Systems Loss – My View

Erramon Aboitiz, CEO of Aboitiz Power, recently said:

“One way of reducing system loss is through investment and if you invest, you have to make a return as a business. Investments to reduce system losses may be higher than what you can save just to meet the cap. If that’s the case, I think it’s better to let losses be,” Mr. Aboitiz explained.

Erramon happens to be Exactly Right.

But I’d like to note that ERC does not require any distribution utility (DU) to meet the Loss Caps. The ERC simply says that if you your losses are above the targets, you can’t recover that excess from rate payers. So it is already completely up to the private utilities to determine whether the returns they get from reduction in losses is worth it.

If, say, the return on equity to VECO for reducing losses down to the ERC cap does not rise to the return on investment allowed by ERC, then I’m sure even the ERC would not only agree that it’s not worth it to VECO to invest in further loss reduction efforts but also that it’s not worth it to the rate payers for VECO to invest further in loss reduction and charge that investment to the rate payer.

So, somebody please help me out on exactly what Erramon’s point is.

Head, Wind, Canoe is also talking about losses. But, in the vein of my point above, I’d disagree that with him that it’s always beneficial to reduce losses. At some point, the rate payer is better off accepting a certain level of losses, because the cost involved in reducing them further outweighs the benefits. In fact, that is exactly the point where loss caps should be set – at the point where it’s no longer worth it to reduce them further. That point, however, is different for each utility.

I’d also point out that the historical loss chart in Head, Wind, Canoe’s post is for losses as currently defined by ERC. Those “losses” include “own use” (if I’m not mistaken) as well as technical losses and pilferage. I feel that the ERC is making the right move in its proposal to move “own use” out of the systems loss basket and into operations expense, where it can more appropriately be benchmarked.

This entry was written by Nick Nichols, posted on Aug 19th at 8am, filed under philippines. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL.
  • Rene - thanks for weighing in on the discussion.

    We need MORE of the sector's knowledgeable people to weigh in on this so we can move toward some meaningful practices in the area of loss analysis and reduction. The analysis of losses is still a HUGE problem for the DUs; well, at least for the cooperatives.
  • renesol
    The Loss Segregation is noble idea of a project, but unfortunately it is deeply flawed. The model does not consider source voltage measurements, source demand measurements, weather impact and loading factors, loops, wandering laterals, switching operations during the billing period covered, the load components (I/Z/PQ), neutral connection to ground for multiground systems, earth resistivity, actual conductor spacing and height, actual different phase conductors in a segment, harmonic impact, line conductor and equipment aging and deterioration among others. Most utilities looked up to heaven and then bowed their heads to create diurnal curves that did not consider variances in consumption patterns during weekday days, weekend days, and peak day of the billing period as well as the weather loading factors and coincidence factors and load pick ups. Funny, but, the thousands of Distribution transformer primary and secondary jumpers were ignored by the UP segregation software. And mind you, ERC and NEA were dragged into the sales promotion activities for the software because in 2005 (contrary to the consultant's vehement denial in his letter to the ERC that they are not promoting or selling any software!), the Segregator became available to the commercial market as DSAS. They tricked the NEA and the ERC, so it just goes to show that the guys behind the Loss Segregation were up to fatten their pocktes from a captured market.

    I wonder how many electrical practitioners are in the utilities, and at the height of the loss segegation, very few raised a finger. I wonder what cowed them.

    With all due respect, as I am not a PEE nor masters or doctorate degree holder in Electrical Engineering, data gathering should have been first implemented... Now data gathering involves substation and feeder metering (volts, demands, and power factor), precisely calibrated consumer energy meters and customer class load loggers. How can one run a realistic loss calculation based on load curves when there are no load loggers in the first place? And those who have one, logged data for a week on a residential class customer, then the next week on a commercial class, and so on... All because the poor guys in the utilties were sorely pressed for time to beat the submission deadline. The loss computation should also account naturally for the loads, and this is also bloody tough.. Utilities have to go from customer to customer to count the quantities and ratings of each type of electrical appliance of each customer. Customer loads naturally affect losses and the magnitude of losses depend on the load power factor. Surveying the secondary line sections and the customer service drops is no quick and easy task. The second part of the segregation is projecting the losses to five years from the base year, and such projection should be spatial or in layman's term, geographic map based. Sadly, just a few utilities have any reliable Geographic information system (GIS). Now, the issue of maps was skirted by the Segregation consultants claiming that a map is not needed in a load flow... a testament that the project proponents ignore their own guidelines.

    The Segregator is very primitive compared to SynerGEE. In all aspects of power system modeling like data handling, circuit validation, objects modeled, SynerGEE is superior to the Loss segregator software. You can't use that segregator template for the Loss Segregation itself as too many factors are missing, and it would be tragic to use the segregator for CAPEX, power quality, protection, reliability and engineering economics analysis.

