Manila Electric Company (MER) Earnings Call Transcript

Good afternoon, investors, analysts, fund managers and valued stakeholders. Welcome to Meralco's nine Month 2026 Financial and Operating Results Briefing. We are pleased to have participants joining us both in person and via MS Teams. Thank you for the time to be with us today. Before we begin, please note that this session is being recorded. Kindly observe the ground rules circulated ahead of this briefing. Today, we will discuss Meralco's financial operating performance for the nine months ended September 30, 2026. Joining us today are members of Meralco's management team: Mr. Ronnie L. Aperocho, Executive Vice President and Chief Operating Officer; Ms. Betty Siy-Yap, Senior Vice President and Chief Finance Officer; Mr. Emmanuel Rubio, President and CEO of Meralco PowerGen; Attorney Jose Ronald V. Valles, Senior Vice President, Head of Regulatory Affairs and Head of DU Regulatory Management. Our discussion will begin with the financial highlights, followed by updates on distribution utility operations, power generation and key regulatory developments and outlook. We will then open the floor for a Q&A session before concluding with the management closing remarks. At this point, we would like to invite our Chief Finance Officer, Ms. Betty Siy-Yap, to walk us through the financial highlights for the nine-month period of 2026.

Thank you, P.J. Good afternoon, ladies and gentlemen. I'll be presenting the results for the nine months ended September 30, 2026. So on your screen is a summary highlight. So Meralco CCNI for the nine months ended September 30, 2026, grew by 12% to PHP 44.8 billion as stronger contributions from MGEN and RES businesses complemented the strength of the DU business. The DU business still accounted for the largest share of our CCNI at PHP 20.1 billion, 45% of the total, although down from 55% share in 2025 with the continued expansion of our power generation business and with more energy delivered by our RES business. Our consolidated DU energy sales for the first nine months reached 41,054 gigawatt hours, almost 1% higher than the 40,719 gigawatt hours in the same period in 2025. Growth was supported by warmer temperatures associated with El Nino, continued customer energizations and an expanding customer base. On October 26, 2026, Meralco achieved -- sorry, Meralco received the ERC's decision on its application for the annual revenue requirement and performance incentive scheme for the first regulatory period covering July 1, 2026 to June 30, 2030. The decision approved an average distribution tariff of PHP 1.50 per kilowatt hour, marking the completion of Meralco's long-delayed rate reset process after more than 11 years and providing greater regulatory certainty to advance and support critical long-term investments in network reliability, modernization and digitalization. The power generation business maintained its strong momentum, supported by higher thermal output, full nine months contribution of LNG at full capacity and the commencement of operations of MTerra Solar Phase 1. CCNI contribution grew 24% to PHP 18.2 billion and accounted for 41% of CCNI, up from 37% in the same period last year. The sales volume of power generation increased 7% to 21,419 gigawatt hours from 20,060 gigawatt hours in 2025, driven by higher volume across all segments and the incremental contribution of MTerra Solar. MTerra Solar began commercial operations on August 26, 2026, following receipt of its FCATC or Final Certificate to Connect for 950 megawatts. The initial phase delivers 600-megawatt AC of mid-merit power to Meralco. Since its commissioning in March of 2026, the facility has delivered 623 gigawatt hours from its combined PV and battery energy storage system, or BESS facilities. The RES business delivered a combined 5,914 gigawatt hours in the nine months ended September, up 7%. This was driven by continuing customer acquisitions, retail integration, portfolio optimization and strengthened synergies with the power generation group. The RES portfolio serves customers across the country's three main island grids and benefits from supply provided by operating generation facilities in Cebu and Panay. Next slide. The consolidated reported net income increased by 21% to PHP 44.7 billion from PHP 36.8 billion last year. The gap between CCNI and consolidated reported net income represents day 1 gain adjustment, net foreign exchange gains and gain on sale of our remaining interest in Radius Telecoms. Core EBITDA also rose 13% to PHP 75.9 billion from PHP 67.2 billion in 2025 with the DU contributing 51% and power generation accounting for 38% of the EBITDA. This slide shows the quarter results. Q3 CCNI was 26% higher at PHP 18.3 billion versus PHP 14.9 billion in 2025, with all segments contributing to the increase. The higher Q3 CCNI was accounted for as follows: a 3% growth in DU volume and adjustment of the July to September AWAT computation with the release of Meralco's average 1RP tariff of PHP 1.50 per kilowatt hour, although the first year -- first regulatory year tariff is at PHP 1.4764 billion. Higher power generation contribution driven by stronger participation in the spot market, Terra Solar's COD of its 600-megawatt PSA with Meralco on August 26, 2026, and the start of PacificLight's new tranche of 50-megawatt vesting contract from July 1, 2026 to June 30, 2027. And higher contribution of BESS business due to trading gains, higher volume, which is 2,022 gigawatt hours in Q3 versus only 1,980 in 2025 and lower purchase power costs with the renewal of the 310-megawatt contract on June 26, 2026, as well as the commissioning rate of 3 Barracuda Energy or our Lasso project. This slide shows the system-wide power sales volume. So our total energy volume handled by One Meralco was at 52,017 gigawatt hours, up 2% versus 50,880 gigawatt hours in 2025. The Philippines volume was at 47,688 gigawatt hours, also 2% higher versus 46,590 gigawatt hours. The difference obviously is accounted for by the volume delivered by our Singapore plant. DU volume increased inclusive of sales of PELCO II, which we manage and operate under an investment management agreement was at 41,745 gigawatt hours, 51% of about 81,500 gigawatt hours total volume distributed by all DUs and electric cooperatives in the country. This also includes 4,840 gigawatt hours sold by our RES units within the franchise area. RES volume was at 5,914 gigawatt hours with 4,840 gigawatt hours sold within and 1,074 gigawatt hours sold outside our franchise area. This is about 25% of the total market of 23,400 gigawatt hours. MGen volume was at 21,419 gigawatt hours with 17,090 gigawatt hours sold within the Philippines, 18% of the 94,100 gigawatt hours total volume delivered by all GenCos in the Philippines. A total of 12,220 gigawatt hours was sold to the Meralco DU and the local and affiliate RES. The contracted capacity of Meralco of 3,592.5 megawatts with MGen represents 38% of the Meralco franchise area peak demand or 25% of the Luzon peak demand during the first nine months of 2026. Our consolidated volumes rose 19% to PHP 443 