ERC Targets ₱6-B Consumer Savings With Proposed System Loss VAT Removal
- August 14, 2026
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The Energy Regulatory Commission (ERC) is moving to remove the 12% value-added tax (VAT) imposed on electricity system loss charges, a measure that could save Filipino consumers an estimated ₱6 billion annually as the government weighs expanded reforms on how power losses are recovered.
The ERC said it has drafted a resolution amending existing rules to classify system loss charges as government-mandated pass-through costs that should not be included in the gross receipts of generation companies, the National Grid Corporation of the Philippines (NGCP), and distribution utilities (DUs) for VAT purposes.
The proposal still needs to go through public consultation and coordination with the Bureau of Internal Revenue (BIR). The ERC said it expects to finalize the measure by the first week of September, with corresponding BIR guidance expected around the same period.
The commission said the move responds to President Ferdinand Marcos Jr.’s call in his State of the Nation Address to reduce electricity costs and eliminate charges that do not correspond to services actually delivered to consumers.
Removing A Layer Of Charges
System loss refers to electricity that is generated and paid for but is lost before reaching end-users. Some losses are technical, occurring naturally as electricity moves through transmission and distribution equipment, while nontechnical losses may result from theft, inaccurate metering or electricity consumption that is not properly recorded.
Under the current system, consumers shoulder the cost of recoverable system losses through their electricity bills and also pay VAT on the corresponding charge.
“System loss is electricity that consumers pay for but never receive,” ERC Chairperson and CEO Francis Saturnino Juan said, arguing that imposing VAT on top of the charge adds another layer to the burden.
The ERC’s proposed resolution would effectively remove that VAT once finalized and confirmed by the BIR. Written comments on the proposal are due by August 18, while the public consultation is scheduled for August 25.
Juan said the measure would provide an immediate form of relief while the commission continues to examine more fundamental changes to system loss rules.
System Loss Reform
The ERC is also considering whether utilities should continue passing system loss costs on to consumers at current levels.
Juan said the commission is studying several options, including completely removing system loss recovery, phasing it out, eliminating recovery only for nontechnical losses, or reducing the existing caps that determine how much utilities can charge customers.
The discussions could significantly affect major distribution utilities such as Manila Electric Co. (Meralco), but Juan stressed that shifting the burden to utilities would have to be accompanied by changes in rate-setting rules.
If utilities are required to absorb costs they currently recover from consumers, the ERC may need to recognize additional capital expenditures and other expenses necessary to reduce losses and maintain operations.
The issue is therefore a balancing act: regulators want utilities to have stronger incentives to improve efficiency, but they also need to ensure that distributors remain financially capable of investing in their networks.
Energy Secretary Sharon Garin has said consumers should not continue shouldering avoidable losses and has directed distribution utilities, including Meralco, to submit proposals for reducing or eliminating system losses in their respective areas.
Financial Risks On Cooperatives
The impact could be particularly significant for electric cooperatives, many of which have less financial capacity than large private utilities.
The National Electrification Administration (NEA) estimates that requiring cooperatives to absorb system loss costs could push dozens into financial losses. If recoverable nontechnical losses were reduced by 25%, 62 of the country’s 121 electric cooperatives could be affected. A 50% reduction could put 71 cooperatives in the red, while eliminating recovery altogether could affect as many as 89.
NEA has proposed loans to help cooperatives finance measures such as improved metering. It estimates financing requirements of ₱3.5 billion for a 25% reduction in recoverable nontechnical losses, ₱5.5 billion for a 50% cut, and ₱10 billion if recovery were eliminated entirely.
The agency stressed that the proposed assistance would be in the form of repayable loans rather than subsidies.
NEA also pointed to the experience of Zamboanga City Electric Cooperative, which reduced its system loss rate from about 20% in January to roughly 13% in July after interventions involving metering and collection improvements.
Meanwhile, Meralco’s long-pending rate reset remains under ERC review. Juan said the commission’s staff are still evaluating the utility’s submissions, with deliberations that had been targeted for August potentially moving to September. Any rate adjustments arising from future changes to system loss rules would not be included in the current reset.
For now, the VAT removal remains the clearest near-term measure. The question of who should ultimately pay for system losses, and how utilities will finance efforts to reduce them, remains under discussion.
Source:
https://www.rappler.com/business/meralco-system-loss-energy-regulatory-commission
