Meralco Reports PhP4.4 Unaudited Consolidated Core Net Income for 1Q

Manila–(PHStocks)–Manila Electric Co. (Meralco, PSE: MER) has announced that its unaudited consolidated core net income for the three months ended 31 March 2015 amounted to PhP4.4 billion, 3% higher compared with the same period last year.

Consolidated reported net income, which excludes one-time, exceptional charges, for the period also stood at PhP4.4 billion, reflecting a 10% growth over 2014. Core earnings per share was at PhP3.918 for the three months ended 31 March 2015, while reported earnings per share was at PhP3.922.

The higher Consolidated core net income was largely attributable to the combined effect of a more than 2% increase in electricity volume distributed supported by a 4% growth in the customer base, growth in the number and volume of contestable customers of MPower (Meralco’s Retail Electricity Supply (RES) unit), 14% increase in the contribution to net income from operating subsidiaries, a and other related parties, and improved yield on cash and cash equivalents, and other financial instruments.

Consolidated revenues in 2015 were 14% higher at PhP62.6 billion compared with PhP55.1 billion in the same period last year. Normalizing the 2014 consolidated electric revenues by the PhP9.3 billion- Wholesale Electricity Spot Market (WESM) adjustment, 2015 consolidated revenues were 3% lower versus 2014. Consolidated electric revenues accounted for 98% or PhP61.1 billion of total revenues.

In March 2014, the Philippine Electricity Market Corporation (PEMC) recalculated the prices of power purchases from the WESM in December 2013 based on an order of the Energy Regulatory Commission (ERC). The resulting, adjustment, which amounted to PhP9.3 billion and was pass through to the customers, to a large extent accounted for the significantly lower 2014 revenues compared with 2015.

Generation charges billed to Meralco’s  customers averaged at PhP4.93 per kWh in the first quarter of 2015, or 9% lower than the PhP5.43 per kWh in 2014, which represents average generation charges before effecting the PEMC adjustment. Transmission charges were at PhP0.95 per kWh or 1% lower compared with 2014. Meralco ‘s distribution rate was PhP1.55 per kWh, approximately similar to the approved Maximum Average Price (“MAP”) for Regulatory Year (RY) 2015 of PhP1.5562 per kWh. The average distribution rate For the same period in 2014- was PhP1.63 per kWh for the first quarter of 2015, the overall average retail rate to Meralco’s captive customers amounted to PhP3.39 per‘ kWh [inclusive of a PhP0.0406 Feed-in-Tariff Allowance (FiT-All)], PhP0.67 or 7% lower compared with that in 2014. The FiT-All is collected on behalf of  and remitted to the National Transmission Corporation (TransCo) to Fund payments to eligible Renewable Energy (RE) developers.

The average blended purchased power cost, consisting of generation and transmission costs for the first three months 0120 15, was at PhP6.03 per kWh, 7% lower than 2014 (excluding any WESM adjustment). Power purchased under long-term supply contracts and interim power sales agreements accounted for 97% of the total volume in 2015, with the balance sourced from WESM. Purchased power price and other charges from WESM in 2015 averaged PhP8.85 per kWh.

Operating expenses increased by 17% to PhP5.4 billion compared with PhP4.6 billion in 2014. Labor, labor-related and contracted services remain to be the significant operating cash costs of Meralco. Contracted services include meter reading, bills printing and delivery, and IT services. Beginning the middle of 2014, Meralco outsourced most of its IT services, which are largely on a managed service arrangement. In addition, operating expenses in 2015 included payment of a concession fee to the Philippine Economic Zone Authority (PEZA) for its share in Meralco‘s distribution management service fees in the Cavite Economic Zone (CEZ) under a 25-year concession. Taxes and licenses paid, other than income tax, amounted to PhP218 million, slightly lower than 2014 as most of the capital increases for subsidiaries, for which documentary stamp taxes are incurred, were concluded in 2014.

Non-electric revenues were generated mainly from the services business of the operating subsidiaries. Improved contributions were realized from  Meralco’s subsidiaries, particularly from CIS Bayad Center, Inc. (Bayad Center, Meralco’s bills payment company) on account of higher volume of bills pay, load and remittance transactions handled and from Meralco Industrial Engineering Services Corp. (MIESCOR , an electromechanical engineering and Engineering, Procurement and Construction (EPC) services entity), due to completed construction projects.
Consolidated EBITDA was higher year-on-year by 10% at PhP8.2 billion, equivalent to an EBITDA margin of 13% on consolidated revenues.

Total cash and cash equivalents as at 31 March 2015 amounted to PhP64.4 billion. Consolidated gross debt balance at the end of the first quarter of 2015 amounted to PhP29.8 billion. Gross Debt to EBITDA stood at 0.91x. Meralco’s net debt position remains negative. Total principal debt repayments, inclusive of financial charges, amounted to PhP744 million.

