Bottom line

Your premise is substantially correct, but needs three qualifications:

1. Meralco passes through the cost of both physical/technical losses and non-technical losses, including theft and meter tampering—but only up to the ceiling allowed by the Energy Regulatory Commission (ERC). Losses above the applicable ceiling are supposed to be absorbed by the distributor.
2. Theft is apparently a small part of Meralco’s current total. Meralco reported a 4.22% system-loss figure for 2025, with less than one percentage point attributed to non-technical losses. ²
3. Removing the charge does not remove the underlying physical loss. It decides whether consumers, utilities, generators, or the government ultimately bear its cost.

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1. What happened after the 2026 SONA?

During his fifth State of the Nation Address in July 2026, President Ferdinand Marcos Jr. asked Congress to amend the Electric Power Industry Reform Act, or EPIRA, so that distribution utilities could no longer pass system-loss costs—or the VAT imposed on those costs—to electricity consumers. His central argument was: “It is not the consumer’s fault that a system loss occurred.” ¹

For a typical Meralco customer, the system-loss component currently represents approximately 5% of the monthly bill, before considering the VAT charged on that component. ¹

The reactions

Participant	Position
President Marcos	Consumers should not pay for electricity that never reaches them; Congress should remove the charge and its VAT. 1
ERC	Supported reassessing the charge. ERC Chair Francis Saturnino Juan said excluding the theft-related portion would reduce utility earnings but would not bankrupt distributors because non-technical losses are only about 1%–1.5% of total system loss. 2
Meralco	Said system loss is an inherent feature of electricity delivery, not automatically evidence of inefficiency, and emphasized that its rate remains below the ERC ceiling. 7
Meralco chair Manuel V. Pangilinan	Asked who would pay if consumers stopped paying, arguing that absorbing all system-loss costs could cost the industry tens of billions of pesos. 1
Electric cooperatives	Supported removing VAT but warned that eliminating all recovery without a subsidy could destabilize or bankrupt cooperatives, particularly those operating long rural networks. 1
Legislators critical of Meralco	Argued that theft, illegal connections and operational shortcomings are business risks that utilities—not captive customers—should bear.

The ERC subsequently directed distribution utilities to submit system-loss data covering 2021–2025, meaning the government is presently gathering evidence before or alongside congressional changes to EPIRA. ⁶

So this remains a live policy debate, not an implemented bill reduction as of early August 2026.

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2. What “system loss” actually means

System loss is the difference between:

$$ \text{Electricity entering the distribution system}

\text{Electricity eventually metered and billed} $$

It has two materially different components:

Type	Causes	Can it reach zero?
Technical loss	Electrical resistance in conductors, heat dissipated by transformers, voltage conversion and equipment characteristics	No. It can be reduced through engineering and investment, but not eliminated. Longer lines generally produce greater resistive losses. 1
Non-technical loss	Electricity theft, illegal connections, meter tampering or defects, and metering or billing errors	Theoretically reducible to near zero, but enforcement and detection make complete elimination difficult. 1

What is correct—and misleading—in the public argument?

It is correct that paying customers currently shoulder some power stolen by other users. But it would be misleading to describe Meralco’s entire system-loss charge as stolen electricity or as pure inefficiency.

Meralco reported that less than one percentage point of its 2025 system-loss figure was non-technical. ² The great majority was therefore technical rather than theft-related.

It is also important that system loss is not inherently Meralco profit. It is primarily the cost of electricity purchased but not billable to a particular end-user. Current regulation treats an allowable level as a recoverable cost of service, although that allocation is a policy choice and can be changed by Congress or the ERC. ⁵

The sharpest policy question is therefore not whether the loss exists—it does—but who should have the financial incentive and responsibility to minimize it.

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3. Is Meralco passing everything to customers?

No. The important distinction is:

• Loss below the allowable regulatory ceiling: recoverable from customers.
• Loss exceeding that ceiling: generally shouldered by the utility.

Recent reporting gives two apparently different comparisons:

• 2025: Meralco reported 4.22%, against a cited 5.5% applicable cap. ²
• First quarter of 2026: Meralco reported 5.72%, against a cited 6.5% ERC cap. ¹

Those numbers should not automatically be read as a jump from 4.22% to 5.72%. One is a full-year figure and the other is a first-quarter figure; published reports may also be using different recovery periods or regulatory calculations. A consistent monthly or annual ERC series is needed before concluding that Meralco’s physical performance suddenly deteriorated.

