Manila Electric Company (MER) Earnings Call Transcript & Summary

[Audio Gap] Will be moderating today's conference call. Before we proceed, please be advised that this teleconference call is recorded. Just a reminder as well for everyone to please follow the ground rules, which were sent to you beforehand. We will be presenting the 9 months 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 section. We have members of Meralco's management team in this call with us, led by our President and CEO, Attorney Ray C. Espinosa. Other corporate officers who will be presenting are the following: Ms. Betty C. Siy-Yap, Senior Vice President and Chief Financial 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; Mr. Raymond B. Ravelo, Vice President and Chief Sustainability Officer, as well as President of our subsidiary, eSakay; and finally, we also have Mr. Jaime T. Azurin, President and CEO of Meralco PowerGen Corporation. The order of the 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. Finally, we'll wrap up the presentation with a few words from our President and CEO. As in previous briefings, we will allot time for Q&A after the presentation. At this point, I would now like to introduce Ms. Betty C. Siy-Yap, our CFO, to present the financial results.

Good afternoon, ladies and gentlemen. I will be presenting the results for the first 9 months of 2021. This chart shows our financial highlights. So our consolidated core net income for the 9 months ended was PHP 18.1 billion, 15% better than the same period last year, which was at PHP 15.7 billion. Our reported net income of PHP 16.5 billion, 47% better than last year's PHP 11.3 billion. Our core and reported EBITDA are at a PHP 34 billion level. Gross revenues was at PHP 231.7 billion, 11% better than last year. Electric revenue represents 97% of the total. Our distribution revenue, which is what goes to Meralco, totaled PHP 47.4 billion. The 6-month power plant operations provided revenues of more than PHP 10 billion or 4% [indiscernible] gross revenue. Non-electric revenues represent contributions of our subsidiaries, namely Radius, MIESCOR and Bayad. Total cost and expenses amounted to PHP 207.6 billion, of which, purchased power [ cost expenses ] amounted to PHP 163.6 billion. Coal and fuel costs were at PHP 5.4 billion while OpEx was at PHP 22.7 billion. Our CapEx for the 9 months amounted to PHP 18.5 billion, 70% higher than last year. Cash and cash investments totaled PHP 102.8 billion. Our total borrowings are at PHP 90.5 billion, while in terms of contribution, MGen contributed PHP 953 million, largely from SBPL and PLP's 3-month contribution. All other subsidiaries contributed PHP 753 million. Our consolidated revenue for the 9 months is at PHP 231.7 billion, 11% higher than last year. Whereas electric revenue grew by 11% over 2020 on account of higher volumes distributed and higher fuel costs, which increased the pass-through charges. Pass-through charges is 74% of electric revenues and this grew by 6%. The 9 months saw increasing fuel cost as well the natural gas prices at [indiscernible] at $7.16 per [indiscernible] versus $6.80 in simple average terms. From January to September, the Newcastle index rose also to $121.74 per metric ton versus $58.15 same period last year. Our distribution revenues grew by 5%. In April of 2021, Meralco, through MGen, started consolidating results on GBPC. Also of BulacanSol, which is 60% owned by Meralco, began operations in mid-May. Their total revenue contribution consisting of energy fees was at PHP 10.2 billion. Nonelectric revenues is at PHP 6.3 billion. The next slide shows our costs and expenses. Purchased power cost increased by 5%, largely due to higher WESM prices with more capacities on outage in the month of May and June during the year. Total capacity unavailable was 3,309 megawatts in 2021 versus 2,422 megawatts in 2020. It should be noted that Meralco's peak demand for this year has hit 7,808 megawatts, which is 194 megawatts higher than the peak demand in 2019. This is similarly noted with the Luzon's demand. The Malampaya natural gas prices were higher, as mentioned earlier. In addition, what affected purchase power costs was the depreciation of the peso to PHP 51 to $1, depreciating by PHP 2.98 versus 2020. The same effects are noted with coal and fuel costs on GBPC. The total OpEx of PHP 22.7 billion is 12% higher than last year. This is the combined effect of the consolidation of expense from GBPC, higher cost and expenses related to management of bill-related activities. And then higher overtime costs incurred for maintenance and also other expenses as the economy opens with more employees on site. Radius and CIS or CIS Bayad, two of our wholly owned subsidiaries, incurred more G&A largely related to manpower, IT and cybersecurity as they grow their GPON and digital businesses. Our total depreciation is at PHP 8.6 billion, of which PHP 1.5 billion pertains to power plant depreciation. The power plant O&M pertains to operating cost of GPBC and BulacanSol. Meralco continued to build on its network to address low growth through connections, asset renewals, [indiscernible] IT and cyber securities. With the easing of quarantine restriction, there is a need for us to fast track CapEx, thus increasing our investment by 70% to PHP 18.5 billion. The next slide shows our quarter-on-quarter [indiscernible], CCNI for the 9 months [indiscernible] September 30 was at $18.1 billion, 15% better. The first quarter 2021 CCNI was down 11% versus last year as a result of lower volume as the full effect of the pandemic was felt beginning the second quarter of 2020. The first quarter 2021 also saw adjustments related to the CREATE bill. This was offset, however, by reversal provisions pertaining to interest on real property taxes and provision for local taxes when we won the case. The second quarter 2021 CCNI was up 29% versus the same period last year. The pandemic, as mentioned, began in mid of March with volumes lowest in the second quarter of 2020. Through various community quarantines and gradual easing, volumes began to pick up. Further, second quarter was helped by contributions of our RES unit and certain subsidiaries. In the third quarter of 2021, CCNI was up 30% versus last year, with MGen's contribution increasing by more than 4x. The SBPL plant was a 22% availability in 2021 without need to purchase replacement power compared with what it was in 2020. It also recognized positive coal inventory adjustment in September 2021 of PHP 150 million. The next slide shows our Power Generation CCNI. Meralco has 4 operating plants with net capacity of 2,251 megawatts, including the LNG plant in Singapore. Total attributable capacity to Meralco is 1,533 megawatts. SBPL delivered 2,598 gigawatt hours of energy during the 9 months and generated PHP 2.5 billion of CCNI, of which PHP 1.3 billion is attributable to MGen. GBPC delivered 3,802 gigawatt hours and generated PHP 1.4 billion of income in the 6 months since April, of which PHP 663 million is attributable to MGen. BulacanSol, a 50-megawatt solar capacity in San Miguel, Bulacan, delivered 33 gigawatt hours to Meralco under our PRC-approved contract. In July, MGen acquired a 30% interest of Petronas in PacificLight, increasing its total stake to 58%. PLT or PacificLight has since July generated a total of PHP 469 million in consolidated core net income, of which PHP 272 million is attributable to MGen. The PNG gas curtailment allows LNG -- the LNG plant of PLT vis-a-vis dispatched in [ early ] July, while the months of August and September were driven by increasing demand in the Singapore -- as the Singapore economy opens. The next slide shows contributions of 3 of our subsidiaries, namely: Bayad, MIESCOR and Radius. Bayad is the largest payment fulfillment entity in the Philippines, which serves through OTC or over-the-counter and digital platforms. Revenues grew by 14% to PHP 1.4 billion. Net income for the 9 months was PHP 77 million. Bayad now services 433 billers with a total of 86.2 million transactions in the last 9 months. MIESCOR is our EPC service entity, which counts on transmission and generators as customers. It is also a service provider with the largest customers for 9 months to becoming largest revenue coming from other telcos. Total CCNI for the 9 months was PHP 162.1 billion while revenues were at PHP 3.5 billion. MIESCOR is currently growing its common power business. Radius is a telecommunications company, which is primarily a carrier's carrier and also offers broadband, data and Internet services. Radius operates 6,931 kilometers of fiber optic cable, including 579 kilometers in GPON, [ 4G ] and fiber. Its consolidated revenues is at PHP 1 billion with CCNI of PHP 221.1 million for the 9 months. Radius is establishing its presence in villages' LGUs through its broadband internet, Red Fiber. Our consolidated cash and cash equivalents to is PHP 102.8 billion, of which PHP 9.1 billion represents cash on GBPC. Our cash and cash placement up to 90 days totaled PHP 43.2 billion. Consolidated debt is at $90.5 billion of which billion 45 billion is GBPC. Total debt maturing within 1 year is PHP 36.8 billion. Net debt at the end of 9 months was PHP 46.9 billion with net debt-to-EBITDA 1.04x. We ended the period with core EPS of PHP 16.025 per share, while reported EPS is at PHP 14.658 per share. Last week, S&P reaffirmed Meralco's BBB- rating with stable outlook. The stable outlook reflects Meralco's steady cash flows from its regulated business, its ability to manage leverage and growing spending. That ends my report.

