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NASECORE vs.

ERC and MERALCO o For their part, the consumer groups expressed that the ERC
J. Callejo, Sr. | February 2, 2006 should have taken into consideration consumer protection in the
drafting of the proposed IRR.
(This is a long case, please bear with me. Thank you)  At the public consultation, the distribution utilities and consumer groups
For the Ratio, please pay attention to highlighted parts. Thank you. appeared with their representatives.
o The consumer groups requested for a separate consultation
ON EPIRA and the ERC exclusively for them and the same was granted by the ERC.
 Congress enacted RA 9136, known as the Electric Power Industry Reform  Another public consultation was conducted for the consumer group.
Act of 2001 (EPIRA) on June 8, 2001. o At the consultation, NASECORE representatives and other
 The Energy Regulatory Commission (ERC) was created under the EPIRA. consumer groups were present.
o The ERC superseded the Energy Regulatory Board (ERB) which o The ERC explained the DÉCOR and DICER.
was created under EO 172. o MERALCO on the other hand, explained the PPA and the
o The ERC is tasked to promote competition, encourage market computation thereof.
development, ensure customer choice and penalize abuse of o The consumer groups manifested their concerns, and these were
market power in the restructured energy industry. noted by the ERC.
 Section 36 of EPIRA required every distribution utility to file its revised  After taking into consideration the positions of the distribution utilities and
rates for the approval of the ERC. the consumer groups, the ERC promulgated the Order.
 Pursuant to the above provision, the ERC issued an Order requiring all o In above Order, the ERC adopted the IRR for the Independent
distribution utilities to file their application for unbundled rates. Power Producers Cots: Generation Rate Adjustment Mechanism
 In compliance to the above, MERALCO filed its application with the ERC (GRAM) and the IRR for the Recovery of the Incremental Currency
for the approval of its unbundled rates and appraisal of its properties. Exchange Rate Adjustment (ICERA).
 These IRRs were all contained or incorporated in the
 Acting on above, the ERC issued an Order and a Notice of Public hearing
Order.
setting the case for initial hearing.
o In the same order, MERALCO was directed to cause the  The GRAM replaced the PPA and the ICERA replaced the CERA.
publication of the notice of public hearing at its own expense twice o The respective effectivity clauses of the IRRs of the GRAM and
for two successive weeks in two newspapers of nationwide ICERA provided that they shall take effect immediately.
circulation, the last date of publication to be made not later than
two weeks before the scheduled date of initial hearing. On MERALCO’s Petition and ERC’s Assailed Order
 After a series of hearings, the ERC rendered the Decision approving  In consonance with all the Orders and Decisions, MERALCO filed
MERALCO’s unbundled schedule of rates effective the next billing cycle. with the ERC an amended application entitled “In the Matter of the
Application for the Recovery of the Independent Power Producers
On the DÉCOR, DICER, GRAM, and ICERA Cost under the GRAM”
o In the amended application, MERALCO averred that it had
 In another proceeding, the ERC issued an Order setting for public
recalculated its proposed generation charge aimed at
consultation its proposed IRR of Deferred Fuel and Independent Power
updating the generation charge of P3.18 to P3.46
Producers Costs (DÉCOR) and Deferred Incremental Currency Exchange
o Among others, MERALCO averred that the proposed
Recovery (DICER).
generation charge of P3.46 was computed in conformity with
o A notice of public consultation on the proposed IRR was caused
the generation rate formula under the GRAM.
to be published by the ERC in the Philippine Star.
o Thus, MERALCO prayed that the said proposed generation
o In the said notice and order, the ERC directed the parties to submit
charged be approved for implementation.
their comments on the proposed IRR.
 In the assailed June 2004 Order, the ERC approved the increase of
 Several distribution utilities, including NASECORE, filed their comments
MERALCO’s generation charge albeit only from P3.18 to P3.31, the
on the above IRR for the recovery of DÉCOR and DICER.
same to take effect immediately.
o Most of the utilities manifested strong objections to the adoption
of DÉCOR and DICER contending that these mechanisms would
defeat the purpose of escalator clauses such as PPA and CERA.
ISSUE / RATIO NAPOCOR would be priced at thermal
generating cost, subject to fuel cost adjustment
1. WON the ERC committed GAOD in issuing the Order which approve by NAPOCOR.
the increase of MERALCO’s generation charge effective immediately  The fuel cost adjustment allows the latter to
without publication of the latter’s amended application – YES recover the increases in fuel oil over and above a
base price.
