ORGANIZATION AND MANAGEMENT

OUR VISION

To be a world-class energy solutions provider, powering our nation and

empowering our people today and for generations to come.

OUR MISSION

To provide our customers the best value energy solutions—reliably,

affordably, superbly, and sustainably.

OBJECTIVE(S)

As the country’s largest electricity distribution utility company, Meralco

is committed to observe the highest standards of ethical business practices
and uphold the tenets of service excellence in the conduct of its business and
other dealings with its customers, regulators, shareholders, and other
stakeholders, guided by the principles of Fairness, Accountability, Integrity,
Transparency, and Honesty

TASK ENVIRONMENT

The Company continually improves its Environment, Health and Safety

(ESH) system to be at par with global practices and in doing so, manages the
impact of its operations, activities, products and services at all levels of the
organization through an effective ESH planning integrated with the
Company’s business processes.

Sustainable health and safety programs were developed to bolster

safety culture within the Company. Programs were aligned with the
Department of Labor and Employment (DOLE) requirements such as incident
reporting and recording, basic occupational safety and health training for line
supervisors, and accreditation of safety practitioners.
General Environment

Meralco remains steadfast in its mission to keep the lights on for all its
stakeholders despite the challenges and risks posed by the Covid-19 global
pandemic.  

Through strong culture of good governance and responsible

management practices, we maintain our firm commitment to our social,
organizational and environmental responsibilities while ensuring that our long-
term strategic goals and objectives are achieved. 

Meralco are fully compliant with the corporate governance code, rules,
and regulations promulgated and enforced by the Securities and Exchange
Commission (SEC), Philippine Stock Exchange (PSE), Philippine Dealing &
Exchange Corp. (PDEx), and other relevant regulatory agencies.  

Meralco have also been at the forefront in promoting good governance

regulations, policies and practices within our organization and in our dealings
with our private and public stakeholders and have continued to adopt or
strengthen our policies and programs to be aligned with the best corporate
governance practices under the SEC’s 2017 Code of Corporate Governance
for Publicly- Listed Companies, the Integrated Annual Corporate Governance
Scorecard (I-ACGR) and the ASEAN Corporate Governance Scorecard
(ACGS).

PEST ANALYSIS

Political and Sociological (Social)

The figure above shows the country’s socio-economic structure as of

2015 (Albert, Gaspar, & Raymundo, 2015). The Philippines is low- and
middle-class heavy, with high disparity between each social class. As of 2012,
its GINI (a measure of inequality; the closer to zero, the more economically
equal the country is) is 43, the 14th highest in the world (World Bank, 2016).
Meanwhile, 21% of the country still has no access to electricity (International
Energy Agency, 2015) .
 Meralco is owned by the biggest conglomerates in the country, and
naturally, has the economic and political power. Its customers, however, are
from the middleand lower-classes. Thus, its service must be made affordable
for everyone. Otherwise, this can result to power pilferage by Filipinos who
can’t afford to pay electric bills. Already, Meralco allots 6.5% system loss
charge for these losses (Metro Pacific Investments Corporation, 2015).

Economic

The Philippines defied global trends, with a Gross Domestic Product

(GDP) growth of 5.8% in 2015, making it one of the fastest-growing
developing countries in Asia together with India, China, and Vietnam. Despite
being lower than 2014’s 6.1% GDP growth and the target growth of 7%-8%,
this performance is decent, given the environment: a global economic decline,
aggravated by local concerns like El Niño. The country was able to overcome
these challenges through high government spending aided by robust private
investments, encouraging favorable ratings from top credit rating agencies:
 Standard & Poor’s reaffirmed the Philippines’ BBB Stable rating, the
highest rating ever recorded in the country’s history
 Fitch Ratings rated the Philippines a BBB- Positive Investment Grade
rating
 Moody’s rated the Philippines with a BAA2 Stable Investment Grade
rating
Despite the decline in growth of remittances from Overseas Filipino
Workers (OFWs), several factors such as the continued growth of the
Business Process Outsourcing (BPO) industry and the Services sector led to
more positive results:
 Record-low unemployment rate at 5.6%
 Record-low inflation rate at 1.4%
 6.2% growth in household consumption
 Highest Consumer Confidence Index in Southeast Asia
A growing economy results to growing electricity demand, thus
signifying a larger growth potential for Meralco (Meralco, 2016).
Technological

