Proxy wars and pretender wrath

This one doesn’t have veteran boardroom lawyer Popoy Ricalde in it. That alone indicates it won’t be fought on the merits of performance or anything that pretends to legitimate equity interests. But its pretensions worm deeper where the cistern lies and torpid methane accumulates.

Unlike those fought over Oriental Petroleum or the ominous Equitable-PCIBank precedent, the Manila Electric Co.’s (Meralco) is an acoustic war.

Fortunately, for those victimized by insidious infestation, victories won in congressional grandstanding and yelling, e-mail blasts and press releases are pyrrhic and hollow. Meralco’s investors know there is no potent substance to insinuations of distribution overcharging or gross mismanagement.

Moreover, the circus rings are inconsequential. From opinion columns to the Power Commission, the Energy Regulatory Commission (ERC) and the enclaves of sycophants and suck-ups, with all sound and fury mustered, none can alter capital structure.

Outside two-thirds of Meralco’s investor base, the real market for the controversies is small, probably at 10 percent comprised of uncommitted fund managers, bankers and industrial partners. The rest are impotent periphery, disenfranchised from the swing that one-third-held entities need to expel management.

The Lopez family has 33.4 percent effectively committed; while interlopers combined, 33 percent. Both are slivers away from veto powers, but light years away from total majorities and control.

It would take an interstellar wormhole to reach where ownerships are absolute. To compute the cost, take 51 percent of Meralco’s market capitalization, deduct 33 percent and then multiply by its share price. While the distance remains unconquerable, ranting, blabber and drone have reduced values so that gobblers approach striking distance.

From the stock value immediately prior to this controversy deduct the acquisition cost of the government’s 33 percent. Match that against the recent fall. Sans time values, the arithmetic shows the imprudent recklessness that readily endangers and dissipates capital gains and public-school teachers’ and other pensioners’ (SSS, PhilHealth, etc.) investments, if only to pursue a benefactor’s vendetta.

Worse, ranting increases financing costs. By reducing stock values where these secure debts, in the amount needed to replenish collateral and maintain borrowing requisites, debt costs rise. These apply upward pressures on a utility’s weighted average cost of capital (WACC), and since, under the ERC’s pricing mechanisms, tariff is a function of the WACC, these increase burdens on consumers. So much for self-vaunted raiding acumen. Critics’ reckless ramblings directly hurt Meralco investors and consumers.

In this proxy war, inflicting financial ruin, or failing that, dictatorial control, is the real issue. Not sideshows from system losses to insidious Trojan horse representation. These are as unrelated to rates as Ortigas Avenue is distant to the rotting refuse piled along the northern banks of the Pasig downstream west of Nagtahan.

There is no initiative to nationalize or even grant consumer equity. The slip that shows is an unwashed slip. If rates were the real issues, then Arroyo, with her ill-applied expanded value added tax, royalties and uptakes, is at fault.

But it would be foolish to discount the venom of pretentious wrath. When tantrums turn into phone-pal calls, such as the archetypal “’Yung dagdag, ’yung dagdag” or “Will I still get my one million?”, for uncommitted proxies, it is difficult to hang up when one gets a call from the Palace.

We only wish her pit bulls had more pedigree. Or at least enough to understand what they rant against.

For instance, inquiring legislators neither differentiate among operating expenses, overhead and cost of energy distributed, nor between direct and indirect expenses or those capitalized against those consumed. To create illusions, they focus on peso absolutes, hoping the number of zeroes depict excesses.

But the law does not appreciate absolutes. A number without a dividend is worthless. It has no benchmarks. Correctly, statutes measure percentages to define parameters. The audited figures prove Meralco within statutory limits. Its electricity operating expenses at 0.27 percent remains far below Republic Act 7832’s legal cap.

It’s Accounting 101 and preschool logic. Yet, critics maliciously aggregated and then went to town with the illusion of expenses burdened on consumers.

In the House they’ve forgotten the concept of capacity fees. Never mind also the concept of economic off-takes. Never mind what they wrote into the Electric Power Industry Reform Act. They now label that as “ghost deliveries.”

Never mind the lying. The caliber of the accusations to array proxies, in their fuzzy logic, betrays that this is not about competence.

There are ludicrous apples-and-oranges comparisons. That among Mindanao and Cebu’s power economics matched against Luzon’s is a case in point. Mindanao and Cebu’s cheaper renewable and indigenous sources do not compare. Cebu imports via a 400-megawatt submarine cable. It has scant reserves at peak hours, and actual offtakes surpass contractual limits, rendering any take-or-pay issue senseless.

The most deceiving involve system losses. These are not distribution inefficiencies. The charge is a cost-recovery facility for electrical dissipation due to heat, line resistance, transformers, dielectrics, corona and others that constitute technical losses because transmission power is landed far from high-load areas. Include here malfunctions, pilferages and those supplied to establishments that must always be 100-percent energized.

In the Meralco franchise area, 80 percent of which covers rural Bulacan, Cavite, Batangas, Rizal, Laguna and parts of Quezon, technical losses range between 5 percent and 6 percent.

Because utilities advance for generation costs, it is statutorily protected within acceptable tolerances. In the United States losses average 7.5 percent. In India, 31 percent. Ours is 9.5 percent, with 1 percent for administrative usage.

The last category was deliberately spun to incite unthinking anger. The 1-percent limit includes unpaid public lighting, wherein most other economies is free. The technical-loss limit for electric cooperatives is 14 percent, albeit the National Electrification Administration shows many average 30 percent to 40 percent. If we erase limits just to accommodate a vendetta, rural economies would suffer first and then suffer several-fold.

Wrath blinds both instigators and the ill-educated. The vengeful must dig two graves. Unfortunately, these obscure the real issues. While investors are far more intelligent, so far we’ve had nothing but soundbyte and incendiary analyses from proxy protagonists. And from hollow ordnances exploded, Meralco’s rabid critics wildly extrapolate.

Tomorrow, at the end of the annual stockholders’ meeting of the Manila Electric Co. (Meralco), we will know if the Lopez family will still manage the country’s largest power- distribution utility, or if the big block of government shares, led by Government Service Insurance System (GSIS), will prevail.

This one doesn’t have veteran boardroom lawyer Popoy Ricalde in it. That alone indicates it won’t be fought on the merits of performance or anything that pretends to legitimate equity interests. But its pretensions worm deeper where the cistern lies and torpid methane accumulates.

If you are a financial-services practitioner, you will probably agree that this job is not easy. More than a half of the people you will talk to would give you a negative reply, and only a tenth of those you get to talk to will probably buy something that you are offering.

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