The broader statutory, regulatory and company figures are frequently conflated in political commentary. That is one reason the ERC’s new five-year inventory is important.

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4. What has Meralco done to reduce system loss?

A. Anti-theft enforcement

Meralco says it:

• Conducts regular meter and connection inspections.
• Relocates meters in high-risk locations so they are harder to bypass.
• Files criminal cases against suspected electricity thieves.
• Re-inspects locations because some illegal users reconnect after inspection teams leave. ⁸
• Works with the Philippine National Police and its Criminal Investigation and Detection Group on investigating theft and stolen electrical equipment.

In 2025, Meralco said it found more than 5,000 illegal service connections and replaced over 13,000 tampered meters. ⁴

That establishes substantial enforcement activity. However, publicly reported counts of inspections or replaced meters do not reveal how many kilowatt-hours or pesos were permanently recovered, so they cannot by themselves prove cost-effectiveness.

B. Smart meters and Advanced Metering Infrastructure

Meralco’s Advanced Metering Infrastructure program is intended to provide more detailed, near-real-time consumption information. Such systems can identify unusual usage patterns, remote disconnections, meter interference and discrepancies between feeder-level deliveries and customer-level consumption.

The current program targets approximately 12 million smart meters over the next decade, with more than three million contemplated in the next regulatory period. ³

Meralco also announced the deployment of more than 72,000 smart meters in 2026 under one supply agreement. ⁹

The meters are meant to feed a proposed Grid-Edge Operations and Control Center, improving visibility into the lower-voltage network and supporting faster detection of outages and abnormalities. ³

This should help with non-technical loss detection, but the rollout remains incomplete: a target measured in millions over ten years means most of the prospective benefit is still ahead.

C. Network modernization

Meralco is undertaking a broader ₱272-billion grid-modernization program, involving new or upgraded substations, transmission and distribution lines, underground cabling, automation and smart-meter infrastructure. ³

Projects include:

• A second 69-kV line serving parts of Bulacan.
• The Camarin Substation upgrade.
• Island Cove and San Pedro substation improvements.
• Modernization of Sta. Rosa II and the Laguna International Industrial Park substations.
• Underground cabling in selected areas. ³

These can reduce overloading, shorten effective delivery paths and improve transformer utilization, all of which may reduce technical losses. But the ₱272-billion figure should not be described as a “system-loss budget”: much of it also addresses reliability, capacity growth, renewable-energy integration, cybersecurity and outage response.

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5. How productive have those efforts been?

The evidence points to credible progress, but incomplete public accountability.

Test	Assessment
Regulatory compliance	Good. Meralco’s recent reported loss rates are below the cited ERC ceilings.
Control of theft and tampering	Apparently effective relative to scale. Non-technical losses were reported at less than one percentage point in 2025, while thousands of illegal connections and tampered meters were detected. 24
Technical-loss reduction	Unclear. Meralco is upgrading the network, but publicly available project announcements do not isolate the resulting reduction in system-loss percentage or kilowatt-hours.
Smart-meter rollout	Promising but early. Tens of thousands in the current deployment are small relative to a long-term 12-million-meter objective.
Transparency	Needs improvement. The public needs one comparable series separating technical losses, theft, meter errors, billed recoveries and losses absorbed by Meralco.

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6. Is Meralco “on track”?

There are three different answers depending on the target.

Against existing ERC rules: Yes

Meralco is operating below the currently cited regulatory ceilings. It is therefore difficult to support the claim that Meralco has simply ignored system loss or is flagrantly failing the existing standard.

Against a zero-theft objective: Progressing, but not finished

Finding 5,000-plus illegal connections and replacing 13,000-plus tampered meters shows active enforcement, but also demonstrates that pilferage remains significant in absolute terms. ⁴ Meralco itself acknowledges that illegal reconnections recur after inspection. ⁸

Against the President’s proposed standard: No—not without changing who pays

The President is proposing a different objective: not merely lowering the percentage, but preventing Meralco from billing consumers for it. Even a technically excellent grid will have nonzero physical losses. Thus, Meralco cannot meet that policy through engineering alone; the regulatory framework must decide whether the remaining cost becomes:

• A utility operating expense;
• A generation or transmission expense;
• A government subsidy;
• A separately regulated charge; or
• A cost indirectly reflected in future distribution rates.

