MANILA, Philippines — President Ferdinand Marcos Jr. called for the removal of system loss charges from electricity bills, a proposal that won support in Congress but drew concern from power utilities, which warned it could undermine the industry’s financial stability.
System loss refers to the difference between the electricity that enters a utility’s distribution network and the amount measured and billed to customers. It includes technical losses, such as electricity dissipated as heat in power lines and transformers, and nontechnical losses caused by electricity theft, illegal connections, meter inaccuracies and billing errors.
Under current law, distribution utilities may recover a portion of those costs through a separate line item on customers’ monthly bills. The Energy Regulatory Commission caps recoverable system losses at about 6.5 percent for private utilities, including Manila Electric Co., or Meralco, and generally 12 percent or higher for rural electric cooperatives. Utilities must absorb losses that exceed those limits.
For a typical Meralco residential customer, the system loss charge accounts for about 5% of the monthly bill and is subject to a 12 percent value-added tax. Utilities describe the charge as a pass-through cost for electricity they purchased but were unable to bill.
In his July 27 State of the Nation Address, Marcos urged Congress to amend the Electric Power Industry Reform Act of 2001, or EPIRA, to prohibit utilities from passing system loss charges and the associated value-added tax to consumers.
“It is not the fault of the consumer why there is system loss. So it is not right that they are the ones to pay for it,” Marcos said.
The proposal has received backing from the Department of Energy and the Energy Regulatory Commission amid longstanding concerns over the Philippines’ high electricity rates compared with other Southeast Asian countries. Several lawmakers have also filed bills seeking to reduce or eliminate the charge.
Power utilities, however, said some system losses are unavoidable. Meralco Chairman Manuel V. Pangilinan said requiring utilities to absorb the entire cost could amount to “tens of billions of pesos” and warned the industry “may not survive” without a cost-recovery mechanism.
Meralco said it supports the government’s policy direction but urged lawmakers to pursue reforms that would preserve investments in grid modernization and ensure reliable service. Rural electric cooperatives said their longer distribution lines and difficult terrain make higher system losses unavoidable without government subsidies.
The proposal raises questions about who would shoulder the costs if consumers no longer pay system loss charges. Options include requiring utilities to absorb the expense through efficiency improvements, providing government subsidies or shifting the burden elsewhere in the power supply chain. Any change would require amendments to EPIRA, which currently allows limited recovery of system losses.
Consumer advocates said eliminating the charge would provide immediate financial relief to households and businesses. Critics of the current system argue it places too much of the burden on consumers while reducing incentives for utilities to minimize theft and operational inefficiencies.
Utilities counter that they have already reduced system losses through investments in technology and infrastructure and warned that requiring full absorption of the costs could eventually lead to higher base rates or reduced service quality.
The debate comes as Congress considers broader energy reforms, including proposals to expand access to rooftop solar systems.
About The Author