    Pilferage is an unknown quantity, so the technical loss computation by using simulation softwares like SynerGEE is needed in the equation towards determining the extent of other losses. Simulation software is not just the only tool in loss reduction. Demand meters, thermal scanners, source meters among others are also needed. The simulation results only form a part of the basis to monitor suspected pilferers. A geo-centric model such as provided by SynerGEE fast tracks the resolving of loss contributory issues such as defective customer kwhr meters, loose connections, pilferage, switch placement, capacitor location, co-generation, etc.

    Looking back, the Loss Segregation was hastily implemented for reasons subject to wild speculations. Many major loss factors were ignored. Thank God, there were few utilities and engineers who were discerning enough with their practical senses and stood firm on their ground.
  • ...ERC is holding pretty firm on the loss cap reductions and starting to look toward future additional reductions.

    If this is true, then it's time to abolish the EPIRA Law, and abolish ERC. EPIRA Law has not serve its purpose after all.

    ERC, in it's old self as ERB was never influenced by any utility specially on Electricity Pricing and System Loss Regulations. i cannot imagine how it has evolved.

    Power industry in the Philippines is just the same as those in Latin American countries. It's run by Latino-style management.
  • Hi Philip. I haven't been able to participate in any of the Public Consultations on this, but my perception is that the ERC is holding pretty firm on the loss cap reductions and starting to look toward future additional reductions.
  • "...Investments to reduce system losses may be higher than what you can save just to meet the cap. .."

    Investment on reducing system loss may be higher for that year's cap but still applicable to the following years' caps. Unfortunately, Aboitiz is only interested in this year's cap.

    This mentality is common in Latin American countries where electricity prices are high. No wonder Malaysia, Taiwan and Singapore are laughing at us. Philippines has the world's second largest geothermal capacity. Then electricity should be Asia's cheapest.

    Philip Jarina, PEE
    Former ERB employee
    http://philipjarina.blogspot.com/
  • "...with Prof. DelMundo but apparently, the focus of his attention is more on the theoretical computation of segregating the losses rather than..." It's his job as academician.

    If you are looking for solutions. Then try those who have the expertise in the application of Advance Metering Infrastructure which made SCADA obsolete.

    Philip Jarina, PEE
    Former ERB employee
    http://philipjarina.blogspot.com/
  • Yeah, I haven't had an opportunity to meet with Jed Sevilla since the week his project was initiated. That reminds me I should try to catch up with him next time I'm back home in CdO.
  • Arnold
    Many DU's are using SYNERGEE and EDSA. Aboitiz DU group use SYNERGEE for a long time now and they are very satisfied with its performance. There are many similarity with the UP segregation software but SYNERGEE is very powerful.

    I will appreciate it very much if you can have an update on IFC c/o Jed's group on CAPEX studies for AMRECA.
  • Heh heh. That's academicians for you.

    The planning software approach needs to be widely adopted anyway. The ECs/DUs need it, along with a good up-to-date database, for .... um .... PLANNING.

    I'd like to see a handful of local consultants/firms develop here that the ECs/DUs could tap into for expertise on such work so that each don't have to maintain deep expertise in these programs. It's an initiative I tried to kick off with IFC and they were interested. I think they are trying it in Mindanao on a pilot project (kick-starting use of local consultants, but not necessarily focused on planning software studies). Not sure how that's working out.
  • Arnold
    An audit will depend on how extensive and accurate metering is done on the whole system including the own use. By the way, own use is reported separately to ERC and can therefore be easily audited. In fact, ERC regularly orders utilities to submit under oath the different loads they include in their own use.

    There are plenty of simulation planning software available in the market that can simplify engineering studies. However, in order to properly segregate losses, exhaustive metering system approach is still the best way to do it side by side with a planning software or just good up-to-date database. The cost will go heavily on the metering. Well placed energy/demand meters will detemine the energy/demand on feeders, sections and DT levels. This will in turn be matched with the total energy of customers per feeders, section and DT. This way, we get the actual (not computed or simulated) energies, demands at various strategic points. Losses can then be computed in every segment and section of the distribution system. This has always been the practice of utilities though in limited terms due to their meager resources. If a program can be made to incorporate all the readings, then we can generate a monthly report on the status of the different losses throughout the whole system. With the engineering studies or planning software simulation, we can compare the expected from the actual. But as I said, a good up-to-date, real-time database will do the job. This way, hot spots can be easily identified and where we can focus our efforts to eradicate nontechnical loss in the area. The progress and result of any correctional/preventive programs in the area can then be monitored in a monthly basis. After this, rehabilitation and upgrading of the facility will follow if still needed based on actual energy lost.
    In several instances, we have discussed this approach with Prof. DelMundo but apparently, the focus of his attention is more on the theoretical computation of segregating the losses rather than finding concrete solutions to the problem which understandably is not part of the scope of his work nor of his expertise.
  • Point taken.

