Manila Electric Company (MER) Earnings Call Transcript & Summary

Good day, everyone. Kindly settle down as we are about to begin this afternoon's presentation. Before we proceed, please be advised that this teleconference call is recorded. Kindly note, too, the ground rules sent to you beforehand. At this point, I will turn the mic over now to Dinbo Macaranas, who's Meralco Investor Relations Head. Guy, please.

Good afternoon, everyone. Welcome to today's briefing. We will be presenting the first quarter 2021 financial and operating results of Meralco. A copy of the presentation may be downloaded from our website at www.meralco.com.ph under the Investor Relations portion. We have members of Meralco's management team in the call, led by our President CEO, Ray C. Espinosa. I believe our Chairman, Mr. Manuel V. Pangilinan, will be joining us a little later on. Other corporate officers who will be presenting are the following: Secretary Rogelio L. Singson, President and CEO of MERALCO PowerGen Corporation; Ms. Betty C. Siy-Yap, Senior Vice President and Chief Finance Officer; Mr. Ronnie L. Aperocho, Senior Vice President and Head of Networks; Mr. Ferdinand O. Geluz, First Vice President and Chief Commercial Officer; Attorney Jose Ronald V. Valles, First Vice President and Head of Regulatory Management; and Mr. Raymond B. Ravelo, Vice President and Chief Sustainability Officer. The order of presentation will be as follows: we will begin with the financial highlights, followed by the operating results of the distribution utility and then highlights from MERALCO PowerGen Corporation, and finally, we will wrap up the presentation with a few words from our Chairman. As in previous briefings, we will allot time for Q&A after the presentation. At this point, I'd like to turn over the floor to Ms. Betty Siy-Yap for the financials.

