Meralco

Manila Electric Company

Type	Public (PSE: MER and MERB)
Industry	Power distributor
Founded	January 17, 1895
Headquarters	Pasig City, Philippines
Key people	Manuel M. Lopez, Chairman Manuel V. Pangilinan, President & CEO Oscar S. Reyes, COO Charles M. Swift, Founder
Website	www.meralco.com.ph

Meralco's franchise area.

The Manila Electric Company (PSE: MER and MERB), also known as MERALCO or Meralco, is the Philippines' largest distributor of electrical power.

The word MERALCO, is an acronym for Manila Electric Railroad And Light COmpany, which was the company's original name from 1903 to 1919.

MERALCO is the Metro Manila's only electric power distributor and holds the power distribution franchise for some 22 cities and 89 municipalities, including the whole of Metro Manila and Mega Manila region.

History

Organized in 1892 and began generation in 1895, La Electricista was the first electric company that provides electricity to Manila during the late Spanish era. La Electricista had built a central power plant on Calle San Sebastian (now R. Hidalgo). On January 17, 1895, its streetlights were turned on for the first time. By 1903, it had about 3,000 electric light customers.

On October 20, 1902, the Second Philippine Commission began accepting bids to operate Manila's electric tramway, and by extension, providing electricity to the city and its suburbs. Detroit entrepreneur Charles M. Swift won the bidding by default as he was the sole bidder and on March 24, 1903, was granted the original basic franchise of Meralco.

In 1904, Meralco acquired both the Compañía de los Tranvías de Filipinas, a firm that operated public transportation and ran Manila's horse-drawn and steam-operated tramways, and added La Electricista. Construction on the electric tramway began that same year. In addition to acquiring La Electricista's Calle San Sebastian power plant, Meralco built its own steam generating plant on Isla Provisora which powered the streetcar system and eventually also the electric service. By 1906, Meralco's yearly power output capacity was around eight million kWh.

Public Transportation

Meralco built up a strong public transportation business in the decades leading up to World War II, building a 170-strong fleet of streetcars into the 1920s, before switching over to buses later in that decade.

The company operated a 52-mile tram transport from 1903 to World War II. The equipment and tracks of the system was severely damaged during the war and had to be removed.^[1]

Power Generation and Distribution

By 1915, electricity generation and distribution became the main Meralco's main income generator, overtaking its public transportation operations in terms of revenue. In 1919, it changed its official name to Manila Electric Company. By 1920, the company's power capacity had grown to 45 million kWh.

In 1925, MERALCO, was acquired by the utility holding company Associated Gas and Electric or AGECO (reorganized as General Public Utilities Corporation or GPU in 1946), which had begun a massive expansion throughout the United States and Canada. With AGECO's financial backing, MERALCO began acquiring a number of existing utility companies in the Philippines, enabling the company to expand beyond its Manila city center base.

By 1930 MERALCO completed construction of the Philippine's first hydroelectric power plant, the 960-kilowatt Botocan Hydro Station.^{[citation needed]} At the time, this plant was one of the largest engineering projects in Asia^{[citation needed]} and constituted the largest single private capital investment in the Philippines.^{[citation needed]} The additional capacity allowed the company to begin hooking up customers throughout the metropolitan area.

Retail Enterprises

To drive demand for more power, Meralco also opened a retail store in order to sell electric home appliances.^{[citation needed]}

World War II

During Greater East-Asia War, the Japanese Occupation Forces forcibly transferred all of Meralco's assets and holdings to the Japanese controlled Taiwan Power Company. By the end of the war, most of the former Meralco operations had been destroyed.

Post War Reconstruction (Nationalist Era)

After World War II, MERALCO's autobus franchise was sold to Halili Transport. In 1962, Don Eugenio López, Sr. acquired MERALCO and it finally became Filipino-owned. In buying Meralco, Don Eugenio demonstrated his belief that Filipinos could manage businesses even better than Americans. During 1962-72, he increased MERALCO's power generating capacity five times.

Martial Law Period

In 1972 President Ferdinand Marcos both instituted martial law in the Philippines and issued Presidential Decree No. 40 which forcibly nationalized the country's electric generation and transmission.

Don Eugenio Lopez, Sr., who owned Meralco at the time, had both his sons kidnapped by the government who were released to force Don Eugenio to hand over his business empire. The regime arrested his son Eugenio Lopez, Jr. (better known as Geny) on trumped-up charges of conspiring to assassinate the president. With his son held hostage, Don Eugenio was forced to give up his holdings in a group of companies worth several hundred million dollars, but Geny was not released from prison.

By decree, the ownership of the company was stripped away from the López family and placed under a shell company called the Meralco Foundation, Inc., controlled by crony under the newly-created, government controlled Napocor.