billion from PHP 371.8 billion in 2025 with higher revenues from the power generation and RES businesses and pass-through charges of the distribution utility. Electric revenues of PHP 435 billion accounted for 98% of consolidated revenues. Generation, transmission and other pass-through charges were 21% higher at PHP 348.5 billion versus the PHP 288.4 billion in 2025. The increase in generation charge was due to higher fixed charges under the ERC approved extension of the PPA or purchase power agreement with First Gas Santa Rita. Fuel cost recovery adjustment averaging PHP 0.26 per kilowatt hour, which was granted to four generation companies by the ERC, higher fuel prices, the elevated WESM charges and the continued peso depreciation, which reached an all-time low of PHP 62.85 to the dollar as of the end of September. Transmission charge similarly increased driven by higher reserve market costs and the implementation of a higher ERC approved MAR or the maximum allowable revenue for NGCP beginning July of 2025, which is an equivalent increase of PHP 0.06 per kilowatt hour. Distribution revenue increased by 8% as a result of higher volumes sold, adjustment of July to December AWAT computation due to the release of the 1RP tariff and onetime reset costs refunded last year. Energy fee, which totaled PHP 28.4 billion increased by 40% from PHP 19.8 billion to PHP 28.4 billion from GBPC's higher sales volume, SP Calatagan's FIT rate adjustment, commissioning energy from solar power plants and PEDC's fuel CIC adjustment, partially offset by weaker reserves market pricing. The PHP 8.1 billion nonelectric revenue were largely from Radius for its enterprise and SME accounts and billable projects to PLDT and MSpectrum's revenue from commercial and industrial PPA and residential subscription and also from MIESCOR's EPC projects. Our cost and expenses totaled PHP 397.7 billion. Purchase power costs accounted for 85% of this total. OpEx represented 8%, depreciation at 4% and combined coal and fuel and power plant O&M accounted for 3%. Purchase power costs increased by 20% to PHP 338.7 billion from PHP 281.6 billion, reflecting higher generation and transmission costs billed by the generation company and National Grid Corporation of the Philippines. Operating expenses amounted to PHP 32.9 billion, 1% higher year-on-year, reflecting higher ERC permit fees on approved CapEx and recognition of provision for expected credit loss of about PHP 900 million as trade receivables of the DU grew following the suspension of disconnection activities beginning May of 2026. Depreciation and amortization were higher by 13% with the completion of CapEx project during the period. Combined coal and fuel and power plant O&M amounted to PHP 11.1 billion, reflecting a 33% increase due to the following: higher energy generated, spike in fuel prices and plant maintenance of PEDC Unit 3 and Cebu Energy's Units 1 to 3. The amount under expense account others pertains to provisions for over under recoveries, net of provision reversals after settlement of various tax outages and assessments. Meralco's power generation business sustained its strong growth momentum with CCNI rising 24% year-on-year to PHP 18.2 billion in the first nine months of 2026. The combined LNG businesses in the Philippines and Singapore remained a major contributor to earnings, delivering a total of PHP 11.6 billion in CCNI. The thermal business added PHP 7.2 billion in CCNI, supported by higher energy demand, stronger participation in the spot market and increased effective ownership interest in Panay Energy Development Corporation, Cebu Energy Development Corporation and Sarangani Energy Corporation. MGen's renewable business delivered a total of 1,634 gigawatt hours during the period, nearly 3x the prior year level, driven by additional capacity from MTerra Solar. Consolidated capital expenditures stood at PHP 76 billion. Of this amount, 72% or PHP 54.6 billion were spent on MGen's 3,500-megawatt AC Terra Solar power plant with 4,500 megawatt hours of battery energy storage system as well as the 56-megawatt hour battery energy storage system in Toledo, Cebu and the 31.8 megawatt expansion of SP Tarlac and 82-megawatt Toledo Power 1B expansion. The total DU CapEx amounted to PHP 21.2 billion were spent largely on new connections, which accounted for PHP 7.5 billion, asset renewals at PHP 6.1 billion, load growth projects, PHP 4.5 billion, pole relocation work to support government infrastructure projects and nonelectric projects accounted for the balance. Our cash and cash equivalents amounted to PHP 104.8 billion, while our short- and long-term cash investments totaled PHP 2.3 billion and PHP 2.9 billion, respectively. Notable cash transaction during the period are as follows: the Meralco AWAT refunded to customers amounting to PHP 11.1 billion for year-to-date September 2026. A total of PHP 12.9 billion has been refunded since April 2025 as part of the PHP 19.96 billion AWAT refund and PHP 3.1 billion since August 2026 as part of the recent ERC ordered refund totaling PHP 9.5 billion. GBPC's buyout of minority interest in Panay Power Holdings Corporation and Global Formosa Power Holdings, Inc. We also contracted new debts and paid down some of our debt. TSPI for one, had a PHP 32 billion total drawdown with weighted average interest rate at 7.25% for project financing. TNI's PHP 7 billion drawdown on May 14, followed by a PHP 6.2 billion bridge loan repayment on May 15 and PHP 1.65 billion total drawdown in August and September. Meralco's PHP 6.5 billion total drawdown happened in February and another PHP 5 billion in March. Solar Philippines Tarlac's PHP 3.8 billion drawdown amounted to close -- amounted to PHP 3.8 billion for project financing, PHP 3.5 billion bridge loan repayment in January. Dividends received from unconsolidated investees totaled PHP 6.4 billion, largely coming from PacificLight and San Buenaventura. We also paid a final 2025 dividend of PHP 18.7 billion or an equivalent PHP 16.672 per share in April and another PHP 13.1 billion on -- in September, representing 50% of the first half CCNI. The consolidated interest-bearing debt stood at PHP 262.3 billion, including PHP 149.4 billion debt of our subsidiaries. Meralco ended the period with net debt-to-EBITDA ratio of 1.5x, providing ample financial flexibility to continue supporting its growth pipeline. Debt maturities are well spread through 2041. All of Meralco's consolidated debt are peso-denominated. Immediately following the onset of the Middle East war, Meralco fixed the interest rate on PHP 30 billion of its debt to mitigate exposure to further increases in interest rates. This represents approximately 20% -- 27% of the parent company debt. In addition, we also secured lower borrowing costs on existing debt of PHP 32.5 billion and PHP 71.4 billion in prospective drawdowns to negotiations with our counterparty banks, generating potential annual financial cost savings of over PHP 1 billion. Our core EPS went up 12% to PHP 39.77 per share from PHP 35.509. Our reported EPS stands at PHP 39.642 per share versus PHP 32.67 last year. That ends my report.

