History of Manila Electric Company (Meralco)

The Manila Electric Company or Meralco is the Philippines largest distributor

of electrical power. The company holds the power distribution franchise for
some 22 cities and 89 municipalities, including the capital city of Manila, as
well as for the cities of San Juan, Las Pinas, Quezon, Malbon, Makati,
Caloocan, Pasay, Mandaluyong, Paranaque, and Navotas. Meralcos 25-year
franchise for these markets, awarded 2003, gives the company control of the
energy distribution services for an area of more than 9.3 thousand square
kilometers and a population of more than 19.7 million one fourth of the
Philippines total population. The company boasts a coverage rate of more
than 97 percent. The highest in the country. Each year, Meralco sells more
than 23 million megawatt-hours (MWH), with residential and commercial
sales each contributing roughly 35 percent. Formerly a power producer,
Meralco purchases its power requirements primarily from government-owned
National Power Corporation; since the beginning of the 2000s, however, the
company has begun to purchase electricity from a number of ompany newly
established independent power producers, helping to lower its prices.
Meralco also has started to diversify its operations in response to the
deregulation of the Philippines power industry by extending into power
generation, industrial construction and engineering, and other areas,
including real estate development, e-commerce, and consultancy services.
Meralco is led by Chairman and CEO Manuel M. Lopez, whose family, through
direct and indirect holdins, retains control of some 25 percent of the
company. The Lopez family, one of the country's most prominent, also
controls conglomerate Benpres Holdings and other businesses.
Turn of the Century Beginnings
Electricity came to Manila in 1892 with the founding of La Electricista, which
began providing electricity to residential customers. With the completion of a
new power plant in 1895, La Electricista began providing street lighting
service to the city as well. By the beginning of the 1900s, La Electricista
boasted some 3,000 customers, as well as its streetlight business.
In 1903, the young government of the Philippines began accepting bids to
operate Manila's electric tramway, as well as providing electricity to the city
and its suburbs. The only bidder proved to be Charles M. Swift, a Detroitbased businessman, who founded a new company, The Manila Electric
Railroad and Light Company, or Meralco, in 1903. Construction on the
tramway began that same year. The following year, Meralco added its first

electrical power operations by acquiring La Electricista. By 1906, the

company boasted a yearly power output capacity of some eight million kWh.
Meralco built up a strong public transportation business in the decades
leading up to World War II, building a 170-strong fleet of streetcars into the
1920s, before switching over to buses later in that decade. Yet the
company's electric service grew even more strongly, overtaking its public
transportation operations in terms of revenues by 1915. By 1920, the
company's power capacity had grown to 45 million kWh. The company
changed its official name to Manila Electric Company in 1919, although
keeping the Meralco corporate name.
In 1925, Meralco, which had been registered in New Jersey, in the United
States, was acquired by fast-growing power conglomerate Associated Gas &
Electric Co. (AGECO), which had begun a massive expansion throughout the
United States and Canada. Backed by AGECO, Meralco began acquiring a
number of existing utilities in the Philippines, enabling the company to
expand beyond its Manila city center base.
The company originally serviced its enlarged franchise area through small,
diesel-powered generators added through its acquisitions. In the late 1920s,
however, Meralco began construction on a new, large-scale power plant, the
Botocan Hydro Station. Completed in 1930, the power plant was one of the
region's largest construction projects of the time. The additional capacity
allowed the company to begin hooking up customers throughout the metro
Manila area. Meanwhile, Meralco opened its own retail store in order to sell
home appliances--helping to drive demand for more power.
The Philippines government itself responded to the growing demand for
electricity by establishing the National Power Corporation (Napocor), with
Meralco signing a contract to purchase the entire output of Napocor's first
facility. Meanwhile, Meralco's own power capacity continued to grow,
reaching 184 million kWh by the outbreak of World War II.
Lopez Family Taking Over in the 1960s
The Japanese occupation of the Philippines placed Meralco under the control
of the Taiwan Electric Company. By the end of the war, however, most of the
former Meralco operations had been destroyed, along with the rest of Manila.
Meanwhile, Meralco's parent company, AGECO, which had gone bankrupt
and had been broken up, for the most part, in the 1930s, was reorganized
under the name General Public Utilities.

Meralco was to remain under American control through the 1950s. In the
meantime, as the newly independent Philippines began reconstructing after
the war, Meralco quickly worked to restore electric service, and by 1947 had
already topped its prewar capacity. By the beginning of the 1950s the
company had fully restored service to its former metro Manila network, which
included some 39 towns and cities. In the meantime, the company had
abandoned its public transportation arm, selling its bus line to Fortunato
Halili in 1948.
Demand for electricity grew strongly in the postwar era. By the early 1950s
the company boasted more than 200,000 customers. It also continued to add
capacity, adding new power plants in a five-year, P 45 million investment
program started in 1950. The company also benefited from the rapid
industrialization of Manila in the postwar era, and by 1958, the industrial
market had become its largest source of revenues.
In 1962, a group of Filipinos, led by Eugenio Lopez, Sr., founded Meralco
Securities Corporation (MSC) in order to acquire Meralco. The Lopez family
was by then one of the Philippines' most prominent families, stemming from
its control of the country's sugar sector since the middle of the 19th century.
The family, through various holdings, also went on to become major forces in
the Philippines' media sector, owning the ABS-CBN network and
the Chronicle newspaper.
Meralco grew strongly under Eugenio Lopez's leadership, adding new power
plants to increase capacity as its customer levels topped 500,000 by 1968.
The company also abandoned the former management's reliance on U.S.
suppliers for its infrastructure requirements, and instead began accepting
bids from a variety of sources, helping to produce savings while achieving
faster construction times. Meralco also began diversifying, launching Meralco
Securities Industrial Corporation in order to build a petroleum pipeline
between Batangas and Manila in 1967, and founding, in 1969, Philippine
Electric Corporation in order to produce line transformers and other electrical
equipment. Other expansion moves brought the company into banking and
oil refinery operations.
Fall and Rise in the 1970s-80s
Lopez had supported Ferdinand Marcos in his presidential bids during the
1960s. Yet Lopez, through his media holdings, had grown increasingly critical
of Marcos in the early 1970s. When Marcos declared martial law, the Lopez
family was stripped of its assets, including its control of Meralco. Throughout

