Manila Electric Company (MER) Earnings Call Transcript & Summary

Good afternoon, investors, analysts, my managers and value stakeholders. Welcome to Meralco's First half 2026 Financial Operating Results Briefing. I am Paul Ramos, Chief Investor Relations Officer of Meralco, and I will be your moderator for today's session. We are pleased to have you as a partial joining both in person by MS Teams, and we thank you for taking the time to be with us today. Before we begin, please take note that this session is being recorded. Kindly observe the ground rules that were circulated prior to this meeting. Today, we will walk you through Meralco's performance for the first half ended June 30, 2026. The presentation materials are available on our website under the Investor Relations section. Joining us today are members of the Meralco's management team; Mr. Ronnie Aperocho, Executive Vice President and Chief Operating Officer; Ms Betty Sy-Yap, SVP and Chief Financial Officer; Mr. Emmanuel Rubio, President and CEO of Meralco Power Gen; Attorney Jose Ronald Valles SVP, Head of Regulatory Affairs and Head of BU Regulatory Management; and maybe later, our Chairman, Manny Pangilinan, will join us. Our discussion today will begin with a presentation of our financial performance, followed by updates on our distribution utility operations, power generation business and a key regulatory developments and outlook. We will open the floor for a Q&A afterwards. At this point, I would like to invite our Chief Financial Officer, Ms. Betty Sy-Yap, to walk us through the financial highlights for the quarter.

