ICSC urges reforms on preventable electricity system losses

QUEZON CITY — Electricity consumers should not be required to shoulder system losses that distribution utilities could prevent, the Institute for Climate and Sustainable Cities (ICSC) said as it called for reforms separating unavoidable technical losses from those caused by theft, illegal connections, meter tampering, billing errors, and other operational failures.

The distinction could directly affect household electricity costs because treating preventable and unavoidable losses alike can shift the financial consequences of utility inefficiencies and unauthorized electricity use to paying customers instead of creating stronger incentives for utilities to reduce them.

ICSC made the call in a recent position paper amid renewed scrutiny of system-loss charges following President Ferdinand Marcos Jr.’s 2026 State of the Nation Address.

Marcos called on Congress during his July 27 State of the Nation Address to amend the Electric Power Industry Reform Act of 2001 to stop system-loss charges, including the corresponding value-added tax, from being passed on to electricity consumers.

The public debate has raised a central question over why consumers continue to pay charges associated with electricity they did not directly consume.

Some electricity is inevitably lost while traveling through power lines, transformers, and other network equipment, but ICSC said the causes of those losses differ and should not automatically receive identical treatment in electricity pricing.

The key policy issue, according to the group, is therefore not simply whether system-loss charges should appear on electricity bills, but which types of losses consumers can reasonably be expected to pay.

Technical losses occur naturally as electricity moves through power lines, transformers, and other components of the distribution network.

Although technical losses cannot be completely eliminated, ICSC said they can be reduced through proper maintenance, network upgrades, improved system design, and modern technologies.

Non-technical losses arise from electricity pilferage, unauthorized consumption, faulty metering, inaccurate billing, and other operational problems that are largely preventable.

For customers who regularly pay their electricity bills, ICSC said the distinction is important because electricity consumed without payment, or costs arising from preventable operational failures, should not automatically be treated in the same way as losses inherent in physically delivering power.

Current discussion has focused heavily on whether system-loss charges should remain visible or recoverable from consumers, while comparatively less attention has been given to the sources of the losses and the steps utilities take to reduce them.

ICSC said the more important policy question is how distribution utilities manage system losses and whether they are consistently cutting those that can reasonably be prevented.

“Consumers shouldn’t pay for losses utilities could have prevented. A fair system rewards utilities that cut losses and holds them accountable when they don’t,” said ICSC Senior Policy Advisor Atty. Pedro H. Maniego.

The Energy Regulatory Commission already regulates electricity distribution as a common-carrier business under the Electric Power Industry Reform Act, covering private distribution utilities, electric cooperatives, local government units, and other authorized entities.

The ERC adopted rules in Resolution No. 20, Series of 2017, for setting distribution system-loss caps and establishing a performance incentive scheme for distribution efficiency, followed by a 2018 resolution clarifying system-loss calculations and the implementation of the rules.

ICSC is proposing a more explicit performance-based approach under which distribution utilities and electric cooperatives would separately report technical and non-technical losses.

Under the proposed framework, utilities would also be required to meet transparent loss-reduction targets and show concrete efforts to curb preventable losses before related costs could be passed on to consumers.

ICSC said grid modernization should form part of the reform because better technology can help utilities identify inefficiencies and unauthorized electricity use more quickly.

Smart meters and digital monitoring systems can help detect illegal connections, improve meter accuracy, and identify unusual consumption patterns.

Distribution automation, geographic information systems, and data analytics can also strengthen network management and billing systems.

ICSC said system-loss reform should ultimately be part of a wider effort to make electricity more affordable by reducing avoidable losses, improving utility performance, strengthening regulatory oversight, and accelerating modernization of the distribution grid.

A framework that distinguishes unavoidable losses from preventable ones could better protect consumers from costs they did not cause while giving utilities stronger incentives to improve efficiency and accountability.

Such reforms, ICSC said, could also support a more efficient and modern electricity sector at a time when the government is under growing pressure to reduce power costs and improve consumer protection.

Sources: Institute for Climate and Sustainable Cities position paper provided for this report; Presidential Communications Office; Energy Regulatory Commission.