    Also, it seems to me that a good audit should be able to determine the pilferage and own use, and therefore the technical loss. I'm just not sure of the cost of doing that vs. detailed engineering studies to get at the technical.
  • Arnold
    "But if the load goes down significantly, then people that were using electricity are no longer using electricity. I would have to question what was that electricity being used for and are we, as a community, better off by denying that usage. That is partly why I said earlier that pilferage was a complex issue."

    "Any sign of weakness, people will be encouraged to pilfer and there is no incentive for them to do it less but only to use more free electricity."

    We have seen people and whole barangays actually using ACU's 24/7, electric stoves and multiple washing machines for business and other power spendthrift equipment/appliances who are living in shanties and nipa huts. Things they can't afford and will not use if they are paying their electric usage.

    I have seen in my practice that the common sense approach for most technical people has always been extensive and expensive technical engineering approach when the solution most of the time, not all the time, but most of the time, is simple non-technical approach. Add more substations, bigger DTs, bigger lines, etc. has always been easier and the usual approach. What we found out is that many times, the load increases with no corresponding increase on the sales.

    Of course this is often likely to happen in urban centers, but with the way electricity is becoming a luxury for many parts of the country with rates between P11.00 to P15.00/kwhr, I will not be surprized if this is happening already on remote and rural areas as well where utility inspection team visibilty is unlikely especially with utility resources becoming very thin. This is further aggravated by a weak RA 7832 which seems to protect the offender rather than provide the utility with solid legal grounds for apprehension and prosecution of the said offenders.

    Bottom line is, proper medication requires accurate diagnosis. The first approach is to address the Non-Technical losses. Do extensive study and provide lasting remedy by way of prevention, monitoring and prosecution. Only after, not before, will we have an accurate picture of the true technical losses. Most likely, expense will now be more affordable with better result and better system performance. My two cents opinion.
  • Interesting information, Arnold, about the UP Engineering model work and that the ERC has used it to come up with their proposed new targets. I know a PubCon is being held in Cebu Wednesday on this, I believe. Two weeks ago, while I was working with NRECA, we tried to get meeting with Wally Delmundo to get update briefing on that work but were unable to get meeting coordinated while one of their Washington based advisors was here - so it it didn't happen.

    My take is that at least some of the ECs are concerned about the phase-in schedule, or lack of it, for enforcement. Certainly it takes time to get the engineering studies done, projects identified and designed, financing lined up, and capex approvals through ERC, before work can begin.

    The engineering analyses that ERC used to define the targets are important and I would be interested in understanding that. There is such a wide diversity in circumstances faced in the EC sector, the ERC may need to have an exemption mechanism - my guess is that they would accommodate that as long as we're making progress on the bulk of utilities.

    If putting in check meters and using heavy-handed control of pilferage significantly reduces facility overloading, then I suggest we have to stop and think a bit. Pilferage should be solved by getting people to pay for electricity usage. But if the load goes down significantly, then people that were using electricity are no longer using electricity. I would have to question what was that electricity being used for and are we, as a community, better off by denying that usage. That is partly why I said earlier that pilferage was a complex issue.
  • Arnold
    Nick - Just to make additional points

    Right, they did ditch the proposed program and the PBR and the benchmarking provides new rules to the ballgame. The consolation was, they were able to get enough data for them to make their latest decision on the cap. Hence, for me, 8% for DU's and 11% for EC's is a good starting point with 6% and 9% as ideal targets for DU's and EC's respectively with the 2% tolerance to pilferage. The point is, we have to push the utilities to be responsive to the times and be more creative rather than just pass their inutility to the customers in terms of higher cost of power.

    Mr. Aboitiz and Head Wind Canoe spoke about systems loss as one entity. That for me brought more confusion. I would agree with both of them if Mr. Aboitiz is referring to the technical while the latter the nontechnical component of systems loss.

    I think the best approach for all utilities is to start addressing their non-technical losses before they even begin any plan of correcting their system. In many instances in my experience, overloaded substations, distribution transformers and secondary systems were relieved merely by putting check meters (load center meters) in all strategic points and addressing pilferage head on with preventive metering schemes and all out legal actions. Any sign of weakness, people will be encouraged to pilfer and there is no incentive for them to do it less but only to use more free electricity.

