Retail a rising risk for Meralco – MVP

MANILA, Philippines - 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.