MANILA, Philippines – President Ferdinand Marcos Jr. wants Congress to stop electricity distributors from making consumers pay for system losses, arguing in his fifth State of the Nation Address that households should not be charged for electricity that never reaches them.

“Hindi naman kasalanan ng consumer kung bakit nagkaroon ng system loss (System loss is not the fault of consumers),” Marcos said to roaring applause, calling for an “immediate amendment” to the Electric Power Industry Reform Act (EPIRA) that would prohibit system loss charges and the value-added tax (VAT) imposed on them.

What is system loss?

System loss is the difference between the electricity entering a power network and the amount eventually measured and billed to customers. According to Meralco, this charge accounts for electricity lost due to both technical and non-technical factors.

Most of it is technical and a consequence of physics. Electric current encounters resistance as it passes through wires, converting part of the energy into heat. Transformers and other equipment also consume or dissipate small amounts of power.

There are also non-technical losses, including electricity theft, illegal connections, defective meters, and errors in metering or billing. Unlike losses caused by the physics of transporting electricity, these can be reduced substantially through better meters and improved operations.

“‘Yun naman pong non-technical losses, most of these can be attributed to pilferages kasi marami pong nakikikabit,” Department of Energy (DOE) Undersecretary Mario Marasigan said during a press briefing on Tuesday, July 28

(On non-technical losses, most of these can be attributed to pilferages because many are illegally tapped in.)

DOE Secretary Sharon Garin clarified that Marcos’ directive covers the removal of the entire system loss charge from consumers’ bills – including both technical and nontechnical losses – along with the VAT imposed on that charge, not the VAT on the entire electricity bill.

How much of your Meralco bill is it?

The DOE estimates consumers could save around 5% to 10%, depending on their utility’s system loss rate. 

Meralco says system loss accounted for about 5% of an average customer’s bill, based on its 2025 bill breakdown. Meralco’s system loss rate was at 5.72% by the end of Q1 2026. (READ: Why your Meralco bill will be higher in July – and might rise again soon)

Meralco says it does not earn from this item. The amount covers the cost of electricity purchased from generation companies and the corresponding transmission charges for power that is lost before reaching consumers. Meralco remits this collection to suppliers of electricity and the National Grid Corporation of the Philippines.

So what is the role of a distribution utility company like Meralco? It operates the local wires, poles, transformers, substations, and meters that bring electricity from the transmission grid to customers within its franchise area. It’s also responsible for managing and reducing system losses within that network.

Meanwhile, Meralco said it respected the President’s policy direction but stressed that a certain level of technical loss is “inherent in operating an electric distribution system.” (READ: Meralco: Some system loss unavoidable, urges careful EPIRA reform)

What’s the role of EPIRA?

EPIRA authorizes the ERC to determine caps on the system losses that utilities may recover from customers. Any losses beyond that cap must be absorbed by the distribution utility.

Section 43 of the law directs the regulator to set those caps based on technical factors such as load density, sales mix, cost of service, and delivery voltage. It also requires rate-setting rules to consider the efficiency or inefficiency of regulated utilities.

The cap provides an incentive for utilities to reduce losses because they must shoulder anything above the allowed level.

How long will it take to change this?

To carry out Marcos’ proposal, Congress would have to amend the 25-year-old EPIRA to limit the system losses that can be charged. EPIRA was most recently amended in April 2025, but only to extend the Power Sector Assets and Liabilities Management Corporation’s corporate life, which is unrelated. The provision allowing utilities to recover system losses from consumers has remained largely intact since the law was enacted more than two decades ago.

The DOE aims to implement the directive within a year, possibly before the next SONA. However, the rollout may be staggered because the DOE, ERC, and National Electrification Administration must assess more than 100 electric cooperatives and private distribution utilities individually, while some networks may require new equipment and infrastructure.

What does the DOE say?

The Department of Energy (DOE) backed Marcos’ proposal for the immediate amendment of EPIRA, saying consumers should no longer bear system losses that could be reduced through advanced metering, grid upgrades, digital technologies, stronger operations, and measures against electricity theft.

“The President’s directive reflects a clear principle: consumers should not continue to bear the burden of avoidable system losses that can be reduced through better infrastructure, modern technologies, stronger operational discipline, and more effective regulation,” read a DOE statement on Monday, July 27.

But the DOE also acknowledged the balancing act. It said any EPIRA amendments must protect consumers while preserving a financially sound and reliable electricity industry and encouraging continued infrastructure investment.

Asked who should shoulder the cost of system losses, Garin said it should fall on electric cooperatives. – Rappler.com