System Loss Charges: What Are They, and Was the President Right to Call for Their Removal?
- August 5, 2026
Table of Contents
President Ferdinand R. Marcos Jr. called for the removal of system loss charges from electricity bills during his fifth State of the Nation Address.
Marcos argued that households should not be held responsible for electricity losses within the distribution system, especially when these charges are passed on through bills and even subjected to value-added tax (VAT). He said reducing this burden on consumers should be a priority in improving the country’s power sector.
“Therefore, we, their people, request — no, we demand the immediate amendment of the EPIRA [Electric Power Industry Reform Act] and to prohibit charging systems loss against consumers, including the value-added tax thereon,” he declared.
Members of Congress responded to the proposal with a standing ovation.
The EPIRA, or Republic Act No. 9136, transformed the Philippine power sector in 2001 by restructuring the industry into four key segments: generation, transmission, distribution, and supply. The law also allowed distribution utilities (DUs) to recover a portion of system losses from consumers through a charge included in monthly electricity bills.
(Also read: Competition Heats Up For Meralco’s 600-MW Supply Contract)
What is System Loss?
System loss refers to the gap between the electricity supplied into the distribution network and the amount of power actually delivered and billed to consumers. As electricity travels from power plants to homes and businesses, some energy is inevitably lost due to factors within the power system.
These losses may come from technical issues, such as heat generated by electricity moving through power lines, transformer operations, and aging equipment. They can also result from non-technical causes, including illegal connections, electricity theft, faulty meters, and billing errors.
The Energy Regulatory Commission (ERC) sets limits on how much system loss DUs can recover from consumers. Under existing guidelines, private DUs are allowed to pass on up to 6.5% in system loss charges, while electric cooperatives (ECs) have a higher cap of around 12% to 13%. Despite these limits, some ECs in the provinces have reported system losses reaching as high as 16%, fueling calls for greater efficiency and accountability among cooperatives.
For customers of Meralco, system loss charges make up roughly 5% of monthly electricity bills. The utility reported a system loss rate of 5.72% in the first quarter of 2026, remaining within the ERC limit.
Support for the Removal of System Loss Charges
The Power for People Coalition welcomed the proposed removal of system loss charges, saying it responds to long-standing consumer calls to eliminate what the group considers “unfair charges” included in monthly bills.
Marcos’ push to remove system loss charges also sparked legislative moves. Senate Energy Committee Chair Erwin Tulfo filed a resolution seeking a review of the practice of passing these costs to consumers, while also introducing measures to remove or exempt system loss charges from the 12% VAT.
Meanwhile, Senator JV Ejercito separately filed bills seeking to prohibit DUS and ECs from charging consumers for system losses. His proposals also aim to remove the VAT imposed on electricity-related charges. Senate President Sherwin Gatchalian also filed Senate Bill No. 2350, or the proposed System Loss Charge Abolition Act.
House leaders expressed support for President Marcos’ call. Speaker Faustino Dy emphasized the importance of addressing power-related expenses, particularly as global pressures continue to affect prices of goods and services.
The House Committee on Energy also committed to advancing discussions on possible amendments, with panel chair Rep. Jose Alvarez vowing to ensure the measure undergoes proper deliberation. Deputy Majority Leader Rep. Jose “Bong” Teves Jr. backed the proposal, arguing that consumers should not shoulder costs linked to power providers’ operational losses.
Concerns over the Proposal
Meralco Chairman Manuel V. Pangilinan cautioned that requiring DUs to absorb all system losses could have far-reaching consequences for the power sector. He noted that the financial burden would be too significant for the industry to shoulder on its own, saying the proposal could undermine the viability of power utilities if implemented without broader policy discussions.
“It’s going to cost tens of billions of pesos,” emphasized Pangilinan. “We will not survive.”
Meralco previously stated that system losses are an inherent part of electricity distribution and are experienced across the power sector, rather than being an issue specific to any single utility.
According to the Daily Tribune, Marcos’ call to abolish system loss charges was not included in the advance copy of his SONA distributed to the media, indicating the proposal may have been added shortly before he delivered the speech.
