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The Energy Regulatory Commission (ERC) has approved a resolution removing the 12% value-added tax (VAT) on electricity system loss charges, a move the Department of Energy (DOE) says could cut consumers’ power bills by up to 10%. The exemption will apply prospectively once the Bureau of Internal Revenue (BIR) issues its confirmatory ruling and the resolution is published.
The move follows President Ferdinand R. Marcos Jr.’s call in his late-July State of the Nation Address to scrap system loss charges and ease the burden of high electricity costs on consumers.
Under existing rules, distribution utilities (DUs) can recover only system losses within limits set by the ERC, while excess losses must be absorbed by the utilities themselves. The push to reduce these charges has also put a sharper focus on electric cooperatives (ECs) with persistently high losses and operational inefficiencies.
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High System Losses Among ECs
Private distribution utilities (DUs) generally operate under system loss caps of 5.5% to 6.5%. ECs, meanwhile, are allowed higher limits of 8.25% to 12%.
High system losses are translating into high costs for ECs. In May 2026, 36 of the country’s 121 cooperatives breached the ERC’s loss caps amid peak summer demand.
In 2025, 18 DUs exceeded their feeder loss limits, with Zamboanga City Electric Cooperative (ZAMCELCO) incurring the highest above-cap cost at P543 million, followed by South Cotabato II Electric Cooperative (SOCOTECO II) at P410 million and Albay Electric Cooperative (ALECO) at P374 million.
As ECs approach their system loss caps, more allowable losses can be passed on to consumers through their electricity bills, raising costs for households and businesses.
According to data presented to the Senate Committee on Energy, consumers are paying an estimated P6.82 billion a year in electricity costs linked to nontechnical losses, which refer to power lost through theft, meter tampering and illegal connections, rather than through technical losses from the distribution system itself.
With private DUs subject to lower system loss caps—and Meralco reporting losses below its limit—Daily Tribune columnist Chito Loyzaga said the figures “showed that the burden of the so-called nontechnical losses (NTL) fell hardest on electric cooperative customers rather than on those served by private distributors.”
Funding the Underperformers
Former ERC Chairperson Monalisa Dimalanta and Asian Institute of Management professor Ricardo Barcelona agreed that consumers should not indefinitely bear the costs of losses stemming from theft, mismanagement or governance failures.
“A system cannot permanently reward high losses with full cost recovery and expect efficiency to emerge later,” they wrote.
Yet the government’s current approach appears to move in the opposite direction, with public funds being used to address persistent system losses of ECs. The government has earmarked about P7.5 billion to reduce nontechnical losses, with the program targeting cuts of up to 75% before ultimately eliminating them. DOE Secretary Sharon S. Garin said that funding will come either from the National Government or through loans.
Additionally, Rep. Antonio Kho called for national government intervention to rescue struggling ECs. He described distressed cooperatives, including Masbate Electric Cooperative (MASELCO), as “dying patients” in need of urgent support. He urged the government to make their rehabilitation a priority by funding the construction, repair, and upgrading of distribution facilities, including substations, to help reduce system losses.
He also urged the possible debt condonation for financially struggling ECs.
Power Outages Threaten Growth
Beyond system losses, persistent power outages are another concern, raising questions about the reliability of ECs and their impact on economic activity.
Senators recently grilled officials of the Oriental Mindoro Electric Cooperative (ORMECO) over recurring brownouts after the provincial government declared a “power crisis.” ORMECO denied the characterization but acknowledged delays in fully implementing a 57-megawatt (MW) emergency power supply agreement, with 10 MW still unresolved.
Similar concerns are emerging in Baguio City and Benguet, where residents and businesses have voiced frustration over frequent outages while urging the Benguet Electric Cooperative (BENECO) to pursue longer-term solutions rather than rely mainly on temporary fixes.
For small businesses and remote workers, unpredictable outages can disrupt operations and income. Consumers are calling for greater transparency on outage causes, maintenance programs, infrastructure spending, and planned upgrades, including substations and distribution equipment.
Some have also questioned whether recurring unscheduled outages point to the need for modernizing grid protection systems and equipment.
The scale of the infrastructure gap is also evident in Panay and Guimaras, where seven ECs spent only P2.38 billion, or less than a quarter of their P10.52-billion capital budget for 2022 to 2024, according to a study by the Institute for Contemporary Economics (ICE).
Much of the spending went toward routine maintenance instead of major upgrades, leaving critical needs in substations, distribution lines and protection systems largely unaddressed. The lack of investment could make it harder to improve grid reliability, reduce system losses and keep pace with growing electricity demand.
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Governance, Corruption and Politics
Meanwhile, Philippine Star columnist Iris Gonzales pointed to corruption as a factor behind the financial woes of some ECs.
“Some leaders and board members divert funds into fake projects, engage in rigged bidding or favor contractors or grant themselves high salaries and benefits at the expense of the
cooperatives’ coffers,” she wrote.
On the politicization of electric cooperatives (ECs), Sen. Erwin Tulfo said lawmakers may need to bar politicians from owning or maintaining ties with cooperatives. He also noted that potential investors are interested in some cooperatives but are discouraged by their links to political interests, limiting opportunities for private capital and investment.
Additionally, Tulfo warned that when politically connected officials feel entitled to not pay their electricity bills, the cost does not disappear—it is ultimately borne by other consumers. The resulting revenue gap, he said, unfairly shifts the burden to ordinary Filipinos.
Reform Can’t Wait
The problems facing ECs go far beyond system losses. Recurring outages, aging infrastructure, underinvestment, financial weakness, and allegations of mismanagement and corruption point to deeper structural problems that require more than temporary fixes or additional government funding.
The cooperative model has played an important role in bringing electricity to communities across the country. But the demands on the power system have changed. Rapid urbanization, industrial growth and digitalization are pushing electricity demand higher, while many ECs lack the capital and technical capacity to modernize their networks and deliver more reliable service.
This is where greater private-sector participation deserves serious consideration. Meralco has been advocating for ECs to open up to private capital and partnerships, arguing that stronger financial resources, technology and technical expertise could help struggling cooperatives expand capacity, modernize infrastructure and improve reliability. Such partnerships could provide an alternative to relying almost entirely on taxpayer money to keep underperforming cooperatives afloat.
But private participation must come with safeguards. Partnerships should be transparent, competitively awarded, and tied to clear performance targets. Regulators must also ensure that consumers—not just investors or cooperative officials—benefit from the resulting improvements.
Government assistance will likely remain necessary, particularly for cooperatives serving poorer and remote communities. But public funding should be paired with stronger governance, financial discipline, and measurable improvements in service.
The country cannot afford to preserve a model simply because it has existed for decades. Electricity is fundamental to businesses, livelihoods and investment, and unreliable or expensive power can deepen the economic divide between regions.
The answer is not simply more public funding. ECs need capital, technology and expertise to modernize, with private partnerships worth considering. Ultimately, reform must deliver more reliable and affordable power for consumers.
Sources:
https://tribune.net.ph/2026/08/09/baguio-consumers-decry-power-outages
https://qa.philstar.com/the-freeman/opinion/2026/08/04/2546762/electric-coops
https://newsinfo.inquirer.net/2284056/law-eyed-to-keep-politicians-off-electric-cooperatives
https://tribune.net.ph/2026/08/22/co-ops-must-open-up-for-private-capital