By 1978 all of the Philippines' major power plants, including most notably those previously owned by MERALCO, were owned and operated by NAPOCOR. Control of the Meralco corporation itself was seized by the Marcos Dictatorship, but was returned to its prior owners after the People Power Revolution by President Corazon Aquino in a silver platter without the Lopez family paying for improvements done during Martial Law. She also enacted an executive order that allowed the company to directly compete with NAPOCOR.^[2]

2008 Legislative investigation on high power rates

Meralco is facing a Philippine legislative inquiry/investigation for alleged excessive pricing.^[3] The government has considered a plan to take over Meralco, to reduce electricity bills. Meralco and National Transmission Corporation (Transco) blamed each other for the high power rates.^[4] Meralco also blames high power generation costs, high transmission costs and government taxes imposed on the electricity sector from power generation to distribution. Government Service Insurance System (Philippines) President Winston Garcia, however, blamed Meralco's inefficiency, its "bloated bureaucracy" and its sourcing of power from independent power producers (IPPs) also owned by the Lopezes, and the need to amend the Electronic Power Industry Reform Act of 2001. Oscar Lopez, said that if GSIS would buy the shares of Meralco, they must buy in whole cash. Many businessmen also say that taking over Meralco is not the way to reduce electrical price. It depends on the government and the president. As other people say, this issue is only to hide the ZTE NBN scandal and other more issues.^[5] A perceived lack of general understanding regarding the issue of system loss, inherent in the business of utilities prompted Meralco's former holding company First Philippine Holdings to issue advertisements explaining systems loss.

Syndicated estafa and bribery case

The Department of Justice (Philippines), in its August 22, 2008 31-page resolution, filed with the Pasig Regional Trial Court Court, syndicated (fraud) charges against Meralco. The May 29 National Association of Electricity Consumers for Reform (Nasecore) complaint accused Meralco of "illegally declaring as income P 889 million in consumers’ money, which represents interest from meter and bill deposits consumers had been paying since 1995."^[6] No bail was recommended for all the accused, 2006 officers of Meralco, to wit: Meralco chairman and CEO Manuel Lopez, executive vice president and chief financial officer Daniel Tagaza, first vice president and treasurer Rafael Andrada, vice president and corporate auditor and compliance officer Helen De Guzman, vice president and assistant comptroller Antonio Valera, and senior assistant vice president and assistant treasurer Manolo Fernando; 2006 Meralco directors Arthur Defensor Jr., Gregory Domingo, Octavio Victor Espiritu, Christian Monsod, Federico Puno, Washington Sycip, Emilio Vicens, Francisco Viray and Cesar Virata.

Nasecore's complaint accusing Meralco of "illegally declaring as income 889 million pesos in consumers’ money, which represents interest from meter and bill deposits consumers had been paying since 1995," was immediately refuted by the accused company as the alleged P889 million only stemmed from a generally accepted accounting principle of reversing Meralco's earlier provision for meter deposit interests which, earlier set at 10% per annum was deemed too high and was set to the recommended 6%.^[7] Meralco also questioned how a syndicated estafa case can arise when it has already announced and committed that it will be refunding to customers who paid meter deposit principals plus interest months ahead of the ERC prescribed schedule and has allocated enough funds for the said refund.

Meralco is also involved in the GSIS-Meralco bribery case.^[8]

Dismissal of syndicated estafa case

On October 6, 2008, the Pasig City Regional Trial Court Branch 71 dismissed the syndicated estafa case filed against Meralco board of directors for the prosecution failed to establish all the elements of syndicated estafa.^[9]

Presiding Judge Franco Falcon, in the ruling, pointed out that the board is not the kind described by the law as being formed to perpetrate an illegal act for the board of directors were elected by stockholders. The court explained, “Therefore, the accused can never be charged of taking part in the commission of syndicated estafa not only because they are not part of a syndicate as contemplated by law in PD 1689, but more so, because there was absolutely no estafa committed.”

According to Philippine Law, to constitute syndicated estafa, the subject money or property must be received by the offenders. The money represents the accrued interests on the bill and meter deposits, which were paid by Meralco customers, not directly to the board, but to the various Meralco business centers where the customers transacted.

