ERC rate cut pushes Meralco to review projects worth P45B

Business mirror

WEDNESDAY, 15 JUNE 2011 19:28 PAUL ANTHONY A. ISLA / REPORTER

POWER retailer Manila Electric Co. (Meralco) will have to do some pencil pushing for some of its proposed capital projects in the next four years in light of the Energy Regulatory Commission’s (ERC) decision to slash its average distribution, supply and metering charges by P0.0636 to P1.5828 per kilowatt-hour (kWh) from the current rate of P1.6464/kWh.

“We have to review our capital projects and do some prioritization ranking and see how we can do. What’s important thing for us is to continue to deliver quality, reliable, adequate power 24 hours by 7 days for 365 days as well as to expand our reach even to still the unserved communities such as certain far-flung relocation sites,” Oscar Reyes, Meralco senior executive vice president and chief operating officer, told reporters in an interview.

ERC’s latest decision on Meralco’s capital expenditure program will only allow the utility firm to implement a P37.2-billion capital expenditure program for the third regulatory period or from July 2011 to June 2015.

The company earlier proposed to spend P45 billion for capital projects, which will be spent over a period of four years.

“The rates approved are flat and even slightly sloping, the challenge for us is how to live within that approved capital expenditure and operational expenditure budget, which will require reviewing our entire capital projects program in the four years,” Reyes said.

He added that Meralco needs to determine how it can operate within the approved operational expense budget while meeting the stringent efficiency parameters, notwithstanding the company’s ability to continuously grow its profitability. “We’re hoping volumes would be robust or healthier-than- expected and that we can sort of operate very efficiently—all of which will require us to think out of the box,” he said.

Reyes said they are currently reviewing the projects, adding that he believes Meralco can still proceed with its planned capital projects, despite the budget cut. “It’s really just a matter of phasing everything well,” he added.  

Meralco’s planned power projects, Reyes said, will not be affected by the ERC decision, adding that the said project is distinct and separate from that of the distribution utility.

“Our aim is to continue adequate supply of power and I think if at all, any power interruption will be due to natural causes. But even there we’re addressing by trying to be ready so that if something happens we can re-energize within the shortest possible time. Essentially, it’s going to be a function of natural events or maybe transmission constraints,” he said.

In terms of the debt market, Reyes said Meralco continues to review its cash needs over a much longer period to determine if there are facilities that are available at very attractive terms.

Reyes said they remain in touch with the debt market, although the concern is largely on how the company will address future fund needs over the long term.

“If really pressed to borrow, it will be for Meralco’s own needs. Since our capital projects will continue to be there year-in and year-out, we’re reviewing the market opportunity. But we would like to see whether we could live within that rate. If really needed, then we will have to see how we can accommodate or tap the debt market. But the initial challenge is to live within what the ERC [has set],” Reyes said.