Thank you, PJ. Good afternoon, ladies and gentlemen. I'll be presenting the results of the first half of 2026. So on your screen is a summary of what transpired. Meralco CCNI for the 6 months ended June 30, 2026, grew 3.8%, demonstrating resilience amid the challenging energy environment backed by its diversified energy portfolio. The BU business continued to account for the largest share of our 27.4 billion C&I 12.7 billion, 48% of the total, although down from 54% in 2025 with the continued expansion of our power generation business and with more energy delivered by our RES business. Consolidated BU Energy sales in the first semester stood at 26,967 gigawatt hours from 2,791 gigawatt hours in the same period in 2025, reflecting a 0.5% decline year-on-year as warmer conditions in the second quarter helped cushion the weak first quarter performance. CCNI contribution of power generation grew by 11% to PHP 10.5 billion and accounted for 39% of CCNI, up from 37% in 2025. Sales volume was at 14,178 gigawatt hours, 12% higher than the 12,644 gigawatt hours in 2025, mainly driven by the full 6 months contribution in operations in 2026 of LNG PH and commissioning energy from Terra Solar starting March, and 3 Barracuda Energy or our Naso projects, 450-megawatt AC solar power plant in Bugallon, Pangasinan, which received its PCC a provisional certificate of approval to connect from NGCP last March 2026. The thermal plant sold a total of 4,702 gigawatt hours, up by 2%. Last April, GBPC bought the minority share in the following investees, Panay Power Holdings Corporation and from Global Formosa Power Holdings Inc, resulting in higher earnings contribution from MGen increased ownership interest in Panay Energy Development Corporation and Cebu Energy Development Corporation. On January 25, 2026, Toledo Energy Development Corporation received its STC for its 25-megawatt 6.44 million at 56.44 megawatt hour battery energy storage system located in Toledo, Cebu. It has since sold a total of 3 gigawatt hours and reported revenue of close to PHP 58 million. Okay. So on the renewable side for MGreen, MTerra Solar Phase I generated a total of 151.1 gigawatt ours from its combined PV and BES facilities. On the retail electricity supply side, sales volume was at 3,864 gigawatt hours, up versus last year, driven by continuing customer acquisitions and synergies with power generation group. Per financial highlights. As previously mentioned, CCNI for the first half of 2026 increased by 3.8% to PHP 26.5 billion from PHP 25.5 billion in 2025. Consolidated reported net income increased by 11% to PHP 26.3 billion from PHP 23.6 billion the previous year. The gap between CC&I and consolidated reported net income represents day 1 gain adjustment and net foreign exchange losses. C&I was driven mainly by the 51% increase in CC&I contribution of power generation which grew to PHP 5.1 billion from PHP 3.4 billion, driven by full capacity operation and 43 months contribution of LNG PH. The growth in Q2 CCNI on the other hand, was from higher contribution of the RES business driven by trading gains and favorable line rental and settlement surplus as well as slightly higher DU contribution as volume in the second quarter went up by 1%. Similar to our CCNI, core EBITDA rose by close to 4% to PHP 44.8 billion from PHP 43.2 billion in 2025. The next slide shows our total system-wide power sales volume. The total energy volume handled by One Meralco was 34,328 gigawatt hours up 2% versus the 33,778 gigawatt hours in 2025. The Philippine volume was at 31,445 also higher versus the 3,913 gigawatt hours last year. the volume inclusive of sales of [ Telco 2, ] which we manage and operate under an investment management contract was at 27,435 gigawatt hours about 5,200 gigawatt hour total volume distributed by all DUs and electric operatives, including the 3,164 gigawatt hours sold by our RES unit within our franchise area. Our ES volume was at 3,864 gigawatt hours with 3,164 gigawatts are sold within and 700 gigawatt hours outside the franchise area. This was 26% of about 14,700 gigawatt hours total volume supplied by various [indiscernible] . [indiscernible] volume was at 14,178 gigawatt hours with 11,495 sold within the Philippines. 18% of the 62,100 gigawatt hours total volume delivered by Gen cost, A total of 7,975 gigawatt hours was sold to the Meralco DU and its local and affiliate Reses. The contracted capacity of Meralco of 2,992 megawatts with gen represents 32% of Meralco's franchise area peak demand or 21% of the Luzon peak during the first 6 months of 2026. For our segment information, we'd like to highlight the following: the CCNI contribution of the regulated or distribution business was from consolidated energy volumes of Meralco, Clark Electric and China Power Corporation of 36,967 gigawatt hours, which was flattish compared with last year. As a result, the DUC CCNI contribution declined to PHP 12.7 billion, now accounting for 48% of CCNI from PHP 13.7 billion or 54% share in 2025. For our regulated businesses, both power gen and RES businesses generated higher CCNI contributions in terms of peso amount. The share of our generation business is now at 39%, higher from the 37% a year ago. This is equivalent to PHP 10.5 billion of the CC&I mainly driven by the strong full capacity operations and full 6 months contribution of LNG as well as higher energy sold by thermal and renewable plans. The retail electricity supply business and nonelectric businesses meanwhile, brought in a combined PHP 3.4 billion or 13% of the C&I up from PHP 2.4 billion or 10% of the CCNI in 2025 driven by continuing customer acquisitions of RS unit. The deal revenues accounted for 83% of the total RES and nonpar subsidiaries and affiliates accounted for 10% and power generation at 7%. Out of the consolidated core EBITDA of PHP 44.8 billion, DU contribution amounted to PHP 24 billion and accounted for 52% of the total Power generation core EBITDA contribution was a PHP 16 billion and comprised 36% of the total, while RES and other non-par subsidiaries and affiliates accounted for the remaining 4.9 billion or 12% of the consolidated amount. We go to our revenues. Consolidated revenues increased by 16% to PHP 283.7 billion, from [ PHP 25.2 ] billion in 2025 driven