Thank you very much, Ma'am Betty. I would now like to turn over the floor to RCE for operating results.

Good afternoon, everyone. I will provide the operational highlights for the year-to-date September period and the details of the operational reports to be provided by the respective unit heads. Our energy sales for the 9-month period ended September stood at 34,398 gigawatt hours, up 6% compared to last year. This energy sales were driven by Residential, which grew 2%; Commercial, which also grew 2%; and Industrial, which grew strongly by 17% after returning to the 2019 levels. Customer count grew 4% compared to last year at 7.351 million customers, driven by record high service energization, both in terms of project-covered applications and ordinary service applications surpassing 2019 and 2020 levels. Net system input was up 5% compared to last year at 36,150 gigawatt hours, driven by the recovery of the commercial and industrial sectors. Meralco peak demand was 7,808 megawatts, up 3%, and this was registered on May 27 this year. On the service performance, system loss was lower by 0.54% on a percentage point, with a 12-month moving average at 5.64%. SAIFI was higher by 3% compared to last year, 1.154x. While SAIDI was significantly lower by 5% and at 109.892 minutes. Time to connect was the same as last year to 1.76 days. Electricity rate for the period, the average retail electricity rate was PHP 8.08 per kilowatt hour, 1% higher than the same period last year. Ferdie?

Thank you, sir. So good afternoon, everyone. We're happy to report that despite of the multiple lockdowns in third quarter, sales for the 9-month period is up 6% versus last year at 34,398 gigawatt hours, driven by Industrial, which is now at par with the pre-pandemic level or 2019 level. Quarter 3 growth is at 2.9%. This is lower compared to Q2 because Q2 has a lower base, but better than the decline 3.7% in quarter 1. Well, quarter 1 is compared to quarter 1 2020, which is basically prepandemic. If one was some sort of normalized comparing it to 2019 or prepandemic, we'd like to highlight that -- I'd like to highlight that the year-to-date sales is just around 1.7% less than the 2019 sales with Residential up 17% versus 2019, evidently with a shift in consumption pattern during pandemic. But on the other hand, commercial still lags by 18% for the same period in 2019. [indiscernible] capability issues. Industrial sales now tracks the 2019 monthly sales and practically showing the same number as 2019. In terms of sales mix, year-to-date sales mix is still driven by Residential at 37%, followed by Commercial at 53% and Industrial at 30%. Next slide, please. On a per segment basis, Residential quarter 3 sales is actually 1% lower compared to last year because of the very high base but still grew -- managed to grow 2% during the first 9 months of 2021 compared to last year. And in terms of pattern, it's normalizing towards the seasonal trend of 2019. Residential growth is a bit tempered this year coming from almost 15% growth in 2020 with the easing of restrictions, mobility and slightly cooler temperature. Record high-volume registration of socialized mass housing projects and applications contributed to the sales increase. Commercial's ramp up during the end of first half was dampened by monsoon rains and ECQ restrictions in quarter 3, but still managed [ 6% ] in the quarter versus 2020 in the year-to-date increase to 2% from a flat first half. The reopening of the economy and easing of mobility is still a driver for the recovery for 2020 for Commercial with retail up 6%, restaurants up 4% and public transport also up 5%. Education will be a larger industry with 27% decline as face-to-face classes are still restricted. For Industrial, it posted 5% quarter 3 growth compared to last year, bringing the year-to-date growth of Industrial to 16% with sales returning to 2019 levels. Semicon increased 11% and maintained strong performance as global demand for microchips, electronic parts and devices still high. Construction-related industries such as cement, which is up 45%; steel is up 22%; and growth is still stimulated by the BBB and private construction projects. Food and beverage is also up 3% while plastic products is up 19%. And as they operate at significantly higher capacity in 2021, have begun stock piling in anticipation of a better demand this coming holiday season. In terms of energization. We continue to increase our customer base at a faster -- rate faster than pre-pandemic levels driven by higher energization of both project-covered applications as well as ordinary service applications. Project-covered applications and ordinary service applications energization grew by 57% and 56%, respectively, during the first 9 months of the year. In fact, they even exceeded 2019 or the pre-pandemic level by close to 20% for both PCA, project-covered application and ordinary service application. Energization growth is driven by the following: one is the continued increase in energized projects from residential, niches buildings, telco, retail, restaurants, real estate and construction industries showing signs of more economic activities. Unless there is -- another factor is less restriction in mobility and increased operations in government agency allowing easier processing and issuance of permits for energization. Meralco customer count increased by 4% because of the strong energization or close to almost 300,000 new customers compared to the same period last year. And it now stands at 7.351 million customers, where Residential remains to have the high share of 92% or almost 6.8 million residential customers. Next slide please. And we are happy to report that we have released the latest version of our bill, starting October billing cycle as part of our bill revamp project under the customer centricity and transformation program. All of the 7 million plus customers will be receiving the bigger, cooler to the eyes and more informative version of the Meralco bill. So far, we have received positive feedback from our consumers. And as an example, in her Twitter post, Maoi Arroyo praised the new bill saying that she is digging the new format of our bill. It's easier on the eyes and it's also not dumbed down and respects Filipino intelligence. Other good feedback were also received in our various channels pertaining to the user interface design, additional information like longer bill history graph, which can run up to 24 months, showing seasonal patterns in previous year's consumption as well as payment history and environmental impact indicators. So that ends my report, and I will now turn you over to Mr. Ronnie Aperocho for the networks report.