Thank you, Ms. Betty. At this point, I would like to call our Executive Vice President and Chief Operating Officer, Mr. Ronnie Aperocho, to present the distribution utilities operating performance.

Thank you, P.J. Good afternoon to our analysts partners who join us for today's briefing. Let me briefly walk you through the distribution utilities performance for the first nine months of 2026, which overall, the results reflected recovery in energy sales, continued customer growth, improved service reliability and disciplined investments to strengthen the network. Consolidated energy sales, as mentioned earlier by our CFO, grew by close to 1% at 41,054 gigawatt hours. The recovery in energy sales was supported by continued customer energizations and warmer temperatures, which offset the softer demand in the middle of the year due to intensified energy conservation measures following the escalation of the Middle East conflict. The DU net system input was also steady at 42,636 gigawatt hours, 1% higher compared with the same period in 2025. Meralco posted its all-time high peak demand of 9.39 gigawatts on May 28, 2026, 2.8% higher than last year as warmer temperatures in May to June ramp up cooling demand. Our customer count continued to grow, reaching 8.357 million customers, a 2.2% increase year-on-year. Moving to the service performance of the DU, our 12-month moving average feeder system loss stood at 4.45%, higher by 0.33 percentage points year-on-year, largely driven by the increasing share of high loss to serve low-voltage residential and small commercial customers as sustained elevated temperatures boosted cooling demand. We continue to manage system loss through various network upgrades, metering improvements and operational controls and vigilance in terms of pilferage detection and apprehension. Meanwhile, service reliability indicators delivered meaningful improvements. Total SAIFI was fewer by 8% at 0.701x and SAIDI was shorter by 8% at 74,129 minutes. This translates to less frequent and shorter duration of power interruptions. Our average time to connect customers also improved faster by 6.7% 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 nine months of 2026 was PHP 13.43 per kilowatt hour, 15% higher versus the same reporting period last year, primarily due to the following: First, due to higher generation charge, 16% increase, mainly due to the fixed charges from the ERC approved extension of interim PPA with Santa Rita, fuel cost recovery adjustments for some PSAs, higher fuel prices, peso depreciation and higher WESM charges. Second, increased transmission charges, 44% increase from higher ancillary services costs and higher ERC approved MAR or maximum allowable revenue for NGCP and NGCP's under recoveries for 2016 up to 2022. Third is higher fit-all charges, 106% increase from higher fit-all rates implemented in 2026. These were partially offset by the decline in Meralco's actual average distribution rate by 11% from the implementation of regulatory reset fee adjustment and increase in AWAT refund rates. Following the discussion on energy sales earlier, let's now look at the sector breakdown. The residential segment accounted for 36% of total energy sales or 14,731 gigawatt hours. Residential sales continued to post growth on the back of steady energization efforts, while organic demand remained flattish. The commercial segment, which makes up 37% of total sales, registered modest growth as retail and restaurant expansions countered negative impact from sluggish sectors. The industrial segment accounting for 26% of total sales slightly declined by 0.3% as weakness in steel and plastics outweighed growth in semicon, cement and food and beverage. For some of the updates on networks projects, from July to September, we energized three major projects, representing approximately PHP 344.1 million in capital expenditures. Together, these projects delivered 83 MVA of additional capacity and 1.45 kilometers of new sub-transmission lines. supporting load growth and improving reliability in key parts of the franchise area. The Makban-Los Banos Batangas Paper Corporation, 69 kV line, which was energized in August, strengthens the network serving areas in Laguna and Batangas and supports the requirements of a major industrial customer. The 34.5 kV mobile switchgear energized in September provided an interim arrangement during equipment replacement at the Sun Valley substation. This gives the system greater operational flexibility while helping maintain continuity of service during emergencies and planned switchgear replacements. The expansion of Commonwealth 115 kV, 34.5 kV GIS substation also completed in September, added capacity to support continuing demand growth and reinforce service reliability in Quezon City and nearby areas. These investments address the growing load requirements, reinforce network resilience and deliver tangible benefits to our customers. On sustainability, we have more no more -- on sustainability front, let me briefly highlight two developments. First, Meralco participated in the 2026 United Nations Private Sector Forum on the energy transition in New York, bringing the Philippines perspective to this important global dialogue. Our long-term sustainability strategy was recognized as a model for transformation, particularly for balancing our decarbonization ambitions with the realities of energy security, affordability and reliability. At the forum, we reinforced Chairman MVP's principle that to do good, one must first do well. For us, this means pursuing a practical and responsible transition, meeting today's energy needs while scaling renewables and preparing for emerging clean energy technologies. Importantly, our strategy also places social impact at the heart of the transition. MTerra Solar demonstrates how clean energy can advance climate action while creating livelihoods and supporting inclusive economic growth. And finally, on diversity and inclusion, Meralco was named the first ever Emerging Changemaker of the Year at the PFIP Bahaghari Awards. The recognition highlights the progress of our Embrace diversity and inclusion program in advancing women empowerment and LGBTQ+ and PWD inclusion across One Meralco. Ultimately, both milestones reinforce our approach to sustainability, driving the energy transition while creating meaningful and inclusive impact for the communities and the people we serve. Thank you. Let me turn over to Ronald Valles for the regulatory report.

