Meralco banking on more sales income to make up for less charges

MANILA, Philippines—The Manila Electric Co., the country’s biggest power distributor, is banking on more robust sales volumes in 2011 to make up for less distribution, supply and metering charges and allow the company to continue operating efficiently amid a “challenging” environment.

The challenge, according to Meralco chief operating officer Oscar Reyes, stemmed from the “flat and slightly sloping” distribution, supply and metering charges that Meralco is allowed to collect from its customers over the next four years, starting this year up to June 2015.

Under the performance-based regulation (PBR) scheme, Meralco has been allowed to collect only P1.5828 per kilowatt-hour for regulatory year 2012. These charges will go down further to P1.5817 per kWh in 2015—lower than the current distribution, supply and metering charges of P1.6464 per kWh.

He, however, declined to comment when asked how these approved charges—much less than what Meralco originally sought for—would affect the company’s financial bottom line.

Reyes only disclosed that Meralco might have to tap the local debt market to accommodate certain plans and programs.

“(Any future borrowings) will be for Meralco’s own needs…. We’re reviewing the market opportunity. We would like to see whether we could live within those rates (approved by the ERC),” Reyes said.

“We continue to review our cash needs over a much longer period to see if there are facilities that can be made available to us at very attractive terms that will help us smoothen our maturities and meet our cash requirements over a much longer period,” he added.

The newly approved distribution, supply and metering charges also translated to a much lower capital spending of only P37.2 billion from the proposed P45 billion, which would derail the planned capital expenditure projects of the distribution utility.

As such, Meralco is now forced to defer several of its planned projects over the next four years, given the tight capital expenditure levels allowed by the ERC.

“The challenge for us is how to be able to live within that capex and operating expenditure levels. That will require reviewing everything or seeing how we can defer some of these capital projects, and see how we can operate within the opex (operating expense) levels at super challenging efficiency parameters the ERC has set for us—and to continue to grow our profitability notwithstanding that,” Reyes explained.

“So we have to review our capital projects and do some prioritization, ranking and see what we can do. But the important thing for us is to continue to deliver quality, reliable, adequate power 24 hours by 7 days by 365 days, and to continue to expand our reach even to still unserved communities,” he added.

According to Reyes, Meralco intends to pursue all the projects it had proposed to the ERC, but the power firm will have to phase them.