Good afternoon, ladies and gentlemen. I will be reporting the results for the first quarter ended March 31, 2020 (sic) [ March 31, 2021]. Through the first slide, we have our summary financial information. We ended the first quarter with consolidated core net income of PHP 5.1 billion, 11% lower compared to PHP 5.7 billion achieved in first quarter of 2020. Our reported net income, however, was higher at PHP 4.3 billion compared with last year's PHP 2.6 billion. As you would recall, we booked the impairment loss on our investment in PacificLight in 2020. Core EBITDA stood at PHP 12 billion, 43% higher than the PHP 8.4 billion in the same period last year. Reported EBITDA was at PHP 11.8 billion, 131% higher compared with the PHP 5.1 billion in the first quarter of 2020. Our gross revenues was at PHP 64.7 billion in the first quarter of 2021, 7% lower compared with the same period last year. Distribution revenues for the first quarter was lower by 4% to PHP 14.4 billion compared with PHP 15 billion in the first quarter of 2020. The pass-through components of Meralco's revenue was at PHP 48.5 billion (sic) [ PHP 48.1 billion ], 8% lower than the first quarter of 2020. In terms of our cost and expenses, this amounted to -- well, purchased power was at PHP 47.5 billion, 8% lower, which is reflective of the volume and other components of generation costs. OpEx was at PHP 7.1 billion, 7% higher than 2020. Total capital expenditures implemented amounted to PHP 4.2 billion, higher than Q1 of 2020. Cash and cash investments was PHP 114.5 billion, 3% lower than the same period in 2020. Total interest-bearing debt is -- stood at PHP 89.2 billion, 118% higher. Subsidiary contribution was a cumulative PHP 304 million. Next slide, please. This slide shows our revenue information, both at gross revenues and electric revenues. Our gross revenues for the quarter ended March 31, 2020 (sic) [ March 31, 2021 ], was at PHP 64.7 billion, 7% lower than the first quarter of 2020, mainly because volume dropped by 4% to 10,473 gigawatt hours. Despite stronger sales volume for Residential customers and the recovery of Industrial sales volume, the Commercial sector, however, struggled with restaurants, malls, hotels, educational institutions still operating at below capacity or pre -- operating below the prepandemic levels. Electric revenues was at PHP 62.5 billion in the first quarter. Our distribution revenues declined to PHP 14.4 billion on account of the 4% decline in volume. The 14.4% (sic) [ PHP 14.4 billion ] distribution revenue for the quarter translated to an average distribution rate of PHP 1.3738 per kilowatt-hour and is net of the PHP 1.7 billion adjustment of the actual weighted average tariff against the interim average rate which used to be -- which was adjusted mainly because we received a provisional authority from the ERC on February 19, 2021, to implement the refund. We, therefore, reclassified the 2020 over-recoveries from provision to a direct reduction against the revenue line, consistent with the ERC order. The pass-through component of revenues reflected an 8% decline in the -- to PHP 48.1 billion as a result of lower volumes purchased and lower generation and transmission charges. The pass-through component accounted for 74% of gross revenues or 77% of total electric revenues. Our nonelectric revenues was at PHP 2.2 billion, representing 3% of our gross revenues. For cost and expenses, our total costs and expenses for the first quarter of 2021 amounted to PHP 55.3 billion, 17% lower than the first quarter of 2020. The decline was largely driven by lower purchased power costs, which represented 86% of total costs and expenses. Our purchased power costs decreased to PHP 47.8 billion (sic) [ PHP 47.5 billion ] or 8% lower on account of the following: number one, lower volume purchased as volume distributed declined by 4%; the appreciation of the peso from -- with the peso moving from 50.819 in the first quarter of 2020 to 48.311 resulted in lower cost of power generation -- or generation charge; the lower Malampaya natural gas prices moved from $6.97 per gigajoule in 2020 to $6.72 as in 2021. However, this was offset by the higher resin prices as several plants were on forced outage. In March 2020 (sic) [ 2021 ] alone, a daily average of 3,481 megawatts of plant capacities were unavailable. Our operating expenses, which accounted for 13% of the total costs and expenses, amounted to PHP 7.1 billion. Labor and contracted services stood at PHP 5.2 billion, 1% higher compared with the first quarter of 2020. The increase is driven largely by retirement expenses -- retirement and pension costs, which we had to accrue consistent with the latest actuarial valuation report that we had received. Note that because of the lower yields, this has affected the amount of liability that we need to recognize in our books. We also had higher contracted services brought about by technical and engineering services, higher collection fees for payment platforms of Bayad and Meralco Online -- and Meralco Online. The increase, however, was offset by the lower disconnection-related expense with the suspension of disconnection activities until the end of April. Depreciation and amortization for the first quarter of 2021 was at PHP 2.1 billion, flat compared with 2020. Other expenses included taxes, permits, transportation, materials offset by reversal of provisions that we had made during the period. Capital expenditures implemented included electric capital projects and nonelectric projects during the quarter totaling PHP 4.2 billion, 2% higher than the first quarter of 2020. The CapEx also included costs related to the site development of Atimonan One Energy of PHP 25 million and construction of PowerSource First Bulacan's solar power plant. Next slide, please. Our consolidated core net income amounted to PHP 5.1 billion, about 11% lower compared with the PHP 5.7 billion in 2020. The lower CCNI reflected the impact of decline in sales volume from 10,879 gigawatt hours in 2020 to 10,473 gigawatt hours in 2021. Okay. We also saw slightly higher OpEx with the earlier settlement of real property taxes. With the settlement of real property -- real property taxes in prior year, we're effectively required to pay the full year already starting the subsequent year that you settled. In addition, there were local government units which offered discount for earlier payment of real property taxes this year, which the company took. We also paid documentary stamp tax related to the PHP 5 billion loan that we drew in connection with the purchase of our stake in GBPC. There were also costs related to renewable -- renewal of the radio equipment licenses. Income tax adjustment also reflected the effect of CREATE law, the total of which is PHP 3.6 billion. Adjustments on provision relates to, as mentioned earlier, to the recognition of the difference between our actual average rate and interim approved rates. Let me reiterate that in prior years, these were recorded as provisions, which is under the other expense line. Beginning 2020 -- at the end of 2020 rather, we actually booked this amount -- we took this amount as a deduction against revenue. And thereafter, for 2021, we are treating this alike as the refund is certain and it is only as a matter of timing. The ERC, though, in February had already approved the PHP 13.9 billion refund covering the period July 2015 up to November 2020. The results of Meralco subsidiaries remained hampered by the pandemic in the first quarter of 2021. Total contribution amounted to PHP 304 million. Much of this though comes from MGen through San Buenaventura -- through its plant, the San Buenaventura plant. There was also higher transaction volume from Bayad and other projects -- expansion projects in the -- for its telecommunications customers by MIESCOR. The passage of the CREATE law also had a positive effect to our subsidiaries, which is about PHP 9 million contribution to CCNI. The significantly higher reported net income in 2021 is mainly because of the impairment loss on our investment in PacificLight that was taken last year totaling PHP 2.6 billion. In addition to the difference -- the impairment loss that we had taken last year, the other adjustments between core and reported net income are gain on investment from the 14% original stake in GBPC as a result of the valuation for the acquisition of the 86%. We also had -- in addition, there were noncore expenses related to the implementation of the CREATE law. Consolidated core and reported EBITDA for the first quarter of 2021 was at PHP 12 billion and PHP 11.8 billion, respectively. With the closing of the GBPC share purchase agreement on March 31, the assets and liabilities of GBPC were consolidated into the books of MGen, and ultimately, into Meralco. Note, however, that for P&L recognition purposes, we continued to recognize our 14% through the first quarter of March -- through the first quarter ended March 31, 2021. The line-by-line consolidation of P&L will begin in April. Total GBPC loans -- existing loans consolidated was PHP 27 billion. Property, plant and equipment was PHP 42 billion. We also recognized an intangible asset relating to GBPC customer contracts and fair value adjustment of the property, plant and equipment totaling PHP 13.6 billion. Estimated monthly amortization of this amount is about PHP 79 billion beginning April, subject to a final purchase price allocation, which is currently being conducted. Recognition of noncore income of PHP 207 million as a result of fair value adjustment of the existing 14% equity investment in GBPC in accordance with PFRS was also taken now. Loans drawn by Meralco and MGen amounted to a total of PHP 22 billion, PHP 5 billion for Meralco and PHP 17 billion for MGen to fund the first payment of the equity acquisition. The first payment amounted to PHP 19.5 billion. Total acquisition price of the 86% stake in GBPC was PHP 32.9 billion for the 86%, net of dividends and interest costs. The payment of this purchase price shall be in 3 installments: 60%, which we had paid already; and the balance of 40% in 2 tranches, which are 6 months and 18 months after the closing. Our total interest-bearing debt stood at PHP 89.2 billion, including debt of subsidiaries. So in terms of details, as I mentioned, there's PHP 27 billion from GBPC and PHP 22 billion of new debt that has been contracted. Cash and cash equivalent -- cash and cash investments totaled PHP 114.5 billion. Net debt at the end of the first quarter of 2021 was PHP 26.2 billion and net debt-to-EBITDA was 0.56x. Meralco's debt payment schedule remains comfortably spread through 2034. Our core earnings per share for the first quarter of 2021 stood at PHP 4.36 (sic) [ PHP 4.54 ] while reported earnings per share was at PHP 3.85. This ends my presentation.