My assessment

Meralco has a defensible operational record but a weaker policy defense.

It can credibly say that most losses are physical, that complete elimination is impossible and that its performance is below the ERC ceiling. It cannot persuasively argue that this automatically proves consumers should continue bearing every allowable loss—especially the portion caused by theft, tampering, defective meters or billing errors.

A technically and economically balanced reform would be to:

• Immediately stop passing identifiable non-technical losses to customers;
• Remove VAT from any remaining system-loss recovery;
• Establish progressively lower, technically justified loss benchmarks;
• Require annual publication of technical versus non-technical losses;
• Permit recovery only for demonstrably efficient technical losses; and
• Penalize utilities when modernization commitments do not produce measurable reductions.

That would preserve recognition that physical losses are real while placing the strongest financial incentive for theft prevention and network efficiency on the entity best positioned to act: the distribution utility.

Here is a comprehensive cross-country comparison. The key insight is that every country has system losses — the critical difference lies in who bears the financial risk and what incentive that creates for the utility.

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How Other Countries Handle Electricity System Losses

The Baseline: Loss Rates by Country

The table below uses World Bank five-year average T&D loss data (2024 release), supplemented by recent utility-specific figures where available.

Country	T&D Loss Rate (%)	Notes
🇸🇬 Singapore	0.71%	World-class benchmark
🇨🇳 China	3.85% (avg) / 4.4% (2024 SGCC)	Dramatic reduction from 6.8% in 2015
🇱🇦 Laos	4.92%	Mostly hydro-exporting grid
🇦🇺 Australia	4.41%	Efficient, modern grid
🇩🇪 Germany	4.65%	Among the best in Europe
🇺🇸 USA	5.17%	National average (EIA: ~5%)
🇻🇳 Vietnam	6.47% (avg) / 6.24% (2022)	Steadily improving
🇲🇾 Malaysia	6.90%	Peninsula TNB much better than Sabah
🇫🇷 France	6.97%	Partly rural network effect
🇲🇲 Myanmar	7.04%	Weak infrastructure
🇮🇩 Indonesia	7.17%	PLN improving; distribution 6.65%
🇹🇭 Thailand	7.38% (avg) / 5.03% (PEA 2024)	PEA's actual distribution rate much lower
🇬🇧 UK	8.79%	Higher than EU peers despite modern grid
🇵🇭 Philippines	9.59%	Above ASEAN average; Meralco ~4.22–5.72%
🇰🇭 Cambodia	12.99%	Developing grid, high non-technical losses

^{4 16}

Important note on the Philippines figure: The national 9.59% average includes rural electric cooperatives with much higher losses. Meralco — serving Metro Manila and nearby provinces — reports significantly lower rates (4.22% for 2025). The national average is dragged up by cooperatives in rural and island areas.

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🌏 Southeast Asia

🇸🇬 Singapore — The Global Benchmark

Singapore's SP Group operates at roughly 0.71% T&D losses, which is essentially irreducible physics. ⁴ There is no meaningful theft problem, no consumer-facing "system loss charge," and the grid is one of the most reliable and efficient in the world, with a SAIDI (outage duration index) of 0.15 minutes per year. ⁸ It is a small, dense, wealthy city-state — an inherently favourable environment — but it demonstrates what aggressive investment in infrastructure and metering can achieve.

🇹🇭 Thailand — State-Owned, Steadily Improving

Thailand has two distribution utilities: the Metropolitan Electricity Authority (MEA) serving Bangkok, and the Provincial Electricity Authority (PEA) serving everywhere else. Both are fully state-owned, so losses don't generate the same consumer-vs-shareholder tension as in a private utility like Meralco.

• PEA reported 5.03% distribution losses in 2024, improved from 5.36% the year before. ¹⁴
• Thailand's overall T&D losses have declined consistently — from 6.07% in 2013 to 5.11% in 2023. ¹³
• Losses are managed within the state system; consumers don't see a separate "system loss" line item the way Philippine consumers do. The cost is embedded in the regulated tariff structure.
• Because the utility is state-owned, there is less political friction: the government is the utility, so it cannot easily blame itself for passing costs to consumers.

