Manila Electric Company (MER) Earnings Call Transcript & Summary

[Audio Gap] was at PHP 275.3 billion in -- for the year, 14% lower than 2019. Electricity revenues dropped 7% to PHP 267.9 billion, reflecting both the reduction in volume as well as the lower purchased power cost. Distribution revenues is at 8% lower at PHP 60.6 billion compared with 2019. Our total costs and expenses for 2020 amounted to PHP 254.3 billion, 11% lower than 2019. Purchased power cost, which is the largest component in total cost and expenses, was 15% lower, reflecting also the movement in past due charge. OpEx is at PHP 25.8 billion, 5% lower than 2019. CapEx for the year totaled PHP 20.8 billion, 3% higher than 2019 despite the challenges from quarantine restrictions. Our total interest-bearing debt is at PHP 40.1 billion, 3% lower compared with the PHP 41.3 billion in 2019. Our subsidiaries contributed to our bottom line with the biggest amount coming from Meralco PowerGen with San Buenaventura. Their contribution [ improved to 500% ]. Next slide, please. Our gross revenues for the year is at PHP 275.3 billion, 14% lower the 2019 while our volumes dropped 7% to 43,572 gigawatt hours. Total electricity revenues was at PHP 267.9 billion, 14% lower, reflecting the reduction in purchased power costs. Meralco's distribution charge per kilowatt hour remains unchanged with aggregate distribution revenues in 2020 8% lower to PHP 60.6 billion compared with 2019 due to the lower volumes sold. The PHP 60.6 billion translated to an average distribution rate of PHP 1.3897 per kilowatt hour and is net of the adjustment of the average -- weighted average tariff against interim average rate based on the PA or Provisional Authority granted by the ERC on February 19, 2021. The pass-through component accounted for close to 80% of total electricity revenues, while the nonelectric revenues stood at PHP 7.3 billion, 10% lower than 2019. Our energy sales volume, as I mentioned, is lower overall, although the full -- the maximum deduction as far as our volume is concerned happened in the second quarter because of the impact of the lockdown. This gradually eased and increased in the third quarter and in the fourth quarter where we saw a recovery of sales volume. The shift in sales volume throughout the year was high -- was reflected in revenues per quarter. All quarters of the year also saw a decline in revenue versus the corresponding period in 2019. Next slide, please. Total costs and expenses for 2020 amounted to PHP 254.3 billion, 11% lower than 2019. The decline was driven by lower purchased power costs, which represents 80% of total costs and expenses. Purchased power costs were at PHP 204.4 billion, 15% lower than 2019 mainly because of lower generation costs. For 2020, the average cost was PHP 4.19 versus PHP 4.97 in 2019 as well as the decrease in the price in the WESM or Wholesale Electricity Spot Market on account of the reduction in the Luzon demand. Meralco also invoked force majeure claim against its power suppliers, which meant reduction in fixed costs and avoided charges with temporary suspension of mid-merit supply contracts, which provided savings of PHP 2.4 billion to our consumers. The appreciation of the peso closing at PHP 48.023 at year-end as well as the lower natural gas prices, which stood at $6.61 per gigajoule, contributed to the lower purchased power costs. Our operating expenses accounted for 10% of total costs and expenses and in total PHP 25.8 billion. While labor and contracted services remain a major spend, the suspension of collection, messengerial and management of unpaid bills activities and work-from-home arrangements with employees during the community quarantine period provided the reduction in OpEx. Depreciation and amortization for 2020 was at PHP 8.6 billion, 2% lower than 2019. Other expenses included our other over/underrecoveries, loss from impairment of PacificLight, RPT-related expenses and accretion of the day 1 gain that we recognized in 2019. Capital expenditures implemented for electric capital projects or ECPs and nonelectric projects during the year amounted to PHP 20.8 billion, 3% higher than 2019. The bulk of these ECPs include new and uprating of the 115 kV lines and expansion of delivery-point substation to address the increasing residential requirements with the work-from-home and online distance learning arrangements. Our major CapEx included 5 new substation projects and 315 kV line projects. The generation component of CapEx stood at PHP 5.7 billion, which accounted for 27% of total CapEx. This consisted of [ cell ] development for Atimonan and the completion of the project -- a solar project with -- in the company called PowerSource First Bulacan where Meralco PowerGen owns 60%. Our OpEx also included COVID-related spend for the year. Our core -- next slide, please. Our core net income for 2020 amounted to PHP 21.7 billion, 9% lower than 2019. In the first quarter of 2020, the effects of the pandemic was still minimal with quarantine restriction implemented in the middle of March. Thus, the CCNI was still slightly higher than 2019. Reported net income, however, was 54% lower than the same quarter in 2019 due to the PHP 2.6 billion impairment loss that we recognized for Pacific Life. In the second quarter of 2020, CCNI was 7% lower compared to the same quarter in 2019, reflecting the full impact of the pandemic as energy sales volume drastically dropped with the imposition of lockdowns across the country. Furthermore, we recognized the provision for doubtful accounts during that period given the extended payment terms and suspension of disconnection activities. By the third quarter of 2020, we saw some easing of quarantine restrictions, which resulted in higher volumes than the previous quarter. Consequently, CCNI for the quarter also showed a 6% increase compared with Q2 of 2020. Compared to Q3 of 2019, however, volume [Technical Difficulty] the fourth quarter of 2020, despite the 7% decline in sales volume, CCNI for the quarter reached PHP 6 billion, 11% higher than Q4 in 2019. The better numbers in the fourth quarter is attributable to the recovery -- continuous recovery of volume plus lower operating expenses and higher contribution from MPower and MGen. In addition, for MPower, the SEM-Calaca outage, MPower was able to source cheaper power from WESM, leading to better bottom line. Overall, in 2020, the lower CCNI was driven by the volume decline as well as a result of the combined effects of the Taal Volcano eruption, the COVID-19 pandemic and the 3 major weather disturbances, which resulted to unrealized energy sales of 117 gigawatt hours. San Buenaventura, our 455-megawatt supercritical coal-fired power plant in Mauban, Quezon, delivered 3,070 gigawatt hours of energy in 2020, with an average plant availability of 82%. The operations of SBPL contributed almost PHP 1 billion to the Meralco CCNI. For all our other subsidiaries, they were also affected by the pandemic. In the case of Bayad Center, their transaction volume actually came down during the quarantine period, but we saw this payment transaction pick up in December. In the case of Radius, however, they continue to build on their capital expenditures during the pandemic period to be able to serve customers moving forward. Our consolidated core and reported EBITDA was at PHP 35.3 billion and PHP 29.8 billion, respectively, reflecting a 7% and 27% decline compared with 2019. Total interest-bearing debt is slightly lower at 40.3 -- PHP 40.1 billion, which includes debt of our subsidiaries of PHP 4 billion. In December of 2020, Meralco redeemed the balance of the 7-year fixed rate note issued in 2013 amounting to PHP 3.2 billion. Meralco remains to be in a strong liquidity position with net debt at the end of 2020 of negative PHP 10.8 billion and net debt to EBITDA at negative 0.36x. Total principal debt repayments, customer refunds, financing charges paid amounted to PHP 5.4 billion in 2020. Meralco's debt repayment schedule is comfortably spread through 2034. Core earnings per share stood at PHP 19.262 per share. Earlier today, the Board of Directors approved the declaration of final cash dividends of PHP 7.824 per share to all shareholders of record as at March 30, 2021, payable on April 26, 2021. This represents 65% payout of the CCNI of PHP 21.7 billion for the year 2020, in line with the company's dividend policy. Including the interim dividend of PHP 4.697 a share, our total dividend is PHP 12.521 per share. That ends my report, Mr. President.

