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President Ferdinand Marcos Jr.’s SONA pledge to remove system loss charges from electricity bills has ignited a push for legislative reform, with senators filing measures and House leaders backing the proposal. However, the move has also drawn criticism from industry groups and energy experts.
Meralco Chairman Manny V. Pangilinan raised concerns over the financial impact of removing system loss charges, warning that shifting the full cost to power companies could place an unsustainable burden on the power sector.
“It’s going to impact the entire power industry in this country,” he stated. “It’s going to cost tens of billions of pesos. We will not survive.”
The Philippine Rural Electric Cooperatives Association (PHILRECA), for its part, asserted that a total ban on system loss recovery without government subsidies could leave non-profit electric cooperatives (ECs) financially vulnerable.
“System losses on rural distribution networks – arising from extended feeder lines and challenging terrain – are governed by the law of thermodynamics rather than inefficiency,” it insisted.
Bienvenido Oplas of Minimal Government Thinkers agreed that smaller ECs face the risk of service disruptions if they can no longer sustain operations. He added that even larger utilities like Meralco may survive, but their ability to invest in critical upgrades, such as stronger poles and improved facilities, could be compromised, potentially affecting the quality and reliability of power distribution.
“It’s not advisable to remove the system loss charge,” he declared in Filipino.
System loss refers to the electricity lost before it reaches consumers, with the cost recovered through a charge reflected in power bills. These losses are classified as either technical or non-technical. Technical losses occur naturally as electricity travels through power lines, transformers, and other equipment due to resistance, aging, or inefficiencies.
On the other hand, non-technical losses result from human-related factors such as electricity theft, illegal connections, and meter issues. While these can be reduced through enforcement and system improvements, experts point out they make up only a smaller share of total losses.
“The majority of the losses are technical, resulting from resistance in power lines and transformers or, in short, they are a function of science,” explained The Philippine Star’s Iris Gonzales.
(Also read: DOE Plans Regulatory Framework As Pax Silica’s Power Needs Draw Scrutiny)
System Losses Among ECs and Private DUs
The Energy Regulatory Commission (ERC) imposes caps on the amount of system losses that distribution utilities (DUs) can recover from consumers. Private DUs are allowed to pass on up to 6.5% in system loss charges, while electric cooperatives (ECs) have higher allowable limits of around 12% to 13%. However, some provincial ECs have reported system loss rates exceeding these thresholds, with losses reaching as high as 16%.
Jake Maderazo of the Philippine Daily Inquirer wrote about the power situation in his hometown of Eastern Samar, pointing to aging infrastructure as a key driver of system losses among ECs. He noted that outdated wires, transformers, and substations require upgrades, but insufficient investments in repairs and modernization have allowed inefficiencies to persist, contributing to higher electricity costs.
Maderazo also cited NEA findings that unpaid electricity bills by some local officials in areas such as BARMM and Central Luzon have added financial pressure on ECs, with the costs eventually passed on to consumers through system loss charges.
“The incentive to repair, upgrade, and improve is thereby lower for those who actually need it the most,” he wrote. “In other words, system loss is one way of covering for an inefficient electric cooperative’s incompetence and inefficiency.”
After PHILRECA flagged the removal of system loss charges and the 12% VAT on consumers’ electricity bills, it argued that additional government subsidies would be needed to keep cooperatives financially viable.
“Should the government choose not to shoulder these costs, we move for a comprehensive and holistic review on the total prohibition and urge Congress to instead adopt a performance-driven transition model with customized, feeder-specific technical loss caps set by the ERC alongside government-backed funding for grid upgrades and anti-pilferage enforcement,” the group said.
But Maderazo noted that shifting the cost to government subsidies would only transfer the burden from electricity consumers to taxpayers. Funding would ultimately come from higher taxes, additional borrowing, or reduced public spending. “Plainly said, it’s still the people who will shoulder the burden,” he stated.
Meanwhile, the Department of Energy (DOE) is focusing on reducing actual system losses by upgrading the ECs’ aging distribution infrastructure, while addressing non-technical losses such as electricity theft. DOE Undersecretary Rowena Cristina Guevara said the agency is looking to work with the NEA to expand access to long-term financing that would allow cooperatives to modernize their systems.
