In his fifth SONA last Monday, July 27, President Ferdinand Marcos Jr. called on Congress to amend the Electric Power Industry Reform Act (EPIRA) to bar distribution utilities from passing system loss charges (SLC) on to consumers. The Energy Regulatory Commission (ERC) and Department of Energy (DOE) issued statements of support the following day. Palawan Rep. Jose Alvarez, who chairs the House Committee on Energy, also called for the process to be fast-tracked.
Under EPIRA and Republic Act No. 7832, electric cooperatives such as the Palawan Electric Cooperative (PALECO) are allowed to recover a portion of their technical and non-technical system losses. This refers to electricity fed into the distribution infrastructure but lost because of faulty wiring, electricity theft through illegal connections or “jumpers,” and other factors. Consumers absorb the cost of these losses.
The ERC’s tiered structure allows electric cooperatives to recover at least a portion of these losses through the system loss charge. If the SLC disappears from Palawan consumers’ electric bills, it does not mean the actual distribution losses have disappeared. The losses will remain in the system but will instead become a cost that PALECO must absorb.
PALECO’s distribution infrastructure includes stand-alone, off-grid systems in areas such as Brooke’s Point, El Nido, and the island municipalities, as well as a fleet of oversized transformers. Its system loss rate is higher than Meralco’s, which is roughly 5 percent in a typical monthly bill. If Congress removes the SLC, PALECO could end up absorbing a larger loss burden per kilowatt-hour than an urban distribution utility.
Let us look at PALECO’s financial capacity to absorb this cost. According to its 44th Annual General Membership Assembly report, PALECO’s net surplus available for allocation in 2025 was ₱12.48 million on ₱5.3 billion in revenue. This is a narrow margin, with generation costs alone amounting to ₱4.87 billion. An unfunded mandate to absorb system losses, even at a modest level, could push PALECO into a deficit.
PALECO is also under an interim board installed by the National Electrification Administration (NEA). This limits its governance credibility and could affect its access to financing for capital projects needed to reduce system losses, including reconductoring, voltage upgrades, and transformer right-sizing. These measures offer the only long-term way to offset the effects of the proposed change.
If PALECO cannot absorb the losses internally, it could seek a compensating adjustment elsewhere in its tariff or request subsidy support from the NEA or DOE. Neither scenario represents the clean win that the SONA pronouncement is intended to achieve.
The proposal could also have a significant effect on the separate push by local policymakers to divide PALECO’s franchise into three independent franchises. If this happens, the denser and more compact Puerto Princesa franchise would likely have a lower system loss rate than the less efficient distribution systems in the northern and southern franchises, where fewer consumers would have to carry the loss burden.
It remains unclear whether the eventual EPIRA amendment will include a transition subsidy or a missionary electrification carve-out for isolated-grid cooperatives such as PALECO. In the meantime, the SONA pronouncement offers little reason for optimism in Palawan.