Thank you, Betty. I will now proceed to the operations report, including the highlights of the performance for 2020 and pass on the floor to my colleagues, Ferdie Geluz, who will report on customer service; Ronnie Aperocho who will report on networks; Atty. Ronald Valles who will report on regulatory developments; and Raymond Ravelo, our Chief Sustainability Officer, who will report on our sustainability initiatives. For 2020, the consolidated energy sales was down 7% for 3,572 gigawatt hours. This decline was driven largely by the impact of the quarantine on the commercial and industrial segments of our customer base. There was a significant increase in the Residential segment, registering the highest growth of 13% to last year. There was significant decline in the Commercial segment, which was the hardest hit of our 3 segments, where sales contracted 20% from a growth of 6% in 2019. There was an 11% decline in the Industrial segment compared to a growth of 4% in 2019. Consolidated customer count, however, grew 4% at 7.132 million customers. Net system input was down 7%, 45,919 gigawatts hours. And Meralco peak demand was down 2% at 7,614 megawatts, which was registered on March 10, 2020. On system performance, system loss increased to 6.08%, up by 0.54 percentage point on a 12-month moving average. System Average Interruption Frequency Index or SAIFI improved by 15% at 1.05 point -- 1.501x. System Average Interruption Duration Index or SAIDI improved 13% at 163.003 minutes, while average time to connect slowed by 10% at 1.83 days. On electricity rate, the average electricity retail rate for 2020 was significantly down by 10% at PHP 7.96 per kilowatt hour. Ferdie?

