The Real Power Problem Isn’t System Loss—It’s Inefficiency
- August 12, 2026
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President Ferdinand Marcos Jr.’s call to abolish system losses, which drew enthusiastic support from consumers, has put the issue at the center of public debate in recent weeks. But experts say a deeper understanding of system losses is needed to explain why scrapping the charge may not be practical or grounded in sound industry principles.
In a recent BusinessWorld article, former Energy Regulatory Commission (ERC) Chairperson Monalisa Dimalanta and Asian Institute of Management (AIM) professor Ricardo Barcelona explained system losses are an unavoidable part of electricity delivery. Power is consumed at various stages, from generation and grid operations to network equipment and transmission, before it ultimately reaches consumers.
While technical losses in power generation are generally modest, losses tend to rise as electricity moves through transmission and distribution networks. Experts said the level largely depends on how efficiently networks are operated and maintained, with well-run urban systems recording lower losses than poorly managed ones.
“The decisive distinction is between efficient technical losses and avoidable commercial losses,” wrote Dimalanta and Barcelona. “Efficient technical losses are a legitimate cost of reliable supply; commercial losses from theft, weak collection, or governance failure are operational failures and should not receive automatic cost recovery through power pricing.”
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System Losses: A Measure of Distribution Efficiency
According to Minimal Government Thinkers Bienvenido Oplas, technical losses account for about 70% of total system losses, while the remainder is attributed to non-technical losses such as electricity pilferage and illegal connections.
“System losses in the Philippine power sector are not merely a billing issue; they are a test of whether regulation disciplines inefficient operators or allows the cost of weak governance, theft, and operational neglect to be passed on to consumers,” highlighted the article.
Consumers should pay only for reasonable, benchmarked technical losses that are inherent to electricity delivery. Avoidable losses caused by theft, poor management, or weak operations should instead be shouldered by utilities and operators, creating stronger incentives for efficiency, accountability, and investment.
Additionally, system losses can reveal how well a utility maintains its network and controls avoidable losses. Philippine Star columnist Boo Chanco noted that upgrading equipment, strengthening monitoring, and using digital tools can help utilities reduce system losses and improve efficiency.
“Smart grids cross-reference the exact amount of electricity sent into a local neighborhood line with real-time consumption data of the homes on that line,” he pointed out. “If there is a discrepancy, the utility instantly pinpoints the location of an illegal connection. Meralco and MORE in Iloilo City are using these facilities.”
The ERC sets a limit on how much of these losses distribution utilities can charge to consumers. Private distribution utilities (DUs) can recover up to 6.5%, while electric cooperatives (ECs) are allowed higher limits of about 12% to 13%.
Even the most efficient power systems experience some electricity losses as power moves through transmission and distribution networks. In Asia, Japan, South Korea and Singapore are among the most efficient, while Malaysia, Thailand, Indonesia and Vietnam generally post losses of 6% to 8%. Less efficient systems can record significantly higher levels, with Cambodia at about 12%.
According to Alex Escucha, president of the Institute for Economic Development and Econometric Analysis (IDEA), Meralco’s system loss rate is relatively low by international standards, based on his review of its October 2025 and July 2026 bills. He said the bigger concern lies with some of the country’s 121 ECs, where system losses vary widely.
“To be fair, there are there are some electric cooperatives who are efficient enough to meet the… cap on system losses, but on the other hand, there are also struggling cooperatives, whose losses range from 16% to 39%,” he said. “These are the ones that should be really reviewed.”
Meanwhile, Jake Maderazo of the Philippine Daily Inquirer linked high system losses in ECs to aging infrastructure. Outdated lines, transformers and substations need investment, but delayed upgrades can leave inefficiencies unresolved. He also cited the National Electrification Administration’s (NEA) findings on unpaid electricity bills by some local officials in BARMM and Central Luzon, saying these financial gaps can ultimately add to costs passed on to consumers.
“The incentive to repair, upgrade, and improve is thereby lower for those who actually need it the most,” he stressed. “In other words, system loss is one way of covering for an inefficient electric cooperative’s incompetence and inefficiency.”
For Dindo Manhit of BusinessWorld, private DUs and ECs should face the same expectations for efficiency, performance and accountability. “Any differentiated treatment should have a clear basis and should be justified by transparent technical considerations.” Because ECs are funded by taxpayers, they should face the same level of scrutiny and accountability expected of private utilities.
Government support for ECs has remained substantial. NEA reported ₱3.028 billion in subsidy releases to 90 ECs in 2024, while the Department of Budget and Management (DBM) released more than ₱3.627 billion for NEA’s rural electrification program implemented by ECs in 2025. For 2026, the national budget allocated ₱9.9 billion to the same program.
Such cases have cast system losses in a negative light. “The issue is not that electricity networks incur losses; efficient technical losses are unavoidable,” wrote Dimalanta and Barcelona. “The policy failure occurs when avoidable commercial losses are treated as recoverable costs rather than as evidence of weak operations, enforcement, or governance.”
They further noted that a blanket ban on system-loss charges could reduce one item on consumers’ bills without necessarily lowering the overall cost of electricity. A better approach is to set reasonable benchmarks, allow recovery of legitimate operating costs, and prevent utilities from passing avoidable losses on to consumers.
The Management Association of the Philippines (MAP) has similarly called for tighter system-loss caps based on technical data and international benchmarks, along with performance targets for private DUs and ECs. It also urged stronger action against theft, inaccurate metering, and other sources of avoidable losses.
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Target Inefficiency, Not System Loss
Abolishing system-loss charges may sound like an easy way to bring down electricity bills, but it does not make the underlying cost of delivering power disappear. Some losses will remain part of the grid, regardless of how efficient the system becomes. The more useful question is who should bear the cost when losses go beyond what is reasonably expected.
That puts the focus where it belongs: on performance. Utilities should have to meet clear, realistic benchmarks and show that they are investing in better equipment, accurate metering, collection and loss prevention. Where losses remain unusually high, regulators should have the tools to demand improvements rather than allowing the burden to quietly fall on consumers.
For consumers, the goal should not simply be to erase “system loss” from the bill. It should be to ensure they are not paying for waste that could have been prevented. For utilities, the message should be equally clear: efficiency cannot be optional when customers have no choice but to rely on their networks.
System losses cannot realistically be abolished. But avoidable losses can be reduced, and the costs of inefficiency can be made harder to pass on. That is where meaningful reform can deliver savings without creating another cost somewhere else.
Sources:
https://tribune.net.ph/2026/07/29/system-loss-vow-draws-fire
https://www.faceb ook.com/reel/1911886266153981
https://bworldonline.com/opinion/2026/08/05/768044/the-real-cost-of-mishandling-system-loss/
https://mb.com.ph/2026/08/03/scrapping-system-loss-why-that-sona-promise-may-never-happen
https://nea.gov.ph/wp-content/uploads/2025/09/NEA-2024-Annual-Report_compressed-2.pdf
https://mb.com.ph/2026/08/07/map-overhaul-power-billing-rules-tighten-system-loss-limits
https://www.philstar.com/business/2026/08/03/2546504/system-loss-charge