    As both MERALCO and VECO admitted, their technical loss is only around 6%, the rest is pilferage. Limiting this to 2% is doable and is the only responsible way of doing it. Several years ago, the system loss myth is prevalent in the utility industry in that nontechnical loss is negligible. With the study on the segregation of system loss and with the international systems loss data being made available, the Philippine utility practitioners soon realized that they have not considered the nontechnical loss for so long in their distribution planning.

    Indeed operating expenditures will be higher and sometimes there is a need for political will on the part of the utility to fight pilferage. But I think this is the right approach. Only when we have controlled the pilferage, will we be able to see the true technical loss, and from thereon make the necessary corrections and upgrade depending on the level of performance we want to achieve.
  • Arnold - thanks for the discussion.

    I don't have a lot of details on the UP Engineering approach to loss segregation and the experience they had with the utilities. But it seems to me that approach has been completely ditched by ERC in their move toward PBR for the DUs and Benchmarking for the ECs. To the best of my knowledge the UP approach is not being used at all in these two new rate methodologies. Or is it? It does sound like it was data intensive - and that in itself is problematic.

    Your figure for developed-country distribution technical losses of 5-6% sounds about right to me and may be a good target. But, for many rural utilities here that I've seen, that won't come without a huge investment - they run secondaries way too far (need more primary and transformers), have really bad connections (high resistance), and need more delivery points (substations) and a bunch of other stuff.

    So part of the solution is to get the capital available, make sure those lending can judiciously evaluate the return opportunity of the investment, get the procurement practices elevated so that quality material is used, get the engineering and construction practices up to snuff so that that projects are designed and installed correctly, and make sure the ECs are able to get adequate rate recognition (and recovery) for the investments. Everything is linked together and it all needs to work to get the technical losses down. It's not simple.

    On pilferage - I think that is a more complicated issue, that has deeply embedded and multi-faceted social aspects. Maybe it doesn't require investment, but it will probably require additional operating expenditures.

    On own-use, I agree with you. And this is something that's best handled through audits. And the ERC should be doing that.
  • Arnold
    For purposes of discussion, I will refer to losses as technical and non-technical only and will not include Company Use. Back in 2004, ERC obtained the services of UP Engineering for the Segregation of Distribution System Losses. ERC wanted a professional help in determining which part of the losses is due to technical and non-technical (ie. pilferage) losses. The purpose was to benchmark the different DU's and EC's on the matter and somehow reduce the caps further and force the otherwise poor performing utilities to improve their efficiency. ERB Record would show that utilities did improve their performance after RA 7832. They used to have losses as much as 20 plus percent and all this were passed on to the customer. Now, i think only a few utility has a systems loss higher than 14 percent. In fact there are utilities with losses as low as 6 percent.
    If we compare losses in first world and developed countries one will discover that losses in these countries are only around 5-6%. How come that here in the Philippines and other poor countries, its 10% or more? One conclusion we can have is that the benchmark for pure technical loss is on those figures: 5-6%. The rest is pilferage or nontechnical loss.
    Aiming at technical losses lower than 5-6% is therefore economicall unviable and I will have to agree with Mr. Aboitiz. Abandon all hope.
    Unlike technical loss, pilferage can be easily identified and can be corrected at a minimal cost. It is therefore always a profitable exercise. And in many ways, it also lowers the technical loss as well.
    Back to the study, a simulation softwarewas was developed by UP and was used extensively by ERC to the point that utilities were required to submit actual field data that were inputted to the simulation software. Apparently, there were so many glitches that the last time I heard, the deadline for the submission of the data was again extended for another 3 years. It was previously extended for about a year. The utilities apparently are dragging their feet since whatever the result, it will end up further reduction of caps.
    The ERC decision of reducing the caps NOW is a welcome development. And only after seeing just raw or initial utlity data. That is a nice shortcut approach.

    However, to help utilities curb pilferage, Congress has to amend RA 7832. Right now, it's very difficult to prosecute a violator. Many times, the utility has to use dirty and illegal practices that in the end boomerangs.
    On company use, ERC records would show that Company Use is benchmarked around 0.25%. My opinion is, that's a good figure to start with as a new company use cap. Many utilities with higher Company Use should be subjected to thorough investigation because it's possible that they manipulate their figures. Its very easy to audit this because Company Use is based on actual Meter consumption. All ERC has to do is to check the record of these meters. And also to check the kinds of load in the facility. I suppose an electric fan cannot use 10,000 kwhrs/month??? But probably they might...in paper.
    Regardless of where you put Company Use, it will still be charged to the consumer. That's how utility business is run. Unless ERC provides incentive for utilities to lower their office consumption. This is quite long, but I hope this helps.
  • Edwin, my privilege. Thanks for writing on the web. Need more engineers here.
  • Head, Wind, Canoe
    Sir,

    Thank you for reading my blogs.

    Head, Wind, Canoe
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