Good morning, good afternoon, ladies and gentlemen. On consolidated sales, we ended 2020 at 43,572 gigawatt hours, 7% lower than the pre-pandemic 2019 sales of 46,871 gigawatt hours. The sales decline was due to the impact of community quarantine to the Commercial and Industrial segments because of limited mobility and social activities. The Residential segment stayed [indiscernible] with a double-digit growth in gigawatt hour sales brought about by the work-from-home and online education arrangement. For the first time, sales mix favored Residential at 38% share, much better than the 31% share in 2019. Perennial leader Commercial segment is now relegated to second with a share of 34%, lower than the 39% of the previous year. Industrial share slightly decreased to 28% from 29% in 2019. Next slide, please. On the screen is the monthly trend of total sales and sales mix. I guess the story here is that we see Industrial steadily recovering starting second half of the year, in fact, ending December month sales with a slightly higher sales in terms of volume compared to December month 2019. Commercial had not recovered until the end of the year as mobility and quarantine restriction does not favor commercial activity, leaving commercial energy consumption plateauing at minus 20% compared to the monthly consumption of the previous year. Next slide, please. In terms of profile and drivers per segment, Residential sales registered a robust growth of 13% in 2020 driven by the quarantine new normal, work-from-home and online education and a steady increase in volume of newly energized services, especially on socialized housing, Meralco Electrification Program and small to medium-sized condominiums. Commercial sales was the hardest hit segment due to quarantine restrictions limiting social gatherings, social activities, tourism as well as mobility. Retail contracted 29% in 2020, far from the 5% growth it registered in 2019 due to massive decline in mall traffic. In fact, the top 3 mall companies suffered heavily at 34% decline in terms of energy consumption on the average. Hotel, leisure and hospitality industry contracted to minus 33% in 2020, far from the 6% growth it registered in 2019 driven by occupancy restrictions from 0% to 50% depending on the quarantine levels. And there were also very limited POGO operations as -- and it impacted commercial space leasing heavily as real [ estate-related ] sales also slowed down by as much as 20%. Industrial sales also slumped at the beginning of the ECQ but slowly recovered as it registered positive month sales growth for the first time in December. It ended the year at minus 11% sales decline. The industrial sales value was driven mostly by construction-related industries, such as cement and steel as well as semiconductors, plastic, electricity, gas and water. Next slide, please. On the consolidated customer count, it continues to grow by 3% driven by continuous energization of new connections or service applications, so we ended the year with 7.132 million customers. And residential still dominates in terms of count, with 92% share at 6.575 million while the remaining 8% is shared by commercial, industrial and flat streetlights. That ends my presentation, and I turn you over to Ronnie for the networks report.

Thank you, Ferds. Just like the energy sales, our 2020 consolidated net system input was also down by 7% primarily due to the pandemic. And of course, the eruption of Taal Volcano as well as Typhoons Ambo, Quinta, Rolly and Ulysses also contributed to the decline in our NSI. For our power sources, 53% came from our IPPs and old PSAs, 21% from our new PSAs, 15% from other RESs, 10% from WESM and 1% from special contracts. For the fuel mix, 39% came from natural gas, 35% from coal, 26% from multi-fuel, 112 gigawatt hours from solar and 63 gigawatt hours from liquid fuel. Peak demands in Meralco franchise and in Luzon grid both dropped by 2%. In the Meralco franchise, the peak demand of 7,614 megawatts was recorded in March 10 prior to the ECQ. For the Luzon grid, the 2020 peak demand of 11,103 megawatts recorded on March 9, which was also prior to the ECQ. Demands in the Meralco franchise are in Luzon -- I mean Luzon grid recovered to 7,000 megawatts and 10,000 megawatts levels in June and July when NCR and Luzon were placed under GCQ, but they did not surpass the March pre-ECQ peak demands. For system loss, our 12-month moving average system loss as of December 2020 was at 6.08%. This was higher by 0.54 percentage points primarily due to the huge shift of consumption to the Residential segments from 30% share before the pandemic to around 38% share during the pandemic. Residential customers have higher loss to serve because they are served through the secondary networks, which have higher technical losses. Conversely, the drop in electricity usage of commercial and industrial customers, which are mostly served through low-loss primary lines, contributed to the overall increase in technical losses. And to some extent, the community quarantine also hampered our saturation drives against illegal connections. The 6.08% system loss, however, is almost 1 percentage point below the prevailing 7% system loss cap prescribed by the ERC. For our S-factor performance, all indicators are well within the rewards levels based on third RP targets in the absence of fourth RP and fifth RP performance standards, with double-digit improvements on total SAIFI and total SAIDI. Total CAIDI increased by 2%, but this is just a result of the higher improvement of total SAIFI at 15% versus total CAIDI's improvement of 13%. Total CAIDI is the ratio between total SAIDI and total SAIFI. The double-digit improvements in both SAIFI and SAIDI are the results of our hard work and focus to keep the lights on during the pandemic. The average time to process applications increased by 39%, and our time to connect also increased by 10%. The increases were attributed to the numerous weather disturbances and also by mobility issues and quarantine restrictions that affected our design and right-of-way acquisition and even our interactions with our customers. For call center operations, our performance was heavily impacted by calls related to bill spikes and by power outages especially during the Typhoon Ambo in May, numerous weather disturbances from June to September and by Typhoons Quinta, Rolly and Ulysses during the last quarter of 2020. For GSL, December 2020 is the sixth month for the new GSL cycle under RY 2021. Over the last 6 months, our violations are way, way below the limits in reference to the third RP performance standards, with 0 violation for GSL 2. For CapEx, we continue to step up on our execution despite the pandemic and continue to push for the timely energization of our new customers and continued to build a strong and reliable distribution network to keep the lights on. On top of this, we strongly supported the government's PPP and BBB programs through the timely relocation of our affected facilities. At year-end, we spent PHP 12.03 billion worth of CapEx, which was 29% over our recasted PHP 9.34 billion CapEx budget due to the pandemic. Our pre-pandemic approved 2020 CapEx was PHP 17.34 billion. The bulk of our spending was for new connections at PHP 3.49 billion and PHP 3.7 billion for asset renewals. Please note that for new connections, close to PHP 100 million was spent for the quick energization of COVID-19 quarantine and treatment facilities all over our franchise. We also spent PHP 3.28 billion for load growth, PHP 520 million for nonnetwork, another PHP 680 million for Meralco electrification projects and PHP 340 million for Build, Build, Build-related relocation works. For CapEx supporting load growth we completed last December 14, next slide, please. The uprating of the 4.7 kilometer portion of Amadeo-Gateway-FCIE 115 kV subtransmission backbone by installing another set of 795 MCM ACSR cable. This now provides us with N-1 contingency during the outage of Amadeo-Tagaytay West 115 kV line. And to continue, for Build, Build, Build, despite the pandemic [Foreign Language]. Also last -- before the year ended, we put in or we energized additional 300 MVA transformer bank at Tayabas, 230 kV, 115 kV delivery point substation in Quezon. So with the additional capacity, this is such a huge capacity at 300 MVA, we can now provide more stable and reliable system in the south sector. And this will address critical loading of existing 100 MVA transformer bank at NGCP Tayabas substation. Okay. And for Build, Build, Build, despite the pandemic and the multiple right-of-way issues, we managed to relocate hundreds of poles to support the timely completion of major projects like the C3-R10 and Skyway Stage 3. In fact, for Skyway Stage 3, we also managed to energize its street lighting system and toll plazas just in time for its December 27 initial opening despite the short notice. And our hands are now full for this SLEX-NLEX Connector Road and for the various rail projects of DOTr or Department of Transportation. And further, despite the community quarantine, we remain committed to bring light to our unserved and underserved customers through our Meralco Electrification Program. We are set to complete Priority 2 and 3 groups with PHP 1.1 billion budget, which cover 536 sites and close to 27,000 households with December 2020 and June 2021 completion targets. And as of December, we have already energized 296 sites for a 55% energization level, with 240 sites now at the construction stage. Thank you so much.