Good afternoon. So we start with the regulatory update on the update on our competitive selection process for the 900-megawatt CSP. So the DOE last September 18 issued already the certificate of conformity for the 900-megawatt baseload CSP. According to the Department of Energy, it finds that Meralco's terms of reference is consistent with the DOE accepted 2026 to 2035 power supply procurement plan. So these terms of reference also underwent review by the Philippine Competition Commission or PCC. So with respect to the time line of activities, so we started the CSP already with the first publication of the TOR last September 26. The bidder's expression of interest deadline was last October 15. The pre-bid conference is scheduled on November 6 and the bid submission and the bid opening are scheduled on December 9. So right now, we have 11 bidders already -- potential bidders already for this one. So next slide, please. With respect to the power supply agreements resulting from the CSP for the 600-megawatt baseload requirement that we recently concluded, last September 1, 2026, out of the nine bidders that submitted expressions of interest, six bidders submitted bids. And out of the six, three submitted bids were determined to be the best bids with their total offered contract capacity of 600 megawatts. So these are the Mariveles, Sual and GNPower Mariveles Limited, each with 200-megawatt offered capacity. And all of these three were within the reserve price as set by the company. One bidder, namely Energy Development Corporation, submitted a bid that is much higher than the reserve price and was therefore disqualified. So the PSA right now is undergoing finalization and will be submitted to the ERC for approval eventually. Next slide, please. So I'd like to report to you on the ERC advisory on the extension of this connection because this has posed a problem on Meralco and some power generators with respect to their cash flow. So the ERC finally lifted the moratorium, but in so far as 200-megawatt and up customer or so. So for those consuming 200 monthly consumption and below, the moratorium continues for nonpayment of November to December 2026 bills. So this is the new covered billing period. So for them to be able to continue to avail of the disconnection suspension, they are required to pay on or before November 26, 2026, all their unpaid regular bills and installments covering May to July 2026 bills. And the failure to pay shall be a ground for them to be disqualified and therefore, the DUs may disconnect upon prior notice. The DUs will also continue the disconnection suspension for covered consumers despite unpaid August to September 2026 bills provided that the May to July 2026 bills are fully paid. For noncovered consumers, namely residential consumers with more than 200-kilowatt hour monthly consumption and those nonresidential customers. they will be covered by separate policy. So for flexible payment options, the ERC directed to implement staggered or deferred payment for covered consumers for the new covered billing period at least three months from receipt of bill, equal monthly installments reflected in subsequent billing statements. However, nothing in the advisory shall preclude the covered consumers from paying in full when they are able or when they wish to do so. Next slide, please. The new extended due dates for noncovered consumers, more than 200-kilowatt hour consumption and for those who are nonresidential consumers, they shall pay the previous covered billing periods on extended due dates and these are the November 26 due date for May to July 2026 bills and December 2026 due date for August to October 2026 bills. Failure to pay on these dates shall authorize the use of disconnect upon prior notice. And DUs, however, are not precluded from entering into installment schemes with uncovered consumers. So the ERC also extended the same payment schemes to DUs. So GenCos, PSALM, NPC, TransCo, NGCP, IPPs, IPPAs, and the market operator are required to extend the same payment scheme to the distribution utilities. The DUs are also required to submit compliance of the directives of this advisory to the ERC on or before January 31 next year. Next slide, please. With respect to the actual weighted average tariff, so we have -- the first one, the ERC case number 2025-178 and 2026-040, these are two consolidated cases filed by Meralco for the refund of the actual weighted average tariff. The ERC last July 31 released the decision for this consolidated case and Meralco was required to refund a total of PHP 9.51 billion at an average refund rate of PHP 0.3448 per kilowatt hour, and the refund started already last August 2026 billing. The implementation period shall be within six months or until the remaining amount is fully refunded. For the last AWAT case that we filed under ERC case# 2026-129RC, the ERC issued already the provisional authority last October 12, 2026, for Meralco to refund PHP 2.64 billion at an average rate of PHP 0.1020 per kilowatt hour effective by November 2026 billing. Implementation period shall be within six months or until the AWAT refund amount is fully refunded. Next slide. Last August 2 also, Meralco received a copy of the ERC decision. that was promulgated on July 31, 2026, resolving Meralco's applications for confirmation of its generation, transmission, system loss, lifeline subsidy, senior citizen subsidy, real property tax and local franchise tax covering the periods from February 2011 to December 2022. So the amount that was approved for collection is PHP 8.7 billion, effective August 2026 over an estimated 36-month recovery period, which is equivalent to about PHP 0.08 per kilowatt hour on average. Next slide, please. I'd like to give you an update on the legislative developments on the system loss bills, both in the House of Representative and in the Senate. So the House already approved the House Committee on Energy, the substituted bill. This was shared by Representative Jose Alvarez. For the substituted bill for the Senate, this was approved by the Senate Committee on Energy chaired by Senator Erwin Tulfo last September 21, 2026. In terms of the technical loss under the House Substitute Bill, this remains to be recoverable, subject to the new System Loss Rules of ERC, which will provide for technical considerations such as load density, sales mix, cost of service, delivery voltage and financial viability of utilities, including a system loss benefit sharing incentive scheme. With respect to the Senate Substitute Bill, there is no explicit mention of technical system loss on the assumption that they have -- that they are allowing recovery of the technical system loss based on the discussions during the Senate hearings. Nontechnical loss, the ERC will establish a performance-based glide path to progressively reduce and eventually eliminate recoverable nontechnical loss. This is under the House Substitute Bill. Under the Senate Substitute Bill, it prohibits recovery of costs attributable to illegal use or theft defective or accurate metering and billing or collection deficiencies in adequate maintenance, inefficient operations, negligence or other causes reasonably within the DU control. It also prevents the DUs from recovering. This allowed system losses through other components of the bill. In terms of implementation, the ERC will issue the new system loss rules within one year from the loss effectivity under the House substitute bill. And under this bill, we will have the opportunity to make the necessary preparations, prepare budget, permits, right of OpEx and CapEx approvals, considering that our OpEx CapEx of PHP 7.44 billion over four years would achieve only about 30 percentage point reduction in nontechnical loss. So incidentally, the entire amount -- that entire amount of CapEx and OpEx was allowed under our 1RP. It sets a limited transitory period of not more than three years with respect to the Senate substitute bill. And with respect to the system loss caps, the distribution system loss cap to be determined on a total feeder loss basis, not through separate caps for technical loss and nontechnical loss. Whereas for the Senate substitute bill, it does not designate ERC to set system loss caps, effectively removing the cap setting mechanism. So both of these have already passed the, and approved the -- and have been approved already by the respective committee on energy, but this will be reconciled in a bilateral conference to be held, bicameral, sorry, conference between the House and the Senate when they resume session. Next slide, please. Now let's go to the Meralco regulatory period 1RP. So in terms of the time line, we received a decision last October 26, 2026. We filed that last February 2. So [ energy mobility ] she must decide. On implementation of the 1RP rates will be on November or in November 2026 billing. Next slide, please. So just an overview of the Meralco proposal versus what the ERC has approved. In terms of opening RAB, the ERC