Thank you. Thank you, Ms. Siy-Yap. We'll now turn it over to operational results headed by our President and CEO, Attorney Ray C. Espinosa.

Thank you. Good afternoon, everyone, and thank you for joining us in this briefing. For the first quarter, the consolidated energy sales of Meralco was down 4% compared to the same period last year at 10,473 gigawatt hours. I just want to point out that whilst we may be down 4% compared to last year, Residential sector actually grew by 11% versus 8% growth in February. So March was a growth of 11% versus an 8% growth only in February. In the Industrial sector or segment, we saw strong growth of 10% for the month of March compared to minus 3% in February. And this was driven largely by steel, cement, semicon and manufacturing of expanded goods, which all showed good results. Commercial remained down 14% in March, but this represents a significant improvement from the 20% average decline in the previous months. So I'm making this note because it seems that there is growth that is -- that started early in March, and we are seeing this as well continuing in April, where, as of April 24, the sales was up by 21% compared to the same -- compared to April 2020 average. Now our customer -- consolidated customer account grew 4% at 7.205 million customers. Net system input was down 4% following the lead of consolidated energy sales at 10,981 gigawatt hours. And our peak demand was also down 7% year-to-date at 7,115 megawatts, which was registered on March 18 of 2021. For the service performance, our system loss was up at 6.4% (sic) [ 6.14% ] and which means an increase of 0.72 percentage point on a 12-month moving average basis. Let's put this on my screen, sorry. System average interruption frequency index was also up by 2 -- by 0.237x. However, system average interruption duration index was down 2% at 23.714 minutes, while average time to connect was longer at -- by -- at 1.81 days or higher by 19%. The electricity rate for the month -- for the period was down 3% at PHP 7.82 per kilowatt-hour. Turning over the floor now to Ferdie Geluz for the report on the business segment.

Good afternoon, everyone. For the consolidated sales, for the first quarter, Residential showed strong growth and we also saw recovery in the Industrial sector. But the overall first quarter number was dragged down by the huge decline of Commercial segment due to the effects of the pandemic. Well, if you'll recall, most of first quarter last year is actually prepandemic quarter except for the last 15 days of March. Year-to-date, consolidated sales is at 10,473 gigawatt hours, lower by 3.7%. Residential grew 7% and Industrial actually grew by 4% compared to minus 11% for the whole of 2020. So it's a good sign that Industrial is actually recovering in 2021 with a strong growth of 4%. Commercial showed slight improvement at minus 18% compared to the minus 20% decline for the fiscal year 2020. Actually, I think our CEO alluded to this, that even in March, we're already seeing the decline of Commercial going down as much around only 14%. So we see -- actually saw gradual recovery even in Commercial with the improved mobility compared to the previous year. But of course, then again, ECQ was declared towards the end of March. Well, overall, the sales mix for quarter 1 is actually driven by Residential at 35%, which is up versus 31% compared to last year. Commercial is at 34% lower compared to the 40% in 2020. And Industrial, with an increased share of 31% versus 29% in quarter 1 2020. For the details, Residential grew by 8% driven by continuous implementation of work-from-home and stay-at-home policy as well as stricter restriction within NCR compared to last year. Continuous energization since quarter 4 contributed to strong Residential growth this quarter. Residential development energization is at a renewed level, even surpassing prepandemic levels, driven by mass housing projects outside Metro Manila, particularly in Cavite, Bulacan, Rizal, Laguna and Quezon. Commercial sales is down 18%, but this is an improvement versus 20% last year, especially in March where the decline is only 14%. Mobility played a key role in commercial recovery, particularly in the retail and transport sectors, as public transport and restrictions are more relaxed versus protocols in 2020. Well, hotels and education are still lagging with minimal signs of recovery, and up until the gradual easing of the quarantine, I think we will not see much growth in these 2 sectors. Industrial bounced back with a growth of 4% versus an 11% drop in 2020, and this is driven by the construction industry. Full operation of the cement and steel producers continued to contribute to strong performance with a continuing Build Build Build, and again, the recovery of residential mass housing developments. Semicon continued to post strong growth with increased production of electronic gadgets used in distance learning and telecommuting. Manufacturing plants, especially for essential goods, such as food and beverage, were able to operate at significantly higher capacity compared to last year when some plants were forced to temporarily cease operations between March and April. Next slide, please. So we are now at 7.205 million customers, and our customer count continues to increase at prepandemic rate driven by energized residential developments. We still saw a strong customer growth rate of 3.6% or almost 0.25 million new customers compared to the same period last year. Overall, Residential remains to have the highest share at 92% or 6.64 million customers. Next slide, please. We have also kicked off our summer campaign with the tagline, this Summer, YOU Have the power. This is aimed at preparing and educating our customers on the impact of high temperature on their consumption and bills during summer, so that there will be no bill shock or surprises. And we started early, as early as last week of February, I think we already started doing the communications, starting with priming. We are now at the awareness phase, where we ramped up our communication with our customers through the release of our Meralco advisory. Well, if you'll notice, for March and April, both of our advisories are really aimed on the Bright Ideas and in terms of energy conservation. We also posted summer tips through our digital channels, especially the FB, and released bill ads and reminders on our -- even on our latest bills. I think we even showed some sort of -- the estimated consumption rise between April versus March and May versus April towards the peak June this year. And of course, every year, usually consumption picks up at June. So we also shared energy-saving tips through our media guestings. So that will be all for the customer report, and I will now turn you over to my colleague, Ronnie Aperocho, for the network's report. Thank you.

