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Effects Of Electric Power Industry Reform Act (RA 9136) And Performance Based Regulation On Meralco

Prepared for BA 219 Corporate Finance Reporting
Dr. Helena S. Valderrama PhD

Prepared by

Mark Alejo S. Bernal
September 3, 2012

Table of Contents

| Pages|
Title Page| 1|
Table of Contents| 2|
Introduction Introduction History of Meralco| 3|
Problem Statement Problem Statement Aim of Research Paper Objectives of Research Paper Relevance of Research Paper Research Process| 4| Electric Power Industry Reform Act | 4|
Meralco Pre-EPIRA Data| 6|
Meralco Pre-EPIRA Analysis| 10|
Meralco EPIRA Era Data| 11|
Meralco EPIRA Era Analysis| 13|
Insights| 14|
Conclusions| 14|
References| 16|

Introduction
Philippine energy and electrification is a national concern. It is the National Government’s duty, responsibility and obligation. This was the primary purpose of Presidential Decree No. 40 (Establishing Basic Policies for the Electric Power Industry) which took effect in 1972. This same PD founded the National Power Corporation (Napocor) as the implementing agency of the state. Napocor acted as the regulator body providing permits to operate to cooperatives, private utilities ad local governments, and other entities. Its main task is to attain total electrification through a series of linked-up generation facilities and power distribution centers.

During this period, Napocor, through former Dean and Finance Minister Cesar Virata took control of Meralco and other power generating companies. This lasted until the Marcos Regime was overthrown and a new constitution was passed in 1988.

In 2001, the Philippine Government enacted Republic Act No. 9136 (EPIRA Law), also called Energy Power Industry Reform Act of 2001. The new law, just like the previous ones, aims to provide better and stricter regulation and government of electricity generation, transmission, distribution and supply. On top of this, the EPIRA Law wants to encourage the private sector to invest in the energy sector (Sec. 9. Functions and Responsibilities). Also, the new law dissolved the old Napocor, and established the new National Transmission Company, referred to as TRANSCO, which will eventually be privatized (Sec. 21. TRANSCO Privatization).

In a gist, the government wants two things. First and original of its purposes is to create a nationwide grid that will provide electricity to the majority of its citizens. The second purpose of the government that is more obvious in its new laws that with its old, is the privatization of the energy sector.

History of Meralco
Manila Electric Railroad and Light Company was established in 1903. Its main business was to provide electricity to the residents of Manila and its nearby towns. On top of this, Meralco was also the owner and operator of electric street railway system of Manila. Meralco provided this two main utility services to Manila for forty years and up until World War 2 broke out.

After the war, Meralco, with its railway systems damaged beyond repair decided to give up its transportation business and concentrate on electricity services. It was an appropriate and timely move because electricity was most needed by the residents of Manila for its postwar redevelopment. With the Philippines’ independence, Meralco became a very important element of society. It provided the country with the tools for progress, machinery and industrialization.

In 1961, a businessman named Eugenio Lopez Sr. bought Meralco. He brought Meralco to a new level of profitability and growth. In the next decades, Lopez expanded Meralco’s reach and coverage outside of Manila and its nearby towns. Meralco started to be nationalized. In less than a decade, Lopez has increase Meralco’s worth five-fold and made it the first Filipino billion-peso corporation.

Meralco experienced a period of dark times during the martial law years of 1972 to 1981. It was...
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