Thank you. Thank you, Ferdie. Good afternoon to everyone. Our year-to-date consolidated net system input, or NSI, is up by 5%. The recovery of Industrial and Commercial segments and sustained consumption from the Residential segment. In terms of sourcing, 53% was supplied by our IPPs and old PSAs, 33% by our new PSAs, 16% by other RES, 7% by WESM and 1% by special contracts. And in terms of fuel mix, 34% from coal, 37% from natural gas, 26% from multi-fuel, 2% from liquid fuel and 1% from solar. Next slide, please. For the peak demand, Meralco's peak demand for the year stays at 7,808 megawatts, which was registered last May 27. This is around 3% higher than last year's peak of 7,614 megawatts, which was registered in March 10, prior to the ECQ. For Luzon, peak demand stays at 11,640 megawatts, which was registered last May 28. This is around 5% higher than last year's peak of 11,103 megawatts, which registered in March 9 also prior to the ECQ. For system loss, our 12-month moving average for September was 5.64%. This is lower by 0.54 percentage points compared to the same period last year due to the sales mix skewing to loan loss reserve, Commercial and Industrial segments. The high loss reserve Residential share is now down to around 37% compared to last year's share of close to 40%. Improvement in system loss is also due to our system loss management initiatives getting back to the EU levels with the easing of quarantine protocols. Part of this initiative operations to the network and CRS to reduce to 0 [ update ] will be unbilled sales. We expect to end the year with a 12-month moving average is lower than the 6.5% cap described in our [indiscernible]. For our S-Factor and GSL performance, most indicators are well within the rewards level based on baseline of RP targets with our -- with total SAIFI and total SAIDI both improving by 5% and 8%, respectively. Our total SAIFI increased, however, by 3%, but this is mainly driven by the numerous planned outages related to our CapEx executions as well as the PPP and BBB as well as DPWH-related relocation works. The average time to process applications posted double-digit improvement, 14%. This is due to the numerous initiatives being undertaken by the company to speed up the certification and energization process despite the [ headwinds ] brought about by the pandemic. For time to connect, we matched our last year's performance at 1.76 days while for call center performance, there's a huge improvement by 52% in terms of call handling from 29 seconds to 14 seconds average time last year. For GSL monitoring, we are now in the third month of the new GSL monitoring cycle in the RY 2022. There were 0 violations for GSL 1 and 2. All the violations for GSL 3 and GSL 4 are way below the limits. For CapEx, our utilization stands at 57% from our PHP 19 billion budget for the year. The biggest share comes from new connections at close to PHP 4.42 billion driven by the ramp-up in the energization of project-covered applications, an all-time high performance in September and sustained performance in ordinary service applications. Next was asset renewals at PHP 2.8 billion, which were focused on storm hardening, meter and substation equipment replacement and all relocation works. On load growth, we have already utilized PHP 2.73 billion. For our pole relocation effort, we have already completed the relocation of 933 or 47% out of the 2,000 poles being requested by the DPWH to be prioritized this year. We are committed to relocate the remaining poles until the end of the year. And this is on top of the close to 1,000 poles to be relocated also to bear the numerous PPP and BBB projects of the government. For major load growth projects, we completed last July 19 an expansion of First Philippine Industrial Park or FPIP 115-34.5 kV substation. We have installed an additional bank. This is already the third bank. So this is part of our CapEx filing for RY 2020 with a PHP 206 million budget. This project has addressed critical loading of the existing Banks 1 and 2 in the said substation. And of course, so with this, we have reduced technical systems losses in the area as well as enhanced system reliability. For this project, many industrial customers in the area will benefit because of the enhanced system reliability and operational switching flexibility. And last August 27, we have also energized our new San Mateo 115-34.5 kV substation. This is in Rizal. So this project has relieved the critical loading of Parang Bank #1 and also minimized the line exposure of existing circuits in the area as well as provided operational switching flexibility, reduced technical systems losses and improved voltage regulation in areas of San Mateo and Rodriguez, Rizal. And for BBB projects, next slide, please. Meralco worked closely with DPWH and other proponents for the timely completion of the BGC-Ortigas Center Link, a 1.37-kilometer 4-lane bridge across Pasig River, connecting BGC and Pasig City. So we relocated 116 subtransmission and distribution poles and reconfigured distribution lines along Fairlane and Brixton Streets in Pasig City to clear the project. So with this, the project was completed on time and was inaugurated by President Duterte last September 30. And finally, in September, Meralco was declared as the winning bidder for the Isla de Provisor property in Paco, Manila, that was auctioned off by the Power Sector Assets and Liabilities Management Corporation or PSALM. So Meralco will develop this into a sustainable property with electric and nonelectric facilities within a 10-year horizon. The plan involves the replacement of the 66-year-old outdoor conventional Tegen substation with an indoor switchgear that will use pure air or other alternatives to sulfur hexafluoride or SF6 gases and a construction of an energy-efficient building powered by solar PVs for the company's first Smart Meter Operation Center. It will also have a Battery Energy Storage System or BESS that can generate 7 to 10 megawatts of power. I'm now turning you over to Attorney Ronald Valles for the regulatory updates.

Good afternoon. For the regulatory updates, the year-to-date average retail rate is PHP 8.08, which is 1% higher than last year's rate of PHP 8.04. The year-to-date average generation charge registered a 4.9% increase due to higher Malampaya natural gas [ and coal-fired utilization, price of ] liquid fuel, including Malampaya gas station and higher WESM charges. Due to lower ancillary service and power delivery service charges and improved system load factor, average transmission charge registered a decrease of 10.1%. 2.8% decrease in average system loss charge as a result of the implementation of system loss overrecoveries refund from January to April 2021 incurred for the periods 2017 to 2019 and the lower transmission costs. The year-to-date average distribution rate as of September 2021 is PHP 1.59 per kilowatt hour without the distribution rate [ with power ]. This is PHP 0.2071 higher than the interim average rate of PHP 1.38 then per kilowatt hour. The sales share shifted towards the residential sector, which had the highest distribution rate among the customer classes. Subsidies, taxes and universal charges decreased 3.1% due to lower taxes following the decreases in transmission, system loss and subsidies charges. FIT-All increased significantly by 70.6% due to implementation of higher FIT-All rate at PHP 0.0983 per kilowatt hour from PHP 0.0495 starting January 2021. Collection of FIT-All was also [indiscernible] 2021 as compared with 2-month suspension for last year in April and May 2020 consideration of the COVID-19 pandemic. For the other regulatory updates. The Supreme Court released a decision last September 4, 2021, in connection with the case filed by Philippine Chamber of Commerce, San Beda Alabang, Ateneo de Manila University and Riverbanks Corporation involving a petition for certiorari, prohibition and injunction with the Supreme Court. This petition questioned the validity of the DOE circular and ERC resolution insofar as the mandatory contestability and prohibit the operation of local RES. Consolidated -- this petition was also consolidated with other similar petitions and interventions filed by Silliman University and Batelec II versus the Department of Energy and the Energy Regulatory Commission. So you will recall last February 21, 2017, the Supreme Court issued a temporary restraining order to enjoin the implementation of the questioned regulations. And then April 5, 2018, the DOE filed its comment admitting that its circular was inconsistent with EPIRA and then issued new circulars, which revoked and rectified the previous circular. So as mentioned, the Supreme Court en banc in a decision, penned by Associate Justice Leonen, promulgated a decision and declared the subject DOE circular and ERC resolutions as ultra vires and void for lack of legal basis and directed the ERC to promulgate supporting guidelines to the new Department of Energy circulars. And also it said that mandatory migration to contestable market is not envisioned under the EPIRA and that the EPIRA included the DUs and ECs as part of supply sector and exempted them from securing RES license from ERC. This allows a continued operation of local RES of the distribution [ facility ]. Finally, the Supreme Court said that DOE is mandated to supervise restructuring of the electric industry. The ERC cannot supplant DOE's policies, rules and regulations with its own issuances. As an update on our ongoing competitive selection process for the 70 megawatts covering the contract period from January 26, 2017 to January 25, 2037. Last September 24, 2021, the DOE already approved the revised TOR or terms of reference and instructed Meralco to update the schedule of CSP activities and to submit for posting at the DOE CSP portal. Last October 15, as of expression of interest deadline, valid expression of interest were received from 4 interested bidders, namely, Panay Energy Development Corporation or PEDC; Quezon Power (Philippines), Limited; SEM-Calaca Power Corporation; and Therma Luzon, Inc. San Miguel Energy Corporation submitted an expression of interest but withdrew its participation. And TPBAC also requested Energy Development Corporation, GNPower and Solar Philippines Tarlac to revise their expression of interest they earlier submitted to include the past contract period. However, they did not submit the revised EOIs by the deadline. So the prebid conference was conducted on October 22, 2021, via Zoom, and authorized representatives of all bidders were in attendance, including DOE CSP observers. And to provide bidders more time to submit queries regarding bid documents, second part of the prebid conference is scheduled within the week of October 25, 2021. That ends my report. I'll turn you over to Mr. Raymond Ravelo for the sustainability update.