Bienvenido Oplas, founder and president of Minimal Government Thinkers, argued that eliminating system loss charges would not remove the cost but merely shift it elsewhere, adding that the government could end up absorbing the expense through the national budget.
“That will increase our budget deficit, raise borrowing and increase interest payments,” he pointed out. “A better approach would be to keep the system loss charge and find other ways to address the issue.”
Oplas also explained most system losses stem from technical factors that are unavoidable in electricity transmission. As power travels through transmission and distribution lines, some energy is naturally lost due to electrical resistance, with these technical losses accounting for roughly 70% of total system losses. The bulk of system losses are inherent to the operation of the power system, making their complete removal unrealistic.
“If we remove the system loss charge — which is about 27 centavos per kilowatt-hour — and bring it down to zero, that 27 centavos has to come from somewhere else. It will very likely come from taxes,” stated Oplas. “That is not good.”
Echoing this view, economist and former Philippine Economic Society President Alexander Escucha warned that removing system loss charges may not eliminate the cost but instead shift it to taxpayers. He said ECs could face financial strain if they are no longer allowed to recover system losses and the corresponding 12% VAT from consumers.
As a result, financially challenged ECs may eventually seek larger subsidies from the National Electrification Administration (NEA), which supports rural power distributors. Since these subsidies are funded through the national budget, the burden could ultimately be transferred to taxpayers.
“In short, we’ll still be the ones paying for it,” he warned in Filipino.
(Also read: Renewables Are Rising. How will the Philippines Keep Power Affordable)
Searching for a Balanced Solution
The DOE is reviewing possible reforms to the system loss charge, but Energy Undersecretary Rowena Cristina Guevara said the government is prioritizing measures to reduce actual system losses by improving aging distribution infrastructure, especially among ECs, while also addressing non-technical losses such as electricity theft.
“At the end of the day, when technical system loss is improved and if we can remove or minimize non-technical system loss, only one thing is expected to happen, and that is the lowering of power rates. And that is the bottom line,” said Guevara.
Additionally, DOE Secretary Sharon S. Garin noted that the agency is working on immediate measures to improve the system loss framework while broader amendments to the EPIRA are being considered. She said the agency will first assess non-technical losses and continue supporting legislative and regulatory reforms aimed at addressing system loss charges.
While the Philippine Rural Electric Cooperatives Association (PHILRECA) backed the removal of VAT on system loss charges, it cautioned against eliminating the fee without a government subsidy to support ECs. The group pointed out that technical system losses are an unavoidable part of delivering power, especially in remote areas served by ECs. It urged lawmakers and tax authorities to pursue broader tax relief measures, stressing that VAT reforms should provide “real tax relief, not a hidden cost transfer.”
Meanwhile, Oplas pointed to Singapore’s lower Goods and Services Tax (GST) rates in previous years, noting that the Philippines’ 12% VAT remains higher. He proposed reducing VAT to 8% and temporarily suspending excise taxes on energy products, saying these measures could help ease costs not only in the power sector but also in transportation, agriculture, and other fuel-dependent industries.
Ultimately, Oplas maintained that the bigger issue behind high electricity prices is the country’s limited power supply, which has struggled to keep pace with demand. He cited the Philippines’ annual generation growth of only about 5 terawatt-hours (TWh), compared with Vietnam’s 16 TWh, or more than three times higher.
“We should be energy-agnostic and avoid energy favoritism,” he asserted. “Let’s focus on increasing generation capacity, rather than targeting a 35% renewable energy share. The total terawatt-hours generated matter more than the percentage of renewable energy in the mix.”
Sources:
https://newsinfo.inquirer.net/2271668/marcos-wants-system-loss-charges-scrapped
https://newsinfo.inquirer.net/2273969/scrapping-system-loss-charge-too-big-a-cost-for-industry-mvp
https://newsinfo.inquirer.net/2273078/doe-scrapping-system-loss-charge-may-take-a-year
https://tribune.net.ph/2026/07/29/system-loss-vow-draws-fire
https://newsinfo.inquirer.net/2275267/lawmaker-backs-scrapping-of-system-loss-charges
https://www.youtube.com/live/jum-6qkYEvk?si=TNMuKLFC-P6ggRSx
