooperatives are just wasted?

The Energy Secretary herself has said that there are still inefficient electric cooperatives that perform with as much as 16% in system loss. This is unbelievable, considering how the global average for transmission and distribution losses sits at 8-9%, according to the World Bank. This is all the more reason why the NEA should strictly enforce better performance standards, especially for the inefficient electric cooperatives.