by higher pass-through generation and transmission charges of the distribution utility and higher car generation and RES revenues. Electric revenues of PHP 279 billion accounted for 98% of the consolidated revenues. Generation, transmission and other pass-through charges were 19% higher at PHP 226 billion versus PHP 190.7 billion in 2025. The increase in generation charge was due to higher fixed charges from the ERC approved interim extension of the power purchase agreement, the ERC approved fuel cost recovery adjustment equivalent to 2 as per kilowatt hour for 4 generation companies, higher LNG fuel prices, peso depreciation and higher WESM charges. Transmission charge similarly increased driven by higher reserve market ancillary service charges, implementation of higher ERC approved maximum allowable revenue beginning July 2025 for NGCP and the recovery of NGCP under recoveries from 2016 to 2022, resulting in an average rate increase of PHP 0.11 to [indiscernible] per kilowatt hour, respectively. Distribution revenue increased by 2% and despite the flattish volume due to the onetime refund last year of the regulatory reset cost of Meralco previously collected from customers through distribution rates, but ultimately, but did not incur because of the delay in the regulatory reset process. Energy fee, which totaled PHP 16.7 billion, increased by 30% from PHP 12.9 billion to PHP 16.7 billion from GBPC's higher sales volume [indiscernible] clean feed rate adjustment, commissioning energy from the new solar power plants and PDC's fuel CIC adjustment. The impact on CCNI totaled PHP 283 million. The PHP 4.7 billion electric revenues were largely from Radius rates enterprise and SME accounts and billable projects to PLDT. Also from MIESCOR's EPC projects and [indiscernible] serves high-voltage solutions and integrated facilities management projects. With respect to our cost and expenses, this totaled PHP 257.4 billion. Purchased power costs accounted for 86%, OpEx represented 8%, depreciation of 3% and the combined coal and fuel and O&M costs or 3%. Purchase power cost increased by 19% to PHP 220.5 billion from PHP 185.7 billion, reflecting higher generation and transmission costs built by the generation companies and NGCP. Operating expenses amounted to PHP 21.6 billion, 1% lower year-on-year, driven by continued cost management and operational efficiency initiatives. Depreciation and amortization were higher by 2% with the completion of CapEx projects during the period, largely from the distribution utility side. Combined coal and fuel and power plus O&M amounted to PHP 6.6 billion, reflecting a 23% increase due to the following: higher energy generated, spike in fuel prices and plant maintenance of PEDC Units 2 and[indiscernible] and Cebu Energy's units 2 and 3. The amount under expense account others pertains to provision reversals after settlement of various tax rates or assessments, net of provisions for over under recoveries. For power generation, the business for the first half of the year reflected an 11% growth in CCNI owing to higher earnings across its generation portfolio. The LNG business contributed PHP 7.4 billion to the CCNI, up by 11%, mainly driven by the full 6 months contribution of LNG PH following its acquisition on January 27, 2025. The thermal business contributed PHP 3.9 billion, higher by 7% from last year's PHP 3.6 billion due to increase in energy delivered and higher earnings contribution from MGen's increased ownership interest in Panay Energy Development Corporation and Cebu Energy Development Corporation. On Capital expenditures, consolidated CapEx totaled PHP 39 billion in the first quarter. Of this amount, 67% in or $26 billion were spent by MGEN's 3,500 megawatt DC parasolar power plant with 4,500 megawatt hours of best as well as the 56-megawatt or best system in Toledo, Cebu and the 31.8 megawatt expansion of Espial and 82-megawatt EPC 1B expansion. The total DUC pax of PHP 12.9 billion were spent largely on new connections, totaling PHP 4.9 billion asset renewals at PHP 3.8 billion, load growth at close to PHP 3 billion pole relocation work to government to support the government's infrastructure project and nonelective projects. Our cash and cash equivalents amounted to PHP 118.4 billion, while our short and long-term cash investments totaled PHP 1.1 billion and PHP 3.2 billion, respectively. Notable cash transaction during the period include the following: the Meralco [indiscernible] refunded to customers amounting to PHP 4.5 billion in the first half of this year. A total of PHP 9.4 billion has been refunded since April 2025 as part of the PHP 19.96 billion at we filed. GBPC's buyout of minority share in Panay Power Holdings Corporation and Global Formosa Power Holdings Inc. The following loan repayments and drawdowns happened during the 6 months, the I drew an additional PHP 18 billion loan, P&I PHP 7 billion drawdown; Meralco, PHP 6.5 billion on February and another $5 billion in March. And Solar Philippines are lack a 3.8 billion project financing. But we also paid their bridge loan totaling PHP 3.5 billion. Dividends received from unconsolidated investees of $5.8 billion, largely from Pacific Light and Sun Buenaventura and payment of the final 2025 dividend of PHP 18.7 billion or equivalent PHP 166.7 per share on August 20, representing 50% of the second half 2025. CCNI and look back of 12.5%. Consolidated interest-bearing debt stood at PHP 227.3 billion, including the PHP 134.4 billion, total debt of our subsidiaries. Meralco maintained a healthy balance sheet ending the period with net debt-to-EBITDA ratio of 1.4x providing ample financial flexibility to support its growth pipeline. Debt maturities are spread to 2041. All of Meralco's consolidated debt are peso-denominated. Our core earnings per share amounted to PHP 23.56 per share, up 3.8% versus last year. Today, the Meralco Board of Directors approved the declaration of an interim dividend amounting to PHP 1.78 per share to all shareholders of record as of August 28, payable on September 23, 2026. This represents a dividend payout of 50% and brings the implied annual yield on dividends declared out of core earnings to approximately 4.1% using the June 30, 2026 closing Meralco price that ends my report.

