Philippines: Retail a rising risk for Meralco - MVP

Philippines: Retail a rising risk for Meralco - MVP

Manila Electric Co. (Meralco), the listed power distributor chaired by
business tycoon Manuel V. Pangilinan, sees the growing retail electricity
business in the country as a risk to the company, which for decades has been
the main power distributor in Luzon.

In a recent briefing, Pangilinan said that to some extent, the shift of big
power users to other suppliers, "is a risk for Meralco."

"We have our own strengths (but) it is a risk for Meralco because Meralco
buys electricity from the market. It is a trader...We have a trading margin
for that," he said.

The liberalization of the power industry as mandated by the Electric Power
Industry Reform Act of 2001 has paved the way for the entry of retail
electricity suppliers or RES in the sector.

Introduced in June 2013, RES are entities authorized by the Energy
Regulatory Commission (ERC), the power regulator, to sell, broker or market
electricity to big power users or those with an average peak demand of one
megawatt for 12 months.

Prior to June 2013, all these big customers were captive customers of
Meralco, said Betty Siy-Yap, Meralco chief finance officer.

Under the present set-up, Meralco earns from sourcing power and from
distributing this power although the actual generation and transmission
charges are passed-through charges.

"Prior to June 26, 2013, all the customers are captive customers which means
we supply the energy to all the customers but it's a pass-through which
means we don't make a margin on generation or transmission for that matter.
It's only distribution that we make money," Siy-Yap said.

She said Meralco could still earn because the RES entities would still use
Meralco's distribution lines, but revenues would be affected because the
company would no longer earn from sourcing the power supply for customers.

"If it's full contestability and everybody can choose their supplier, we
still make money because distribution is our main business. So if everybody
chooses somebody else, our bottom-line is still the same but topline would
shrink because the supply part is not with us (anymore)," she said.

To mitigate the impact of competition brought about by the RES regime,
Meralco has also introduced its own RES entity.

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Link to Original Article:
http://www.philstar.com/business/2017/08/29/1733572/retail-rising-risk-meral
co-mvp

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com