System Loss



Too much has been said and many people, mostly politicians, had already expressed their opinions about the distribution system loss. But what really is “system loss”? Can distribution utilities (DU’s) remove it or not to pass it to consumers? In electricity supply to final consumers, losses refer to the amounts of electricity injected into the transmission and distribution grids that are not paid for by users.


Components of Distribution System Losses

Distribution System Losses shall be segregated into the following components as specified in Article 3.4 of the Philippine Distribution Code:

  • Technical Loss– is the component of Distribution System Losses that is inherent in the electrical equipment, devices and conductors used in the physical delivery of electric Energy. It includes the Load and No-Load (or Fixed) Losses in the following:
    • Sub-transmission Lines
    • Substation Power Transformers
    • Primary Distribution Lines
    • Voltage Regulators
    • Capacitors
    • Reactors
    • Distribution Transformers
    • Secondary Distribution Lines
    • Service Drops
    • All other electrical equipment necessary for the operation of the Distribution System
  • Non-Technical Loss– is the component of Distribution System Losses that is not related to the physical characteristics and functions of the electrical System, and is caused primarily by human error, whether intentional or not. Non-Technical Loss includes the electric Energy lost due to pilferage, tampering of meters, and erroneous meter reading. For the purpose of Segregating Distribution System Losses to establish the Caps on the Rate of Recoverable Distribution System Losses, Metering burdens and inaccuracies shall be assumed included in the Non-Technical Loss.
  • Administrative Loss– is the component of Distribution System Losses that accounts for the electric Energy used by the Distribution Utility in the proper operation of the Distribution System and any unbilled electric Energy that is used for community-related activities. This shall include the electric Energy consumption of connected essential electrical loads in the following facilities and activities, subject to the approval by the ERC:
  • Distribution Substations
  • Offices of the Distribution Utility
  • Warehouses and Workshops of the Distribution Utility
  • Community activities
  • Other essential electrical loads of the Distribution Utility


Metering and billing for electricity actually consumed by users is integral to commercial management of an electricity utility. Another critical task is collection of the billed amounts. Effective performance in both functions is critical to ensure the financial viability of the cooperative. From the operational point of view, metering-billing and collection are separate functions and they require specific management approaches.

In fact, all of the distribution utilities in the Philippines have a system loss item in their electric bills and they, themselves, are passing it on to their consumers. This is legal because it was approved by the Energy Regulatory Commission (ERC), recognized and allowed by the law (it is just a question of “how much?”).

The functions of the Energy Regulatory Commission (ERC) based on Section 43 of Republic Act 9136 of the EPIRA Law, Chapter IV Regulation of the Electric Industry, states that:

The ERC shall promote competition, encourage market development, ensure customer choice, and penalize abuse of market power in the restructured electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order after due notice and hearing. Towards this end, it shall be responsible for the following key functions in the restructured industry, and one of these is for the public interest. Here you can find experienced UTC property managers in La Jolla. 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 intro account all relevant considerations, including the efficiency or inefficiency of the regulated entities. The rates must be such to allow the recovery of just and reasonable costs and a reasonable return on rate base (RORB) to enable the entity to operate viably. The ERC may adopt alternative forms of internationally-accepted rate-setting methodology as it may deem appropriate.

The rate-setting methodology so adopted and applied must ensure a reasonable price of electricity. The rates prescribed shall be non-discriminatory. To achieve this objective and to ensure the complete removal of cross subsidies, the cap on the recoverable rate of system losses prescribed in Section 10 of Republic Act 7832, is hereby amended and shall be replaced by 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 shall determine such form of rate-setting methodology, which shall promote efficiency. In case the rate setting methodology used is RORB, it shall be subject to the following guidelines:

  • For purposes of determining the rate base, the TRANSCO or any distribution utility may be allowed to revalue its eligible assets not more than once every Three (3) years by an independent appraisal company: Provided, however, that ERC may give an exception in case of unusual devaluation; Provided, further, that ERC shall exert efforts to minimize price shocks on order to protect the consumers;

Interest expenses are not allowable deductions from permissible return on rate base;


  • In determining eligible cost of services that will be passed on to the end-users, the ERC shall establish minimum efficiency performance standards for the TRANSCO and distribution utilities including system losses, interruption frequency rates, and collection efficiency;
  • Further, in determining rate base, the TRANSCO or any distribution utility shall not be allowed to include management inefficiencies like cost of project delays not excused by force majeure, penalties and related interest during construction applicable to these unexcused delays; and
  • Any significant operating costs or project investments of the TRANSCO and distribution utilities which shall become part of the rate base shall be subject to verification by the ERC to ensure that the contracting and procurement of the equipment, assets and services have been subjected to transparent and accepted industry procurement and purchasing practices to protect the public interest.



Philippine Distribution Code, Sec. 3.4


3.4.1 System Loss Classifications System Loss shall be classified into three categories: Technical Loss, Non-Technical Loss, and Administrative Loss. The Technical Loss shall be the aggregate of conductor loss, the core loss in transformers and any loss due to technical metering error. The Non-Technical Loss shall be the aggregate of the Energy lost due to pilferage, meter-reading errors, and meter tampering. The Administrative Loss shall include the Energy that is required for the proper operation of the Distribution System and any unbilled Energy for community—related activities.

3.4.2 System Loss Cap The Distributor shall identify and report separately to the ERC the Technical and Non-Technical Losses in its Distribution System. The ERC shall, after due notice and hearing, prescribe a cap on the System Loss that the Distributor can pass on to its End-Users. Separate caps shall be set for the Technical and Non-Technical Losses. The Distributor shall submit to ERC an application for the approval of its Administrative Loss. The allowance for Administrative Loss shall be approved by the ERC, after due notice and hearing based on connected essential load.

It is prudent to regulate or remove the system loss item in the electric bill by incorporating it in the Maximum Allowable Revenue (MAR) not only of Distribution Utilities but of also, the National Grid Corporation of the Philippines (NGCP) – who also collects system loss charge from its customers in Visayas and Mindanao. This way, Transmission Operator and distribution utilities will be forced to improve their system. Visit This item, however, will be effectively included in the distribution charge of the utilities and if we will apply the “law” of unbundling, this item could still appear in the electric bill.

The issue of system loss is one of the ironies of being so transparent in the electric bill through the unbundling of rates. Before unbundling, people could not question system loss item in their bill since they cannot see each of every components of the cost of electric bill. But when each components of the bill were itemized, we started questioning every item. And also, since it is now itemized, as long as there is a word to describe that energy that is being lost in the system, technically or not, you cannot remove it in the bill.