Thank you. Thank you, Ferdie, and good afternoon to everyone. So just like our energy sales, as explained earlier by our President and my colleague, Ferdie Geluz, our consolidated net system input for the first quarter of 2021 was also down by 4%. Well, this is despite the strong recovery of the Industrial sector and the consistent surge in consumption for Residential sector. Well, basically, the decline is attributed to the drop in Commercial sales. But of course, we're on the -- we're recovering, and for the month of April, we see a good sign that really our sales are going up. So okay. Next slide, please. For NSI and especially for our power sources and fuel mix, for our power sources for the first quarter, 50% was applied by our IPPs and all PSAs, 23% by our new PSAs, 17% by other RESs, 9% from WESM and 1% from our special contracts. And in terms of fuel mix, big contribution from natural gas at 42%, 29% from coal, 29% from multi-fuel while inputs coming from solar power plants was at 37 gigawatt hours and liquid fuel also at 6 gigawatt hours. Peak demand for March was at 7,115 megawatts. This is 7% lower than March 2020's peak demand of 7,614 megawatts. Actually, this was the highest demand for the whole of 2020. But of course, the March demand is already higher by 10% compared to the peak demand of February 2021. Okay. For peak demand for the Luzon grid, it registered 10,543 megawatts. This was 5% lower compared to the March 2020's peak demand of 11,103 megawatts. But this is also higher by 10.1% compared to the prior month of February 2021's peak demand. Okay, for our 12-month moving average system loss, for March, it's 6.14%. This is higher by 0.72 percentage point, primarily due to several drivers, and the biggest driver was the huge shift of consumption to the Residential segments, from 30% share before the pandemic to around 38% to 40% share during the pandemic. So as we know, Residential segments are served through the secondary lines and does have higher loss-to-serve compared to the Commercial and Industrial customers, which reduced their consumption during the community quarantine. Well, our saturation drive also against illegal connections were hampered by the constraints in workforce deployment and the scarcity of police escorts as most of police personnel were deployed to man community checkpoints. So there's also an unbilled consumption of around 31.6 gigawatt hours, equivalent to 0.07 percentage point increase in our 12-month moving average systems loss. But with the series of Commercial and Industrial customers in our total sales mix slowly improving and with our saturation drives against illegal connections getting back to the A level, and of course, the unbilled volumes are being reduced significantly, we are seeing improvements in our system loss numbers starting next month of April. And [ all of us ] are looking forward for a lower system loss by the end of the year. For our S-Factor performance -- next slide, please. All indicators are very well within the rewards levels based on the 3RP targets in the absence of 4RP and the 5RP performance standards. And our forced and pre-arranged SAIDI had a 3% decline, however, due to the huge jump in our prearranged power interruptions as part of our CapEx ramp-up and CapEx catch-up activities, of course, to meet the customer load growth requirements, to provide additional capacity and to upgrade our lines as part of our storm hardening program. And we also took advantage of the good weather in March to execute our CapEx programs. Of course, that includes the relocation works for -- to clear BBB and PPP projects of the government. While our total SAIDI and CAIDI improved by 2% and 4%, respectively. The average time to process applications and the time to connect are also at the rewards levels despite the increase of 16% and 19%, respectively. So the increases were driven by quarantine-related issues during the end-to-end service application process, of course, compounded by workload constraints as business center and network personnel were also prioritizing the reduction of unbilled accounts. For call center operations, there's a huge improvement already in call answer performance from the 27% decline in prior month of February to 6% in March, despite the 29% increase in volume. And most of them are related to billing and payment concerns. For GSL, guaranteed service level monitoring for March, March 2021 is the ninth month for the new GSL monitoring cycle under RY 2021. And for the last 9 months, our violations are way, way below the limits in reference to the 3RP performance standards. The 129 violations for GSL 1 and GSL 2 were actually due to the current challenges with our Cagbalete microgrid generation plant, which is only rated for now to support up to 30 to 60 kilowatts of demand. And as the customers gained -- customers in the island of Cagbalete gained access to 24/7 electricity, they have significantly increased their power consumption to the point that the peak demand has already breached the full capacity of the generation plant. That's why we are now fast-tracking the completion of the Phase 2 of the microgrid project in Cagbalete with an additional capacity of 1.4 megawatt solar plant capacity and 2,400 kilowatt-hour battery energy storage capacity. And hopefully, we can complete the phase 2 by June of this year. And for CapEx, our utilization now stands at 17% of our PHP 19.08 billion budget. And the lion's share is for the new connections at PHP 1.371 billion, of course, driven by ordinary service application and project-covered applications that are now returning to the prepandemic levels or BAU levels. And of course, after new connections, we are also ramping up our asset renewals. And for March, we have already utilized around PHP 881 million. But we expect this number or this utilization to go beyond PHP 1 billion by this month due to numerous maintenance and storm hardening activities that we conducted since March up to the present. And for some of the major load growth projects that we completed during the first quarter of 2021, first was the expansion of our San Pablo 2 substation. We energized additional 83-MVA transformer bank. So we have addressed capacity problem in the area, and we have also provided the much-needed flexibility and reliability in San Pablo and Alaminos as well as the adjoining towns of Dolores, Tiaong, Candelaria and San Antonio in Quezon Province. Next slide, please. And we have also expanded our Pulilan substation by energizing additional 33 -- well, actually, we put in a higher 50 MVA transformer bank. So we have sort of addressed the critical loading of the existing 33-MVA power transformer bank in the same substation. And aside from addressing the capacity problem, of course, flexibility and voltage regulation improvement as well as reduction in system loss in Pulilan, Bustos, Baliuag and Plaridel have been addressed. Okay, next slide, please. Also, last February 26, 2021, we energized or we expanded our LISP, or Light Industry and Science Park substation in Cabuyao City, Laguna. This is an industrial park. So the additional 83 MVA has provided a big -- or additional capacity. And aside from that, of course, we have addressed the flexibility as well as the voltage regulation or power quality problems inside the Laguna Industrial and Science Park. Okay. In Tagaytay, Cavite, finally, we were able to replace the 22-year-old transformer bank, a 33-MVA transformer bank, which failed in November 2018. So of course, with the restoration of -- with the replacement, of course, reliable power is now assured in Tagaytay as well as in the adjoining towns of Indang, Silang, Amadeo and Trece Martires in Cavite. Okay. Next slide. And just recently, last March 28, 2021, in Cruz na Daan in San Rafael, Bulacan, we replaced the critically loaded 2 10-MVA power transformer with a new 50-MVA transformer. So we have significantly addressed the capacity issues in the area. And we have been able to provide operational -- additional operational switching flexibility, and of course, reduced systems losses as well as improving voltage regulation in San Rafael, San Ildefonso and Baliuag in Bulacan. Okay. Next slide, please. And of course, vaccination program is very, very important to us. That's why we have been working very closely with different stakeholders from the private and public sectors to ensure continuous and reliable power supply to the different vaccine storage areas and vaccination centers across our franchise areas. And one of them is the MetroPac storage facility in Marikina. This facility has thoroughly been checked by Meralco and this has been tagged as a core account that will be spared from power outages or first priority in restoration if there are forced outages. Of course, same treatment is being accorded to all of the critical storage areas, vaccine storage areas, in our entire franchise area -- in our entire franchise. And in fact, last March 30, we energized a huge vaccine storage facility in Marikina. The name of the facility is Pharmaserv Express. So -- and finally, for our Meralco Electrification Program, we are set to complete priority 2 and 3 groups with PHP 1.1 billion budget. This covers 536 sites that will benefit close to 16,500 households. And as of March 2021, we have already completed or energized 386 sites for a 72% energization level with the remaining 150 sites on construction stage already. So of course, we are still on track for the 100% household electrification in the entire Meralco franchise area by the middle of this year. Thank you so much.

