President Ferdinand “Bongbong” Marcos Jr.’s call during his 2026 State of the Nation Address (SONA) to remove system-loss charges and the value-added tax (VAT) imposed on electricity consumers produced one of the afternoon’s loudest applause.
His argument was simple: consumers should not be punished for electricity lost because of defective equipment, inefficient networks, or theft they did not commit.
Behind that popular declaration, however, lies a complicated regulatory system that has protected distribution utilities from costs that most businesses would normally be expected to manage.
System loss is the difference between the electricity entering a distribution network and the electricity eventually measured and billed to customers. It is calculated as:
If a utility receives one billion kilowatt-hours (kWh) but bills only 940 million, the missing 60 million kWh represents a 6%-system loss. The utility nevertheless paid generators and the transmission operator for the entire one billion kWh.