approved 57% of what was filed. Later on, I will discuss each item on the reason why there was a disallowance. And then in terms of real CapEx, 72% was approved for OpEx, about 82%, other taxes, 3%. Well, for other taxes removal of RPT as because this is now being recovered under separate rules. So the ERC rightfully removed that already from the approval. So the WACC is 13.79%. This is the same WACC or uniform WACC that will apply to all utilities undergoing 1RP reset. Our total ARR is PHP 342 billion. That's about 64% of what we have filed. In terms of sales, we proposed PHP 224.7 billion kilowatt hour, and this was adopted by the ERC as proposed. Our first year map in rounded number is PHP 1.48 per kilowatt hour. And our average RPA for the entire regulatory period is PHP 1.50 per kilowatt hour. Next slide, please. Before we continue, we acknowledge the presence of our Chairman, Manuel V. Pangilinan. So to continue, in terms of the approved annual revenue requirement, sales and MAP, you will see the breakdown in the table on your screen. Return on capital at 13.79% WACC is about PHP 147 billion. Depreciation is about PHP 63.59 billion. OpEx is PHP 129 billion, other taxes, PHP 0.17 billion, for a sub total of PHP 340 billion. Then we add the 0.5% GSL allowance of -- 0.5% of the ARR equivalent to PHP 1.70 billion for a grand total of PHP 341.92 billion in terms of the annual revenue requirement. And the sales, as mentioned, is PHP 224.67 billion kilowatt hours. So we have a SMAP of PHP 1.4983 billion for four years average. There's about PHP 1.50 billion in rounded number. Next slide, please. So to discuss more details on the regulatory asset base, if you recall, we proposed -- we proposed a RAB of PHP 359 billion. So we got about 57% approval, but the ERC removed the 25% contingency. So if you recall, we -- in previous briefings, we mentioned that we just included a 25% contingency at the time of filing because the actual number of the regulatory asset base has not yet been determined. So in the interim, we added 25% contingency based on the rules of the ERC. So the ERC removed that because we have already determined the exact amount of the regulatory asset base. And then we also added the inflation factor. This was not provided for in the rules, but we added it as the same and the ERC removed it because it's not found in the rules. So that's already equivalent to around PHP 140 billion to PHP 145 billion. So that represents a gap between the proposed rate of PHP 234 billion and PHP 187 billion. So in other words, if we did not include the contingency of 25% and the inflation factor, we would have applied only a rate of PHP 1.87 but the ERC granted us PHP 1.50. So that's just about PHP 0.37 reduction from what we have applied. The initial value of the RAB is the net result of the actual asset additions and depreciation from July 2011 to June 2025. In the decision, the ERC also removed the microgrid asset that was inadvertently included in the filing. And then the ERC also correctly corrected the duplicate asset records in the filing. In terms of the lead up CapEx, the ERC reduced it by PHP 2.77 billion because these CapEx were not completed, so therefore, cannot form part of the regulatory asset base. But it does not mean that it will not form part of the regulatory asset base in the future once they are completed. The opening RAB of PHP 205.5 billion is used as start of the roll forward from RY 2027 to RY 2030. Next slide, please. In terms of the approved sales, the ERC adopted Meralco's forecast as is. So this includes the PHP 8.4 billion kilowatt hour forecast of lost sales due to solarization and also minimal contribution of the EV sales that we have included. So this should address the issue of the lost sales due to proliferation of the solarization within Meralco franchise area. So under PBR volume risk principle, any additional volume over the forecast levels result in revenue gains. So this is an upside for Meralco. If the PHP 8.4 billion does not materialize, then that's an upside to Meralco. So ERC approved a total of PHP 183.5 billion CapEx in real prices, 2025 prices with construction work in progress. to be included in the RAB roll forward. This is 72% approval level compared to the PHP 249.5 billion proposal. The breakdown, in terms of the breakdown, the approval level for carryover CapEx is about 73%. So there was a significant amount reduced from the carryover because it was not -- those projects were not started. So the ERC correctly excluded them. But with a note in the final determination saying that it is without prejudice to Meralco continuing to work on this CapEx and implement them if necessary within the regulatory period provided that in terms of the recovery in the rates, it will be done in the next regulatory period. And for the 1RP proposed CapEx, it was a 69% approval in real prices. So from 280 total CapEx project proposals, 54 got full approval, was approved, but with government funded, 180 approved with reduction and 40 deferred beyond 1RP subject to further review. The ERC also approved CapEx levels are higher than the projected PHP 120 billion to PHP 125 billion based on trending actuals from the past five years. So you will see on the slide on the graph in gray, that's using the trend, that's supposedly the expectation for the approval of the CapEx in the 1RP, but the ERC gave us the blue one, much higher than the resulting number using trending actuals. Next slide, please. In terms of the OpEx forecast, the OpEx was determined by ERC by using the actual RY 2025 level of PHP 23.20 billion as a base year and then determining an efficient regulatory year 2025 level of PHP 20.7 billion. So it made reduction in the 2025 OpEx of PHP 23.20 by about PHP 2 billion. And then it started its forecast from there. Forecasts are made subjecting the efficient base year to escalation factors and one-off items are also considered. The ERC approved a total of PHP 129.4 billion OpEx in nominal prices. This is about 83% approval level compared to the PHP 155.9 billion proposal. This is the highest actually OpEx approval that we have gotten in all the regulatory resets. The ERC approved OpEx levels are higher than a projected PHP 95 billion to PHP 100 billion, again, based on trending upwards from the past five years, if you can see from the graph. Next slide, please. In terms of the PIS or the performance incentive scheme for the 1st RP, the ERC generally imposed tighter targets for RP based on historical performance of Meralco, indicating that Meralco performed very well during the past period. So the indices adopted by ERC are substantially the same as those in the 3RP, except distribution feeder loss was considered and not the total system loss proposed by Meralco. And the percentage of calls answered within 30 seconds was adopted from the previous average time-to-answer measure. The CAIDI, the SAIDI and the Voltage Regulation indices were retained by the ERC instead of what we have proposed, which is the MAIFI inclusion. Next slide, please. In terms of the amount for the GSL guaranteed service level, the ERC set the number at 1,309.52. For GSL 1 and GSL 2, these are onetime payments. For GSL 3, this is 1,309.52 for every hour in excess of the 12 hours. And then for the time to connect, you will see on the screen that the amount of penalty or payout for every day in excess of the number of days indicated in the table. So generally, the ERC accepted the GSL indices recommended by Meralco, but with a lower payout level, they had to reduce the payout level from what we have applied because the ARR was reduced. So this is a percentage 0.5. So they also have to reduce the amount of penalty. Next slide, please. So the major changes to the distribution, supply and metering charges, contestable customers now have higher supply and metering charges compared to captive customers. This is what we have proposed based on cost to serve before contestable customers and captive customers have the same supply and metering charges. Distribution charges will not be imposed on FIT-all and GEA-all embedded generators to customers. For other embedded generators selling outside the franchise area, full distribution charges will be imposed. Discounts on distribution charges will be given for a portion of power sold within the Meralco franchise area. Next slide, please. In terms of the bill impact to selected customers in -- within Meralco franchise area, as I mentioned earlier, we have a 9% increase in our distribution tariff for the first regulatory year from 1.3522 to 1.4764. But despite the increase, the customer will see a small increase in their respective bills. Shown on the screen, it's about 0.44% to 2.54% only. And that gap represents the impact of the updating of the sales mix from 2015 to 2023 -- 2025. Since the sales mix has been updated, most costs are already part of the rate of the customers. So that's it for the regulatory update. Turning you over now to Mr. Emmanuel Rubio for MGen results.

