Stories that Meralco’s Numbers Tell. Comparing Meralco under the MVP Group and Lopez Group (Part 3/4)

Part 3

David Celestra Tan, MSK
7 August 2020

Meralco’s financial data are getting complicated so in the search for more answers we tried to do some forensic style financial analyses, something we learned not from high school but from the CPA review school. Ironically, the more we analyze Meralco’s data in search for more answers, we are instead finding more questions. And seeing more stories.

 A. Let’s Go over what the numbers have and have not told us so far 

1. In 2019 Meralco purchased 33.585 Billion kwh of power at a cost of P174.859 Billion.

2. Meralco also said that their systems loss was 5.9% which means they were able to sell only 94.1% or 31.6034 Billion kwh.

3. In their Annual Report on Page 5, they said their energy sales volume was 46.871 Billion kwh. There is a difference of 13.286 Billion kwh. (in the interest of simplicity let us forget about the systems loss for now.)

4. In their Annual Report also they declared that their sales was P310.098 Billion with Purchased Power Cost of P241.032 billion and a gross profit of P69.066 Billion. These were certified to by their auditors SGV.

5. In their Annual Reports they declared energy sales of 44.313 Billion kwh for 2018, 42.102B in 2017, 40.142B in 2016, and 37.124 B in 2015.

6. Comparatively, Meralco declared to the ERC that their generation supply were 32.5 Billion kwh in 2018, 32.803B in 2017, 33.49B in 2016, and 30.772B in 2015. Big differences.

7. Of all these numbers, the QUANTITY of energy in kwh that were supposed to be purchased and sold by Meralco as declared in their Annual Report (number 5 above) were not part of the SGV audit and neither was part of their submissions to the ERC. Apparently only Meralco’s management knows how these numbers were computed. Or the editors of the annual report.

 8. Meralco’s DSM Revenue compliance

An extrapolation of the numbers however revealed a pattern on what seems to be the objective of the declared sales quantities.

If we divide the gross profit of Meralco from their audited financial statements and annual reports by the volume of kwh they declared to have sold in their annual report, what we should get is their average net revenue per kwh. This in turn represents the average DSM rate of Meralco as approved by the ERC which issupposed to be P1.38 per kwh.

For 2019 P69.066 Billion divided by 44.313 Billion is P1.4735 per kwh. For the previous years the results were P1.4282 for 2018, P1.4397 for 2017, P1.4798 for 2016, and P1.5531 for 2015. 

Curiously all are in the ballpark of the P1.38 per kwh interim rate that approved by the ERC to start in July 2015.

Since the declared kwh energy sales they publish in their Annual Report do not appear to be verified by either SGV or ERC, we can only presume it is only determined by Meralcomanagement and gives them flexibility to insure their revenue per kwh (if someone computes) is near the P1.38 per kwh regulatory DSM rate average.

B. What further forensic analyses and cross correlation of the Meralco data tell us?

1. Comparative annual increases in Meralco Sales vs Purchases

a) The quantity of Meralco’s declared sales in kwh increased a total of 26% from 2015 to 2019 or an average of 6.5% per year. It was 37.124 Billion kwh in 2015 and increasing to P46.871 billion kwh in 2019.

b) Comparatively, the quantity of Meralco purchases of power in kwh as declared in their monthly generation reports to the ERC however was 30.772 Billion kwh in 2015, increasing to P33.565 billion kwh in 2019. That’s a total increase of only 9.25% or an average annual increase for the 4 years of 2.31%.

c) In other words, Meralco’s declared energy sales was increasing an average of 6.5% per year, whereas their actual purchases of power was increasing only 2.31% per year. How can that be? As we asked originally, would it be possible for Meralco to sell more kwh energy than it is buying?

d) The disparity between the two sales vs purchases was 21% in 2015, increasing to 36% in 2018 and to 40% in 2019. The declared sales is getting much bigger than the actual energy purchases.

2. Other stories that the 2015 to 2019 numbers tell 

a) During this 4 year period, Meralco’s number of customers increased by 19% or a total of 1,099,000. Of that increase 92.1% are residential customers or 1,043,000. Commercial customers increased by 54,000 or 11% and industrial customers increase about 1,000 or 10%.

b) In case you are wondering, the average energy kwh consumption per month of the 6,339,000 residential customers was 192kwh a month, 9.5% higher than 2015. Commercial customers consume 2,917 kwh a month or an increase of 13.2%. Industrial customers on the other hand increased 10.7% to 103,477 kwh a month.

c) In terms of proportion of Meralco sales, their Annual Reports say residential customers consume 30% of annual energy sales, commercial customers at 39% and industrial customers 30%. The proportion had not changed since 2015.

3. Again out of curiosity, we compared how Meralco’s numbers were during the Lopez Era of 2008 to 2010 vs the MVP Group ERA from 2010 to 2019.

For the Lopez ERA we were lucky to see at least three years 2008 to 2010. The MVP Group took over majority ownership and management control of Meralco in May 2010.

a) Difference in treating Purchased Power During the Lopez Era.

By contrast, during the Lopez Era Annual Reports of 2008 to 2010, there was practically NO difference between Meralco’s Purchases of Power in their ERC filings compared with the energy sales they are reporting to their stockholders in their Annual Reports.

In 2008 Meralco bought 28.20 Billion kwh and declared P27.05 billion kwh in purchased power in their Annual report. In 2009 it was 28.46 billion compared to 27.61 Billion kwh and in 2010 it was 30.50 billion compared to 30.25 billion.

 In other words, Meralco under the Lopez group was passing on to the consumers even less than the actual purchases of power and reporting them as sales in their Annual Report. This is a more faithful compliance with the regulatory concept of power generation being only a pass on charge.

b) Meralco’s practice of reporting higher energy sales than what they really purchased apparently started in 2011, the first full year that the MVP group managed the giant utility. In that year, Meralco reported higher kwh sales by 2.419 Billion kwh. And the numbers have widened from there.

In 2014 it reached 5.6291 Billion kwh or 19.06% and finally rising to an astounding 13.305 billion kwh or 39.64% in 2019.

In terms of value, the disparity was worth P66.173 Billion for 2019, P66.203Billion in 2018, and P59.171 billion in 2017.  This is evidently part of a revenue and profit optimization strategy of the MVP group when they took over Meralco in 2010.

c) Not surprisingly, Meralco’s gross profits increased significantly per year since the MVP Group took over.

During the last three full years of Lopez management, Meralco’s average gross profit was P27.07 Billion a year. Under the MVP group Meralco’s gross profit skyrocketed to almost double to P50 Billion average from 2010 to 2014. For the years 2015 to 2018 it averaged P60.24 billion. In 2019, gross profits skyrocketed to P69.066 Billion.

4. The numbers are giving us an idea on WHAT was being done and WHY.

Now the question is HOW Meralco has been able to report in its financial statements and Annual Reports P66.173 Billion more in purchased power costs than actual?

Next: Meralco’s Stones Unturned.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Apologies: These articles are being written for the general public and are making an effort to be understood by the common consumers. We repeat and emphasize to a fault. We apologize to readers who are familiar with the inner workings of the power sector and who already understand the terminologies and consumer rates and who might find these articles to be repetitive with the numbers and processes. Thank you for your patience and understanding.