Thank you, Attorney Ronald. Good afternoon, everyone. We have a few updates this afternoon. First, we are very pleased to report that One Meralco was recognized at the 2021 International Business Awards with 9 Stevie Awards: 3 golds, 3 silvers and 3 bronzes. In particular, we received golds for our 2020 annual report entitled Power On in the best annual report category. The book MVP: The Man and His Art also won a gold in the best publication category. And our reforestation program One for Trees won gold in the best PR campaign category. For the silvers, our sustainability report for 2020 entitled Live Life also won in the annual report category. This is a step above the bronze at our maiden 2019 sustainability report won last year. In fact, in the annual report category, we actually won the top 2 awards, the gold and the silver. Our off-grid electrification program for mountain schools also won a silver in the PR campaign category, and our household electrification program likewise won a silver in the same category. Finally, for our bronzes, our Teacher Frontliner program by the One Meralco Foundation won in the PR campaign category, our Meralco Advisory in the brand renovation category, and finally, our Facebook page #KeepingTheLightsOn in the #NewNormal won in the use of social media category. Next, Meralco also recently topped the X-Trash Challenge organized by the Philippine Business for Social Progress, which is the country's largest business-led NGO. This intercompany waste management competition ran from May of this year to mid-September with the proceeds going to 300 low-income families. In sum, Meralco donated over 37,000 kilograms of recyclable metal, paper and plastic waste across our different offices. Some keys to our success include our company-wide Race to Zero Waste Program, through which we drive a number of very important initiatives, such as our company-wide ban on single-use plastics; second, our systematic waste collection through our materials recovery facilities; and finally, concerted effort across One Meralco led by our organizational safety and facilities business units. Finally, we're also happy to report that yesterday, we launched our sustainability microsite, www.meralco.com.ph/sustainability. Coincidentally, yesterday was also the International Day of Climate Action. This microsite provides us a digital platform through which we are able to highlight Meralco's commitment to sustainability, our contributions to the United Nations Sustainable Development Goals while communicating updates on our various sustainability initiatives. In this microsite, you will find details on our key sustainability programs such as our transition to renewable energy, our shift to electric vehicles and ester oil transformers as well as One for Trees. We also have a section on the microsite where we talk about our long-term sustainability strategy and also a repository for our sustainability reports. Thank you very much. At this point, I will pass the virtual floor on to Mr. Jimmy Azurin for our Power Generation business.

Good afternoon. Following the completion of Meralco PowerGen's acquisition of Global Business Power on March 31, 2021, we have streamlined our operations and have integrated MGen and GBP under one functional organizational structure effective September 16. We have already started renovating our unified headquarters in Rockwell Business Center, which will be ready by early next year. While formal integration is underway, it may take 2 to 3 years to fully complete regulatory requirements. The goal is to consolidate the power generation business of Meralco into one organization to promote scale and operational efficiency. Our gross capacity doubled after consolidating the power generation assets into a unified platform. With MGen's 1,355-megawatt capacity and GBP's 1,091-megawatt facility, we have effectively ramped up our gross capacity, 2,446 megawatts, of which 1,532 megawatts is attributable to MGen. We now have a significant presence across the Philippines as well as the majority ownership from PacificLight Power, which owns and operates an 800-megawatt LNG power plant in Singapore. In July, our stake in PacificLight increased to 58% coming from a 28% equity share. Our integrated portfolio now consists of 59% coal, 33% LNG, which is touted as a transition fuel, 6% diesel and have entered the realm of renewable energy through solar. Anchored on One Meralco Group's sustainability agenda, we have set our sights in building 1,500 megawatts renewable energy projects in the next 7 years, starting with BulacanSol's 51-megawatt AC solar plant, which commenced operations in May of this year. We have more solar projects under development. Construction work is ongoing for our 78-megawatt AC plant in Baras, Rizal, while EPC negotiations are in progress for the solar plants in Isabela as well as Nueva Ecija and Ilocos Norte. For 2022 and beyond, we are eyeing construction of our first large-scale wind farm and development of solar storage that can compete in the mid-merit space. You can expect more renewable energy projects in the coming years as we endeavor to provide cleaner and sustainable energy supply to the market. Thank you.

Thank you very much, Mr. Azurin, for the presentation. We will now open the floor for questions.

[Operator Instructions] I can see Jelline raising her hand.

So I have 3 key questions. The first one is on the rate reset. I'd like to get an update as to the -- where we are in the process. And can we still realistically expect that this will be completed before Chair Devanadera steps down? And then second question relates to Atimonan One. What are the updates on the first unit? When do you expect it to be completed? And are there any updates on the financing terms? And then third and lastly, more on the updates on the elevated commodity prices. How is management thinking about this? Are you expecting any material impact on supply going into next year? And how does this impact your RES business as well as your coal-dependent generating capacity?

This is Attorney Valles. For your first question, we are still awaiting for the release by the ERC of the final reset rules to govern the 3RP as well as the last period. So we haven't received anything from the ERC although the deadline for submitting comments has already been overdue. And the ERC has indicated that it will not change the time lines, so the July 2022 time line of the 3RP reset has not changed. So we are expecting the ERC to commence the process anytime soon either before the end of the year or at the start of next year. We'll be able to start the reset and will provide clarity for -- in time for July 2022 deadline.