Before we proceed with average retail rate, I'd like to inform everyone that our Chairman has now joined the call, Mr. Manuel V. Pangilinan. So thank you, sir. So turning over to Atty. Valles. Thank you.

Good afternoon, Mr. Chairman. Good afternoon, Mr. President. Good afternoon, everyone. Just to give you the regulatory update [Foreign Language]

[Foreign Language]

Okay. On the regulatory update, I will start with 2020 year-to-date average retail rate. The December 2020 year-to-date average retail rate registered a reduction of around PHP 0.91 mainly due to a significant reduction in generation charge. There is a 16.1% decrease in generation charge, which is due to the implementation of our new power supply agreements starting January 2020 and invocation of force majeure claims during the community quarantine periods last year. Other factors that contributed to the decrease are the lower WESM and fuel prices and peso appreciation. As a result of lower generation cost, average system loss charge for the year also registered a reduction of 12.6%. There is a 6.2% increase in transmission charge, which is due to higher power delivery and ancillary service charges and lower system load factor due to community guarantee. The year-to-date average distribution rate as of December 2020 is PHP 1.56 per kilowatt hour, which is PHP 0.1752 higher than the interim average rate of PHP 1.3810 per kilowatt hour. A 10.3% increase in average distribution rate is a result of a shift in consumption of customers brought about by the ECQ. Residential sales went up, and nonresidential operated at lower load factors. This led to a higher residential sales share over the 9 months of 2020. Since the residential distribution rate is higher than the rate for other customers, a higher residential sale share results in a higher overall average rate. The average FIT-All rate registered a significant decrease from the approval -- with the approval of a lower FIT-All rate implementation this -- for implementation this year. The FIT-All rate of PHP 0.2563 per kilowatt hour was implemented in January until March 2019, while PHP 0.2226 rate was implemented from April 2019 to January 2020. ERC approved a FIT-All lower rate of PHP 0.0495 per kilowatt hour starting February 2020. Collection of FIT-All was suspended for the months of April and May 2020 following ERC advisories in consideration of the COVID-19 situation. FIT-All collection resumed in January 2020 billing. On the next slide, for the distribution rate true-up, last December 23, 2020, Meralco filed an application to refund PHP 13.88 billion for the true-up covering the period from July 2015 to November 2020. Last February 16, 2021, there was an initial hearing for the compliance and other jurisdictional requirements. So last February 19, 2021, the ERC ordered -- issued an order granting the prayer for Provisional Authority as applied by Meralco, with the following directives: to refund PHP 13.88 billion or an average refund rate of PHP 0.1528 per kilowatt hours in approximately 24 months until fully refunded without carrying costs. The table shows the breakdown of the refund rate per customer class. The refund rate shall be reflected as a separate line item in the bills of the customers. And the refund is without prejudice to the outcome of the final determination of the case and/or the subsequent reset process that will be initiated by the commission. For the CSP update on the next slide, last February 19, 2021, the Third Party Bids and Awards Committee opened Envelope 3 containing the bid prices for the 1,800-megawatt CSP. The DOE observers were in attendance, led by Usec. Emmanuel Juaneza and Director Mario Marasigan. The reserve price for the LCOE inclusive of VAT, line rental and ancillary charge cost recovery is PHP 5.2559 per kilowatt hour. Excellent Energy Resources and Masinloc Power Partners Co., both under San Miguel, were considered possible best bids. Meanwhile, St. Raphael Power Generation or SRPGC, whose LCOE was PHP 5.4426, failed to meet the reserve price. So EERI and MPPCL had the lowest LCOE at PHP 4.14 and PHP 4.26, respectively. If you take out the VAT and the line rental and the ancillary costs, the LCOE of both companies are PHP 3.3675 and PHP 3.4696, respectively. So EERI has offered 1,200-megawatt capacity while Masinloc has offered 600-megawatt. The commercial operations date is on December 24 for Excellent Energy and May 2025 for Masinloc. So the last February 26, the TPBAC already determined that all the best bids for the 1,800 passed the post-qualification stage. And the winning power suppliers, Excellent Energy and Masinloc Partners, were then issued the respective Notices of Award. That's it for the regulatory update. Thank you.

