A proposal to eliminate system loss charges from consumer electricity bills has sparked significant concern across the power sector, with industry leaders warning that absorbing these expenses will cost tens of billions of pesos across generation, transmission, and distribution networks.

The warning follows President Ferdinand “Bongbong” Marcos Jr.’s call during his fifth State of the Nation Address (SONA) for Congress to amend the Electric Power Industry Reform Act (EPIRA). Marcos requested a complete stop to passing system loss charges and their accompanying value-added tax (VAT) onto electricity consumers.

Meralco Chairman and CEO Manuel V. Pangilinan questioned how the energy industry could absorb the financial hit if the charges are removed from consumer billing.

“It’s a big bill for the industry because it cuts across generation, transmission, and distribution. The bill is too big for the industry to absorb all of it. So, there’s got to be that discussion. It’s going to impact the entire power industry in this country,” Pangilinan said.

“It is not a small matter… So, who’s going to pay for that? The industry? It’s going to cost tens of billions of pesos,” the Meralco chairman asked.

Understanding System Loss

System loss represents the difference between the total electricity generated at power plants and the energy actually delivered to and billed to end-consumers. The loss stems from two distinct factors:

• Technical losses: Inherent physical dissipation that occurs as electricity travels across long distances, generates heat in power lines, moves through multiple transformers, or encounters voltage stability issues across the grid.

• Non-technical losses: Human and administrative factors, including electricity theft, pilferage, and unauthorized or illegal connections.

Under existing legislation—specifically EPIRA and Republic Act No. 7832 (the Anti-Pilferage of Electricity and Theft of Electric Transmission Lines/Materials Act)—distribution utilities are permitted to recover a portion of these operational losses from consumers.

In Meralco’s current rate structure, the system loss charge functions as a pass-through fee that does not go directly to company profits, accounting for approximately 5% of a customer’s monthly bill.

Industry Calls for Balanced Reforms

In a separate statement, Meralco Executive Vice President and Chief Operating Officer Ronnie Aperocho emphasized that system loss is an unavoidable reality of electricity distribution rather than an issue isolated to a single company.

Aperocho stated that while Meralco respects the president’s policy direction, “it is important to recognize that system loss is not unique to any distribution utility but is a common operational aspect of the delivery of electricity — which affects the entire power industry.”

He confirmed that Meralco “will actively participate in the discussions as the proposed amendments to the EPIRA are deliberated.”

“We look forward to productive discussions which we hope will carefully consider the impact of reforms on the operations and sustainability of distribution utilities,” Aperocho said. “To ensure real benefits to consumers, these reforms should also support the ability of distribution utilities and electric cooperatives to efficiently operate, invest in infrastructure and system resilience, and deliver safe and stable electricity service.”

Grid Upgrades and Operational Caps

Despite the challenges, technical losses remain a permanent factor in power distribution, even with ongoing infrastructure upgrades.

“While distribution utilities like Meralco continue to invest in modernizing and upgrading facilities and deploying technologies that reduce system losses, a certain level of technical losses remains inherent in operating an electric distribution system,” Aperocho explained.

“For Meralco’s part, we have consistently invested in system loss management initiatives, network modernization, and operational efficiencies — which enable us to maintain our system loss well below the 6.5% cap set by the ERC,” he added.

To help mitigate the impact on smaller distribution entities during proposed statutory shifts, the Department of Energy (DOE) indicated that the National Electrification Administration (NEA) may extend loans to electric cooperatives to help upgrade their facilities and curb system losses.

Meralco executives affirmed that the utility will continue working alongside the government, lawmakers, regulators, and industry peers to develop reforms that safeguard consumer interests while maintaining power grid stability.