For the second question on Atimonan One, we are still continuing the predevelopment works of the sites in Atimonan, Quezon. We are -- we don't still have a completion date as we are awaiting still the next round of the competitive selection process. But we are preparing the site for that to be [ started. ] Thank you.

Thank you. I think the last question relates to the elevated commodity prices and the company's strategy as regards them.

I think, Jelline, on the elevated commodity prices, it's specifically gas and coal. So obviously, the prices have been highly elevated compared to the last quarter of last year and first quarter of this year. If -- there are 3 component parts of our business, just to give context to it [Audio Gap] [indiscernible] there's hardly impact on the distribution side [ and generation ] to which the fuel costs are passed through are all pass-through, right? So more or less, the distribution side of the business is neutral [ to the charge ]. It's actually RES and generation that are -- RES is not so much affected today because they secure power supply agreements from generation companies on a fixed basis, so the supply prices are fixed. And they also basically enter into fixed -- largely fixed price contracts with their customers, right? There's still, I think, some amount of fuel index prices for RES, but that remains to be the -- a small minority of the contracts. Now because of these soaring commodity prices, we have -- at the RES level, we have thought it best to see whether we can -- for the next round of contracting with our customers to include a provision that would actually cater to situations where the fuel costs have risen in an extraordinary manner. So we're crafting a provision, a clause that we could include in those contracts that -- to shield us eventually from any increase in fuel prices that our suppliers may ask. I think suppliers have already indicated that they would want to be able to see how these price increases can be addressed, although realizing that their contracts are on a fixed nature. I think the fact that the contract of supply is on a fixed nature should not detract from our realization that if the prices are indeed so high as to be beyond the contemplation of the parties, then there may be a basis for the supplier to reopen that contract and say, "Well, that's clearly beyond our contemplation expectation, so there is no longer any meeting of the minds as it were as far as the contract moving forward." So we're preparing for that day by making sure that we will have the necessary clause in our customer contracts that would allow us obviously to also make an upward adjustment in fuel related to fuel increases. On the generation side, I think we -- this year, we are still well protected because a vast majority of our contracts are still on a fixed basis, meaning to say, power supply agreements of GBPC to the DUs and to the RES. So they're all -- they're on a pass-through basis. So they can still pass through all of those fuel costs. There is a small portion of the contracts.

13%.

13%?

Right.

1-3, 13%, that's on a fuel index basis. So we're dealing with that. But next year may be a different situation for the power generation business because a number of the contracts will be expiring. And depending on how the DU or the EC will conduct its CSP, whether it would allow full fuel pass-through or whether it will provide for a fuel index pricing, then that would then impact the generation business of GBPC. We are hoping that distribution utilities as well as the ECs will still allow for a full pass-through of this fuel price as has been the practice in the past except that lately, we have seen at least 2 cooperatives that actually have not allowed -- well, they're not allowing full pass-through but are allowing fuel increases indexed to the rise to inflation rates, so rising to 2% or 3% on an annual basis. So it's still -- there's still a lot of uncertainty on that side as to how each distribution utility will decide on how to treat the fuel prices.

Thank you, sir.

Oh, you're on mute, Jelline.

Sorry. Yes. Can I have a few follow-ups on the points that you raised? I think specifically on the RES, I understand the direction to make it -- to include the cost for extraordinary prices. But may I know what's the current pulse of the market? Are the customers willing to adopt a higher fixed prices now today, especially since the economy is still not recovering as fast as desired?

We have not tested the market yet. We have not gone to our customers yet to establish their sentiment. But it's something that we do internally to prepare for the [indiscernible]. And it will also depend on how, eventually, our suppliers, right, would look at these fuel increases. So as I said, this clause will probably be triggered only or we would discuss this new clause with our customers only if it becomes clear to us that the generation companies that supply power to RES intend to use the extraordinary increase in prices as a basis to reopen the fixed price contract nature of their supply. But I guess we can expect that there will be pushback from the customers because they would want to be able to get the fixed rate. But philosophically, that presents a problem also for the business, right, because I think, effectively, a customer who takes that strong position is expecting the RES to basically provide the hedge to that customer against fuel prices. But they are hedged to a certain extent already, but I think we must also be practical that the hedge that are enjoyed -- or the hedges enjoyed by the customers today, obviously, cannot -- does not contemplate extraordinary increases in the fuel price. So there must be some balance that we must strike. We respect the need of the customer to still continue to look to that hedge in the future. But we must also come to that acceptance that even as customers, if fuel prices go up by 200%, I mean, certainly, that could not have been contemplated at the time we signed the contract that the RES would absorb all of that. So that will be a very delicate balancing act. We don't know yet. This is the first time, I think, that the industry has experienced this kind of extraordinary increase in prices. So we will -- all I can say is we will be sensitive to the needs of our customers, but we also have to balance that with the reality of what the supply side is expecting the retail electricity supplier to do, right, in situations like this.

I think, sir, just to stretch the discussion. Sorry. Just last one additional question for me is that what's your outlook for the demand-supply dynamics going into next year because of this? I understand that about 40% of your current PSAs are entered into on a fixed-price basis, at least on the BAU side. But at this current level, is it still feasible for these gencos to operate?

Well, the practical reality, as I said, I mean, when we talk about extraordinary increases, we have to offset the fact that this would have been beyond the contemplation of the parties. It will provide a basis for a reasonable discussion between the supplier and then the BAU or the RES. I think we're not here to say that, well, we will dig in and enforce the fixed nature of the contract when we know that there are principles in law applicable to the Philippines that allow contracts actually to be reopened when there are extraordinary supervening events that happen in the future. One can look to the Penal Code for other applicable positions. And it's also, I think, a requirement of good basic contracting that -- when we contract, obviously, we contract based on a certain context and based on certain circumstances of time, of place and of persons involved and will be closing well beyond those contemplation, then there is a basis for the -- for one counterparty to say, "Can we talk about how we should move forward with the contract?" I think for next year, we are going to -- my view about demand next year for power is demand will go up. I think the vaccination effort seems to be reaping its success at least this late. From what I understand or based on the news, the government plans to downgrade alert Level 3 to alert Level 2 for NCR by next week, actually. And that, obviously, would spur further increase in commercial and industrial activities, which are actually the drivers for the increased demand. And we're banking on that one already that with this renewed relaxation in quarantine and lockdown, we will see a significant pickup in both commercial and industrial. It's not the best answer, but that's what the situation is.

Yes. I figure it could -- it's a difficult situation.

It's a very difficult situation for all of the stakeholders. And just to be -- I guess just to complete the discussion. In fact, we've been approached by some of our suppliers and vilified already, basically saying, "Look, this increase in gas and oil prices are really so extraordinary that we have to talk about how we should proceed with the contract moving forward." So if there's an openness on both sides to explore what can be reasonably done moving forward because if the prices don't abate, I think the generation companies will also have a huge problem. And if the generation people -- businesses have a problem, the deal will have a problem because the last thing we want to happen is for the generation side of the chain to be broken and then expose the BAU to a lack of supply, which will then impact on the reliability of supply of the BAU to the captive market. So that's the foremost concern for BAU. That's why hardballing or hardlining is not something I think that we can resort to. It's a problem that affects all of the stakeholders down the line, including the customers. And we just have to deal with it with all practicality and reasonable -- and we have to exercise good faith in looking at this PSA.