But, diversified energy portfolio continued to demonstrate the resilience in the first half with the distribution utility remaining to be our largest earning contributor, 48% of CCNI where the power generation could the strengthening share of earnings at 30% of our total. We'll now proceed with the discussion of operating performance to be presented by Mr. Ronnie Aperocho.

Thank you, P.J. Good afternoon to our analyst partners who join us for today's reading. For the first half of 2026, Meralco's distribution utility business remained operationally resilient, supported by a growing customer base. record peak demand and continued improvements in service liability indicators, while energy sales were marginally lower year-on-year in the first half, electricity demand has begun to recover and starting July year-to-date energy sales are expected to return to positive growth territory. Let me now walk you through the highlights of our first half operational performance. As mentioned by Ma'am Betty earlier, our sales stood at 26,967 gigawatt hours, slightly lower by 0.5% year-on-year, primarily due to the cooler weather conditions dampening demand. Recovery during the summer months was tempered by intensified energy conservation measures following the escalation of the Middle East conflict. These effects were partly offset by our faster customer energization, which helped cushion the overall sales decline. The net system input was also steady at 28,165 gigawatt hours, almost flat compared with the same period in 2025. Meralco posted another all-time high peak demand of 9.39 gigawatts on May 28, 2026. 5.9% higher than last year as warmer temporatures in mid to June ramp up cooling demand. Our customer count continued to grow, reaching 8.36 million customers, a 2.2% increase year-on-year. On system loss, our 12-month moving harboring system loss stood at 6.07%, largely driven by increasing share of high loss to serve global as residential and small commercial customers. Nonetheless, we emphasize that managing system loss remains a key operational priority for Meralco. Having achieved 18 consecutive years of system loss performance below the regulatory cap. We continue to pursue a balanced and cost-efficient approach that addresses both technical and nontechnical losses through targeted network investments, advanced monitoring and analytics, smart metering technologies and focused anti-leverage initiatives. Our objective is to achieve sustainable reductions in system loss while ensuring that every peso investor delivers the greatest value to our customers and stakeholders. Meanwhile, service reliability indicators delivered meaningful improvements. Total SIP was fewer by 11% at 0.46x and site was shorter by 8% to 46.5 75 minutes. This translates to less frequent and shorter duration of power interruptions. Our average time to connect customers also improved faster by 6% at 2.23 days, reflecting our continued focus on faster and more responsive customer service. On electricity rates, our average electricity retail rate for the first half was PHP 13.09 per kilowatt hour, 15% higher versus the same reporting period last year. primarily due to the following: first, due to higher generation charges, 14% in Greece, mainly from the recovery of Santa Rita's higher fixed charges. Change in circumstances or CIC recovery of some PSAs, higher imported LNG fuel prices, peso depreciation and higher resin charges. Second is due to the increased transmission charges, 47% increase from higher ancillary services costs, higher power delivery service charges and collection of NGCP and the recoveries. Third is due to higher fit all charges, 86% from higher fit oil rates implemented in first half of 2026 and fourth is the Jo was also implemented starting January 2026. All the collection was suspended for May and June 2026 billing period following ERC order. And following the discussion on energy sales earlier, let us now look at the sector breakdown. The residential segment accounted for 36% of total sales or 9,712 gigawatt hours. Residential sales narrowed the gap from last year, posting only a 0.7% decline as steady energization efforts offset the impact of cooler weather. The commercial segment, which makes up 37% of total sales remained flattish as cooler weather, office vacancies and energy efficiency initiatives offset gains in the restaurant segment. The Industrial segment accounting for 26% of total sales, likewise slipped by 0.6% as steel account shutdowns and market challenges in plastics outweigh in cement and semicon industries. And lastly, on our networks project updates, this slide highlights our key network investments completed in the first half of 2026, which directly supported load growth and further strengthen system reliability across our franchise. From April to June this year, we energized 5 major capital projects worth a total of PHP 1.32 billion. This portfolio includes the development of Bustos and [indiscernible] construction of Parang, Marikina 115 line, operating 1150 power circuit breakers at North Fort substation and construction of new controller house with Swiss gear room at Malabon substation collectively adding a total capacity of 133 MBA. Thank you, and I'm now turning you over to Atty. Valles for the regulatory report.