Good afternoon. Just a brief regulatory update for the first quarter of 2021. The March 2021 year-to-date average retail rate registered a reduction of around PHP 28.64 per kilowatt-hour. The 5.6% decrease in generation charge is due to the implementation of new power supply agreements starting February 2020 billing, lower WESM and fuel prices and the peso appreciation. The 0.5% decrease in transmission charge is due to the implementation of the ERC-approved transmission over-recovery refund implemented at the start of the year. As a result of lower generation and transmission costs and the implementation of the system loss over-recovery refund, the average system loss charge also registered a 21.04% reduction. The 2021 year-to-date average distribution rate as of March 2021 is PHP 1.5396 per kilowatt-hours, and this is PHP 0.1586 higher than the interim average rate of PHP 1.3810 per kilowatt-hour. The average distribution rate for the year-to-date 2021 is 7.1% higher than year-to-date 2020 due to the change in consumption of customers brought about by the quarantine protocols implemented during the COVID pandemic. So Residential sales went up and nonresidentials operated at lower load factors. This led to a higher Residential sales share over the first quarter of 2021 as opposed to 2020. And since the Residential distribution rate is higher than the rate for other customers, a higher Residential sales share results in a higher overall average rate. With the distribution rate true-up, the 2021 year-to-date average distribution rate is PHP 1.4874 per kilowatt-hour. Subsidies, taxes and universal charge registered a 0.4% increase due to higher universal charge rates. The ERC directed a reversal of excess universal charge stranded contract cost collection in March 2020, lowering the overall universal charge rates of the first quarter last year. On FIT-All, average FIT-All rate registered a significant decrease with the approval of lower FIT-All rate for implementation starting January 2021 compared to the rate in January 2020. And the FIT-All rate of PHP 0.2226 was implemented during January 2020, then lowered to PHP 0.0495 per kilowatt-hour starting February 2020. The ERC then approved an increase to PHP 0.0983 per kilowatt-hour starting January 2021. So on the next slide. The National Grid, NGCP, recently released its press release. According to them, "There's a thin margin -- thin operating margin that is forecasted in the Luzon grid from April to August 2021 due to multiple power plants on extended outage and thereby providing limited power supply." This forecast of NGCP is aligned with Meralco's own forecast that shows upcoming scheduled outages of both power plants and the SPEX-Malampaya pipeline, which may be aggravated by forced outages of power plants and gas supply restrictions. So this, together with the increased demand and needed reliability during the ongoing summer months and given upcoming elections, this prompted us to renegotiate and amend our 2019 agreement with MPPCL or Masinloc Powers Partners Ltd. to extend the term of our PSA that is from May 26, 2021 to 1 year or up to May 26, 2022. So this is for a contract capacity of 220 megawatts for the first 6 months, ramping up to 260 megawatts for the remainder or for the next 6 months. So all replacement power during this period will be shouldered by MPPCL. The price is computed at PHP 6.91 for -- equivalent to a 24% load factor. This is a much improved price compared to the originally approved rate of MPPCL under this agreement by the ERC, which stand -- which stood at PHP 11.6321 per kilowatt-hours. And this is also expected to be lower than the 2011 PSA by a total of PHP 4.9257 per kilowatt-hour. Total savings is estimated at PHP 2.48 billion for 1 year. So last April 14, 2021, we wrote a letter to the Department of Energy requesting for the exemption from CSP of this amendment to the PSA. And we have also filed with the ERC the joint manifestation, together with MPPCL, seeking the immediate implementation thereof to address the looming shortage in capacity. That's it for the regulatory update. Thank you.

