Jul. 9--In a briefing, Alan Ortiz, Meralco board director, said the company expects its net income jumping from P3.14 billion a year ago to between P13 billion and P15 billion at the end of the year.

The increase will come from the three-year windfall of a deferred rate increase under Meralco's Performance Based Regulation (PBR), which regulators approved in April.

"The rate increase has [been] pending for three years so the income that will be reported by year-end will be an accretion or accumulation of the last three years. It may look very large but really it should be divided by three years. But it will still be a quantum leap from 2008," Ortiz said.

The PBR is a rate setting scheme prescribed by regulators whereby a utility's tariffs are determined by the quality of its service to its customers. It also grants a utility a regular adjustment to take into account inflation and foreign currency exchange fluctuations as well as its obligations to its franchise area.

"The deviation from the rate base system to PBR is a significant improvement in the way power rates are going to be determined in the years to come. And Meralco will be a direct beneficiary of that," Ortiz said.

The approval of Meralco's PBR this year resulted in an increase of P0.26 per kilowatt-hour in its "distribution, supply and metering" charge, which now stands at P1.22 per kilowatt-hour. The said charge directly benefits the utitlity, unlike generation and transmission charges, which are billed by the company's electricity suppliers and the power grid operator, respectively.

The additional earnings from the increase, Ortiz said, will be used to address Meralco's capital expenditure requirements seen required to make a reality the "synergies" promised by the utility's new strategic owners.

The country's biggest electricity distributor, with over four million billed customers in the Luzon grid, was previously controlled by the Lopez Group until Philippine Long Distance Telephone Co. and San Miguel Corp. separately bought significant shareholdings in the utility starting late last year.

Among the projects that the company is exploring with the entry of its new owners are broadband-over-power lines, pre-paid metering and real estate ventures, among others.

Besides the rate increase, Ortiz said the company expects two pending bills before Congress to further bolster its earnings should they be passed into law.

"The two will stabilize Meralco's finances. If we get the VAT reduction from 12 percent to 3 percent and if we get the reduction in royalties from 60 percent to 3 percent--that would have a big impact. But we're not sure if these two measures of [Senator Juan Ponce] Enrile will pass," he said.

The Senate President is pushing for the passage of the two bills, one of which would cut the value-added tax on electricity distribution, while the second would reduce the royalties accruing to the government due to the use of the Malampaya natural gas field as a fuel source.

Ortiz said Meralco has yet to determine how the proposed measures will impact its bottom line but should the bills be passed, the company expects the measures to offset its rate increase.

"That's our view. And it's a very positive outlook," he said.

Meralco's shares closed higher Wednesday at P169 per share from its previous close of P161 per share.

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