Good afternoon. I have only 2 more to topics for the regulatory update. First is the interim extension of the sorry. The first is the interim extension of power purchase agreement with First Sta. Rita. So last June 10, this year, Department of Energy directed Meralco [indiscernible] versus to immediately execute the extension of the PPA for a period of up to December 25, 2026. This is the third interim extension on terms that are consistent with the existing PPA and its prior expansions or on such other metal terms as are not less favorable to the public interest. Recognizing that the Sta. Rita plant is among the most critical -- critically needed generation assets in the [indiscernible] as consistently reliably supported in stability across success in PPA extensions. So pursuant to that directly, we negotiated with First Gas Sta. Rita for better terms than the previously approved second extension. So for the nonfuel charges, we got PHP 50 million monthly discount for the line rental, the line rates are exceeding 15 as per kilowatt or up to PHP 25 million per billing period can be absorbed by first bus and the line rental cost beyond PHP 25 million will continue to be burned by Meralco customers. And then for the currency, USD-denominated components of nonfuel charges such as the CRF, BOM and the VOM converted to peso at an exchange rate of no more than USD 1 to PHP 6. The full financial fees arising from any exchange rate for nonfuel charges beyond the exchange rate cap shall not be assumed by First Power Corporation. So the ERC already approved the third extension plus June 24, 2026. So in some, the estimated savings or reductions for the extension period from July to December amount to about PHP 200 million for nonfuel charges discount and PHP 150 million for line rental costs under care offers just under the PPA and over PHP 3.8 billion due to the provision of Malampaya Gas to beginning September 1, 2026 under the SPPC [indiscernible] an average of $0.36 per kilowatt hour reduction or savings to customers. The second update is on Meralco's CSP for the 600-megawatt days load supply. So last June [indiscernible] , the DOE finally sent Meralco an updated letter noting the vision on the -- of the 600-megawatt based CSP into 2 places, with a contract duration of 15 days from the operations effectively while maintaining the total contract capacity at 600 megawatts and firemen that Meralco may proceed with the CSP on the basis of the revised capacity breakdown. So this CSP will receive February 26, 2026. for the first 300 megawatts and then ramping up to 600-megawatt on February 26, 2029. So the milestone Yesterday, we have the pretty big conference. The enormity held a pretty big conference on July 28, 2026, and the deadline to increase the operating capacity and/or an indicated nominated plan is set on August 25, 2026. The bid submission and opening of [indiscernible] set on September 1, 2026 remaining 2025 CSP for the 900-megawatt basil supply in October 2025, Meralco submitted to the DOE supposed to you for approval and this 900-megawatt vistas for the 600-megawatt by February 26, 2021, an additional capacity of 300 megawatts by February 2032 with a contract term of 15 years for each space. We have yet to receive the DOE's approval of the terms of reference. That's all for the regulatory update.

Thank you, Atty. Valles. We now turn to our power generation business. Please welcome Mr. Manuel Rubio.

Thank you, PJ. So as always, we begin with the #1 priority across all sites, which is health and safety. For the first half of 2026, we are proud to report that we maintain a safe working environment with over 18.9 million safe man ours for both employees and contractors. More importantly, we recorded 0 lost time absent across our operations during the period, which also include enteral that has ramped up construction for Phase 1 and 2, Phases 1 and 2 during this period. and these milestones reflect the commitment of every employee and contractor in maintaining a strong safety culture as we continue to expand our operations. Now move to operational performance. the past 6 months, MGen Thermal Group delivered 4,702 gigawatt hours, marking a 2% increase compared to the same period last year. Our LNG portfolio in the Philippines and Singapore delivered 8,650 gigawatt hours, up 13% from the same period last year. And meanwhile, our renewable energy business doubled its delivered energy this first half with 825 gigawatt hours due to the same capacity -- additional capacity from [indiscernible] solar, which is very available to Meralco for its commissioning energy.

Welcome, our Chairman.