Thank you, sir. Thank you, Jelline. I believe I also saw German de la Paz from Abacus raising her hand -- his hand.

Yes. I just have 3 questions. First, I noticed that Q3 sales volumes went up 2.9% year-on-year, but distribution revenues went down 11% year-on-year. I just want to ask why this is. And then second, for the EBITDA figures for the 9M period, I just want to ask the split between generation and distribution and how does this compare to last year's levels. And then third, I saw in the presentation that management is planning to construct -- that management has a pipeline of around 1,500 of renewable capacity in the coming years. I just want to ask, what is the target earnings split between generation and distribution moving forward?

Okay. I will do your second question first, which is EBITDA split between generation and distribution. EBITDA for distribution is about 29 and for generation is 11.8. Then the first question is -- so Q3 volume is higher, but distribution revenue is lower because remember the distribution rate has a refund, right? [indiscernible] And yes, it's generally that one. So the -- and also, I don't know if we had -- I have to check if we adjusted because this year, remember, with the ongoing refund, our rates are at [ 1 38 ]. So any excess beyond [ 1 38 ] is a direct reduction against revenue. And then I don't -- I missed your third question, German?

Yes. Yes. Ms. Betty, my third question is that what is the target earnings split moving forward between generation and distribution.

Well, the idea is to move more into the unregulated space. So we have a 5-year -- we had a 5-year target, which is increasing from the -- well, the current right now is less than -- it's actually 90-plus percent on the BAU side. So both in the next 5 years, we're looking at 29-61; 70 -- 70-30, yes, 39 -- 70-30.

I see. Just a few follow-ups regarding the previous questions. You -- we mentioned refunds in Q3. May I ask how much is the amount for the quarter?

Can I get back to you? I don't have it at hand right now.

All right. And about the -- going back to the EBITDA split for 9M. We said that 29 came from distribution while 11.8 from generation. That's for 9M '21, if I heard it correctly.

Yes.

Yes. I just want to ask the comparable figures for 9M 2020.

Okay. I don't have it in my -- what I'm holding on to right now.

Thank you, German. I believe I also saw a question from [ Joshua Generoso ]. "Good afternoon. Thank you for the presentation. I would like to ask Ms. Betty some questions regarding the GBPC acquisition. I noticed that the assets of GBPC were already booked as of Q1 2021, but we only recognized the revenues from GBPC by Q2 2021. May I ask why this is? And also, the second question is I also noticed we booked -- the customer contracts at GBPC were booked as intangible assets. May I ask why this is? And will there be changes once we see the Q3 2021 results?"

Okay. So your first question is the assets were booked March 31, but the results were after that because the transaction date is March 31. So as of that date, we owned GBP (sic) [ GBPC ], but the operating results would come in subsequently. So on a line-by-line P&L, it will come in beginning April. [ Joshua ], did I answer your question? Anyway, okay. So for the next question, for the customer contracts, your question was that they were booked as intangible assets. It's an accounting standard, a rule though, wherein when you purchase an investment, and that investment cost is higher -- okay, thanks, [ Joshua ], higher or lower, then the difference should be accounted for. Now in this case, for GBPC, the purchase price was higher than the book value. In the initial purchase price allocation, a portion of that is attributable or attributed to the fixed assets, and another is to the customer contracts. Now there is a final purchase price allocation that should be completed though. And once that is completed, the numbers may change or it could be in -- around that range. So we will have to -- the rule says that you have 1 year from transaction date to complete that process. But we hope to get it completed by -- before we release our results. So what happens is anything that is attributable to assets becomes additional depreciation on consolidation, and anything that is customer contract is an intangible asset, and therefore, amortized. [ Joshua ], did I answer your question?

Thank you, ma'am. Thank you, Joshua. I'd like to recognize now Bob [indiscernible] from UBS.

Can you hear my voice clearly?

Yes. We can hear you.

Okay. I clearly have 3 questions. Just to follow up regarding the higher fuel costs. What is the sensitivity, especially retail rate if we still assume like Newcastle price above $200 in next years? How much is the average retail price going to be? And also, can you explain a little bit more about how you're going to pass through this fuel cost to your customers? But you have a split on the old PSA, new PSA, right? So can you probably explain more about it? The second question is regarding PacificLight. Can you probably let us know why you increased the stake? We've taken their [indiscernible] because the performance is below than expected. Last is about the CSP. Is there any other CSP in the next 1 year besides the 70-megawatt that you are planning to do? And can you probably let us know about the split? How much is it from coal? How much from renewables -- from gas? That's my 3 questions.

Thank you, Bob. I guess I'd like to ask you to repeat the first one. You were coming in choppy for your first question, the one that relates to fuel.

I just want to know what -- how much is the increase in the average retail rate going to be if we still assume like Newcastle price above $200 like right now, the implication? And also about the -- how the fuel cost -- yes, the fuel cost pass-through mechanism.

I believe it's the sensitivity of -- I mean as the fuel increases, what would be the impact...

Of the retail rate.

Average retail rate.

Well, it's so difficult right now to provide the sensitivity on this one because we have actually different contracts. And some of our contracts, there are -- they have fixed contracts with the power distributor. Fuel supplier, for example, in the case of Quezon Power, so they are largely affected by the global [indiscernible] in the prices of coal because they have a fixed contract. And for the others, it depends on the market prices. And these, based on the contracts that we have, are passed through even under the power supply agreements that we have recently signed. And there are also some contracts that we've signed that these fuel increases are not passed on to us but are absorbed by the generation companies, although as our President has mentioned earlier, [indiscernible] generation companies are already writing us and asking for some relief because they're claiming that the price -- that the global prices in the price of fuel are beyond the control -- beyond their reasonable control. So just an estimate, it will probably be -- combining that also with the continuing gas restriction, which also contributes to the increase in the prices of generation costs insofar as liquid fuel is concerned. Maybe less than PHP 1 in terms of the generation cost is the expected increase. It depends on the mix. In terms of the generation, of course, and of course, in terms of the fixed retail rate, it will probably be less than PHP 1, maybe PHP 0.50 or less. And the second -- can I proceed to that -- to answer the third question first? I cannot remember the second question. For the CSP -- for the third question, for the CSP, is after the 70 megawatts, there is a schedule for CSP for the 850 megawatts of base renewable energy and also 500 megawatts of mid-merit renewable energy and also for 300 baseload renewal energy. All of these are also scheduled based on the PSPP that we have submitted to the DOE supposedly this year, September -- August or September this year. We are just waiting for the guidelines so that it can become effective.

Sorry, regarding the CSP, can you repeat it again? 70 and then 850 for what, sorry?

Yes. Based on the PSPP, the power supply procurement plan that we have submitted to the Department of Energy, we have 850-megawatt baseload for -- as part of our compliance to RPS. So it is going to be renewable energy. Then we have 500-megawatt baseload -- sorry, mid-merit, also part of our RPS compliance. And finally, the 300-megawatt baseload also part of the RPS compliance. So renewable energy, all renewable energy after the 70-megawatt. So in total, that will be around 1,650.