the rest of the decade, Meralco struggled against a weakened economy and
a series of natural disasters that destroyed a number of its facilities. Then, in
1979, the Marcos government named Napocor as the country's monopoly
electrical power producer. Meralco's power generating assets were
transferred to the state-owned body.
In the meantime, Meralco continued to expand its distribution business,
linking up a growing number of towns and cities in the metro Manila region
that had been unable to keep up with the surging demand for electrical
power. By the mid-1980s, Meralco had signed on more than 60 new
communities to its grid.
The revolution of 1986 that deposed the Marcos regime and brought Corazon
Aquino to the presidency also restored the Lopez family's former holdings,
including Meralco. One of Eugenio Lopez's sons, Manuel, took over as
Meralco's president (and later became chairman and CEO) at this time.
Meralco then took steps to upgrade its network, which had been hit hard
during the Marcos era and continued to experience difficulties in the
economic upheavals of the latter half of the 1980s. In 1989, the company
launched a large-scale investment program to upgrade its distribution
system. At the same time, Meralco enhanced its customer service
component by restructuring its organization into regional components.
Meralco went public in 1990. By then, however, the company faced a new
difficulty. The surge in demand for electrical power--including a growing
number of "pirates"--had overwhelmed the Napocor power generation
monopoly. By the early 1990s, the Manila market became subjected to
planned blackouts lasting up to eight hours per day and longer.
In response, the Philippines government called for the creation of a new
generation of Independent Power Producers (IPPs), which were then given
guaranteed contracts. Meralco joined this new market, backing the creation
of First Private Power Corporation, building a 225 MW plant in Bauang. That
plant came on line in 1994, with commercial operations starting the following
year.
Facing Competition in the New Century
By then, plans had been laid for the deregulation of the Philippines' energy
market. Although the actual legislation for deregulation was not enacted until
2001, Meralco began preparing for the coming competition in the early
1990s. In 1994, Meralco began working with Spain's Union Fenosa, which

acquired a 9 percent stake in Meralco, to lead a new reorganization effort in

the mid-1990s. The company also began diversifying its activities in order to
reduce its reliance on electrical power distribution.
One of the company's first diversification efforts came with the creation, in
1994, of the Rockwell Center development project, on the site of the
company's then-dormant Rockwell power station. That operation was created
in partnership with the Lopez family's Benpres Holdings, formed a year
earlier. The following year, Meralco joined with Union Fenosa to launch the
IberPacific consulting firm.
The company continued to develop its diversified interests into the turn of
the century. In 1997, the company formed a new unit, Corporate Information
Systems, built around its IT services component. In 1999, the company
formed Meralco Energy, which specialized in providing energy-related
services to industries and other large-scale energy users. The following year,
the company moved into the e-commerce markets with the formation of eMeralco Ventures, with the purpose of launching and investing in Internet
and high-technology companies.
Meanwhile, Meralco's core power distribution business continued its growth.
By 2001, it had extended its network to include 20 cities, then added two
more cities, for a total of 114 municipalities by the end of 2002. By then, the
company served nearly 4 million registered customers--with a total customer
population of some 19 million.
Meralco received new contracts from the Philippines government in 2003,
extending its franchise in the metro Manila market through another 25 years.
The company's 100th anniversary celebrations that year were dampened
somewhat, however, by a Philippines Supreme Court judgment ordering the
company to pay back overcharges to customers from a four-year period.
Estimates of the potential payback bill ranged up to P 28 billion ($500
million), a price Meralco claimed it was unable to pay. Indeed, by May 2001,
the company, which had seen its request for a fee hike rejected amid a sales
slump, reported a net loss of more than P 2 billion ($38 million) for 2002,
prompting members of the government to call the Lopez family's
management of the company into question. Despite this shadow over its
anniversary celebration, Meralco was nonetheless able to look back on its
history as a leading player in the development of the Philippines--and
forward in its determination to remain one of the country's leading
corporations.

Principal Subsidiaries: Corporate Information Solutions, Inc.; Meralco

Industrial Engineering Services Corporation; Rockwell Land Corporation;
Meralco Energy, Inc.; e-Meralco Ventures, Inc.
Principal Competitors: State Power Corporation of China; Huaneng Power
International Inc.; SembCorp Industries; Perusahaan Listrik Negara, PT;
Hongkong Electric Holdings Ltd.; Korea Electric Power Corporation.
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