History of Manila Electric Company.docx

8/9/2019 History of Manila Electric Company.docx

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History of Manila Electric Company (Meralco)

The Manila Electric Company or Meralco is the Philippines largest distributorof electrical power. The company holds the power distribution franchise forsome cities and !" municipalities# including the capital city of Manila# as

well as for the cities of $an %uan# &as Pinas# 'ue on# Malbon# Ma ati#Caloocan# Pasay# Mandaluyong# Parana*ue# and +a,otas. Meralcos - yearfranchise for these mar ets# awarded //0# gi,es the company control of theenergy distribution ser,ices for an area of more than ".0 thousand s*uare

ilometers and a population of more than 1".2 million 3 one fourth of thePhilippines total population. The company boasts a co,erage rate of morethan "2 percent. The highest in the country. Each year# Meralco sells morethan 0 million megawatt hours (M4H)# with residential and commercialsales each contributing roughly 0- percent . 5ormerly a power producer#Meralco purchases its power re*uirements primarily from go,ernment owned+ational Power Corporation6 since the beginning of the ///s# howe,er# thecompany has begun to purchase electricity from a number of ompany newlyestablished independent power producers# helping to lower its prices.Meralco also has started to di,ersify its operations in response to thederegulation of the Philippines power industry by e7tending into powergeneration# industrial construction and engineering# and other areas#including real estate de,elopment# e commerce# and consultancy ser,ices.Meralco is led by Chairman and CE8 Manuel M. &ope # whose family# throughdirect and indirect holdins# retains control of some - percent of the

company. The &ope family# one of the country9s most prominent# alsocontrols conglomerate :enpres Holdings and other businesses.

Turn of the Century :eginnings

Electricity came to Manila in 1!" with the founding of &a Electricista# whichbegan pro,iding electricity to residential customers. 4ith the completion of anew power plant in 1!"-# &a Electricista began pro,iding street lightingser,ice to the city as well. :y the beginning of the 1"//s# &a Electricistaboasted some 0#/// customers# as well as its streetlight business.

;n 1"/0# the young go,ernment of the Philippines began accepting bids tooperate Manila9s electric tramway# as well as pro,iding electricity to the cityand its suburbs. The only bidder pro,ed to be Charles M. $wift# a


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electrical power operations by ac*uiring &a Electricista. :y 1"/?# thecompany boasted a yearly power output capacity of some eight million 4h.

Meralco built up a strong public transportation business in the decadesleading up to 4orld 4ar ;;# building a 12/ strong @eet of streetcars into the

1" /s# before switching o,er to buses later in that decade. Aet thecompany9s electric ser,ice grew e,en more strongly# o,erta ing its publictransportation operations in terms of re,enues by 1"1-. :y 1" /# thecompany9s power capacity had grown to B- million 4h. The companychanged its o cial name to Manila Electric Company in 1"1"# although

eeping the Meralco corporate name.

;n 1" -# Meralco# which had been registered in +ew %ersey# in the Dnited$tates# was ac*uired by fast growing power conglomerate ssociated Fas GElectric Co. ( FEC8)# which had begun a massi,e e7pansion throughout theDnited $tates and Canada. :ac ed by FEC8# Meralco began ac*uiring anumber of e7isting utilities in the Philippines# enabling the company toe7pand beyond its Manila city center base.

The company originally ser,iced its enlarged franchise area through small#diesel powered generators added through its ac*uisitions. ;n the late 1" /s#howe,er# Meralco began construction on a new# large scale power plant# the:otocan Hydro $tation. Completed in 1"0/# the power plant was one of theregion9s largest construction pro ects of the time. The additional capacityallowed the company to begin hoo ing up customers throughout the metroManila area. Meanwhile# Meralco opened its own retail store in order to sellhome appliances helping to dri,e demand for more power.

The Philippines go,ernment itself responded to the growing demand forelectricity by establishing the +ational Power Corporation (+apocor)# withMeralco signing a contract to purchase the entire output of +apocor9s >rstfacility. Meanwhile# Meralco9s own power capacity continued to grow#reaching 1!B million 4h by the outbrea of 4orld 4ar ;;.

&ope 5amily Ta ing 8,er in the 1"?/s

The %apanese occupation of the Philippines placed Meralco under the controlof the Taiwan Electric Company. :y the end of the war# howe,er# most of theformer Meralco operations had been destroyed# along with the rest of Manila.Meanwhile# Meralco9s parent company# FEC8# which had gone ban ruptand had been bro en up# for the most part# in the 1"0/s# was reorgani edunder the name Feneral Public Dtilities.


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Meralco was to remain under merican control through the 1"-/s. ;n themeantime# as the newly independent Philippines began reconstructing afterthe war# Meralco *uic ly wor ed to restore electric ser,ice# and by 1"B2 hadalready topped its prewar capacity. :y the beginning of the 1"-/s thecompany had fully restored ser,ice to its former metro Manila networ # whichincluded some 0" towns and cities. ;n the meantime# the company hadabandoned its public transportation arm# selling its bus line to 5ortunatoHalili in 1"B!.

ted from the rapidindustriali ation of Manila in the postwar era# and by 1"-!# the industrialmar et had become its largest source of re,enues.

;n 1"? # a group of 5ilipinos# led by Eugenio &ope # $r.# founded Meralco$ecurities Corporation (M$C) in order to ac*uire Meralco. The &ope familywas by then one of the Philippines9 most prominent families# stemming fromits control of the country9s sugar sector since the middle of the 1"th century.

The family# through ,arious holdings# also went on to become ma or forces inthe Philippines9 media sector# owning the :$ C:+ networ andthe Chronicle newspaper.