In 2013, the ERC, the main government body in charge of regulating

the electric grid, approved the standards enabling net-metering of renewable
energy for customers with distributed generation. Distributed generation refers
to small generation entities who can supply directly to the grid with a
maximum capacity of 100 kW. Net-metering means that consumers who have
installed capacities (e.g. solar panels) and generate more electricity than they
consume can sell this extra power to the grid. The Renewable Energy Act of
2008 pioneered this net-metering concept, with the goal of encouraging end-
users to participate in renewable energy generation (Department of Energy
(Philippines), 2008).
Since the technology for solar photovoltaics is quite mature, solar
providers have been offering the supply and installation of rooftop solar
panels for as low as US$3,800 (Solar Philippines, 2017). Meralco mitigates
this risk by investing heavily in infrastructure to improve efficiencies to the
point of making self-generation uneconomical. In 2015, Meralco’s capital
expenditure amounted to around US$228 million, most of which was
dedicated to electric capital projects like substations and transmission lines.
As a result, the company’s system loss and interruption indexes have
consistently been decreasing in the past five years (Meralco, 2016).
SWOT ANALYSIS

STRENGTHS WEAKNESSES

 Philippines' largest  Unwanted charges
distributor of
electrical power
 Service power of
choice
 Metro Manila's only
electric power
distributor and holds
the power
distribution franchise
for 22 cities and 89
municipalities,
including the whole
of the National
Capital Region and
the exurbs that form
Mega Manila
 Most income
generating electricity
supplier in the
Philippines
 Franchise
Expansion
 Innovative Solutions

OPPORTUNITIES  
  Franchise  Unwanted Charges -
 Innovation of Expansion - Cater to Innovation of
technologies a wider range of technologies
 Cater to a wider market
range of market By increasing the level
Meralco operates using of their technology,
expansion and using Meralco can possibly
this, they could add lessen the charges and
more plants to areas may serve their market
they don’t currently better.
cover, giving them a
larger market.

THREATS  Philippines' largest  Unwanted charges -

distributor of Increasing number
 Uncontrollable electrical power - of solar energy/solar
numbers of power Uncontrollable panels users
pilferers numbers of power
 Increasing number pilferers. Because of these
of solar energy/solar charges, users shift to
 panels users Being the service power solar energy. Meralco
of choice, there’s a can give assurance to
tendency of power theft. users about eliminating
Meralco should invest unwanted charges.
on theft prevention
hardwares to monitor
and prevent the
distribution of losses.

Strengths

Meralco has been the Philippines' largest distributor of electrical power

making it also the service power of choice. It is Metro Manila's only electric
power distributor and holds the power distribution franchise for 22 cities and
89 municipalities, including the whole of the National Capital Region and the
exurbs that form Mega Manila. It is also the most income generating electricity
supplier in the Philippines. With the nature of the business, franchise
expansion can be offered to provinces to cater to a larger market expand in
the country.

Weaknesses

A nuisance to the success of the firm would be the unwanted charges pressed
to the customers. Be it wrongfully calculated bills, or add-ons that were
unknowingly included to the plan. Several consumers have expressed their
concerns regarding this inconvenient, and often times unacceptable dispute
with the company. The possibly poor maintenance of the company’s facilities
and equipment could be the culprit at large. Investing in its innovation would
be highly recommended, as it is entirely for the smoother and more efficient
service that the firm wishes to guarantee its valued consumers.

Opportunities

In order to progress and expand, the firm is advised to further the company’s
investments in the innovation of its technologies. Doing this would up the
company’s competitiveness largely, and would ultimately make it possible for
Meralco to cater to a wider range of consumers; possible prospects that have
yet to be established, as well as an entire market they have yet to utilize. By
investing and implementing equipment and technology, the firm will be
furthering their efficiency and success rate by a sky-rocketing amount.

