After six years of rapid payout growth, the Philippine utility’s earnings-based dividend framework faces a consequential question: Who should bear the cost of electricity that never reaches the meter?
For much of this decade, Manila Electric Company has offered shareholders something increasingly scarce: a dividend that has not merely held steady but climbed with remarkable consistency.
From 2020 through 2026, Meralco’s cash distributions increased from ₱9.984 to ₱28.430 per share, based on dividends paid within each calendar year. That works out to compound annual growth of roughly 19 percent—an unusually strong record for a mature electric utility, a category typically prized for stability rather than rapid expansion.
The progression has been almost uninterrupted. Annual dividends rose to ₱12.881 per share in 2021, ₱16.032 in 2022, ₱19.548 in 2023, ₱21.530 in 2024, and ₱25.064 in 2025. The two payments scheduled for 2026—₱16.672 in April and ₱11.758 in September—bring the calendar-year total to ₱28.430.
Behind that record is a payout system designed to appear more mechanical than discretionary. Meralco’s regular cash dividend is tied to 50 percent of consolidated core net income, while additional distributions may be considered depending on retained earnings and available free cash. The framework gives shareholders a relatively straightforward proposition: If recurring earnings rise, the regular dividend should generally rise with them.
The latest declaration followed that formula precisely. Meralco reported first-half 2026 core earnings per share of ₱23.516 and approved an interim dividend of ₱11.758 per share—exactly half the core earnings figure. The payment, totaling approximately ₱13.3 billion, is scheduled for Sept. 23 for shareholders of record as of Aug. 28.
But the dependable arithmetic of Meralco’s dividend is now confronting a less predictable force: energy politics.
The Cost of Electricity That Disappears
During the State of the Nation Address on July 27, the administration called for an immediate amendment of the Electric Power Industry Reform Act, or EPIRA, to prohibit electricity providers from passing system-loss charges—and the corresponding value-added tax—on to consumers. The argument was direct: Households should not have to pay for electricity they did not use.
System loss is the difference between the electricity entering a power network and the amount ultimately measured and billed to customers. Some losses are nontechnical, arising from illegal connections, meter problems, and electricity theft. Others are physical and largely unavoidable: Electrical energy encounters resistance as it moves through wires and transformers, causing part of that energy to dissipate as heat.
Under the current regulatory structure, utilities can recover system losses from consumers within limits set by the Energy Regulatory Commission. For Meralco customers, the system-loss charge represents about 5 percent of an average monthly bill and is treated as a pass-through cost associated with generation and transmission—not as an ordinary distribution margin retained entirely by the company.
That distinction is crucial for investors. Removing the charge from the bill does not automatically mean Meralco loses revenue equal to 5 percent of customer payments. The charge largely reimburses the cost of energy purchased but not ultimately billed to an end user.
Yet the electricity being lost does not disappear from the utility’s expenses merely because the line item disappears from the customer’s bill. Somebody must still pay the generators for that energy. If no alternative recovery mechanism is created, the cost could shift onto the distribution utility—and ultimately into Meralco’s earnings.
From Public Relief to Shareholder Risk
For consumers, the proposal's appeal is easy to understand. Government estimates suggest that eliminating system-loss charges could reduce electricity bills by roughly 5 percent, and potentially as much as 10 percent in some circumstances. A household using 200 kilowatt-hours reportedly paid an average of ₱148.95 per month in system-loss charges from August 2025 through July 2026, excluding VAT.
For Meralco shareholders, however, the issue is not whether bills should become more affordable. It is a question of whether the final reform distinguishes between losses caused by inefficiency and those inherent in the transmission of electricity.
Meralco has argued that technical losses cannot be eliminated entirely. The company’s system-loss rate stood at 5.99 percent in 2024, below the ERC ceiling of 6.5 percent, and Meralco said its performance produced ₱5.1 billion in customer savings relative to the regulatory cap. The company’s first-half 2026 disclosure said system losses remained well below the permitted ceiling.