Good afternoon, everyone. I'll start with -- already with energy delivered CAIDI. For operational performance. In the past nine months, our thermal group delivered 6,972 gigawatt hours, marking a 3% increase compared to the same period last year. Our LNG portfolio in the Philippines and Singapore delivered 12,814 gigawatt hours, up by 0.4% from the same period last year. Meanwhile, our renewable energy business nearly tripled its delivered energy in the nine-month period with 1,634 gigawatt hours due to the additional capacity from MTerra Solar. And in line with these results, we achieved a plant availability of 92.7%, just slightly lower than last year, but still within world-class standards, primarily because of PEDC 3 outage, which I'm going to discuss later on. And all in all, for the first nine months of 2026, MGen's energy delivered increased by 7% year-on-year with 21,419 gigawatt hours of electricity across Philippines and Singapore. On our projects, MGen Singapore-based subsidiary, PacificLight Power broke ground on a SGD 1.2 billion hydrogen-ready power plant on Jurong Island. The 670-megawatt facility will be Singapore's first gas turbine with large-scale battery energy storage as well as its largest and most efficient plant generating enough power to provide electricity to 1.2 million four-room apartments when it begins operations in 2029. And the plant can also co-fire with hydrogen up to 30%. For advancing ASEAN Energy Cooperation through its investment in PacificLight, MGen received a recommendation from the Philippine Department of Energy during the 2026 ASEAN Energy Business Forum for this project. Now on LNGPH, as of September 2026, the 1,200-megawatt llijan plant has been using Malampaya gas again. This is after the completion of restoration work of the gas facility and the 14.7 kilometer abangao-llijan pipeline at the end of last year. And as a result, LNGPH stands ready to take advantage of our indigenous gas supply when it's available. Also, two 60,000 cubic meter full containment LNG storage tanks have successfully been completed and commissioned at the Ilijan plant. This represents the first large-scale onshore LNG facility in the Philippines. And as a result, LNG's -- LNGPH reserve capacity has almost doubled to 25 days from 13 days previously. And at this point, let me give you an update on the 150-megawatt Unit 3 of Panay Energy Development Corporation, or PEDC. If you recall, it went on outage in August 29, 2026, but we were able to deliver this ahead of schedule last October '23 to provide stable and reliable load -- reliable supply in Visayas. I'll now discuss updates on nuclear energy. Meralco and MGen have selected U.S.-based engineering firms, Sargent & Lundy in partnership with local engineering firm, AMH, to undertake a comprehensive feasibility study for the potential deployment of small modular reactors or SMRs in the Philippines. The study marks the next step in technical assistance program funded by the USTDA, which was formally announced last February 2026. And this comprehensive study will be available by Q4 of 2027. MGen and Meralco also joined the Philippine Nuclear Energy Mission to the U.S., which explores regulatory cooperation. Key discussion points included establishing a robust regulatory framework, strengthening institutional capacity, including support for the Philippine Atomic Energy Regulatory Authority or PhilATOM. Now I'd like to update you on our renewable energy portfolio. SP New Energy Corp., SPNEC, now renamed to MGen Renewables or MGenR , expects to post its first full year profit in 2026 with projected net income of north of PHP 700 million as MTerra Solar's growing earnings contribution drives a turnaround from its PHP 4.1 billion loss in 2025. MGen Renewables reduced its net loss by 96% from the same period last year to a net loss of only PHP 24 million in the first nine months of 2026. This period captured the first -- the start of the MTerra Solar's delivery of commissioning power in March and eventually first phase commercial operations in August '26. Terra Solar Philippines, the company developing and operating MTerra Solar posted PHP 1.1 billion in core net income for the first nine months of 2026. And in addition, from a portfolio of 132.2 megawatt AC in net sellable capacity, MGen Renewables portfolio has surged 8x to 1,082.2 megawatt AC due to the commercial operations of MTerra Solar Phase 1, which is now the biggest solar plant in the Philippines and one of the largest integrated solar and storage facilities in the world. MGenR also approved a proposed share swap with MGen Renewables, Inc., formerly known as MGreen that will expand its portfolio of renewable energy assets. Under the transaction, MGen Renewable Energy will transfer its shareholdings in Greenergy for Global Inc., Greentech Solar Energy, Inc., CACI Power Corp, Nuevo Solar Energy Corporation and PowerSource First Bulacan Solar to MGenR, formerly SPNEC in exchange for approximately PHP 3.1125 billion newly issued MGenR shares. The transaction values the assets at PHP 4.98 billion and MGenR shares at PHP 1.60 per share within the valuation range determined by an independent valuation specialist engaged by MGenR. The proposed share price represents a 30.08% premium over MGenR's closing price of PHP 1.23 on October 23, 2026. MGenR's revenue base is expected to broaden as a result of the share swap through the addition of cash-generating operating assets, strengthening its position as MGen's primary listed renewable energy platform. Now for updates on MTerra Solar. Phase 1 has officially declared commercial operations for 600-megawatt AC mid-merit capacity under its PSA with Meralco on August 26, 2026. This follows from the issuance of the final certificate of approval to connect or FCATC by NGCP, confirming that the facility has met the requirements to safely and reliably connect and operate 950 megawatts of solar capacity and 825 megawatts of battery energy storage to the national grid. The project has already sold 623 gigawatt hours of energy from combined PV and BESS outputs. We have installed 1,701 megawatt AC for Phase 1 and 101 megawatt AC for Phase 2 of the solar farm. This is alongside 825 megawatts of battery energy storage. Although export capacity to the Luzon grid is currently capped at 950 megawatts pending completion of transmission-related works, it is enough to meet Meralco's requirements for Phase 1 of 600 megawatts from 8 a.m. to 9:00 p.m. and even the Phase 2, which we can -- we are looking at declaring around first quarter of 2027. Lastly, MGen through MGenR, again, formerly as SPNEC and Vitro Inc., a subsidiary of ePLDT within the PLDT Group have signed an MOU for the joint feasibility study and development of a sustainable power-enabled digital infrastructure proposition in the Philippines. And under the MOU, MGen and Vitro will conduct joint technical and commercial studies to assess potential sites, power generation capacity, renewable energy resources, connectivity requirements, data center specifications and commercial structures. Now we turn to updates on our retail electricity supply or our RES business. MGen RES recently signed two supply agreements with Toyota, the leading car brand in the Philippines and dealership, one with Toyota Manila Bay Group and another with Toyota Santa Rosa. This is part of our strategy of completing -- competing in the supply market as the threshold has been reduced to 100 kilowatts from previous 500 kilowatts with aggregation. And you can expect MGen RES to continue looking for partners to meet their energy needs. That's the report for MGen. Thank you very much.