And also, I saw the news that you're planning to -- CSP for gas to replace [indiscernible]. Is it -- is the news correct?

Yes. For the -- well, that is actually in response to the pronouncement by the Department of Energy that there is a continuing gas restriction that will affect the gas supply coming from First Gas. And so that would be around 1,500. But we are still getting confirmation from First Gas how much capacity will be affected and the duration of the gas station. And once we get confirmation from them, we will proceed with CSP, whatever is the required capacity to replace this capacity.

Thank you, sir. I also see [indiscernible] from -- Jelline, can we have you after?

I'm just curious about the status of San Miguel's winning bid in the [Technical Difficulty].

Can you speak louder, please?

Sorry. Sorry. I'm just curious about San Miguel's winning bid in the recent CSP with Meralco, if they're delivering on that price. Or will there be any changes in light of the -- what was recently discussed a while ago, pricing, commodity prices? Will there be any adjustments in the recently concluded contracted price, like [ PHP 34 ] and [ 4 30 ] or [ 4 50 ]? Is that something that's not going to change our date of delivery?

Well, we have not been advised by San Miguel that they will not be in a position to comply with PSA that they have signed. So we -- our expectation is that the delivery dates stipulated in their respective PSAs will still be honored by San Miguel. They have actually raised with us the issue about the extraordinary increase in gas and coal prices, in particular, insofar as a fuel cap. Proviso was provided by the DOE in the case of that particular CSP. San Miguel is of the view that the fuel cap that should be applied to this contract should be the fuel cap found in the LCOE formula, which was the basis for determining who the winning bidder will be. It should not be based on some other formula that has nothing to do with the bids or how the bids -- how the winning bids were determined. So the argument is the LCOE, it is on the LCOE that they have made their commitments and that they are seeking clarification from government that -- they're seeking clarification -- they initially sought clarification from the Department of Energy as to whether their interpretation of the fuel cap is correct. The DOE has actually written to them and asked them to send the question or the clarification letter to the Third Party Bids and Awards Committee of Meralco. So it's under review by the TPBAC as we speak. So -- but they have not given us any formula advice that they're changing the timelines for the COD of this planned project.

Sir, just a follow-up on the -- there's much talk now about renewable energy, The Ayalas are here very aggressively. And knowing that you have this procurement times or times like more than...

Can you speak louder, please?

Sorry. Sorry. Sir, there's a lot of talk now about renewable energy. The Ayalas are very aggressive. And you yourself has this more than 1,000-megawatt requirement for renewables. Do you see -- and there is this phase-out of coal dependency. Do you think we have enough RE capacity to replace whatever Meralco is going to be -- to replace the coal that you are going to be phasing out, if that's the proper word? Will there be adequate RE energy supply replacing coal?

Well, I think to your -- to that particularly, the -- I think the fundamental question first is whether RE can completely replace the baseload capacity we have today, which use both gas and coal as their fuel. If you're talking about the short-term, the obvious answer to there is no. If you're talking about the medium-term, the answer to that is still no. If you're talking about the long term, then probably it will. The question that follows is what kind of fuel should then be used as replacement fuel for the baseload capacity. Today, as we know it, renewables by themselves cannot replace gas and fuel-based power plants simply because renewables are intermittent. They have variabilities, and they cannot be dependent upon to supply the grid with 24/7 power. So talk about baseload power, it must be firm and dispatchable on a 24-hour basis. Solar, obviously, does not give you 24/7 energy or power because the sun sets at some point in time. So irradiance goes up, and irradiance goes down. Wind also does not give you 24/7 power because the winds also blow strongly and dissipate. So we must have a transition fuel, which is what the world is talking about, to get us to a lower carbon footprint or decarbonization must accept the fact that there must be a transition fuel. And that transition fuel, based on what's being discussed and what's written about it, is natural gas, actually, because it has a lower carbon, I guess, footprint than coal. So we have -- and that's how we're looking at it even in the Philippines that we have to go through this period of transition, right, but it must be a just, orderly and affordable transition to follow. No nation can shift within a year or within 5 years into full renewable power. It will not work. We've seen what is happening in China. China wanted to go with the pressure from the global community that they reduce drastically their GHG emissions and shut down their coals, both the coal mines and the coal plants, which they tried to do. But what happened? I mean at the shortest experience of a gas shortage, there's now a serious energy problem in China, which now forced the hand of China to reopen some of the coal mines that they had closed and to reopen coal plants that they had closed simply because there is not enough energy or power in China anymore. And that, I think, has happened all over the world. In Europe, for instance, why is Europe now turning to coal? Because they have no -- not enough gas supply to provide power to all of the European countries. So we have to take a look -- we really have to be very deliberate and very mindful of how long it will take a particular country to transition from the kind of carbon footprint it has today to a net-zero footprint years into the future. And each country will have to be treated differently because there are social, economic and other reasons that basically determine how fast these changes should be. It's -- all of us obviously want a cleaner planet, a healthier planet, but it's just that we are so entrenched in this fossil-based fuel that fuels our entire world that -- to say that we can change this in the Philippines in the next 10 years, I don't see how we can do that. To begin with, as you pointed out -- so how much land will solar take up? There is that issue that's arising already between how much agriculture land should the Philippines convert to support a massive solarization of the Philippines, right? There's no answer to that. The policymakers have not raised that as an issue. So we don't know, but we continue to proceed with our solar projects. But we know that land is not -- we don't have an endless supply of land that we can convert that into solar. So we have to look at projects like wind, offshore wind, floating solar and hydro, I think, and geothermal are sources that we have to look at. Geothermal could provide us with additional -- with the baseload capacity we need to reduce our dependency on fossil-based fuel, but that requires government participation and policy. We have to encourage the private sector to explore and drill for more geothermal energy. So that's the sum total of it. I don't think there is a solution within this decade. That's why for Meralco, our -- we have a long-term sustainability strategy that is built around 3 horizons or 3 decades; what we have to do for this decade, for the next decade and then for the third decade, which is the decade that leads to 2050. So we have that mapped out, and we will exert our best efforts to reduce, obviously, carbon footprint of Meralco to go into deep -- very deep decarbonization. But there are things that are beyond our control. Technology, for instance, is beyond our control. I'd like to see nuclear energy to come to the Philippines because I think that is the baseload fuel that we need, a clean fuel that we need to ensure that the Philippines will have reliable energy moving forward. But it will take some time before nuclear energy can come to the Philippines because it requires a lot of preparation for the country to become a nuclear energy or nuclear powered country. You need international certification. You need to put in place the necessary government policies, and then you have to translate that into laws, then rules and regulations. Safety becomes a very high requirement for any nuclear technology, and all of that would have to be laid down in the Philippines. But I think nuclear is the solution for the Philippines, especially the small modular reactors because they will cater to the archipelagic nature or the island nature of the Philippines. These small modular reactors, or SMRs, are units of 300 megawatts. So it's very easy to see how you can deploy a 300-megawatt unit in some region, right, rather than having these massive conventional nuclear plants that we have seen like the Bataan Nuclear Plant, I think. The world -- or at least there are now companies that are trialing these advanced small modular reactors. And the hope -- my hope is they will become proven technology, and the world would benefit a lot from it, if we want to really push the clean energy agenda to its fullest and be net-zero. I haven't heard anything else from the climate experts that suggests which renewable energy can really completely supply the total energy requirements of the world from baseload, mid-merit to peak.

