Manila Electric Company (Meralco) Business Information, Profile, and History

Company Perspectives:

Company Philosophy: Service Excellence With Integrity. Company Mission: To Provide Our Customers The Best Value In Energy, Products And Services. Company Vision: To Be A World-Class Company And The Service Provider Of Choice.

History of Manila Electric Company (Meralco)

The Manila Electric Company, or Meralco, is the Philippines' largest distributor of electrical power. The company holds the power distribution franchise for some 22 cities and 89 municipalities, including the capital city of Manila, as well as for the cities of San Juan, Las Piñas, Quezon, Malabon, Makati, Caloocan, Pasay, Mandaluyong, Paranaque, and Navotas. Meralco's 25-year franchise for these markets, awarded in 2003, gives the company control of the energy distribution services for an area of more than 9.3 thousand square kilometers and a population of more than 19.7 million--one-fourth of the Philippines' total population. The company boasts a coverage rate of more than 97 percent, the highest in the country. Each year, Meralco sells more than 23 million megawatt-hours (MWH), with residential and commercial sales each contributing roughly 35 percent, and industrial sales adding 30 percent. Formerly a power producer, Meralco purchases its power requirements primarily from government-owned National Power Corporation; since the beginning of the 2000s, however, the company has begun to purchase electricity from a number of newly established independent power producers, helping to lower its prices. Meralco also has started to diversify its operations in response to the deregulation of the Philippines power industry by extending into power generation, industrial construction and engineering, and other areas, including real estate development, e-commerce, and consultancy services. Meralco is led by Chairman and CEO Manuel M. Lopez, whose family, through direct and indirect holdings, retains control of some 25 percent of the company. The Lopez family, one of the country's most prominent, also controls conglomerate Benpres Holdings and other businesses.

Turn of the Century Beginnings

Electricity came to Manila in 1892 with the founding of La Electricista, which began providing electricity to residential customers. With the completion of a new power plant in 1895, La Electricista began providing street lighting service to the city as well. By the beginning of the 1900s, La Electricista boasted some 3,000 customers, as well as its streetlight business.

In 1903, the young government of the Philippines began accepting bids to operate Manila's electric tramway, as well as providing electricity to the city and its suburbs. The only bidder proved to be Charles M. Swift, a Detroit-based businessman, who founded a new company, The Manila Electric Railroad and Light Company, or Meralco, in 1903. Construction on the tramway began that same year. The following year, Meralco added its first electrical power operations by acquiring La Electricista. By 1906, the company boasted a yearly power output capacity of some eight million kWh.

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. Yet the company's electric service grew even more strongly, overtaking its public transportation operations in terms of revenues by 1915. By 1920, the company's power capacity had grown to 45 million kWh. The company changed its official name to Manila Electric Company in 1919, although keeping the Meralco corporate name.

In 1925, Meralco, which had been registered in New Jersey, in the United States, was acquired by fast-growing power conglomerate Associated Gas & Electric Co. (AGECO), which had begun a massive expansion throughout the United States and Canada. Backed by AGECO, Meralco began acquiring a number of existing utilities in the Philippines, enabling the company to expand beyond its Manila city center base.

The company originally serviced its enlarged franchise area through small, diesel-powered generators added through its acquisitions. In the late 1920s, however, Meralco began construction on a new, large-scale power plant, the Botocan Hydro Station. Completed in 1930, the power plant was one of the region's largest construction projects of the time. The additional capacity allowed the company to begin hooking up customers throughout the metro Manila area. Meanwhile, Meralco opened its own retail store in order to sell home appliances--helping to drive demand for more power.

The Philippines government itself responded to the growing demand for electricity by establishing the National Power Corporation (Napocor), with Meralco signing a contract to purchase the entire output of Napocor's first facility. Meanwhile, Meralco's own power capacity continued to grow, reaching 184 million kWh by the outbreak of World War II.