Good afternoon, everyone. I will be giving our sustainability update. I'm pleased to report that we recently established a Sustainability Committee, ensuring oversight by the Board of Directors of our sustainability program and performance as a company. This committee will be primarily responsible for overseeing the sustainability strategy, policies and programs of Meralco and its subsidiaries. It will also monitor the company's economic, environmental and social performance in alignment with the UN SDGs or the United Nations Sustainable Development goals, all in line with the aim of delivering long-term value to all our stakeholders. On the next page, please. Our sustainability initiatives were also recognized at the recent 18th Philippine Quill Awards. In particular, our sustainability report, Sustaining the Future, was recognized with an excellence award, which is the Quill's highest award for outstanding initiatives. Likewise, a number of our sustainability-related programs also received recognition. Among them are our push for solar microgrids, which earned a merit award; One for Trees, our reforestation program, also merit award; our drive to support our contracted staff through the A Day to Give and Share a Leave programs, that earned an excellence award. And then finally, our deployment last year of our eSakay electric jeeps to ferry frontliners during ECQ, that also earned an excellence award. Thank you very much.

Thank you very much, executives. At this point, we'll turn over the presentation to Meralco PowerGen. We think Secretary Babes Singson in the call.

I think I can represent MGen. This is Dan Neil if Secretary Babe's unavailable.

Go ahead. Thank you.

Go ahead, Dan.

So San Buenaventura power plant, as you're probably aware, started commercial operations in September 2019. Net generation for the quarter was 743 gigawatt hours and contributed PHP 217 million to the Meralco CCNI in the first quarter 2021. We're still working hard on Atimonan, notwithstanding the result of the recent CSP. And we're looking at other options for the offtake of the plant's capacity, including participation in the next round of the Meralco CSP process. In the meantime, site preparation activities are continuing, obviously, with very stringent protocols in place for COVID-19 to protect the workforce and the local community. On December 23, 2020, MGen acquired the holdings of Beacon and JG Summit in GBPC through separate share purchase agreements. That transaction has now closed and MGen owns 100% of GBPC, which is the largest independent power producer in the Visayas with a portfolio of over 1,000 megawatts of coal and diesel plants, including the relatively recently commissioned Alsons plant in Maasim, Sarangani. GBPC posted PHP 386 million in net income for the quarter in 2021. The target for MGen is to develop around 1,500 megawatts of renewable energy projects over the next 5 to 7 years. And the focus will be utility-scale solar, wind and hydro projects, primarily in Luzon, to supply the electricity grid with competitively priced electricity. And the first step in that target is our PowerSource First Bulacan project in San Miguel, Bulacan, which is 80 megawatts DC, 50-megawatt AC with a total project cost of PHP 4 billion in a 72-hectare plot. Actually, the feed into the grid took place this weekend and I think the first electricity was dispatched earlier today. So that's a big day for MGen and Meralco to our first green energy feeding into the grid today. And there it is, as we said, 72 hectares, 80 megawatts DC, 50 to 55 megawatts AC. Next, there's the substation and control building, which obviously has all been fairly recently commissioned. I think that's it from MGen, right?

Mr. Dan Neil -- for the benefit of our analysts, Mr. Dan Neil is the EVP and COO of Meralco PowerGen Corporation. Is MVP in the call? At this point, we'd like to open the floor for questions.

[Operator Instructions] Anybody with a question?

So this is Bern from ATR Asset Management. I just have two questions. First question, is there a possibility for further refunds beyond the PHP 1.38 interim rate? And second question is, could you give us more details on the next CSPs.

I -- can I take that question? Yes, on the possibility of refund, actually the refund that was recently implemented over the interim rate of Meralco of PHP 1.38, that period covers only up to November 2020. So that started in I think July -- or July 2015 up to November 2020. So the period after November 2020, after the period, that there will be already -- that Meralco will already be starting the new rate under the next reset of the ERC, that will still be determined whether there will be a potential refund or not. So in terms of the possibility, yes, there is a possibility to cover that particular period. On your next question, on the CSP, we have already submitted our Power Supply Procurement Plan to the Department of Energy. And in that PSPP, we have indicated the capacity requirements that we need. It will require the conduct of a competitive selection process this year. So hopefully, we can do that as soon as we get an advice from the DOE of the approval of our PSPP and also as soon as we get notice that the amendment to the CSP has been finalized and released by the Department of Energy. Thank you.

