Meralco and the Juday TV Ad

I got this email from a friend and I though this is a very good analysis of the Juday’s ad about Meralco’s Sytem Loss.

by Resti Reyes

I normally shy away from political issues such as the ongoing war between the Lopezes and Meralco on the one hand and the GSIS and the government on the other. But this issue has crossed over into the media battlefield. That makes it now a media issue that can be covered openly by other media. I have friends in ABS-CBN, and if I am to be a true friend to them, I owe it to them to point out the mistakes their camp is making on this issue. And as a media entity, they need to realize the consequences when they allow themselves (and their stars) to be used as pawns by their sister companies to fight their battles for them.

There is also the issue of truth in advertising, and if some of the comments are to be believed, then this TV ad should never have gotten approval from the AdBoard, or the Advertising Standards Council (ASC), the new advertising industry body tasked with clearing TV commercials prior to production and airing. Should a Cease-and-Desist Order be issued? Let us see…

The trigger for this article, along with dozens of other media write-ups and broadcast news features is the recently launched television commercial where popular local actress Judy Ann Santos (Juday) talks about Meralco’s system losses and compares them to the loss suffered by an ordinary consumer who buys ice, when part of the ice that they have purchased melts as the consumer brings the merchandise home from the store. Nothing of course could be further from the truth, hence the enormous negative feedback from those TV ads. The negative feedback was so loud that the Meralco camp had to respond to it in their newspaper ads. When you are running print ads to explain your TV ads, then there is obviously something wrong with how you did the TV ads in the first place.

First, let’s take a look at the comparison more closely. What’s wrong with comparing ice to electricity? We are all familiar with ice as a commodity that gets very popular during the summer months and on long weekends when many of us pack coolers as we drive out of town. Like most products, it is produced or manufactured at a plant, inventoried and distributed to retail outlets, and finally, sold to end-users.

Was Juday correct in asserting that the melted ice is part of what is called system losses? The correct answer is NO. The ice that melts after it is purchased by the consumer is NOT part of system losses. The consumer is not being asked to pay for it separately on top of what he has paid for the merchandise at the time of the purchase. But it is an accepted part of the purchase decision when the consumer makes the decision to buy the product. It is a loss borne by the consumer after the purchase. I would call it product deterioration or value erosion, not system loss. A comparable product would be fabric that one buys for a pair of pants. One knows that there will be wasted material when the tailor cuts up the fabric to create the pants. It is a loss that comes AFTER the purchase. It is also similar to product losses when bread goes stale before it is consumed or rice that gets eaten by mice before it gets cooked.

There is no such equivalent when talking about electricity, unless one counts the wasted electric power when we forget to turn off the lights in an empty room. Or the little electricity that dissipates when we keep appliances plugged in even though they are not in use — very typical of television sets that are on permanent standby, waiting for a remote control button to be pressed. Product deterioration in electricity occurs only when we get voltage fluctuations, but we don’t pay for that because if the power fluctuates, then it slows down our electric meters. We will pay less as less power goes into our homes.

Are there other, more suitable bases for comparison? In one of the newscasts, a lawmaker used a different comparison: when we go to a photocopy shop and asked for something to be photocopied, and we get a blurry output, we don’t pay for that, right? Instead, the operator cranks out another copy, and another copy, until he gets it right, and we are happy with what we are getting. We only pay for the good copy. All the other copies are spoiled copies. In that example, the operator absorbs all the losses from the unsatisfactory output of his photocopying machine. That is his equivalent of system loss.

Let’s go back to the system loss in the Juday TVC. Where exactly does system loss occur? In the case of ice, it is in the melting away of the inventory as the merchandise leaves the plant and travels to the retail outlet. The amount of ice that melts while in transit is calculated and factored into the retail price of the ice. This system loss is paid for by the consumer at the time of the purchase whether he is aware of it or not. To be fair, we must acknowledge that there are system losses in almost all industries. We have unsold seats on airline flights, and unsold airtime slots on top-rating TV programs, poor printing quality on some newspaper copies, expired medicines, and spoiled merchandise in the food industry. In all these cases, the expected spoilage is calculated ahead and factored into the price charged to the consumer. We don’t pay for the empty seats beside us in an airplane, do we? Yet we can use them as parking space for our carry-on bags and other items.

What about electric power? Electricity is unique. There is no other commodity like it. For one, it cannot be stored or inventoried, which means it has to be produced only at the very instant there is demand for it, at the right volume and the right moment. This creates extraordinary challenges for the producer or manufacturer. The investment goes into capacity-building infrastructures that are on permanent standby when not in actual use. Next, it has to have an exclusive distribution system, a facility that again demands huge infrastructure investments. All those giant transmission towers and expensive cables cost a lot of money, and you cannot use them for anything else. After electric power undergoes transmission (via TRANSCO) from the power-generating plant, it goes to the distributors like Meralco and rural electric cooperatives, finally reaching the end-user when it goes into a household and powers up appliances and light bulbs.

System losses in the power sector covers electricity that is dissipated as the power travels over cables from the power plant to the home, because it takes energy for the electricity to travel over great distances, as power plants are typically located quite far from urban areas. These losses are easily monitored and are lawfully added on to our bills. That part of the Juday ad is true and correct. What system losses do not and should not include are pilferages and the power consumption of the offices of the electric utility companies like Meralco. And that is what gets Winston Garcia of GSIS and Rep Edcel Lagman so riled up.

To illustrate: if a sari-sari store bought 10 bags of ice from a dealer at P8.00 each, and by the end of the day had sold all of them at P10.00 each, the retailer gets a good return on his investment, P80 becomes P100. But if some of the ice had melted, and he only gets to sell 9 bags, he cannot charge the customer P100 if he only has 9 bags to sell. The retailer suffers the system loss internally, and his profits shrink to P10 instead of P20. But then he obviously had already factored in that system loss into his retail price.

From what we can glean given the various print ads, press statements and other media exposures seen against and in favor of Meralco, it appears that what Meralco is doing is similar to asking us to pay for 10 bags of ice even when they only delivered 9. What’s worse is that there are insinuations that we are getting only the equivalent of 7 bags because 1 bag got pilfered and another bag was used to cool the drinks at Meralco’s offices