Lopez Family Taking Over in the 1960s

The Japanese occupation of the Philippines placed Meralco under the control of the Taiwan Electric Company. By the end of the war, however, most of the former Meralco operations had been destroyed, along with the rest of Manila. Meanwhile, Meralco's parent company, AGECO, which had gone bankrupt and had been broken up, for the most part, in the 1930s, was reorganized under the name General Public Utilities.

Meralco was to remain under American control through the 1950s. In the meantime, as the newly independent Philippines began reconstructing after the war, Meralco quickly worked to restore electric service, and by 1947 had already topped its prewar capacity. By the beginning of the 1950s the company had fully restored service to its former metro Manila network, which included some 39 towns and cities. In the meantime, the company had abandoned its public transportation arm, selling its bus line to Fortunato Halili in 1948.

Demand for electricity grew strongly in the postwar era. By the early 1950s the company boasted more than 200,000 customers. It also continued to add capacity, adding new power plants in a five-year, P 45 million investment program started in 1950. The company also benefited from the rapid industrialization of Manila in the postwar era, and by 1958, the industrial market had become its largest source of revenues.

In 1962, a group of Filipinos, led by Eugenio Lopez, Sr., founded Meralco Securities Corporation (MSC) in order to acquire Meralco. The Lopez family was by then one of the Philippines' most prominent families, stemming from its control of the country's sugar sector since the middle of the 19th century. The family, through various holdings, also went on to become major forces in the Philippines' media sector, owning the ABS-CBN network and the Chronicle newspaper.

Meralco grew strongly under Eugenio Lopez's leadership, adding new power plants to increase capacity as its customer levels topped 500,000 by 1968. The company also abandoned the former management's reliance on U.S. suppliers for its infrastructure requirements, and instead began accepting bids from a variety of sources, helping to produce savings while achieving faster construction times. Meralco also began diversifying, launching Meralco Securities Industrial Corporation in order to build a petroleum pipeline between Batangas and Manila in 1967, and founding, in 1969, Philippine Electric Corporation in order to produce line transformers and other electrical equipment. Other expansion moves brought the company into banking and oil refinery operations.

Fall and Rise in the 1970s-80s

Lopez had supported Ferdinand Marcos in his presidential bids during the 1960s. Yet Lopez, through his media holdings, had grown increasingly critical of Marcos in the early 1970s. When Marcos declared martial law, the Lopez family was stripped of its assets, including its control of Meralco. Throughout the rest of the decade, Meralco struggled against a weakened economy and a series of natural disasters that destroyed a number of its facilities. Then, in 1979, the Marcos government named Napocor as the country's monopoly electrical power producer. Meralco's power generating assets were transferred to the state-owned body.

In the meantime, Meralco continued to expand its distribution business, linking up a growing number of towns and cities in the metro Manila region that had been unable to keep up with the surging demand for electrical power. By the mid-1980s, Meralco had signed on more than 60 new communities to its grid.

The revolution of 1986 that deposed the Marcos regime and brought Corazon Aquino to the presidency also restored the Lopez family's former holdings, including Meralco. One of Eugenio Lopez's sons, Manuel, took over as Meralco's president (and later became chairman and CEO) at this time.

Meralco then took steps to upgrade its network, which had been hit hard during the Marcos era and continued to experience difficulties in the economic upheavals of the latter half of the 1980s. In 1989, the company launched a large-scale investment program to upgrade its distribution system. At the same time, Meralco enhanced its customer service component by restructuring its organization into regional components.

Meralco went public in 1990. By then, however, the company faced a new difficulty. The surge in demand for electrical power--including a growing number of "pirates"--had overwhelmed the Napocor power generation monopoly. By the early 1990s, the Manila market became subjected to planned blackouts lasting up to eight hours per day and longer.

In response, the Philippines government called for the creation of a new generation of Independent Power Producers (IPPs), which were then given guaranteed contracts. Meralco joined this new market, backing the creation of First Private Power Corporation, building a 225 MW plant in Bauang. That plant came on line in 1994, with commercial operations starting the following year.