Thank you, Mr. Aperocho, Attorney Valles, Mr. Rubio. Before we open the floor for Q&A, we would like to get a few words from our Chairman, Manuel Pangilinan.

Thank you. Thank you, P.J. Well, I guess our nine months results, the drivers were the generation performed very well in the first nine months and as well the rest. So the generation accounted for 41% of CCNI and rest 13% and distribution was 45%, provided the underpinning for our CCNI as it has in the past. I think two milestone events happened during the year. First was the regulatory rate reset. The last rate reset was actually 2011, 15 years ago. And it has been 11 years that we have maintained this distribution rate of about PHP 1.35. So of course, the second milestone event was the commercial operations of the solar farm out there in [ Nueva Ecija ]. It's now starting to contribute to profitability and more so in the years '27 and in 2028 because Phase 2 should finish by February, next year. So I think we're quite confident that Meralco is on track to achieving a full year CCNI of about PHP 56.6 billion, hopefully better for this year. Thank you.

Thank you, Chairman, MVP. So with that, we'll open the floor for Q&A.

We actually have several questions already online, but we'll open the floor on site. Okay. We have an e-mail question sent earlier. I believe it is on energy sales of Meralco from Germaine Guinto of Maybank Securities. How are we seeing electricity consumption trends in the coming year given the Super El Nino phenomenon? And how will you have updated guidance from the previously guided 1% to 2% growth?