So in line with these results, we achieved a planned availability rate of 92.9%, well within our world-class standards. And all in all, for the first half of 2026, MS Energy delivering increased by 12% year-on-year, with 14,178 gigawatt hours of electricity across the Philippines and Singapore. Now on to the key developments across our business -- businesses during the second quarter of the year. We've already expanded our battery energy storage portfolio besides with the energization of the first phase that Toledo battery energy storage system in Cebu. The project adds 56.44 megawatt hours of battery storage capacity marking the first 2 our battery energy storage system facility in Visayas designed to deliver its rated output when the grid need particularly in the evening at optimal price points. We are also certified to provide both regulating down and regulating up. And last month, the board approved expansion of a similar capacity in the same location. On the gas plantings -- the gas plant in Singapore, we will be doing our first filing on August 14, and we will be groundbreaking on September 28 with the construction of the 670-megawatt [ H-class ] gas plant in Pacific. During the same month, we also completed the renaming of Global Business Power Corporation to MGen Thermal Energy Inc., aligning our thermal business under the unified One MGen brand architecture and reinforces strategic role within our diversified generation portfolio, and this is headed by Arnel Santos. Another key highlight during this period was the continued progress of [indiscernible] . Just this month, we have officially inaugurated the first phase of [indiscernible] , the President Marcos making the [indiscernible] to commercially deliver megawatts under its mid-merit power supply agreement with Meralco from 8 in the morning to 9 in the evening. Following its commissioning in March, the project has already sold 151 gigawatt hours of energy combined solar PV and best outputs. Phase 1 is energized 1,373 megawatts of solar PV capacity together with 825 megawatts or 3,300 megawatt hours of battery and storage making MTerra Solar, the largest operational integrated solar in battery facility on a single site in the world. Although export capacity [indiscernible] is currently capped at 75 megawatts spend in completion of transmission-related works. It is enough to meet Meralco's requirement for Phase 1 delivery of 600 megawatts from 8:00 a.m. to 9 p.m. Beyond that, the battery is on supplying energy to question when the grid miss it at optimal price points. We also received an SIS allowing us to dispatch maximum of 90 megawatts without the need for state compensators. These achievements were all made possible by our workers on site, all of them safely logging over 30 million workhours without a lost time injury. Our teams have also consistently demonstrated exceptional operational resilience in responding to the effects of the Mindanao earthquake. Several generating facilities affected, including our Saranggani Energy Corporation -- facilities. SEC continued this acceleration after the earthquake and successfully synchronized units 1 and 2 back to the grid less than a week after the earthquake. Meanwhile, Panay Energy Development Corp., Unit 3 was safely restored and returned to service ahead of schedule up an intensive engineering investor relations program that prioritized safety, technical rigor and operational excellence. These efforts highlight MGen's ability to respond quickly to unforeseen events while continuing to support with stability and energy security. And beyond our existing projects, we continue to explore new opportunities that support long-term energy security. We recently entered into an agreement with [indiscernible] Energy joint stock company to explore renewable energy solutions that could deliver up to 5 gigawatts of base load equivalent capacity. We now turn to some updates on the retail electricity supply or RES business. More energy consumers now have the power to choose with the lower retail competition and open access to [indiscernible] with a lower threshold to 100 kilowatts with of course also with aggregation, enabling more end users to select their energy supplier and benefit from competitive rates. As the market continues to expand, MGen Res and Vantage Energy are working closely to look into synergies and optimization of supply contracts that will enable us to broaden our reach and deliver more competitive energy solutions to a broader network of customers. Beyond operational excellence, we remain committed to creating meaningful impact to communities reserve. And following the [indiscernible] in Mindanao, we immediately mobilized led efforts to support affected communities, mobilizing 800,000 of relief assistance to more than 3,000 individuals in Saranggani. We also continued the annual reguidance initiatives with an investment of PHP 1.91 million across schools and minivan sites. And these initiatives support MGen's commitment to supporting our host communities that only do in terms of need, but also to programs that contribute to their long-term development. And together with our continued focus on safety, operational excellence and sustainable growth, they embody our commitment to powering and better tomorrow. Good afternoon, everyone.

Thank you, Rui. We would like to acknowledge the presence of our Chairman, Mr. Manny Pangilinan.

We will now open the floor for questions from our analysts and investors. [Operator Instructions]

I'm Jeline Gaza from JPMorgan. My first set of questions will be relating to the much awaited tariff reset. So I'd like to address these questions to aerials Ms. First of which is on your view on the timing of the direct reset? And any updated views on the inputs and your ongoing discussions with the ERC.

