House Majority Leader Ferdinand Alexander “Sandro” Marcos has filed legislation to grant free electricity to low-consumption households by replacing the current cross-subsidy system with direct government funding.

House Bill No. 2700, or the “Free Electricity for Low-Consumption Households Act,” proposes a direct government subsidy to fully cover the electricity bills of qualified families. The measure also seeks to exempt the subsidized portion of these bills from the 12 percent value-added tax (VAT).

Marcos said the bill aims to phase out the current system where other consumers shoulder the cost of discounts for indigent users and senior citizens.

“Electricity is a basic necessity of modern life,” Marcos said. “This bill seeks to institutionalize a Direct Government Subsidy for low-consumption households, granting them free electricity within a reasonable monthly threshold.”

Under the proposal, an eligible household is defined as a residential consumer whose average monthly consumption over the preceding three months does not exceed 135 kilowatt-hours (kWh), or whose monthly bill is P2,000 or less, whichever is lower.

Eligibility would be certified by the Energy Regulatory Commission and the Department of Energy.

The measure cites a December 2024 study by the Philippine Institute for Development Studies, which found that the current cross-subsidy model creates inequities. According to the study, poor households in low-income areas sometimes end up subsidizing other poor households, and the 12 percent VAT effectively taxes both those giving and receiving the aid.

By shifting to a direct subsidy, the bill aims to eliminate these distortions and ensure public funds benefit only validated households. If a household exceeds the consumption threshold in a given month, it must pay the full bill, though it remains eligible for the subsidy in future months if consumption drops back below the limit.

The bill mandates that distribution utilities issue zero-charge bills to validated households. The utilities would then submit reimbursement claims to the Department of Energy, subject to audits by the Commission on Audit.

A two-year transition period is proposed, during which the new direct subsidy would coexist with the existing lifeline rate. During this time, energy officials will determine whether to fully replace the old system or allow both programs to continue with different scopes of beneficiaries.