Predictability

Business, as we know, hates uncertainty and loves predictability. A clear path to the future helps enterprises plan longer term and work more productively.

This is the reason why Meralco, by far the country’s largest electricity distribution utility (DU), filed for another 25-year extension of its franchise years ahead of the current one’s expiration. This will allow everyone the luxury of fully examining the economic issues involved in this decision.

Several legislators, led by economic wizard Rep. Joey Salceda, have filed the bills seeking the extension of this valuable franchise. None has yet filed a bill seeking the termination of the franchise, although the usual rabble-rousers intermittently demand this. A termination of the franchise will have traumatic repercussions on all our businesses.

 It will be easier for everyone to simply extend the franchise, even with a provision (as contained in Salceda’s filing) to allow the expansion of its coverage to communities wanting to be included in its service area. Conversely, it will be extremely impracticable to break up the existing franchise (as some interested parties may want) and redistribute operations to several franchise-holders. This is a process that will take many years to complete, especially if new players in the game have little experience in electricity distribution.

There is, in fact, no economic study analyzing the whatever advantages there might be in the breakup of the franchise. Economic sensibility quickly recognizes that the existing setup in electricity distribution enjoys overwhelming advantages over all other possible alternatives.

The size of the Meralco operations suits the economies of scale that enables the DU to leverage against power producers to win the best deals possible for its consumers. This is the reason why Meralco is able to offer the lowest power rates among all distribution utilities. It is also the reason why it has been able to consistently elevate the quality of its service to ensure reliability despite the country’s thinning power reserves.

This week, the prestigious Management Association of the Philippines (MAP) issued a well-prepared position paper arguing for the