Meralco grew strongly under Eugenio &ope 9s leadership# adding new powerplants to increase capacity as its customer le,els topped -//#/// by 1"?!.

The company also abandoned the former management9s reliance on D.$.suppliers for its infrastructure re*uirements# and instead began acceptingbids from a ,ariety of sources# helping to produce sa,ings while achie,ingfaster construction times. Meralco also began di,ersifying# launching Meralco$ecurities ;ndustrial Corporation in order to build a petroleum pipelinebetween :atangas and Manila in 1"?2# and founding# in 1"?"# PhilippineElectric Corporation in order to produce line transformers and other electricale*uipment. 8ther e7pansion mo,es brought the company into ban ing and

oil re>nery operations.5all and =ise in the 1"2/s !/s

&ope had supported 5erdinand Marcos in his presidential bids during the1"?/s. Aet &ope # through his media holdings# had grown increasingly criticalof Marcos in the early 1"2/s. 4hen Marcos declared martial law# the &opefamily was stripped of its assets# including its control of Meralco. Throughout


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the rest of the decade# Meralco struggled against a wea ened economy anda series of natural disasters that destroyed a number of its facilities. Then# in1"2"# the Marcos go,ernment named +apocor as the country9s monopolyelectrical power producer. Meralco9s power generating assets weretransferred to the state owned body.

;n the meantime# Meralco continued to e7pand its distribution business#lin ing up a growing number of towns and cities in the metro Manila regionthat had been unable to eep up with the surging demand for electricalpower. :y the mid 1"!/s# Meralco had signed on more than ?/ newcommunities to its grid.

The re,olution of 1"!? that deposed the Marcos regime and brought Cora on*uino to the presidency also restored the &ope family9s former holdings#

including Meralco. 8ne of Eugenio &ope 9s sons# Manuel# too o,er asMeralco9s president (and later became chairman and CE8) at this time.

Meralco then too steps to upgrade its networ # which had been hit hardduring the Marcos era and continued to e7perience di culties in theeconomic uphea,als of the latter half of the 1"!/s. ;n 1"!"# the companylaunched a large scale in,estment program to upgrade its distributionsystem. t the same time# Meralco enhanced its customer ser,icecomponent by restructuring its organi ation into regional components.

Meralco went public in 1""/. :y then# howe,er# the company faced a new

di culty. The surge in demand for electrical power including a growingnumber of IpiratesI had o,erwhelmed the +apocor power generationmonopoly. :y the early 1""/s# the Manila mar et became sub ected toplanned blac outs lasting up to eight hours per day and longer.

;n response# the Philippines go,ernment called for the creation of a newgeneration of ;ndependent Power Producers (;PPs)# which were then gi,enguaranteed contracts. Meralco oined this new mar et# bac ing the creationof 5irst Pri,ate Power Corporation# building a - M4 plant in :auang. Thatplant came on line in 1""B# with commercial operations starting the following

year.

5acing Competition in the +ew Century

:y then# plans had been laid for the deregulation of the Philippines9 energymar et. lthough the actual legislation for deregulation was not enacted until

//1# Meralco began preparing for the coming competition in the early1""/s. ;n 1""B# Meralco began wor ing with $pain9s Dnion 5enosa# which


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ac*uired a " percent sta e in Meralco# to lead a new reorgani ation eJort inthe mid 1""/s. The company also began di,ersifying its acti,ities in order toreduce its reliance on electrical power distribution.

8ne of the company9s >rst di,ersi>cation eJorts came with the creation# in

1""B# of the =oc well Center de,elopment pro ect# on the site of thecompany9s then dormant =oc well power station. That operation was createdin partnership with the &ope family9s :enpres Holdings# formed a yearearlier. The following year# Meralco oined with Dnion 5enosa to launch the;berPaci>c consulting >rm.

The company continued to de,elop its di,ersi>ed interests into the turn of the century. ;n 1""2# the company formed a new unit# Corporate ;nformation$ystems# built around its ;T ser,ices component. ;n 1"""# the companyformed Meralco Energy# which speciali ed in pro,iding energy relatedser,ices to industries and other large scale energy users. The following year#the company mo,ed into the e commerce mar ets with the formation of eMeralco Kentures# with the purpose of launching and in,esting in ;nternetand high technology companies.

Meanwhile# Meralco9s core power distribution business continued its growth.:y //1# it had e7tended its networ to include / cities# then added twomore cities# for a total of 11B municipalities by the end of // . :y then# thecompany ser,ed nearly B million registered customers with a total customerpopulation of some 1" million.

Meralco recei,ed new contracts from the Philippines go,ernment in //0#e7tending its franchise in the metro Manila mar et through another - years.

The company9s 1//th anni,ersary celebrations that year were dampenedsomewhat# howe,er# by a Philippines $upreme Court udgment ordering thecompany to pay bac o,ercharges to customers from a four year period.Estimates of the potential paybac bill ranged up to P ! billion (L-//million)# a price Meralco claimed it was unable to pay. ;ndeed# by May //1#the company# which had seen its re*uest for a fee hi e re ected amid a salesslump# reported a net loss of more than P billion (L0! million) for // #prompting members of the go,ernment to call the &ope family9smanagement of the company into *uestion.


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Principal $ubsidiaries Corporate ;nformation $olutions# ;nc.6 Meralco;ndustrial Engineering $er,ices Corporation6 =oc well &and Corporation6Meralco Energy# ;nc.6 e Meralco Kentures# ;nc.

Principal Competitors $tate Power Corporation of China6 Huaneng Power

;nternational ;nc.6 $embCorp ;ndustries6 Perusahaan &istri +egara# PT6Hong ong Electric Holdings &td.6 Norea Electric Power Corporation.

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History of Manila Electric Company.docx