🇮🇩 Indonesia — PLN's Ongoing Battle

Indonesia's state monopoly PLN reported total losses of 8.55% in 2024 (transmission 2.03%, distribution 6.65%), a slight improvement from 8.57% in 2023. ¹²

• PLN operates a formal anti-theft program called P2TL (Penertiban Pemakaian Tenaga Listrik — Power Usage Enforcement). It conducts inspections, cuts illegal connections, and prosecutes offenders.
• Non-technical losses are a significant driver of PLN's distribution losses, and research shows the distribution sector is still largely driven by non-technical factors despite technical improvements. ⁹
• As a state-owned enterprise, PLN's losses are partly absorbed by government subsidies. Consumers pay a subsidized, government-set tariff, meaning both the government (taxpayers) and paying consumers indirectly bear the cost — not unlike the Philippines situation but with more direct state buffering.

🇻🇳 Vietnam — EVN's Tariff Trap

Vietnam's EVN has progressively reduced technical system losses from 8.85% (2012) to 6.24% (2022) through grid investment and smart metering. ¹¹

However, EVN also accumulated VND 93 trillion (~$3.84 billion) in losses during 2022–2023 — not primarily from system loss, but from government-suppressed retail tariffs that did not cover soaring fuel costs. ⁷ Vietnam recovered in 2024–2025 after tariff adjustments. This illustrates a different risk: when governments prevent utilities from recovering legitimate costs (including losses), utilities can face insolvency — the opposite problem from the Philippines, where consumers protest being charged too much.

🇲🇾 Malaysia — A Country of Two Stories

Malaysia is instructive because it has a stark internal contrast:

Area	Utility	System Loss	Non-Technical Loss
Peninsular Malaysia	TNB	~6.9% average	Low; modern grid
Sabah (Malaysian Borneo)	Sabah Electricity Sdn. Bhd.	15.8% (2024), down from 17% in 2023	4.8% — driven by meter tampering (3.2%) and squatter direct tapping (1.6%)

²

Sabah Electricity's situation eerily mirrors the Philippine problem in some ways: non-technical losses cost Sandakan alone approximately RM 10 million annually, a burden borne by the utility and indirectly by paying consumers. ²

A critical difference from the Philippines: Sabah Electricity cannot enforce anti-theft laws on its own. It must rely on joint police operations and the Sabah Energy Commission. Of thousands of reported theft cases, only about 15 saw actual legal action in one recent year. ²

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🌍 Western Countries

The Western model differs fundamentally from the Philippines model in regulatory philosophy. Rather than setting a ceiling on what can be passed through to consumers, most Western regulators use incentive-based regulation — the utility bears the cost of inefficiency and keeps the gain from improvement.

🇬🇧 United Kingdom — Incentive Regulation (RIIO Framework)

The UK's Ofgem regulates distribution losses under its RIIO (Revenue = Incentives + Innovation + Outputs) framework. Key features:

• Consumers ultimately pay for losses, as they are embedded in network costs passed through to electricity suppliers and then to bills. ¹
• However, there is a powerful loss incentive mechanism worth approximately £100 million per year across the industry (~5p/kWh), built into the price control formula. If a distributor reduces losses below its target, it keeps the savings. If losses exceed target, it absorbs the extra cost. ¹
• Non-technical losses discovered and corrected generate double benefit for the utility — both the loss incentive and a distributed-volume incentive. This creates a strong commercial reason to hunt for theft and tampering. ¹

The UK's 8.79% average T&D loss rate is higher than expected for a wealthy, modern grid — partly due to older infrastructure and long rural distribution circuits. ⁴ The RIIO-3 framework currently under determination is increasing investment pressure. ¹⁵

🇩🇪 Germany — Incentive Regulation, Very Low Losses

Germany's Bundesnetzagentur uses incentive-based regulation (Anreizregulierung). Distribution operators must achieve efficiency benchmarks. Losses above what the regulator deems "efficient" cannot be recovered from customers — the utility eats that cost. ⁶

Germany's T&D losses of ~4.65% reflect an efficient, densely metered, well-maintained grid. Non-technical losses are extremely low — electricity theft is rare, and smart metering infrastructure makes detection rapid. There is no public political controversy about consumers paying for theft, because the volume of theft is simply very small.

🇫🇷 France — Similar Framework, Slightly Higher Losses

France's grid regulator CRE (Commission de Régulation de l'Énergie) operates similarly to Germany. Losses (~6.97%) are slightly higher partly because France has extensive rural distribution with longer low-voltage lines. Like Germany, operators face efficiency benchmarks and cannot recover excessive losses from consumers. Non-technical losses are not a significant political issue.