The timing is still the same as what the Chair person of the Energy Regulatory Commission as announced in his press release, I think that was several weeks ago, that there will be a delay in our -- in the release of the decision for our and we expect that to be sometime in September or latest maybe October. But since [indiscernible] RP covers a 4-year regulatory period that starts in on July 1. So that decision should retro up to July 1 of this year.

How about for the major inputs that could possibly move the expected tariff? If I recall, you're expecting 2.4-gigawatt hour, but there's a removal of contingency is the fending method or pay adjustments still -- so 1 in the table or any potential changes that could shift our expectations and what our

Well, in terms of the changes, from what we have officially filed and there will be nothing because the ERC will simply base the decision on whatever has been filed and published as part of the requirements but we have communicated to the ERC as well as to their consultants, the superceding events that occurred after the filing of the case, such as the global increase in the prices of materials and equipment that are needed for our CapEx expenditures. And we have informed the ERC about hoping that there will be some adjustments upward adjustments in the CapEx that will be approved or allowed by the ERC.

How about for the [indiscernible] sir?

The regulatory asset base as I speak today, the evaluation of that is undergoing inspection by the ERC. There are on take inspections being conducted by the ERC.

I think the second question is more recent and topic on, which is the pronouncement of the President about disallowing recovery of system losses. I think the question of investors has been, will this potentially being the tariff reset, what would be the potential scenarios to expect given that the potential magnitude of earnings could be material depending on the final form. Any thoughts from management about how this could play out and how it relates to the tariff timing and magnitude?

Well, in terms of its relation on the tariff timing, Well, first of all, the system loss charge is not the distribution charge. So that is a pass-through charge more related to generation costs. So it should not affect the timing of the or the timing of the release of the ERC decision.

I think the question sir, is becoming the validity of it being recoverable? Is that something that -- is there any view from management about this one?

Yes. In terms of the validity today, of course, it is -- we all know it is coverable and the system loss charge is computed based on the regulations of the ERC and EPIRA, and Republic Act of 7832 both allow the utilities to recover system loss. In terms of the amendment, we don't know yet what will be the result of the amendment mentioned by the President because the system was the removal of the system loss charge is supposed to come after the Congress has deliberated on the amendments.

Maybe sorry for the many questions. A follow up on the EPIRA amendments. Any updates on those many pending bills?

Yes. The Well, before the SONA, there were already bodies builds both in the house and in the Senate were filed in relation to the system loss. Some are related to system loss removal itself and the others are related on the removal of system loss charges. But all of these are still undergoing study by both houses of Congress. And in fact, both houses are also conducting hearings to hear the size of all the stakeholders on the impact of the system loss in mobile?

Thank you, Jelline. In line with regulatory and financial, there's a question online. If there's no disconnection period is extended how will Meralco tech is working capital from unpaid pass-through charges? And how badly would this rate your bad debt provisions?

Okay. The no disconnection policy for now is until October, now note that with respect to our customers, most of them still pay, but of course, there's a segment which is delayed with on payment. Now our experience usually is once the policy is lifted, okay? The customer is actually paid because otherwise, it would enforce disconnection. So their option is really, no option than to pay or we disconnect them. Now the other thing that could happen is they could come forth and ask for an installment payment, which we allow. Again, if they do not pay, then we disconnect them. So -- but obviously, there is a working capital component. But note that with respect to the arrangement also, the generation companies, we also pay them based on what we collect as -- which set arrangement with the ERC. But otherwise, although from the working capital management side, we also ensure that we have the required working capital requirement. As I mentioned, this is not a very big segment compared with the total 8.3 million customer accounts. With respect to bad debt, we do regular review. For example, for the first 6 months, we did review again of what our bad debts are. And we provide if there are any accounts which we believe will not be recoverable. And usually, these are the terminated accounts.

What is your outlook on distribution volume for full year 2026? Are the volumes trending so far in July? I believe this was touched earlier by our COO, Mr. Aperocho but maybe you can elaborate?

Yes. We have seen growth already starting from the May to June volumes. And I think for the month of July, we're seeing a growth of 6.4% to 7%, and that's a good sign already and this will be sustained towards the second half of the year. Right now, we're looking at a growth of 2% to 2.5% at the end of the year. It's mainly because in will be somehow driving our sales in the second half of the year.