DOE Charts Path To Abolish System Loss Charges By 2027
- August 3, 2026
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The government expects it will take about a year to fully remove the system loss charge from consumers’ electricity bills, with the Department of Energy (DOE) saying legislative amendments, infrastructure upgrades, and stricter measures against electricity theft must first be completed before the policy can be fully implemented.
Energy Secretary Sharon Garin said the administration is targeting full implementation before President Ferdinand R. Marcos Jr. delivers his next State of the Nation Address (SONA) in 2027. While work on the proposal will begin immediately through coordination with the Energy Regulatory Commission (ERC) and the National Electrification Administration (NEA), she acknowledged that transitioning away from the decades-old charging mechanism would require significant preparation.
“It’s not that easy. We can issue policies but the implementation side of the electric cooperatives… it will really take time,” Garin said during a media briefing.
The initiative follows President Marcos’ call in his fifth SONA for Congress to amend the Electric Power Industry Reform Act (EPIRA) of 2001 to prohibit distribution utilities from passing system loss charges, including the value-added tax (VAT) imposed on those charges, to electricity consumers.
“Hindi naman kasalanan ng consumer kung bakit nagkaroon ng system loss” (It is not the consumer’s fault that a system loss occurred), the President said, arguing that households should only pay for electricity they actually consume.
Preparing Utilities For The Transition
The DOE said it will work with regulators to assess the country’s more than 100 electric cooperatives and private distribution utilities to determine the investments needed to reduce recoverable system losses.
Garin said the government wants utilities to absorb losses arising from inefficiency and electricity pilferage instead of passing these costs on to consumers.
“Because the inefficiency of an electric cooperative or distribution utility should not be compensated for by the people who pay for electricity,” she said.
System loss refers to the difference between the amount of electricity entering a distribution network and the electricity ultimately billed to customers. It includes technical losses caused by resistance in power lines, transformers and aging equipment, as well as nontechnical losses resulting from illegal connections, electricity theft, defective meters and billing errors.
Energy Undersecretary Mario Marasigan said electricity pilferage remains the primary source of nontechnical losses.
To reduce technical losses, many electric cooperatives would need to modernize power lines, substations, transformers and metering systems. These capital investments would still require ERC approval.
Once the reform is fully implemented, the DOE estimates consumers could see electricity bills decline by about 5% to 10%, depending on their distribution utility.
Industry Raises Sustainability Concerns
While supporting discussions on EPIRA amendments, power industry stakeholders cautioned that eliminating system loss charges raises questions about how unavoidable operating costs would be recovered.
Meralco Chairman and Chief Executive Officer Manuel V. Pangilinan said technical losses are an inherent part of electricity distribution because power naturally dissipates as it travels through transmission and distribution lines.
“It is not a question of inefficiency, it’s just the way it is. The real question is who bears the cost?” Pangilinan said.
He warned that requiring utilities to absorb all system losses without an alternative recovery mechanism could have severe financial consequences.
“If we were to say January 1, no more system losses, then that’s telling us to eat the losses arising from the system losses within our network… Who’s going to pay for that? The industry? It’s going to cost tens of billions of pesos. We will not survive,” he said.
Meralco Senior Vice President and Head of Regulatory Management Jose Ronald Valles said the company would participate in the legislative process but could not yet assess the proposal’s operational impact until lawmakers release a draft amendment.
Earlier, Meralco Executive Vice President and Chief Operating Officer Ronnie L. Aperocho said the utility respects the administration’s policy direction and remains committed to participating in discussions on the proposed reforms. He noted that Meralco has consistently kept its system loss rate below the ERC’s allowable cap through investments in network modernization, system loss management and operational efficiency.
Meralco reported a system loss rate of 5.72% during the first quarter of 2026, below the ERC’s 6.5% ceiling. The company also maintained that it does not earn from system loss charges, explaining that the collections are remitted to electricity suppliers and the National Grid Corporation of the Philippines.
The Philippine Rural Electric Cooperatives Association (PHILRECA), which represents 121 electric cooperatives, said it could support the removal of system loss charges only if the national government provides a dedicated subsidy to cover unavoidable technical losses.
The group warned that prohibiting cost recovery without financial assistance could jeopardize the operations of nonprofit electric cooperatives, particularly those serving remote areas with long distribution lines and difficult terrain. It instead proposed a performance-based transition that includes customized technical loss caps, government funding for grid upgrades and stronger anti-electricity theft enforcement.
Consumer Groups Seek Bigger Changes
Consumer organizations welcomed the proposal but said it addresses only one component of high electricity prices.
Power4People Coalition convenor Gerry Arances described the planned removal of system loss charges as a positive step but stressed that generation charges remain the largest contributor to electricity bills. He said the country’s continued dependence on imported coal and liquefied natural gas keeps electricity prices elevated and exposes consumers to volatile global fuel costs.
Center for Energy Research and Policy co-convenor Noel M. Baga likewise said eliminating both the system loss charge and its corresponding VAT would directly lower household electricity expenses, noting that Philippine residential electricity rates remain among the highest in Asia.
Meanwhile, IBON Foundation Executive Director Jose Enrique “Sonny” Africa said reforms to EPIRA should also address the broader structural issues that contribute to high power prices instead of focusing solely on a relatively small component of consumers’ monthly bills.
Consumer watchdog Consuma PH also called on the government to release a clear implementation roadmap and ensure utilities do not recover foregone revenues through other charges or by reducing investments in their networks.
For now, the DOE maintains that the administration’s objective is to protect consumers without undermining the financial viability of power distributors. Achieving that balance, officials said, will require changes to the law, investments in modernizing aging power infrastructure and a carefully managed transition before consumers experience the full benefit of lower electricity bills.
Source:
https://newsinfo.inquirer.net/2273078/doe-scrapping-system-loss-charge-may-take-a-year
