diff --git a/docs/sphinx/source/whatsnew/v0.6.2.rst b/docs/sphinx/source/whatsnew/v0.6.2.rst
index 8039ba96c6..9fc91bfa1a 100644
--- a/docs/sphinx/source/whatsnew/v0.6.2.rst
+++ b/docs/sphinx/source/whatsnew/v0.6.2.rst
@@ -47,6 +47,8 @@ Bug fixes
   near horizon. (:issue:`656`)
 * Fixed numpy warnings in :py:func:`~pvlib.tracking.singleaxis` when
   comparing NaN values to limits. (:issue:`622`)
+* Change ModelChain to apply ``pvwatts_losses`` to ``mc.dc`` instead of
+  ``mc.ac``. (:issue:`696`)
 * Fixed a bug in the day angle equation for the ASCE
   extraterrestrial irradiance model. (:issue:`211`)
 * Silenced divide by 0 irradiance warnings in
@@ -70,5 +72,6 @@ Contributors
 * Todd Hendricks (:ghuser:`tahentx`)
 * Kevin Anderson (:ghuser:`kevinsa5`)
 * :ghuser:`bentomlinson`
+* :ghuser:`yxh289`
 * Jonathan Gaffiot (:ghuser:`jgaffiot`)
 * Leland Boeman (:ghuser: `lboeman`)
diff --git a/pvlib/modelchain.py b/pvlib/modelchain.py
index 1f778a74c3..1dbbc137c6 100644
--- a/pvlib/modelchain.py
+++ b/pvlib/modelchain.py
@@ -709,7 +709,7 @@ def infer_losses_model(self):
 
     def pvwatts_losses(self):
         self.losses = (100 - self.system.pvwatts_losses()) / 100.
-        self.ac *= self.losses
+        self.dc *= self.losses
         return self
 
     def no_extra_losses(self):
@@ -925,7 +925,7 @@ def run_model(self, times=None, weather=None):
         self.effective_irradiance_model()
         self.temp_model()
         self.dc_model()
-        self.ac_model()
         self.losses_model()
+        self.ac_model()
 
         return self
diff --git a/pvlib/test/test_modelchain.py b/pvlib/test/test_modelchain.py
index c15acf8bf6..1bbab81f13 100644
--- a/pvlib/test/test_modelchain.py
+++ b/pvlib/test/test_modelchain.py
@@ -388,7 +388,7 @@ def test_spectral_models(system, location, spectral_model):
 
 def constant_losses(mc):
     mc.losses = 0.9
-    mc.ac *= mc.losses
+    mc.dc *= mc.losses
 
 
 def test_losses_models_pvwatts(pvwatts_dc_pvwatts_ac_system, location, weather,
@@ -404,6 +404,14 @@ def test_losses_models_pvwatts(pvwatts_dc_pvwatts_ac_system, location, weather,
     m.assert_called_with(age=age)
     assert isinstance(mc.ac, (pd.Series, pd.DataFrame))
     assert not mc.ac.empty
+    # check that we're applying correction to dc
+    # GH 696
+    dc_with_loss = mc.dc
+    mc = ModelChain(pvwatts_dc_pvwatts_ac_system, location, dc_model='pvwatts',
+                    aoi_model='no_loss', spectral_model='no_loss',
+                    losses_model='no_loss')
+    mc.run_model(weather.index, weather=weather)
+    assert not np.allclose(mc.dc, dc_with_loss, equal_nan=True)
 
 
 def test_losses_models_ext_def(pvwatts_dc_pvwatts_ac_system, location, weather,