Threats

Inevitably, each and every firm must battle its competitors, as well as threats
to its marketability that may come every now and then. For instance, the
increasingly large and uncontrollable number of pilferers, as well as the
increasing number of solar energy and solar panel users, threatens to tip the
scale and send the company to a downward spiral. Another pressing matter
would be power theft, as power is wrongfully stolen from one consumer to
another, and the rightful owner is then wrongfully charged.

PORTER’S FIVE FORCER MODEL

Suppliers

The suppliers of Meralco are the power generation companies. They

have low bargaining power because there are many of them, and the product
they offer, electricity, is non-differentiable. Also, although generation costs
comprise a large part of Meralco’s overall costs, these are simply passed
through to the end-users. Meralco has the biggest load, and generators
compete to have Meralco as their customer by arranging payment and supply
terms according to Meralco’s wants. On the other hand, a long-term power
supply contract with Meralco eliminates major risks in the power producer’s
business. Finally, with the completion of MGen’s three new power plants by
2021, Meralco’s suppliers will have an even weaker bargaining power since
Meralco can source most of its demand from its subsidiary.

Customers

The end-users of Meralco’s products are the Filipino people. Meralco’s

business is of public interest, which is why it is highly regulated. The Energy
Regulatory Commission has to approve all power supply agreements with
generators. Furthermore, Meralco is required to release a breakdown of its
charges every month. Several consumer groups monitor these electricity
prices. In extreme cases when prices are deemed to be unfair, Meralco can
be demanded to give refunds to its customers. This happened in November
and December 2013 when electricity prices in the spot market spiked due to
the simultaneous outage of several power plants. Since Meralco sourced
around 8.6% of its power from the spot market, the electric bill of end-users
also jumped (Meralco, 2013). The power plants on outage were accused of
collusion by consumer groups. Eventually, ERC imposed a standard by which
market prices will be recalculated for those two months, and the excess of
which was returned to the consumers (Salaverria, Olchondra, & Burgonio,
2014).

New Entrants

As stated earlier, power distribution is capital-intensive (both in terms of

industries of scale and technical and market expertise) because it requires
specialized and logistically non-duplicable infrastructure. In addition to that,
the switching costs for customers may be very high (as this will involve
electrical re-wiring, etc.). Thus, the barrier to entry is very high. In fact, in the
last 6 years, only 6 new distribution utilities entered the market (Philippine
Electricity Market Corporation, 2011) (Philippine Electricity Market
Corporation, 2016).

Substitutes

The main substitute for Meralco is backward integration or self-

consumption, in the form of distributed generation and alternative energy
sources. Distributed generation mainly refers to the rise in solar photovoltaic
installations in the country. As part of its riskmanagement strategy, Meralco is
improving efficiencies such that self-generation becomes uneconomical
(Meralco, 2016). Alternative energy sources include the use of natural gas, or
primary fossil fuels like wood or coal, instead of electricity for cooking. The
use of solar heating for bathing water is also increasing. However, self-
consumption is not expected to disrupt Meralco’s business in the short-term.
The increase in energy demand in the country is fast, and the fastest and
cheapest technology to address this is still coal. As of November 2016, 59%
(9,890 MW) of the indicative and committed private-sector initiated power
projects are fueled by coal (Department of Energy (Philippines), 2016).

Existing Rivalry

Given the industry and environment Meralco operates in, it can be said
that the company has a natural monopoly in electricity distribution in Metro
Manila. It is also the most powerful distribution utility in the country. It has
been serving the capital for over 100 years, and any new entrant can only
truly compete with Meralco in case of a severe disruption in technology or an
extreme natural calamity – which is highly unlikely. For example, if an
earthquake or flood wipes out the power system of the country and everything
has to be restarted. Regulations such as the opening of Retail Competition
and Open Access, however, can change customers from captive to
contestable; and in the retail electricity business, Meralco (through MPower)
can face competition in the future.