Meralco Financial Statements

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MANILA ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIATED FINANCIAL STATEMENTS

1. Corporate Information
Manila Electric Company or MERALCO, holds a congressional franchise under Republic Act or RA No. 9209 effective June 28, 2003. RA No. 9209 grants MERALCO a 25-year franchise valid through June 28, 2028 to construct, operate, and maintain the electric distribution system in the cities and municipalities, and barangays in the provinces of Batangas, Laguna, Pampanga, and Quezon. On October 20, 2008, the Energy Regulatory Commission or ERC, granted MERALCO a consolidated Certificate of Public Convenience and Necessity for the operation of electric service within its franchise coverage, effective until the end of MERALCO’s congressional franchise, MERALCO is the largest power distribution utility or DU, in the Philippines. The power segment, primarily power distribution, consists of operations of MERALCO and its subsidiary, Clark Electric Distribution Corporation or CEDC. CEDC is registered with Clark Development Corporation or CDC, under RA No. 9400, Bases Conversion Development Act of 1992, as a Clark Special Economic Zone or CSEZ, enterprise, primarily engaged in owning, operating, and maintaining a power distribution system within CSEZ. Separately, MERALCO organized a subsidiary for its re-entry into power generation through its wholly-owned subsidiary, MERALCO PowerGen Corporation or MGEN, and another unit for its entry into retail electricity supply or RES. The MERALCO local RES, otherwise known as MPower, is a business unit within MERALCO. Through several other subsidiaries, its other business segments provide engineering, construction and consulting services, bill collection services, energy management services and information systems and technology services. MERALCO’s investment in common equity shares of Rockwell Land Corporation or Rockwell Land, was declared as property dividends on February 27, 2012 to stockholders of record as at March 23, 2012. On April 25, 2012, the Securities and Exchange Commission or SEC, approved the property dividends on May 11, 2012. The details of declaration are Note 6 – Discontinued Operations. MERALCO and its subsidiaries are collectively referred to as MERALCO Group. MERALCO is owned by three major shareholder groups and the public. As at December 31, 2012, Beacon Electric asset Holdings, Inc. or Beacon Electric, owns 48.30% of the common shares. Beacon Electric jointly owned by Metro Pacific Investments Corporation or Metro Pacific and PLDT Communications and Energy Ventures, Inc., or PCEV, both of which are domestic corporations and are affiliates of First Pacific Company Limited, a Hong Kong-based investment and management company. San Miguel Corporation or SMC, together with its subsidiaries, San Miguel Purefoods Company Inc. and San Miguel Global Power Holdings, owns 32.83% of the outstanding shares of MERALCO. First Philippine Holdings Corporation or First Holdings, and First Philippine Utilities Corporation, collectively own 3.94%. The balance of MERALCO’s common shares is held by the public. The common share of MERALCO are listed on and traded in the Philippine Stock Exchange or PSE, with security symbol MER. The registered office address of MERALCO is Lopez Building, Ortigas Avenue, Pasig City, Philippines. The accompanying consolidated financial statements as at December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012, were reviewed and recommended for approval to the Board of Directors or BOD by the Audit and Risk Management Committee on February 20, 2013. On February 25, 2013, these consolidated financial statements were approved and authorized for issue by the BOD. 2. Rate Regulations

As DUs, MERALCO and CEDC are subject to the rate-making regulations and regulatory policies of the ERC. Billings of MERALCO and CEDC to customers are itemized or “unbundled” into a number of bill components that reflect the various...
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