Thank you for that question. I think for 2026, the 1% to 2% energy sales outlook remains intact. For 2027, of course, we are seeing a stronger growth environment boosted by the expected persistence of strong to very strong El Nino conditions into the first half of the year. And we also expect continued contribution from newly energized customers, recovery in real estate and hotels, expansion in retail and restaurants and increase in semicon demand. That said, we remain cautious given, of course, the macroeconomic and geopolitical risks and of course, the tensions, solar adoption and potential weather disruptions. But of course, in the medium term, we are still looking at 3% to 4% growth in our sales. And hopefully, electric vehicle adoption can also help in that forecast.

Thank you, Mr. Aperocho. We have a question from Cheska Ervas of Papa Securities. How will provisions will Morocco reverse over what period? And what -- and could you discuss impact the balance sheet?

Thank you for the question. So we will continue to evaluate. So in the meantime, with respect to the provisions on the distribution over recoveries, we do have two pending cases right now in the CA and the Supreme Court with respect to the AWAT. If that clears, then we should be able to clear out the provisions. For -- in the meantime, we continue to assess the other factors related to the other provisions that were set up in the books.

Thank you, Ms. Betty. We have a question on the floor.

Jeri Alfonso from Unicapital. So I have three questions. Just a follow-up on the first question earlier. For the first quarter of 2027, are you worried that the rising overall rate can put pressure on demand, especially for commercial and industrial customers? And so what's your short-term outlook and your view for full year 2027 when it comes to demand? And the second question would be for the Atimonan plant. What is your Atimonan's coal power plant projects, total CapEx and your funding plan on that? I think there's a public information about this, but can you remind us on when it comes to the details of the project? And if ever you have time line for this and also your expected revenue contribution if the Atimonan coal power plant comes online? And my third question would be just shooting my shot for the dividends. If you have guidance for the dividends, are there changes in policy, especially given the heavy CapEx for next year?

So we'll address the Manuel, right?

Dividends. Well, the -- I think we will stay with the policy of that the regular dividends will be 50% of core income. So if you're looking at PHP 56 billion, PHP 57 billion, then it would be 50% of that. Then there's a look-back provision that the Board usually takes when the audited accounts are presented to it, I think sometime end of February, then we can improve it by 10%. So we could -- it's really a good year. But I think the EBITDA of Meralco is going to be very strong this year on a consolidated basis, probably anywhere between PHP 90 billion to PHP 100 billion EBITDA. There's only one company that tops them, that's PLDT, but only by about PHP 10 billion, right? So that's I think we're staying with that policy.

I'm not comfortable giving a CapEx guidance on Atimonan as the CSP will -- is yet to happen. I don't want to give any competitive information. But we expect at least to win 600. That's what we're aiming for, but continue to build up to 1,200 and let the rest underwrite the capacity as we believe that there will still be demand for a competitive supply of energy as retail electricity market gets bigger with contestability threshold going down, as you all know now at 100 kilowatts even with aggregation. We believe that it's going to be one of the most competitive plant given that it's an ultra-super critical.

I think on your first question, we're cautious, but we're not entirely worried about the possibility of -- well, because of super El Nino as forecasted by PAGASA during the first half, especially in the first quarter of next year. In terms of contracted capacity, actually Meralco has enough contracted capacity to supply our captive customers during the El Nino phenomenon. And somehow that will somehow avoid us from buying capacity from the spot market. So I think our customers are already protected in that scenario. At the same time, what we're seeing is that, in fact, with a higher volume, in a way, we can also somehow address the cost of generation to our customers because with higher volume, the cost per kilowatt hour will be lower because of the capacity payment will be divided over a higher volume, the denominator in terms of sales will somehow translate to a lower cost per kilowatt hour because that will give us opportunity to fully dispatch our contracted coal-fired capacities. Coal is much cheaper versus LNG and the other sources, for example. So when we fully dispatch our coal-fired PSAs, so that will translate to a lower cost to our customers. And we also have, of course, the Terra Solar. And hopefully, by the first quarter, the full 850-megawatt capacity will already be supplied in a mid-merit manner to Meralco. So this is much cheaper than the LNG PSAs of Meralco, which is, of course, subject to the global price fluctuations because of the problem in the Middle East. So somehow, yes, we're not really at all worried about subjecting our captive customers to a high cost of electricity during the El Nino phenomenon.

For the funding of Atimonan 1, we're talking to local banks who are not averse to coal. And we're still looking at a 70-30 debt equity arrangement.

Thank you, Jeri. Hopefully, you were able to address your question. We'll proceed next to Karisa Magpayo of Macquarie Securities. How much was the reversal of our provisions for probable losses and expenses from claims booked in 9 months '26?

Karisa, the number is PHP 2.9 billion. This is largely related to tax assessments that have been cleared during the year. Yes. So largely just that one.

And then the second portion of Karisa's question, how much did Terra Solar contribute to earnings in nine months 2026?

Well, I mentioned, Terra Solar, since its commissioning in March contributed about PHP 1.1 billion to date.

Okay. Thank you, EVR. We'll proceed with Gregg Ilag from BPI Securities. Driver, can we get the recap on the drivers of a high growth for CCNI for third quarter alone?

Gregg, your question is if it's the total CCNI, the consolidated core net income of the company. As mentioned by our Chairman, the drivers are really the power generation and RES business. On the power generation side, it's all -- it's coming from contracted capacities sold, WESM as well, a portion from the reserve market contribution of Terra Solar, the full nine months operations of LNGPH compared with staggered entry of the different modules of EV. And then for RES, we saw higher volume from new customer acquisitions and recontracted, recontract of existing customers.

Thank you, Ms. Betty. Second part from Gregg Ilag, what are the drivers of double-digit growth in DU net profits in nine months, even with volume growth of only 1%?