Good afternoon, Chairman MVP, President RCE, colleagues and all dialed in to this call. I am pleased to report that our 2019 sustainability report entitled Sustaining the Future, was in the fourth quarter of 2020 recognized by the Asia Sustainability Reporting Rating Forum or ASRRAT with a Gold Rank. This recognition is a first for a maiden sustainability report and was given because of our SR's strong alignment in support of the UN or United Nations Sustainable Development Goals because of its transparency of our greenhouse gas disclosures and because of our compliance with the Global Reporting Initiative standards or GRI. I will now turn you over to Secretary Babes Singson for a report on Meralco PowerGen. Thank you.

Thank you, Raymond. And good afternoon, everyone. I'd like to just give a short update on Meralco PowerGen. Next slide, please. With regards to SBPL, our 500-megawatt supercritical coal project in Mauban, Quezon, this was commissioned in last September 26, 2019. So for the full year operations of 2020, we had a net generation of 3,070 gigawatt hours with a very good availability factor of 82% for the whole 2020. SBPL contributed PHP 1 billion to the Meralco CCNI for its first year of operations. With regards to Atimonan Energy, we, unfortunately, may not be able to make it in the recently concluded CSP, but we continue to look at other options for the site. And we continue to develop the site in preparation for the next CSP. Next slide, please. Now in terms of our thrust for renewable energy as part of Meralco's energy transition plan, MGreen, which is a subsidiary of MGen focused on renewable energy investments, targets 1,000 to 2,000 megawatt of renewable energy over the next 5 years. And this will focus on utility-scale solar, wind and hydro principally in Luzon. Right now, we continue to identify the sites and continue to work with local government units. Unfortunately, the quarantine has restricted movement and discussions with land owners. Next slide, please. Our first solar project, this is the 50-megawatt AC in San Miguel, Bulacan, this is for commissioning first quarter of this year. And as you can see, this is an actual drone shot of this site in San Miguel, Bulacan. MGreen increased its shareholdings in First Bulacan Solar to 60% after we acquired 60% share of Sunseap. Right now, we are -- as you can see, all of the PV panels are in place. What remains to be done would be the wirings and the connection to the substation. For us to complete this connection to the nearest Meralco substation, this 4.3 kilometer right-of-way, we had to construct 74 poles connected to the San Miguel Station of Meralco. This is an embedded generation, and this is covered by a Meralco PSA. This just shows you the main control room and the roof deck for -- ready for operations as soon as we get connected to the Meralco San Miguel Station. That ends our update on the MGen. Thank you.

Thank you, Secretary Singson. We'll now open the floor for questions. [Operator Instructions] So the first question comes from Karisa Magpayo, and she asks, what's the latest in the rate rebasing discussion?

For the rate rebasing, the ERC is currently prioritizing the application of Meralco that we filed last December, for which we are asking to refund PHP 13.8 billion of the recoveries. And ERC has already issued Provisional Authority. And then after this, the ERC is going to do the reset. But I think the ERC -- based on our discussion, I think the ERC is also working on the rules already. And they are expected to come out with the rules for comments by the stakeholders within the year. Thank you.

Thank you, Atty. Valles. The second question comes from German de la Paz. And the question is, what was the 40% year-on-year decline in Q4 distribution revenues despite sales volume only dropping by 7%?

This is Betty. So what happened was on February 19, the ERC issued a Provisional Authority for Meralco to refund PHP 13.9 billion representing the difference between the AWAT or the actual weighted average rate and the interim average rate of PHP 1.3810. Given that one, as we had already reported, even on an unaudited basis, the first 3 quarters, the adjustment in the rate was taken up in the fourth quarter. So that resulted in the decline in the top line. Thank you.

