MANILA, Philippines – Power utility Manila Electric Co. (Meralco) said it would likely trim its capital expenditure projects in line with the lower maximum allowable revenue (MAR) set by the power sector regulator for the period 2012 to 2015.
Meralco chief operating officer Oscar Reyes said they would need to review their capex budget following the decision of the Energy Regulatory Commission (ERC) allowing the company to collect less revenues for the next three years.
“The challenge for us are rates that are flat and slightly sloping. ERC has come out with a very challenging sort of levels of capex and operational expenditures that we will have to live with over the next four years. The challenge for us is how to be able live within that capex and open levels and that will require reviewing everything or seeing how we can face or defer some of these capital projects,” he said.
“We would like to live within that or see whether we could live within that rate. If really needed, then we will have to see how we can accommodate that. But the initial challenge is to live within that ERC set rates.”
He said based on the approved distribution, metering and supply of ERC for Meralco, the power firm would have to spend 20 percent lower than what it initially intended to set aside for capex which was at P45 billion.
“We had said that we would have to spend P45 billion over a four-year period. The capex that was eventually incorporated as part of the annual revenue requirement was close to 20 percent lower than what we have asked,” he pointed out.
But Reyes was quick to point out that they would not be canceling projects.
“We’re reviewing. I don’t think we will do away with any of the projects. It’s just a question of phasing,” he said.
He believed that the new revenue cap imposed by the ERC on Meralco would not limit their capability to service their customers.
“So we have to review our capital projects and do some prioritization, ranking and see how we can do. But the important thing for us is to continue to deliver quality, reliable, adequate power 24 hours by seven days by 365 days. And to continue to expand our reach even to still unserved communities such as certain far-flung relocation sites,” he added.
He said they may resort to borrowing but at the moment, would rather “live within their means.”
“Since our capital projects will continue to be there year-in and year-out, we’re reviewing the market opportunity.”
Reyes said they would also want to maintain their positive financial position despite lower distribution rate collection for regulatory period 2012-2015.
“(We want to) see how we can operate within the opex levels – at super challenging efficiency parameters the ERC has set for us. And to continue to grow our profitability notwithstanding that. We’re hoping volumes would be robust or healthy than expected and that we can sort of operate highly efficiently which will require out-of-the-box thinking,” he said.
The ERC recently ordered Meralco to collect 6.36 centavos per kilowatthour for the regulatory period 2012 to 2015, lower than the prevailing maximum average price (MAP) for regulatory year 2011 of P1.6464 per kwh under the performance-based regulation (PBR) scheme.
The PBR is a rate-setting scheme based on a utility’s quality of service to its customers. The PBR also allows power utilities like Meralco an annual adjustment on its tariffs to take into account inflation and foreign currency exchange fluctuations, as well as its obligations to its franchise area.
The ERC’s final determination reduced Meralco’s combined distribution, supply, and metering rates to P1.5828 per kwh for regulatory year 2012 which will cover the period July 2011 to June 2012.
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