Disclose SC order impact, Meralco told

The Securities and Exchange Commission (SEC) is requiring the Manila Electric Co. (Meralco) to disclose the impact on its financial standing of the Supreme Court decision ordering it to refund customers.

The SEC is preparing a letter requiring Meralco to disclose how the court ruling will affect its corporate finances, existing loans and other important financial matters.

Meralco will be given five days from receipt of the letter to comply with the directive.

On Nov. 15, the Supreme Court’s five-member third division ordered Meralco to refund 16.7 centavos per kilowatt-hour (kwh) it allegedly overcharged customers from February 1994 to February 1998.

The high tribunal did not give a total amount that Meralco would have to refund but the company estimated it could be as high as P28.15 billion.

Meralco said it was on the verge of bankruptcy and a refund order would "most likely put its utility business to a halt" and hurt the economy.

The landmark ruling reversed a 2000 Court of Appeals decision which barred the defunct Energy Regulatory Board (ERB) — the predecessor of the Energy Regulatory Commission (ERC) — from requiring the country’s largest power distributor to refund its customers.

The ERB said Meralco should not include its income tax in the computation of its return-on-rate-base, which determines how much money a company should make from its operating expenses.

Meralco argued that that has been the industry practice for years in the country as well as abroad.

Following the high tribunal’s ruling, Meralco shares tumbled to record lows and ratings agency Standard and Poor’s downgraded the firm’s credit rating to negative, which would make it expensive for Meralco to secure additional funding.

Meralco president Jesus Francisco said they will ask the Supreme Court to reconsider its ruling, admitting that the decision has serious implications for the power firm.

However, the country’s highest court rarely reverses its decisions.

Analysts said the court decision will heavily burden Meralco, which has been complaining of declining profitability in the absence of a rate increase from the ERC.

Meralco has a request for a 30 centavo per kwh rate increase pending for five years now.

Meralco said it may have to seek a debt restructuring agreement with its creditors in the wake of the decision’s adverse effect on its return-on-rate-base, which determines how much money a company should make from its operating expenses.

Meralco has been in technical default over the past few years as its inability to hike power tariffs hurt its profitability, bringing its return-on-rate-base down to a projected three percent this year.

It has total loans of P31 billion of which P22 billion is long-term. Thirty-two percent of the long-term loans is covered by a government guarantee.

Meralco said it may have trouble servicing its P5 billion debt – due to mature next year – if the court did not reverse its decision or if its petition for a rate increase was not granted by the ERC.

Several militant groups and consumers suggested that the government take over Meralco should its financial problems worsen and affect its operations.

Malacañang said the government will not take over Meralco after its owners, the Lopez family, "completely rejected" that option, proposed by Finance Secretary Jose Camacho.

Presidential Spokesman Rigoberto Tiglao clarified that Camacho’s suggestion "was not at all a proposal for a government takeover but simply a plan to upgrade Meralco’s corporate standing in the financial markets."

Meralco is 25 percent owned by Philippine government agencies and 16 percent by the Lopez family.

Meralco reported a 37.4 percent drop in its net income for the third quarter of the year to P281.9 million from P450.3 million a year ago due to the delay in obtaining a rate adjustment.

Apart from this, Meralco is facing an investigation by securities regulators for possible insider trading following reports that some people may have heavily sold company shares prior to the announcement of the Supreme Court ruling.

The Philippine Stock Exchange is trying to determine if insider trading rules were violated. Meralco officials, however, denied any wrongdoing.

The Securities Regulation Code prohibits any individual from buying or selling a company’s stock after obtaining material information about the company that is not yet publicly disclosed.

Meralco has over three million customers and serves Metro Manila and the surrounding areas.