Thank you, Ms. Siy-Yap. The next question comes from Nadine Bautista. And she asks, what would you say were the major drivers of the 1.9% and 1.4% respective Q1 cume improvement in commercial and industrial volumes in 4Q 2020 alone?

Ferdie, you want to take it for the customer?

Look, I think for industrial, we see that steadily recovering starting the second half driven mostly by construction-related industries like cement and steel as well as semiconductor because of the high demand for semicon specifically for EVs and other commercial use of the semiconductors. Commercial volume is -- have a slight recovery because of some sort of the easing of the quarantine restrictions. I think from the GCQ, there are some areas that were reverted to MGCQ. And in terms of easing of the quarantine, there were also easing in terms of occupancy rates of commercial establishments. From 0, they were allowed 50%, for example, for certain type of industries, commercial industries.

Sir, there's a second part to the question. And he -- she asks, when do you see commercial volumes recovering back to 2019 levels? Any volume guidance for 2021?

Well, we are still some sort of -- in terms of the situation, a bit volatile. Again, commercial volumes is mainly driven by the quarantine and the mobility issues. Of course, if -- age restriction in terms of allowing younger people to some sort of -- in terms of patronage of the commercial establishment, I think this will drive commercial sales. But for now, I think with the age restriction, we don't see so much social activities especially in commercial establishments.

Thank you, sir. I guess this one is for Atty. Valles. Can you share key takeaways in the initial hearings regarding the PHP 13.9 billion application? Any intervenors raising the case for review in the period?

Yes. We had an initial hearing last week, and there were 2 intervenors present, and 1 intervenor was the Former Commissioner Alfredo Non. And he was raising that the missed period or the last period should be tackled during this case. But we responded that the case is simply about the refund of the overrecoveries between the AWAT and the interim approved rate. So the issues that Commissioner Non raised during the hearing are not appropriate to be discussed during that case -- during that hearing -- or in this case.

Thank you, Atty. Valles. The next question comes from [ Joshua Generoso ]. And he asks, can you share with us your energy supply-demand outlook for 2021?

Well, it all depends on the easing of the quarantine. We're awaiting for the guidance from the government as to when they would be easing up the quarantine because of course, when we ease the quarantine restrictions, some economic activities are going to ramp up especially for the commercial sector. But on the medium term, because we know that GCQ will still prevail in most of our franchise for the month of March and even though SBPL will be on outage for 15 days and [ SLPEC ] will also be on outage for the most number of days in March, but we are seeing a 2,000 to 3,000 reserve for the whole month of March. So for the month of March, there will be no problem in terms of supply because we have enough capacity in standby. But we just have to -- of course, it all depends on whether the government will ease the restriction come April or May and the last quarter -- or next quarter.

Let me just add, Ronnie, on the recovery of the Commercial segment, we all know that the segment's actually demand-driven. It is a consumption-driven segment. So unless and until there is demand on this that can be served by this segment, we will struggle, I think, with the recovery of the Commercial segment. Ronnie was alluding to and Ferdie was alluding to the possibility of younger people being allowed to go out of their homes, not only younger people but even senior citizens who are prohibited under the current IATF guidelines, have prevented actually significant demand on major drivers of commercial usage such as hotels, malls, restaurants and dining establishments. Those are actually reeling against the effects of a low demand situation, not to mention the fact that the capacity restriction operating on these establishments are at 50%. They have been hoping that this capacity will be increased at least to 75%. The loss of income as well have affected consumption. And therefore, demand again on the commercial sector, it's significantly dampened. So we need this confluence of positive developments on the demand side to really drive consumption by the Commercial segment. But we are fortunate that Residential remains very strong given the continuing lockdown as well as increased online education activities. And that has actually recovered. It started recovery in the second half of last year and turned positive after December and continues its positive trend even up to last month. And we see that as early as today. Thank you.

Thank you, RCE. The next question comes from Gio Dela Rosa. And he asks, can you break down the difference between the reported and core net income for the year? Ms. Betty?

The differences in our core and reported net income is attributed to those 3 major items. An impairment loss that we recognized for Pacific Life in the first quarter of the year, that's about PHP 2.7 billion, and also an accounting accretion of the -- we recognized a day 1 gain back in 2019 wherein we were required to recognize at present value the overrecoveries. And then the succeeding years, you'll have to accrete it, so effectively recognized like an amortization or a loss for that one. That amount comes out to close to PHP 2 billion.

Thank you, Ms. Betty. The next question from Gio as well is relating to CSP. And he said, am I correct to assume that under the recently concluded CSP, both EERI and MPPCL [ are connecting ] to have newly built plants supply the combined 1,800 megawatt of power? If they are able to finish building new facilities, will there be any penalties apart from requiring them to source replacement power? Atty. Valles?