Thank you. Attorney Valles. I believe Jelline Gaza is raising her hand.

Can you hear me?

Yes. Yes. Go ahead.

I have 2 questions. First is on the tariff you set. Can we get an update on the current procedures? And do you think it's feasible to see a resolution on this before the May 2022 elections? And then second, on volumes. I understand that there's an [ application ] that's 21% higher for April. But could we know the month-to-month trend, if possible?

Yes. On the tariff reset, the ERC has actually posted the rules of the issues paper and the revised rules for the distribution billing rates for the group A distribution utilities in its website, I think that was in March 2021. And various stakeholders have submitted their comments at the time within -- of the ERC posted in their website indicated that the reset will commence in July 2022. So that means that the distribution utilities are being required to file their appropriate applications in the next few months. I think that will be in May or June this year. Thank you.

Thank you, Attorney Valles. The second question relates to volumes, month-on-month trend. Perhaps we can ask Mr. Geluz.

Yes. Perhaps I can answer that, Jelline. For April, actually, we're forecasting more than 20% increase in terms of sales compared to -- gigawatt hour sales compared to April 2020. And this is largely growth on all segments. Remember that for April last year, much of our meter reading, especially for Residential, was estimated. But right now, I think since last year, we stopped estimating and all of our billing is based on actual readings. And given the estimate in April, I think we underestimated Residential because it was based on the cooler months of December, January and February. And of course, Commercial is actually -- because of the ECQ and very strict community quarantine in April 2020, basically commercial and much of the Industrial sectors has not operated. But this time around, it's more relaxed. So we see that Industrial growth will continue in April despite the MECQ because of better mobility, especially inside the NCR Plus, where much of the economic activities are in. And Commercial, even though it's at MECQ, I think it's more relaxed. And even the malls are open in terms of the essential shops, especially those related to food. So that's why were some sort of forecasting sales of, at least for April, more than 20% increase compared to last year. Did I answer your question?

Got it.

Thank you, Mr. Geluz. Now the next question comes from German de la Paz of Abacus. He asks to which should we attribute the strong core EBITDA in the third quarter of 2020. Perhaps Ms. Siy-Yap.

I didn't get the question.

To which should we attribute the strong core EBITDA in the first quarter of 2021?

Okay. The reason why we had a better EBITDA in 2021 is, as mentioned earlier, we did -- well, in -- towards the end of 2020, we received the RPC decision that Meralco is not subject to LBT. And we had previously made provisions for this one, that's over PHP 1 billion which we reversed. In addition with the settlement of our real property taxes for certain municipalities, and what we have done is we had previously accrued interest as it relates to any penalties, which will be imposed. However, because we did not get an assessment for this, but instead we actually went forward to each of the LGU to come up with -- well, wherein they reviewed our numbers before they provided us the amount due. So on that basis, we also reversed the related interest. This helps -- this effectively was positive to the EBITDA.

Thank you, Ms. Betty. The next question comes from Marvin Obordo of F. Yap Securities. He asks, what is your energy sales guidance for the year? And do you have CCNI guidance for the year? Maybe Attorney Espinosa, sir RCE.

Well, just broadly speaking, I think the -- our guidance is..

Sir, you're on mute, I think.

Hello. Can you hear me?

Yes, boss. We can hear you.

Go ahead.

Yes. For this year, I think we are seeing -- we are seeing growth in consumption, as described by Ferdie earlier. So we are quite hopeful that our -- we will probably meet our -- or be close to our target or budget this year, which would bring us closer to our 2019 results. I think, Ferdie, our target is, what, about -- just less than 5% or 7% of 2019?

Actually, it's around 99% or 1% below 2019 was. So consolidated, it's around 46,300 gigawatt hours so -- or 6.6%, 6.7% growth versus 2020.

I'm saying this as we speak today because we've seen strong growth in the Residential sector as well as in the Industrial sector and a pickup or uptick in the Commercial sector. Although it's down, as I said earlier, it may be down, but it actually is showing improved demand or consumption compared to the 2 previous months. So we see that trend continuing even in April. I think our April sales as of Saturday was already 1% higher than the average of April 2020. So that seems to be a good sign. And as we enter the summer months, obviously, demand or consumption will be higher. So we're hoping that with the coming of the vaccine starting in May and all the way through the fourth quarter, the vaccination of our people will also spur more economic recovery, and of course, confidence on the part of our businessmen and consumers that they can slowly return to normalcy. But there is enough demand driven at home and -- in the Industrial sector and pickup in Commercial, I think. Thank you.

All right. Thank you, sir RCE. Our next question comes from Joaquin Francisco of BDO Securities. What is the company's net D/E as of the first quarter of 2020? And what are volume consumption trends that management has seen so far in April, especially following the implementation of the ECQ? Number three, what will be the time line for the implementation of the PHP 13.9 billion refund approved by the ERC? And number four, can management elaborate on some of the articles reporting the possible conversion plans of the Atimonan plant into a gas plant? Ms. Betty, for the first question.

Joaquin, for debt equity ratio for the first quarter, that's 1.2. The higher -- that is mainly because of the higher total debt and this includes the consolidated debt that we took from GBPC of PHP 27 billion compared with last year's 0.55. I will take the third question, which is the PHP 13.9 billion for the refund. Based on the ERC order, consistent with what we applied for, the refund period is 24 months beginning March. Thank you.

