Rate increase to boost Meralco’s income this year

With a possible rate increase by July this year, Manila Electric Co. (Meralco) expects its income to improve further in 2007, a ranking company official said.

Meralco president Jesus Francisco said they see a "rosy" financial picture as "we should get a rate increase this year".

The power distribution utility has a pending application with the Energy Regulatory Commission (ERC) for a 14-centavo per kilowatt-hour basic rate increase.

It also has a petition for a rate adjustment under the performance-based rate (PBR) mechanism which is expected to be decided by the ERC this July.

For 2006, Meralco chief financial officer Daniel Tagaza said they see a possibility of posting a "single-digit" growth in net income.

"It will not be a loss like in 2005. We will have a small income. A single-digit income (growth) is possible," Tagaza said, noting that it would be a reversal from the 2005 net loss of P411 million.

According to Tagaza, they would be releasing the financial data of the company for 2006 by March 15, 2007 after a board approval in the latter part of February.

A proof of the improving financial performance of the power utility firm is its ability to refinance most of its long-term debts which resulted to the possible non-collection of its currency exchange rate adjustment (CERA) up to July this year.

Meralco earlier said it would be reducing its rate by an average of 7.8 centavos per kwh for its customers due to reduction in CERA.

Francisco hinted that should the peso maintain its current level, the customers of Meralco will enjoy the non-imposition of the CERA in their billings up to July of this year or until the new PBR mechanism is approved by the ERC.

PBR is an internationally-accepted rate setting mechanism wherein a distribution utility’s revenue will be determined by its ability to deliver services to its customers. If a distribution utility will perform well, the better will be the revenues for the firm. The savings from better performance will be passed on to consumers.

Upon the approval of the PBR, the CERA and other rate adjustments under the present rate setting scheme would be scrapped.

Another factor that would contribute to the "better" outlook for Meralco’s finances in 2006 and this year is the Supreme Court ruling which upheld the constitutionality of Meralco’s unbundled rate.

Meralco had already set aside a P5.9-billion provision just in case the SC will rule against it. This provision for losses will now go to Meralco’s bottom line, thus improving its financial picture for 2006.