That gives Meralco a stronger position than utilities with persistently high losses. A reform that tightens efficiency standards, penalizes excessive losses or disallows the recovery of losses caused by pilferage could pressure costs without fundamentally undermining the company’s economics.
A blanket prohibition is another matter. Meralco’s chairman warned that forcing the power industry to absorb all system-loss costs could amount to tens of billions of pesos across generation, transmission, and distribution. The warning was unusually stark, but it underlined the central financial question raised by the proposal: whether unavoidable network costs are to be eliminated, redistributed or simply left unrecovered.
A Dividend Built on Earnings
Meralco’s dividend framework provides protection, but not immunity.
Because the regular distribution is tied to half of core earnings, the company is less likely to fund dividends through unsustainable borrowing solely to maintain a predetermined per-share amount. If earnings decline, however, the same formula that supported the dividend’s rise can transmit that decline directly to shareholders.
The exposure is significant because Meralco’s distribution utility remains the group’s largest earnings contributor. In the first half of 2026, the distribution business generated ₱12.7 billion, or 48 percent of consolidated core net income. Power generation contributed ₱10.5 billion, or 39 percent, while the retail electricity supply and non-electricity businesses supplied the remaining ₱3.3 billion.
For illustration, every ₱5 billion in additional annual pretax costs permanently absorbed by Meralco could reduce after-tax earnings by about ₱4.2 billion, based roughly on the company’s first-half effective tax rate. Across approximately 1.127 billion shares and a 50 percent payout framework, that would represent around ₱1.84 per share of lost regular dividend capacity.
That is not a forecast. No final law, regulatory formula, or cost allocation has been approved. But the sensitivity demonstrates why legislative details matter more than political slogans.
A More Diversified Meralco
The company is better equipped to withstand the challenge than it would have been several years ago.
Meralco is no longer only a regulated distributor. Its power-generation unit, MGEN, increased first-half core income by 11 percent to ₱10.5 billion as LNG, thermal and renewable assets expanded. Generation output rose 12 percent, while renewable-energy production more than doubled. The group’s retail electricity supply business also delivered 9 percent more electricity during the period.
That diversification gives Meralco an earnings buffer. But it also requires capital. Consolidated first-half expenditures reached ₱39 billion, with ₱26 billion directed toward renewable energy and battery storage and another ₱12.9 billion devoted to network modernization and other distribution infrastructure.
The combination creates a delicate balance. MGEN’s expansion can offset pressure on regulated distribution earnings, but the projects driving that expansion consume cash that might otherwise support additional dividends.
The Test Ahead
For now, the proposed EPIRA amendment remains a policy initiative rather than an immediate reduction in Meralco’s earnings. The DOE has said implementation could take about a year as regulators assess individual utilities and the infrastructure required to reduce losses. The ERC has supported the consumer objective while also emphasizing the need to preserve the financial viability of distribution utilities.
A negotiated outcome could remove the visible charge from bills while allowing efficient providers to recover unavoidable technical costs through a regulated revenue requirement. Another approach could place the burden only on losses exceeding progressively tighter benchmarks. Either arrangement would slow Meralco’s dividend growth less severely than a complete, uncompensated prohibition.
What appears less certain is the continuation of the company’s recent pace. A 19 percent dividend growth rate was already unlikely to persist indefinitely, given that first-half 2026 core earnings rose only 3.8 percent. The new regulatory risk makes additional distributions above the regular 50 percent payout even harder to assume.
Meralco’s dividend record is not the product of a fixed promise. It is the product of earnings, cash, and regulation working together. For six years, that alignment rewarded shareholders handsomely.
The next phase will test whether the framework can continue to balance two constituencies with competing but legitimate claims: consumers seeking relief from some of the region’s highest electricity costs and investors who supply the capital required to maintain and modernize the network.
The question is no longer simply how much electricity is lost along the way. It is how the cost of that loss will be divided—and what remains for shareholders after the bill is settled.
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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
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