For the second question, I think for April, the volume consumption trend, I think we some sort of see that Industrial is continuing its uptrend, while Commercial slowed down a bit, but of course, not worse than what we had last year. And of course, Residential continues to increase in terms of consumption, driven by, again, the work-from-home and quarantine phenomenon because of stay at home. And also driven by the strong growth in terms of energization of our Residential segment. I think much of the 250,000 new energizations are coming from the Residential segment. And I think families are some sort of migrating to the south. And of course, what used to be a household occupied by multiple families are really some sort of separating maybe because of the fear of this COVID-19. So again, Residential will continue to grow. And Industrial, because of the much relaxed MECQ we have now compared to the last year, will also continue to grow. And of course, government project as well as real estate developments are also booming, driving the construction industry up. So I think that's the trend we're seeing in April. And maybe -- we hope that the quarantine eases with strong pressure to some sort of open up the economy, then we'll see much higher sales in terms of the Industrial and Commercial segments.

I can take number four or Atimonan. I think the focus is to deliver competitive energy. This is obviously a competitive selection process we're expecting possibly later this year. So we need to deliver competitive energy to succeed in the competitive selection process. At the moment, it's still coal, but we'll continue to assess the economics of coal versus gas to come to a decision for the next CSP. Thank you.

Thank you very much, Mr. Neil. The next question comes from Gio Dela-Rosa. And he asks, when can we expect an ERC decision on a final tariff for the lapsed period from July 2015? Perhaps Attorney Valles?

Yes. Actually, the rules for the lapsed period are not yet put in place. The ERC has proposed that the lapsed period be determined, but it did not indicate any time line as to when that it should be determined. So we don't know whether the ERC will tackle the lapsed period ahead of the 5RP or it will be tackled simultaneously. Although during the hearings, many consumer groups have been saying that the 5RP should not be tackled without first resolving the lapsed period. Thank you.

Thank you, Attorney Valles. The next question comes from Eunice Dolatre of SB Equities. Dividend payout guidance for the year and CapEx guidance breakdown of allocation. Ms. Betty, perhaps, or sir RCE?

With respect to dividend, we're still consistent with the BoD-approved policy. The general policy is 50% as regular dividend out of the consolidated core net income with a lookback. The lookback allows us to pay any amount in excess of 50% as long as we have sufficient cash and available retained earnings for declaration. For purposes of budget, we're still consistent with what we have in prior budgets. We are assuming a 60% dividend payout. So that is a percentage. So depending on we achieve with CCNI, then it will still be as a percentage. It's not an absolute amount. But yes, so that's it.

Thank you, Ms. Betty. There's a follow-up question from German. May I ask how much was the total reversal for the first quarter of 2021, the local business tax and real property tax accrued interests, et cetera. Ms. Betty?

Wait, I'm just looking up for the number. Wait. About PHP 3 billion, that's before tax.

Okay. Thank you, ma'am. I think that's a -- I see that Jelline Gaza is still raising her hand. Jelline, do you still have a question?

I have another -- last question. With regard to the PHP 13.9 billion refund, may I know how much revenue deductions were reflected in the quarter?

Okay, let me -- wait. Wait, I have that number. For the quarter -- because we only started the refund in March for the PHP 13.8 billion, the impact of that is about -- for the whole quarter about PHP 0.0523. So the amount should be about PHP 500 million, PHP 540 million.

Okay. Got it. And can I confirm my understanding, Ms. Betty, that going forward, as we see refunds for the next 24 months, there will also be around PHP 0.05 revenue deduction and provision offset.

The effect actually is PHP 0.1575 . The PHP 0.05 is because it's 1 month over -- it's a 1-month impact, right?

Okay. Got it, got it. And then sorry, just another follow-up. You mentioned earlier that there's a PHP 3.6 billion impact on taxes this quarter due to the CREATE law adoption. Are we expecting more for the rest of the year? Or will this be the amount for the full year?

That's it. Jelline, that's it. Yes.

Thank you, Ms. Betty. George actually has the same question, what is the impact of the CREATE law in terms of reduction in provision for income taxes?

George, if it's provision for income tax, the effect of that is about PHP 3 billion, but that is net of the lower income tax that we will have to pay for 2020. So because it's retroactive July, the positive effect was included. Overall effect, yes, it's PHP 3 billion. Will there be any? No, that's a onetime adjustment. So moving forward, all our calculations for taxes would be on the basis of 25%. Maybe I just wanted to add, that is impact on Meralco. For our subsidiaries, though, the effect is positive. Overall effect to them, well, it's not big, it's positive PHP 9 million for all our subsidiaries.

Thank you very much, Ms. Betty. I think that, that concludes the question, unless somebody still wants to ask a question. There being none, I'd like to turn it over to Attorney Espinosa, our President and CEO, for his final words or if any.

Well, thank you. Thank you again, everyone, for attending the briefing. We hope that we had -- we were able to enlighten you on our performance for the first quarter. Should you have any further questions, you may direct them to Ms. Betty Siy or to our Investor Relations. Thank you, everyone. Stay safe.

Thank you very much, sir RCE. Once again, thank you very much to our analysts for joining the call today. And we look forward to seeing you again in our first half results. And I'd also like to remind everyone that an audio recording will be available on our website, www.meralco.com.ph under the Investor Relations program. Thank you. Goodbye. Thanks, everyone.

Thank you. Bye-Bye.