🇦🇺 Australia — Benchmark-Based Recovery

The Australian Energy Regulator (AER) sets maximum revenue for network operators. Distribution loss factors are calculated and used in electricity market settlement — generators and retailers account for losses in their bids and contracts rather than a consumer-facing surcharge. ⁵ Distribution costs (including embedded loss costs) account for 25–35% of electricity bills. ¹⁷

Australia's ~4.41% loss rate reflects modern infrastructure and very low theft rates. Non-technical losses are not a meaningful political issue. Ongoing criticism focuses on over-investment (gold-plating) rather than under-investment in loss reduction.

🇺🇸 United States — State-by-State, Prudency Standard

The US averages roughly 5% T&D losses nationally (EIA data for 2018–2022). ¹⁶ Regulation is fragmented — FERC covers wholesale/transmission, while state Public Utility Commissions (PUCs) set distribution rates state by state.

The key US principle is "prudency review": costs can only be recovered from consumers if the PUC finds the utility acted prudently. If a utility failed to control theft or didn't invest in metering, a PUC could deny cost recovery for resulting losses. This creates accountability without a fixed ceiling. AMI (smart meter) deployment is widespread across most states, aiding non-technical loss detection. Electricity theft exists but is a relatively minor fraction of overall losses in most states.

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🇨🇳 China — The World's Most Aggressive Anti-Loss Program

China's State Grid Corporation (SGCC) is arguably doing more than any other utility on Earth to systematically reduce losses, and the results are measurable.

Metric	2015	2024	Change
Loss rate	6.8%	4.4%	−2.4 percentage points
High-loss lines	44% of lines	<1%	Virtually eliminated
CO₂ avoided	—	126.64 Mt over 9 years	Massive climate benefit

³

How did they do it?

• 650 million smart meters deployed grid-wide, covering everything from 1,000 kV ultra-high-voltage transmission down to 220 V household connections. This is the world's largest AMI system. ³
• "Electric Energy and Line Loss Management System" — described as the world's first grid-wide such system, enabling 15-minute interval data collection with a total processed data volume of 1.03 petabytes. ³
• AI Loss Engine with 40 algorithms that auto-detects 73 distinct loss drivers — both technical and non-technical — and dispatches recovery orders to field crews automatically. ³

On cost allocation: China's tariff is administratively set by the government. Consumers pay a fixed regulated rate — SGCC does not bill consumers a separate "system loss charge." The utility absorbs losses as an operational cost and is expected to reduce them through its own investment and management. Because SGCC is a state-owned monopoly, the government as owner bears the loss indirectly. Electricity theft detection via AI and smart meters is treated as a law enforcement and operational matter, not a tariff-passthrough question.

The SGCC's machine-learning research using its own dataset (the "SGCC dataset" now widely used in academic papers) has become a global benchmark for AI-based electricity theft detection. ¹⁰

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The Fundamental Policy Contrast

Model	Examples	How losses are handled	Utility incentive
Passthrough with ceiling	Philippines (Meralco), Indonesia (PLN)	Consumer pays up to a regulatory ceiling; utility absorbs excess	Weak: as long as you're under the ceiling, cost falls on consumers
Incentive-based regulation	UK, Germany, France, Australia	Consumer pays for embedded "efficient" losses; utility keeps savings from beating target	Strong: every kWh of loss reduction is direct profit
State absorption	Vietnam (EVN), Thailand (PEA/MEA), China (SGCC)	Losses are managed within the state enterprise; costs absorbed by government or embedded in tariff without a separate line	Varies; politically motivated rather than market-driven
Prudency review	USA	Consumer pays only for prudently incurred costs; PUC reviews whether utility acted reasonably	Moderate: risk of cost disallowance creates incentive

The sharpest contrast with the Philippines is the Western incentive model. In the UK or Germany, a Meralco-equivalent utility would not be asking "how much can we pass through?" — it would be asking "how do we beat our loss target so we can keep the savings?" That flipped incentive is what drives continuous improvement rather than compliance-minimum behavior.

The most ambitious technological contrast is China: rather than arguing about regulatory ceilings, China simply built the world's most comprehensive loss-detection infrastructure and reduced its loss rate by more than a third in nine years.