Yes. Under the rules of bidding, the qualified bidders must be able to prove that they have a newly -- that they will build new capacities to supply the 1,800 megawatts. So these are greenfield projects. So after due evaluation by the Third Party Bids and Awards Committee, both EERI and MPPCL have qualified. And based on the documents they have submitted that they have been determined that they are capable to build those plants. In the event that they are unable to finish the construction within the term or within the -- before the commercial operations date, then the penalty under the PSA is that their performance security, which is huge, almost equivalent to the project cost, will be forfeited -- or sorry, equivalent to 2 months as -- of their supply will be forfeited. And then in the event that they are unable to provide power during the COD, then there will be appropriate penalties under the PSA, which include payment of monetary damages.

Thank you, Atty. Valles. The next question comes from Jelline Gaza of JPMorgan. How much have you spent so far for the Atimonan ONE project? What are the plans today given the loss in the recent -- the loss recently in CSP?

For the Atimonan, we have spent almost PHP 7.5 billion. That's all for site development, but this required a major water rechanneling of 2 main rivers that flow to the area. And keep in mind that we have to elevate also, so there's required a lot of cut and fill for the whole area.

Thank you, sir. The next question again comes from German de la Paz. Where can we see the income contribution of subs in the income statement? Is everything equitized?

If it's subsidiary, all the subsidiaries are consolidated so on a line-by-line basis. For equity accounting, the only entities that we account for at equity are those wherein we own less than 50% except with respect to SBPL, which is accounted for at equity at the MGen level. So if you want details or numbers for each of the subs, you can call me [Foreign Language] for that one.

Thank you, Ms. Betty. A question comes from [ Bernice ]. And the first question is, how were electricity sales volumes in January and February?

In terms of sales volumes in January and Feb, we're seeing [Foreign Language] of course, since January, February last year was pre-pandemic, we're seeing slightly lower sales of minus 5% to minus 6%. But of course, if you compare it to the pre-pandemic month of 2019, it's almost tracking the same volumes as 2019. So if you will project 2019 -- assuming the same conditions, so we will be hitting close to 2019 numbers by the end of the year assuming the same conditions. But if conditions eases out in terms of quarantine, maybe there's an upside. But of course, everything is volatile right now. So we see it on a month-on-month basis [Foreign Language].

Demand in February was much higher than the demand in January already that slightly -- just slightly below year-to-date February of last year. So we are seeing the traction. And we're hoping that if commercial really lifts then, then it will probably exceed 2019 if commercial lifted much revenue.

Thank you, sirs.

Slightly lower than the base -- slightly lower than the base in January.

Yes.

Sorry, February.

February.

Compared to January.

Thank you, sirs. The next question, maybe it's for Ms. Betty, what's the CapEx target for 2020?

Yes. Ronnie, do you want to take it? Or...

Yes. Actually, for networks, we have PHP 19 billion CapEx budget. And the bulk of that [indiscernible] the network is roughly 40% or PHP 7.31 billion goes for new connections. And we have asset renewals also, budget close to PHP 5 billion and close to PHP 4 billion budget for load growth. Load growth means putting up new substations, putting up new lines to meet the increasing requirements of our customers. And we have also budgets for the Meralco Electrification Program. As I said in my report, that's close to PHP 1 billion CapEx budget for electrification program. And close to PHP 1 billion -- close to PHP 0.5 billion budget also for relocation works related to PPP and BBB projects of the government.

So it's just for the BU, CapEx for the BU.

Yes, CapEx for the BU, PHP 900 million.

PowerGen, it's a different budget.

Yes. Actually, the total budget made up -- the bulk of which is really driven by networks [indiscernible] because we have other CapEx on other units.

Thank you, Sirs. The last question from [ Bernice ] is, is there income guidance for 2021?

No, not yet, because I think as Ferdie mentioned, it's difficult to be in some precision as to how the bill volumes are going to pile up for the next 10 months. That's really a function of what the government would do in terms of the vaccination and in terms of opening up the economy, which should -- I think which should drive -- both of those will drive the pace of economic recovery. So I think we'll give you a better picture by the middle of the year when we announce our midyear results. So we're still hopeful that 2021 will be better than 2020. And if the volumes are similar to 2019, well, then it could a better year this year than -- for us than 2020.

Thank you, sir. The next question comes from [ Kathryn Dulade ]. She asks when will the consolidation of GGPC be expected? Is it after first payment scheme in the first quarter of 2021? Or would this be consolidated only after full payment has been made?

Okay. When the closing happens, so we expect the closing to be by the end of the first quarter, early second quarter, so that's the time we consolidate.

Thank you, Ms. Betty. Another follow-up question from Nadine. What percent of Atimonan's total capacity are bankers comfortable to contract in RES considering these are short-term in nature?

Just continue. Can you share with us what components...

Can you share with us what components of the LCOE drove the difference in SMC's bid versus Atimonan's bid in the CSP?

Okay. I'll take the first question, Nadine. Actually, we've had discussions with the banks, and we have informed them that we're looking at half-half. So for RES, that's 600 megawatts and then 600 megawatts for the contracted capacity. Now we're looking at a longer-term contract for RES rather than short term to -- also to address the questions of the bankers.