To lessen the burden on taxpayers, Guevara explained that the NEA’s soft loan program could be strengthened through funding partnerships with private banks and multilateral development institutions.
However, even with available funding options, some ECs have continued to lag in infrastructure spending. A study by the Institute for Contemporary Economics (ICE) found that seven ECs in Panay and Guimaras disbursed only ₱2.38 billion of their ₱10.52 billion programmed capital expenditure budget for 2022 to 2024. Much of the spending went to routine maintenance rather than major upgrades, leaving critical needs such as modernized substations, distribution lines, and protection systems largely unaddressed.
Lack of Capital or Poor Management?
ECs said low capital expenditure (Capex) spending among their members stems from delays in fund access and deployment. According to PHILRECA, ECs face stricter oversight compared with private utilities, with major projects such as substations and advanced metering systems requiring regulatory approval before implementation. It argued that these processes can slow modernization efforts and limit cooperatives’ ability to improve their networks.
“Without official approval, ECs are legally prohibited from utilizing capital funds to support modernization without facing severe penalties, which, in turn, will further strain their limited cash flows,” stated the organization. “Based on PHILRECA’s records, 107 applications from 62 ECs filed between 2011 and 2023 are still under evaluation by the ERC.”
However, Oplas highlighted that ECs are hardly underfunded by taxpayers. “The National Electrification Administration (NEA) receives about ₱14 billion annually, including around ₱2 billion in loans extended to electric cooperatives,” he explained. “As a result, I believe some ECs are not paying their obligations, relying instead on bailouts because they are protected and pampered by the NEA.”
Some observers have also linked the financial struggles of certain ECs to governance issues. These concerns include the misuse of cooperative funds, questionable procurement practices, favoritism in awarding contracts, and excessive compensation packages for some officials, which weaken the financial position of cooperatives and limit resources available for system improvements.
“It’s time for regulators such as the Energy Regulatory Commission and the National Electrification Administration to really crack the whip on erring cooperatives, which for years have been bogged down by corruption,” wrote Gonzales.
Reducing the country’s power problem solely to regulatory bottlenecks, generation shortages, transmission inflation and fiscal hurdles presents a distorted view of the energy landscape.
(Also read: ACEN Eyes Renewable Energy Role In Powering Planned Pax Silica AI Hub)
Is System Loss the Real Problem?
The Electric Power Industry Reform Act (EPIRA) allows DUs to recover system losses from consumers, adding a charge that can make up roughly 5% to 10% of power bills, depending on location, despite the lost electricity never being consumed.
“System loss by itself is an accepted reality in the power industry,” emphasized The Philippine Star’s Boo Chanco. “It is a physics-based operational cost of delivering electricity, which regulators treat as an allowable pass-through expense required to keep the utility financially viable.”
But Chanco highlighted that system loss is not the main driver behind surging electricity prices, pointing instead to higher imported fuel costs and supply constraints in a market-driven power system under EPIRA. He added that government-mandated charges and legacy costs, including support for rural electrification, renewable energy incentives, and past National Power Corporation (Napocor) obligations, should be absorbed by the government instead of consumers.
Oplas argued that a more effective reform would be opening the sector to greater private DU participation to reduce system losses and enhance reliability. He said private firms could take over or partner with inefficient ECs through corporate arrangements, while being regulated by the Securities and Exchange Commission (SEC) instead of the NEA. He stressed that these entities should not be entitled to taxpayer-funded subsidies or government bailout loans.
“The most expensive electricity is no electricity, in other words, blackouts,” he concluded.
Sources:
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://www.philstar.com/opinion/2026/08/04/2546762/electric-coops
https://www.youtube.com/live/jum-6qkYEvk?si=TNMuKLFC-P6ggRSx
https://newsinfo.inquirer.net/2273969/scrapping-system-loss-charge-too-big-a-cost-for-industry-mvp
https://www.dailyguardian.com.ph/panay-power-grid-at-risk-due-to-underinvestment-by-electric-coopsys
https://www.philstar.com/business/2026/08/03/2546504/system-loss-charge