Contesting the contestable: AEV’s power subsidiaries are ready

Aboitiz Equity Ventures, Inc. (AEV), dubbed "the Meralco of the South" owing to its control of Visayan Electric Company (VECO) and Davao Light and Power Company, (respectively, the second and third largest power distribution utilities in the country) is ready to meet the challenges posed by a deregulated environment. AEV chief operating officer Erramon I. Aboitiz says the group does not have a monopoly mindset as far as its businesses are concerned. "We just happened to be the only one in the areas we serve."

Aboitiz admits the new law deregulating the power industry will change the business landscape. "Initially, all customers with one megawatt consumption for the last 12 months can source their power from other energy suppliers. These are the contestable customers. Over time, it will go down to 750 kilowatts. And then it will go all the way down until the households become contestable customers. So the monopoly created by the franchise granted under the old rules will slowly be challenged and open to competition," he explains.

This major change however, does not necessarily mean AEV companies will change the way they deal with the market. "We do not consider ourselves as a monopoly. Our goal is to find ways to make it simpler for our customers to deal with us. We’re always raising the bar of our customer satisfaction. We do customer surveys to know their expectations. And we survey them again to gauge their level of satisfaction."

Over the last few years, AEV has studied the power industry in liberalized settings, particularly in Australia and California. "We were amazed to see the complexity of deregulation and the opening up of contestability in all sectors up to the households. There are still a lot of rules and systems to be set up. For example, a consumer may choose to get his electricity this month from supplier A. For the next month, he may choose B, and the next month he can choose C. Can you imagine the requirements just for the meter reader to have all this information correctly recorded? It can become a real nightmare," he says.

Low-cost producer

AEV’s four electricity distribution companies serve a customer base of close to half a million, over 80% in Cebu and Davao. Aboitiz is confident they can "compete one-on-one with large players" as far as cost and level of service are concerned. "We are a low-cost producer. When we benchmark our cost and productivity statistics, for example, we compare them with much larger international players, and not with the small, neighboring cooperatives."

Davao Light, which has 197,000 customers, has a world-class ratio of customers to employee of 672:1. Its systems loss of 8.75% is below the 9.5% cap set by government and is also "within striking distance" of larger players abroad. Twenty-five per cent of Davao Light residential applicants get power connection on the same day and 60% Contesting the next day. The company is also fully implementing this year the Supervisory Control and Data Acquisition System (SCADA) which will allow the monitoring of distribution facilities by remote control.

AEV’s power business – including stakes in six energy generation companies – accounted for 68% of the conglomerate’s earnings in 2000. While the Aboitiz franchise can be considered fairly new in generation as an independent power producer, the family has been in electricity distribution since the 1930s. Last year, AEV established a presence outside what many consider its "comfort zone" in southern Philippines. It bought 43% of San Fernando Electric Power and Light Company (SFELCAPCO) located in the heart of Pampanga in Central Luzon. SFELAPCO has 36,000 customers and last year posted a systems loss of only 7%.

"We think we have the formula for running a small utility. We believe we can replicate what we are doing in Davao Light. We can add value by bringing in state-of-the-art technology, such as the SCADA, and improving efficiencies. If opportunities arise, we need not be focused on the Vis-Min areas. We can think outside of Vis-Min," says Aboitiz about P4 billion in the last few years, mostly in power. "I think for this year, we are more on a look-and-see mode. Before we make any more investments we want to see what the rules of the game will be. It may not look it but we are just as scared as the consumers. We don’t know (in exact terms) how deregulation will affect our business."

Of one thing he is sure, though. Increased competition will benefit the customer. "We believe that competition makes markets efficient and gives the optimal price to the consumer," concludes Aboitiz.