Sir, I just want to clarify if -- when you talk of Meralco, when Meralco talks of RE, it's more of gas, geothermal and not so much -- it's for mid-merit and baseload. It's more of nat gas and geothermal. Would that be correct?

For our -- no, no. Our RE, our renewable energy, we're looking at solar, both land-based and floating solar. We're also looking at wind, presently just land-based wind. We are looking at hydro as well. And well, to the extent that we are able to find a geothermal project that we can probably get into, we would also want to see that happen. So for our renewables, it's principally solar, wind and hydro. And yes, it's our plan to replace the fuel of our mid-merit requirements by renewables. But we're also entertaining renewables at the baseload level already using a combination or a mix of renewables plus battery energy storage system. So again, that is technology-dependent. We need to see that the technology -- the battery technology will really work and how cost effective that battery will be. But it is within our pipeline that we will have a renewable-baseload capacity.

Sir, lastly -- so do you think the electricity rates will rise because of this concession to renewable energy? Is it an unavoidable consequence to transition...

Sorry. Can you repeat that? You're a bit choppy.

Sir, do you think energy -- electricity rates will rise because of this transition from fossil to clean energy? Is it an unavoidable consequence of decarbonization?

Well, again, my personal view is it is. I mean renewables are not cheap today, especially from a baseload perspective because you need massive battery capacity, and today, batteries are expensive. Without batteries, without a battery energy storage system, you cannot talk about renewables as a baseload fuel. You need storage. You need massive storage to store the energy generated by your renewable to supply power on a 24-hour basis. So yes, I think it will be expensive if we were to move to that direction right away. That's why you have to -- as I said, it has to be a just, orderly and affordable transition. At the end of the day, this transition was also taken into account, the impact it will have on the consumers and the customers, right? But then you read the papers every day. Nobody wants to talk about the cost of transition. Very strong lobby, very strong movement towards deep decarbonization and the move to clean energy, but nobody wants to talk about the cost. So it's good that you raised it. But it -- there is a cost to that. There is a cost -- there is -- we need to pay a premium if we want to improve the environment. So if we accept that principle, then we must be open to basically an increase in the cost of power. You want to save the planet, there's a price to do that. And if we all agree that we have to move towards cleaner energy to save the planet, then we must be prepared to pay the price, right? It works that way. It's not a one-sided thing.

Thank you, Christy. I'd like to call on Jelline Gaza again from JPMorgan.

Me again. Just a quick follow-up on our discussion on the commodity prices. I wanted to ask on the procedural aspect. So after the TPBAC approves -- theoretically, if they approve the suggested usage of the LCOE formula suggested by San Miguel, will that be sufficient enough to reflect the fuel pass-through to your PSAs? And if not, what will be the next steps?

Well, the view or the opinion of the TPBAC is not the final word on this request of San Miguel. It will have to go to the ERC because the PSA, as you know, has been signed. It has been filed with the ERC for approval. So the ERC will have to be the final arbitrary, if you will, of that request.

So far, in your discussions, how receptive is the ERC of this idea?

We've not discussed it with the ERC yet. It's actually at the level of SFC and the TPBAC and the DOE. But the ERC -- we've not spoken to the ERC about it yet.

Yes. I also have 2 more questions for Ms. Betty. First is on the PHP 1 billion other income in third quarter. What drove such amount? And then secondly, on the reversal of -- on the net income of PacificLight, do you think this is sustainable? And if yes, what's the view on the potential reversal of write-off of PacificLight?

For PacificLight, no, they will be providing us with their forecast for the remaining months. But what we're seeing is they're still tracking very well and positive for the month of October. They've indicated that they are expecting those numbers also in November, except that we don't have their final numbers yet. But with the gas restructuring and the load restructuring as well as the capital because their shareholders who have -- which are -- also provided the advances, these are converted to equity now. So they don't have to bear the interest cost anymore. So especially on the gas restructuring, when Shell allowed them a lower volume to be drawn, that actually helped a lot in the P&L numbers. So that should be positive. So we expect PacificLight to contribute positively to the bottom line of Meralco.

So I think Betty, I have to mention that electricity prices in the Singapore market have actually gone up significantly also because there is a gas shortage now being experienced by Singapore. So the coal prices actually are very high.

Remember their plants, Jelline, because they have 2 types in terms of gas. They have the PNG, or the pipe natural gas, and the LNG. So the -- there's a gap between the 2, although it has narrowed. So right now, PLP being the -- a very efficient plant, they're able to deliver more on those, especially if there are problems with that.

I think if you look at the facts or the info before, Jelline, that difference in pipe natural gas and LNG was very wide, which disadvantaged PLP to a very large extent. But with the restructuring of the gas supply contract with Shell, that gap has narrowed significantly such that the efficiency of PLP has been able to surmount, actually, the remaining difference. They have become, actually, a very competitive provider of power in the Singapore market. So actually, they turned -- they became profitable starting July 2020?

July. July, it is the first month that they showed profit.

And we expect that they will remain positive, profitable for this fourth quarter. And I think if we're -- if we just look at their tentative 4th budget forecast for next year, the management of PLP sees profitability continuing into next year. So the key, actually, is for PacificLight to be -- to remain very efficient and to become, basically, very competitive too.

Let me just go back to German's question. German, your question on earlier for the volume and lower distribution revenue, I'll get to the refund numbers. But the other thing that I forgot to highlight was the fact that in terms of our sales mix, it has changed. Last year, we had higher residential sales volume. So residential has actually tapered off a bit with industrial increasing and commercial catching up. So as you're well aware, the difference in their distribution rate impacts the revenue line also. And then I'll e-mail you the other numbers.

Thank you. We also have another question from Eunice Dolatre of SB Equities. She has a couple of questions. The first one, "Given the PHP 13.9 billion refund for over recoveries, how much was already recognized as of end of September? And until when do we expect to recognize this on the distribution rate?" And secondly, how much does Meralco intend to spend to get to the 1,500-megawatt RE capacity within the next 5 to 7 years? And where does [indiscernible] energy storage play in your RE road map?"

Eunice, the refund, as we applied, was 24 months. So there's another year for it, almost a little bit over a year because we started February -- February or March. February was the approval, then the subsequent months, we began the refund. We are digging up the numbers so as yet. Eunice, I owe you that number.

For the second question, "How much does Meralco intend to spend to get to 1,500 megawatts of RE capacity?"

Well, the rough estimate there is PHP 180 billion...

PHP 180 billion is [indiscernible]. PHP 150 billion is generation.

For generation, it's PHP 150 billion. That's a rough estimate.

Thanks. I can see that, [ Christy ], has her hand raised. Do you still have another question, [ Christy ]?

Sorry, just -- that was just an accident. The -- no, no more question. No more question.

All right. I believe that's the last question, and that also concludes our briefing. Thank you very much, everyone, for attending, and we look forward to seeing you again next year for the year-end 2021 results.