MERALCO’S CORE INCOME FELL 9% TO P21.

7 BILLION IN 2020
posted March 01, 2021 at 08:55 pm by Alena Mae S. Flores

Electricity retailer Manila Electric Co. said Monday consolidated core net income declined 9
percent in 2020 to P21.7 billion year from P23.8 billion in 2019 following a 7-percent drop in
sales amid the impact of the coronavirus pandemic.

“Overall in 2020, the lower CCNI was mainly because of the 7-percent decline [in sales]
which was due to the combined effects of the Taal Volcano eruption, COVID-19 and the three
major weather disturbances that hit the franchise area,” Meralco chief finance officer Betty Siy-
Yap said.
Meralco’s reported net income, adjusted to exclude the effect of foreign exchange gains or
losses, impairment charges, mark-to-market adjustments, and other one-time and exceptional
transactions, also dropped 30 percent to P16.328 billion from P23.285 billion.
Energy sales fell 7 percent last year as the economy shrank 9.5 percent.
Meralco said consolidated energy sales volumes, which included volumes distributed by Clark
Electric Distribution Corp., reached 43,572 gigawatt-hours, down 7 percent from the 2019
volume.
It said residential volumes accounted for 38 percent of total sales, commercial, 34 percent; and
industrial, 28 percent. These were different from the pre-pandemic share of 30 percent, 40
percent and 30 percent, respectively.
The decline in energy sales volume was exacerbated by three typhoons, which ravaged the
Meralco franchise area last year.
Meralco chairman Manuel Pangilinan said he was encouraged by the consumption trends starting
January 2021.
“We are committed to enabling the re-opening of the economy which we hope happens this year.
We are encouraged by Meralco’s January 2021 operating trends, including energy sold to
commercial customers starting to regain traction,” Pangilinan said.
Pangilinan said Meralco joined the government in containing the outbreak of COVID-19 by
ensuring that its 5,700 workforce were regularly tested, supplied with the necessary personal
protective equipment, provided supplements to boost their immunity, and given prompt medical
attention at the first sign of symptoms or infection.
“I am of the view that we need to jumpstart the economy sooner rather than later. The planned
nationwide rollout of the COVID-19 vaccines is the first and most critical step towards
alleviating fear, which is a prime deterrent to mobility. To this end, we have joined others in the
private sector in procuring vaccines not only for Meralco, but also for the broader MVP Group,”
Pangilinan said.
He said Meralco had not lost sight of its role in providing reliable power to customers which
would also underpin the economic recovery.
“In addition, we are cognizant of the need to future-proof our business by focusing on
sustainability, and by digitalizing certain of our processes. We are increasing resources allocated
to clean technologies across all businesses, instituting a stronger plan for the reduction of
greenhouse gas emissions and setting up science-based, measurable targets as our guidance,”
Pangilinan said.
Meralco’s sales volumes skewed toward the residential sector during the pandemic as the
lockdown and quarantine restrictions necessitated work-from-home arrangements, online
distance learning and limited mobility.
Commercial volumes dropped 20 percent in 2020 compared with 2019, with hotels and retail
trade the hardest hit as foot traffic to malls, hotels and other retail establishments drastically
declined.
Industrial volumes inched up gradually by the end of 2020 as manufacturers started to operate.
For the first time since March last, industrial volumes reflected positive 4-percent growth in
December.
The semiconductor and non-metallic industries provided the increase to the volumes and took the
share in sales from the food and beverage, and packaging industries.
Gross revenues in 2020 reached P275.3 billion, or 14 percent lower than in 2019 while volume
dropped 7 percent to 43,572 GWh.
Total electricity revenues amounted to P267.9 billion, down 14 percent from a year earlier,
reflecting the reduction in Meralco’s purchased power costs.
Meralco’s customer base grew 4 percent, ending the year with 7.1 million customer accounts, for
a net 249,000 new customer accounts.

Reference:

https://manilastandard.net/business/power-technology/348275/meralco-s-core-income-fell-9-to-p21-7-
billion-in-2020.html

1. Is it an example of monopoly, monopolistic competition, or oligopoly?

Meralco is an example of a monopoly market structure. Meralco has been granted by the
Philippine Congress a franchise to solely distribute electricity within its franchise area. Also,
because they don’t have any real competition.
2. Do you think the firms in the industry are earning an economic profit? Are new firms
likely to enter this market?
In an industry the economic profit fluctuates from time to time. Sometimes the firms in the
industry are earning, sometimes there is an economic loss and sometimes it breaks even. In this
article Meralco’s economic profit dropped on the mid-year of 2020 because of the pandemic.
New firms are not likely to enter this market because as stated before they are the only firm who been
granted to have a single entity control over the supply of electricity in Manila and in the nearby provinces.

Their economic profit dropped on the mid-year of 2020 because of the pandemic. MERALCO, the
largest utility company in Luzon, experienced a peak demand drop of almost 40% during the lockdown to
4,516 megawatts (MW) in March 2020 and a further drop to 3 Bloomberg. Manila Electric Halves
Spending as Lockdown Weakens Power Demand. April 27, 2020. New capacity should now prioritize
system flexibility and resilience over a single-minded focus on baseload generation. The Philippines
Power Sector Can Reach Resilience by 2021 6 4,289MW in April. The Department of Energy’s (DOE)
peak demand forecast4 for the Luzon grid where MERALCO operates was 12,285MW for May 2020.
Because of the pandemic, peak demand is likely to be more than 60% lower than initial expectations. The
DOE revealed recently that electricity demand fell by 30% in Luzon, 17% in the Visayas, and 25% in
Mindanao.
The massive drop in demand in the Luzon and Mindanao grids reflects the dramatic impact of lockdowns
on industry and trade which account for 86% of power demand. By contrast, in areas served by electric
co-operatives, demand has largely been stable as the users are predominantly households. However,
collection efficiencies in electric co-operatives have fallen from more than 90% to between 30% and
40%.

3. Use the analysis developed in class and the text to explain the situation. Use economic
reasoning and show your analysis using a graph or other model, as appropriate.

"In terms of our performance for 2020, in many respects, the entire number, the entire financial
accounts of Meralco was driven by the fact that volume was driven mainly by commercial,
industrial, counteracted by a large degree of residential sales," said Meralco chairman Manuel
Pangilinan.

The COVID-19 pandemic has significantly accelerated trends that were slowly reshaping Philippine
business and society. The resultant economic shocks are exposing weaknesses in the country’s power
market design, while also revealing an apparent willingness among power sector stakeholders in the
Luzon-Visayas grid to share the risk and future opportunities.