Facing Competition in the New Century

By then, plans had been laid for the deregulation of the Philippines' energy market. Although the actual legislation for deregulation was not enacted until 2001, Meralco began preparing for the coming competition in the early 1990s. In 1994, Meralco began working with Spain's Union Fenosa, which acquired a 9 percent stake in Meralco, to lead a new reorganization effort in the mid-1990s. The company also began diversifying its activities in order to reduce its reliance on electrical power distribution.

One of the company's first diversification efforts came with the creation, in 1994, of the Rockwell Center development project, on the site of the company's then-dormant Rockwell power station. That operation was created in partnership with the Lopez family's Benpres Holdings, formed a year earlier. The following year, Meralco joined with Union Fenosa to launch the IberPacific consulting firm.

The company continued to develop its diversified interests into the turn of the century. In 1997, the company formed a new unit, Corporate Information Systems, built around its IT services component. In 1999, the company formed Meralco Energy, which specialized in providing energy-related services to industries and other large-scale energy users. The following year, the company moved into the e-commerce markets with the formation of e-Meralco Ventures, with the purpose of launching and investing in Internet and high-technology companies.

Meanwhile, Meralco's core power distribution business continued its growth. By 2001, it had extended its network to include 20 cities, then added two more cities, for a total of 114 municipalities by the end of 2002. By then, the company served nearly 4 million registered customers--with a total customer population of some 19 million.

Meralco received new contracts from the Philippines government in 2003, extending its franchise in the metro Manila market through another 25 years. The company's 100th anniversary celebrations that year were dampened somewhat, however, by a Philippines Supreme Court judgment ordering the company to pay back overcharges to customers from a four-year period. Estimates of the potential payback bill ranged up to P 28 billion ($500 million), a price Meralco claimed it was unable to pay. Indeed, by May 2001, the company, which had seen its request for a fee hike rejected amid a sales slump, reported a net loss of more than P 2 billion ($38 million) for 2002, prompting members of the government to call the Lopez family's management of the company into question. Despite this shadow over its anniversary celebration, Meralco was nonetheless able to look back on its history as a leading player in the development of the Philippines--and forward in its determination to remain one of the country's leading corporations.

Principal Subsidiaries: Corporate Information Solutions, Inc.; Meralco Industrial Engineering Services Corporation; Rockwell Land Corporation; Meralco Energy, Inc.; e-Meralco Ventures, Inc.

Principal Competitors: State Power Corporation of China; Huaneng Power International Inc.; SembCorp Industries; Perusahaan Listrik Negara, PT; Hongkong Electric Holdings Ltd.; Korea Electric Power Corporation.

Chronology

• Key Dates:
• 1892: La Electricista is founded.
• 1903: Charles M. Swift is awarded a franchise to build the Manila electric tramway, founding the Manila Electric Railroad and Light Company (Meralco).
• 1904: Meralco acquires La Electricista.
• 1919: Meralco is renamed Manila Electric Company as electricity generation and distribution becomes the main business area.
• 1925: Associated Gas & Electric Co. (AGECO) of the United States acquires Meralco.
• 1930: Meralco inaugurates Botocan Hydro Station.
• 1948: The company sells off its bus operations, exiting the transportation market.
• 1950: The company begins a five-year, P 45 million investment program to restore and expand capacity.
• 1962: Eugenio Lopez, Sr., leads the Philippino buyout of Meralco.
• 1972: Meralco and other Lopez family businesses are taken away from Lopez after Ferdinand Marco declares martial law.
• 1979: Government-owned Napocor is granted a power generation monopoly, taking over Meralco's power generation operations.
• 1986: The revolution that topples Marco puts into motion the restoration of the Lopez family businesses, including Meralco.
• 1990: Meralco goes public on the Manila stock exchange.
• 2000: Meralco forms e-Meralco Ventures to create and invest in Internet and high-technology businesses.
• 2003: Meralco is granted a new 25-year franchise for the Manila electrical power distribution market.