MeralcO expressed elation over the dismissal.^[10]

Sell-offs and Acquisitions

San Miguel Acquisition of GSIS Stake

Food and beverage conglomerate San Miguel Corporation acquired GSIS's entire 27 percent stake in Meralco at P90 per share or a total of P26 billion (excluding interest) on October 27, 2008.^[11]

Upon SMC's entry into Meralco, SMC was entitled to different company positions. SMC President Ramon Ang replaced Felipe Alfonso as Meralco vice-chairman. The board also announced the appointment of Jose de Jesus, former president and CEO of the Manila North Tollways Corp. (MNTC), as the new Meralco president and COO, replacing Jesus Francisco.^[12]

De Jesus was quoted that under his wing, Meralco will further improve its service for its customers. “The company will focus on searching for opportunities of improving service to Meralco’s millions of customers and bring [the company] closer to and understood by them.”^[13]

SMC was also able to secure four board seats in the Meralco board, replacing the seats that were once held by GSIS directors.^[14] The new directors included Eduardo Cojuangco, Jr., Aurora Babes Calderon and former Justice Minister Estelito Mendoza. They replaced GSIS nominees Winston Garcia, Bernardino Abes, Jeremy Parulan, and Daisy Arce.^[15]

Sell-off of Some Shares to PLDT

On March 13, 2009, the Lopez Family agreed to sell 20 percent of Meralco to the telecommunications giant PLDT for about 20 billion pesos. This move is to attempt to block the hostile takeover of the largest power distributor by San Miguel Corporation.^[16] This means that the Lopez family whose majority stake in Meralco once formed the nucleus of the group’s power empire will retain only 13.4 percent once the transaction is completed within the third quarter of 2009.

On November 6, 2009, only half of the shares were sold to PLDT, and the other half to MPIC both are affiliates of Hong Kong-listed First Pacific, this after a takeover war between PLDT and TriRatna Holdings Corp. ,which is majority owned by Henry Sy, Jr. son of mall magnate Henry Sy.

Acquisition of Sta Lucia Realty franchise in the PBA

Further information: Meralco Bolts

On August 9, 2010, the Philippine Basketball Association board of Governors approve the sale of the franchise to Meralco worth 50 million pesos.

Ownership

• San Miguel Corporation and affiliates: 43%^[17]
• Beacon Electric Asset Holdings, Inc. (50/50 JV between PLDT Communications and Energy Ventures, Inc. and Metro Pacific Investments Corporation, both affiliates of First Pacific): 34.8%
• First Philippine Holdings Corporation: owns 6.7% stake of the company after selling its 26.6% stake to Pangilinan's MPIC and Pilipino Telephone Corporation|Piltel]].
• PLDT Communications and Energy Ventures, Inc. (formerly called Pilipino Telephone Corporation or Piltel, which is 100% owned by Smart Communications, which in turn is 100% owned by PLDT): 6.1%
• Public Stock: 8.9%

References

1. ^ Lexis Nexis (1974). Mass Transit. PTN Pub. Co. p. 58. http://books.google.com/books?id=6VNUAAAAMAAJ&q=meralco+world+war&dq=meralco+world+war&pgis=1. Retrieved 2008-06-15. 
2. ^ Bello, Walden; Marissa De Guzman, Mary Lou Malig, Herbert Docena (2005). The Anti-development State: The Political Economy of Permanent Crisis in the Philippines. Zed Books. p. 293. ISBN 1842776312. http://books.google.com/books?id=3S0ukwMn8LoC&pg=PA293&dq=meralco+world+war. Retrieved 2008-06-15. 
3. ^ GMA NEWS.TV, House panel begins probe into high power rates
4. ^ Abs-Cbn Interactive, Meralco, Napocor point fingers on high power rates
5. ^ Abs-Cbn Interactive, High power rates blamed on Meralco, gov't, IPPs
6. ^ gmanews.tv, DOJ charges Meralco with syndicated estafa
7. ^ DOJ files estafa raps vs Meralco
8. ^ newsinfo.inquirer.net, DoJ files syndicated fraud raps vs Meralco execs
9. ^ "Instilling a culture of peace among Muslim, Christian kids". BusinessMirror. http://businessmirror.com.ph/index.php?option=com_content&view=article&id=376:meralco-welcomes-dismissal-of-estafa-case-versus-officials&catid=24:companies. 
10. ^ http://balita.ph/2008/10/15/meralco-exec-expresses-elation-for-dismissal-of-estafa-case-filed-by-doj/
11. ^ http://business.inquirer.net/money/breakingnews/view/20081028-168813/GSIS-sells-Meralco-stake-to-San-Miguel
12. ^ http://www.philstar.com/Article.aspx?ArticleId=434972&publicationSubCategoryId=66
13. ^ http://businessmirror.com.ph/index.php?option=com_content&view=article&id=5349:improving-services-main-thrust-of-new-meralco-president&catid=24:companies&Itemid=59
14. ^ http://www.abs-cbnnews.com/business/01/26/09/smc-replaces-gsis-meralco-board
15. ^ http://www.gmanews.tv/story/145950/San-Miguel-Corp-secures-board-seats-in-Meralco
16. ^ Sanchez-Lacson, Elizabeth; Dumlao, Doris. Lopezes to sell 20% of Meralco to PLDT , Philippine Daily Inquirer
17. ^ http://www.abs-cbnnews.com/business/11/05/09/fphc-sells-67-meralco-stake-pldt-group

See also

• John F. Cotton Corporate Wellness Center