A total of PhP6.9 billion and PhP4.5 billion were invested in Government Securities (classified as Held-to-Maturity investments) and Unit Investment Trust Fund (classified as Available-for-Sale investments), respectively, providing improved yields over 2014 financing income. This allowed the adoption of an enhanced cash optimization policy approved by the Meralco Board of Directors in November 2014. Consolidated capital expenditures tor the first quarter of 2015 totaled PhP3 billion. These included the construction of two (2) 69kV lines from the National

Grid Corporation of the Philippines’s (NGCP) Batangas Substation (Mahabang Parang) to Meralco’s Batangas City Substation, the Botocan hydroelectric Power Plant (BHEPP) interconnection. and the 2.5 kilometer-1 15 kV line
interconnection of Alternergy Wind One Corporation (AWOC) to Meralco’s Malaya — New Teresa 115 kV line and the construction of its metering switchyard. Also completed were the expansion of the Fort Bonifacio Global City (FBGC)— 4 GIS Substation with the installation of a second 83 MVA power transformer bank and initially the construction of two (2) additional underground feeders, interconnection of the Millennium Gas Turbine Power Plant (MGTPP) to the Therma Mobile (TMO) — Grace Park 115 kV line, and the relocation of 203 electric poles and related equipment in support of the Department of Public Works and Highway“s (DPWH) Ninoy Aquino International Airport (NAIA) Expressway project.

The NGC P Mahabang Parang-Batangas City line consists of a total 13.3 kilometer length of 69kV-lines, 12.5 kilometers of which are overhead lines. These lines are expected to ensure reliability of service for the Batangas City and Meralco-Bolbok Substations and are intended to accommodate the 35MW applied load of JG Summit Holdings Inc. (PSE: JGS).

These capital expenditures will help in easing the tight summer supply situation in 2015 and 2016. On 27 February 2015, BHEPP began commercial operations. BHEPP is expected to deliver a maximum of 21MW of generated power to the grid. The construction of the AWOC interconnection line allows AWOC’s first 10 wind turbines to supply generated output to the Luzon grid beginning March 2015. The expansion of the FBGC—4 GIS Substation provides additional capacity to Bonifacio Global City to address the load growth across all customer classes, in particular the
BPO industry, Finally, the relocation of poles and related equipment for DPWH is a requirement tor the construction of the 7.15 kilometer NAIA Expressway, a Public Private Partnership (PPP) project.

In the second halt of 2014, the Department of Energy (DOE) advocated the implementation in the Luzon grid of the lnterruptible Load Program (ILP), a demand-side management solution, which aims to mitigate the projected power supply strain in the summer months of 2015. This includes the month-long maintenance shutdown of the Malampaya Gas Facility commencing mid-March and the scheduled maintenance shutdown of Unit 1 of the Pagbilao Power Plant of TeaM (Philippines) Energy Corporation, Units 50 and 60 of the San Lorenzo Power Plant of FGP Corp. (San Lorenzo) and Unit 40 of the Sta. Rita Power Plant of First Gas Power Corporation (“Sta. Rita”) in June 2015. As at March 31, 2015, 405 customer accounts with a total of 807.2 MW of capacity have signed up to participate in the ILP.

“Cognizant of the continued increase in the Meralco customer base and growth in energy demand, the anticipated rise in incidences of forced and scheduled power plant downtime and the lack of new generation capacity, Meralco remained focused on mitigating the risks of power supply outages and generation charge spikes to safeguard the interest of Meralco customers.

“Significant resources are being devoted to Working with generating companies For extended and potentially new Interim Power Supply Agreements under competitive least cost terms, as well as working with captive and contestable customers, and the Government, for the maximum possible enrollment of self-generation capacity in the ILP. Close coordination with the generating companies, NGCP and DOE was similarly pursued by Meralco to secure the least supply-disruptive scheduling of plant maintenance shutdowns, the DOE’s and Meralco’s energy conservation and efficiency advisories, and Meralco’s major capital expenditures for generating plant and substation interconnection projects, helped in augmenting power supply to meet projected demand. These cooperative efforts
across the entire power supply chain contributed to averting supply disruptions, triggering of the ILP and power price spikes during the first quarter of 2015, even with the shutdown of the Malampaya Gas Facilities starting March 15 to allow for the tie-in of their second deep water platform. The sustained softening of oil, gas and coal prices contributed as well to averting any pronounced surge in generation charges in the lace of tight supply conditions.

“These initiatives and developments are merely palliatives. The key to longer term power supply and price stability remains in developing and bringing in new highly reliable and life-cycle cost competitive generating capacity. To this end, we are doing our share through our joint ventures for the 455MW (net) San Buenaventura supercritical, and 2 x 300MW Redondo Peninsula, circulating-fluidized bed coal-fired power plants in Mauban, Quezon and Subic Bay, Zambales, respectively and other new generating projects under development,” said Manuel V. Pangilinan,
Chairman.