Yes. On the second point, on the components of the LCOE that drove the difference in SMC's bid versus Atimonan, what I can share with you is only the difference in the LCOE, which is about PHP 0.42 or PHP 0.43 per kilowatt hour. But with respect to the components, I cannot -- I'm sorry, I cannot -- we are not at liberty to disclose that to you because we are bound by confidentiality in terms of the breakdown of the costs offered by SMC and Atimonan. Nonetheless, in the event that we file the PSA at the ERC, the ERC will be able to determine and check the breakdown of these costs once SMC submits this to them.

Thank you, Atty.Valles. The next question is, any update on the terms and schedule of the next 1,000-megawatt baseload PSA of Meralco starting July 2025? Will this be exclusive to greenfield or open to brownfield projects as well?

There is the next 1,000-megawatt baseload that will be offered by CSP this year. But the exact date is not yet determined, and also the exact terms of reference have not been discussed and decided by Meralco. So we will update you as soon as we have more information with respect to this.

Thank you, sir. The next question comes from [ Aaron Uy ]. Is there any remaining value for PacificLight in Meralco's financial statements?

If you're talking about numbers in the financial statements, I will say we have actually impaired that one. But in terms of the asset itself, value -- the operating value, there is definitely a lot of value in that plant. It's the most efficient plant in Singapore. There's been developments with that plant. Sir MVP, you want to just talk about PLP?

Well, last -- since last year, there have been significant efforts to improve the -- both the operating and financial conditions of the Singapore plant. The beginning is the supply agreement -- the gas supply agreement between Shell and PacificLight that have been renegotiated to achieve better returns for the power plant. So that's done. Number two is that the debts of PacificLight have been restructured with the banks to give it better terms in terms of interest rate and longer maturities subject to banks' decision, being paid first after a certain level, then it's -- then the company is free to continue with its amortization program but, at the same time, to pay dividends. Number three is that the technical assistance agreement with Siemens where Siemens apparently is charging a significant technical fee to the plant of more than SGD 14 million a year has been renegotiated downward and deferred. So -- and so I think with all of those conditions, the financial position of the plant has improved to the point where I think the fourth quarter last year, PLP showed positive EBITDA. And that has continued on a rising scale for this year for January and February. I think as of February 24, the accumulated EBITDA of PLP is about SGD 5.5 million. And I think for this year, they will achieve a positive EBITDA, all -- in the order of about SGD 30 million to SGD 40 million.

Thank you, Sir MVP. The next question comes from [ Joaquin Francisco ]. Can management provide the amount of provisions already made for over and underrecoveries?

The -- in terms of, for example, for the PHP 13.9 billion that the ERC had provisionary approved, that has been fully provided. So on a regular basis, we actually account for our over/underrecoveries between the actual average rate and the interim rates. And then on a monthly basis also, as we receive our generator and transmission billings, we also account for all the over/underrecoveries. These are all in the liability, and when it's an underrecovery, then we recognize a receivable.

Thank you, Ms. Betty. The second question is, what is management's dividend outlook for 2021? What payout ratio is management looking to maintain this year? Sir?

Well, the dividend payout this year has been constrained mainly by the quantum of retained earnings Meralco parent has got. So that's why the dividend payout has been limited to 65% compared to 75% last year. So we have to find means to raise the level of retained earnings that's starting 2021 for the company to return to a 70%, 75% dividend payout. But you can see, it's not a matter of lack of cash because the company continues to generate quite a bit of cash, and the level of collections in the past few months continuing to 2021 have been significant. So it's not so much about the cash but more the retained earnings account of the company. And of course, it's important that we show some increase over in this year in profitability. So as soon as we're able to develop a way to raise the level of our retained earnings, we will raise our cash dividends.

Thank you, Sir MVP. Third question, can management provide details on any genco expansion opportunities currently being considered beyond what is presently in the pipeline?

Let me take that question. I think we do have a number of genco expansion opportunities, but it would be rather early to disclose this -- the details of these opportunities. We will obviously inform and make the necessary disclosures once these opportunities actually materialize.

Thank you very much, sir. I think that's the last question. Would you like me to...

Sir, you want to...

I'd just like to comment on this because it is a matter of national importance. We -- when we were -- when First Pacific was looking at the -- and I can only disclose probably just some of our [ interests ] because it's a matter of concern for me and for Meralco because when we're looking at Malampaya SC 38, it looks like the gas supply is -- for a number of reasons, started to build up. And I'm just slightly concerned that if that continues, then the impact on the gas plants [indiscernible] I'm not trying to be a Nervous Nellie. But that's something that I think Meralco should look at and we should also take a look at because I don't think that the plants are ready to [ regas ], are they? Would you like to add?

No, no sufficient detail yet on the [ regas ].

So I think that's something we should take a very serious look at because as far as I know, there's no new plants [indiscernible] so [Foreign Language]. That's why I'm slightly worried, and I think -- okay, especially if the economy picks up, then yes, we might be -- we just have to look out for that. Other than that, [ we're good to go ]. Thank you.

Thank you very much, sir.

Thank you all.

Thank you very much, everyone, for joining in the call. We look forward to seeing you again in the first quarter results meeting. Thank you.

Thank you.

Thank you.