A. NASECORE’s Arguments o In 1978, MERALCO applied with the Board of Power and
 NASECORE seeks to nullify ERC’s June 2004 Order for lack of Waterworks (BPW) for the approval of Purchased Power Cost
requisite publication of MERALCO’s amended application, thereby Adjustment to cover the increase in the cost of electric power and
depriving them of procedural due process. energy being purchased from NAPOCOR.
o They also invoked Sec. 4(e), Rule 3 of EPIRA (see Appendix)  MERALCO also applied for the approval of a fuel
 NASECORE contends that the Order is devoid of any basis as MERALCO adjustment clause for the three peak-load plants over
did not comply with the requisite publication such that its amended which it retained ownership.
application was not published in a newspaper of general circulation. o In 1980, the Board of Energy (BOE), which took over the functions
o As a result of the omission, they were not able to file their of the BPW, authorized the PPA clause stating that it was "strictly
comments on MERALCO’s amended application for the increase for the purpose of cost recovery only."
of the generation charge.  In other words, every increase in the cost of fuel oil to
 Invoking the SC’s ruling in FDC vs. ERC and MERALCO, NASECORE NAPOCOR above a base price is reflected in its fuel cost
concludes that failure to comply with the publication requirement renders adjustment.
the assailed ERC’s June 2004 Order null and void.  NAPOCOR thus increases correspondingly the price of
the power sold to respondent MERALCO, which then
B. MERALCO’s Counter-Arguments passes the same to the customers under the authority of
 MERALCO argues that its amended application for the increase of its the PPA clause.
generation charge is excluded and / or exempted from the application o In 1987, under EO No. 172, the Energy Regulatory Board (ERB)
of the publication requirement, among others, in Sec. 4 (e), Rule 3 of was created.
the EPIRA IRR.  It was granted regulatory and adjudicatory powers and
o The applicable rules are the GRAM IRR such that these rules functions covering the energy sector.
govern any petition for the recovery of fuel and purchased  In addition to its various powers and functions, the ERB
power costs. was mandated to enforce the pertinent provisions of RA
No. 7832.
NOTE: Skippable Part (History of PPA and GRAM)  To ensure the viability of private electric utilities,
 To support its contention, MERALCO explains the nature and history of RA No. 7832 allows distribution utilities to pass on
the PPA which was replaced by GRAM: to its consumers system losses equivalent to
o In 1974, MERALCO owned and operated all the power plants it either the actual kilowatt energy lost due to
was using. technical and non-technical/pilferage causes, or
 At the time, it charged the basic power rates based on the the cap imposed by law, whichever is lower.
cost of fuel and exchange rate at the time of the  Said law provides that in no case shall the system
application for approval of the adjusted rates. loss cap be lower than 9%
o Sometime in 1975, it sold to NAPOCOR its five baseload  Pursuant to RA No. 7832, the ERB adopted a formula to
generating power plants. be used in computing the PPA to be charged by
 As a result of the sale, MERALCO agreed with respondent MERALCO to its customers.
NAPOCOR for the latter to supply all the electric power  The new PPA formula included among its
needed by the former to service its customers within its components the system loss, franchise tax, the
franchise areas. automatic cost adjustments and other
 Under the agreement, the electric power and adjustments of NAPOCOR and other IPPs and
energy purchased by MERALCO from the generation cost of electricity.
o The said PPA formula subsequently underwent several  MERALCO points out that Section 4(e), Rule 3 of the IRR of the EPIRA is
modifications. inconsistent with the GRAM IRR specifically with respect to the period
 Each revision was approved by the ERB after service of within which the ERC is mandated to render its decision on the application.
the notices of public hearing on the respective mayors of o Under the former, the ERC may issue a provisional authority within
the cities and municipalities within respondent seventy-five (75) days from the filing of the application or petition
MERALCO’s franchise area, posting thereof on the and shall decide the matter on the merits not later than twelve (12)
respective bulletin boards of the said local government months from the issuance of said provisional order.
units, and publication in two newspapers of general o On the other hand, the GRAM IRR allows the distribution utilities
circulation. to apply for adjustment quarterly and the ERC must decide the
o Thereafter, the EPIRA was enacted on June 8, 2001. application within forty-five (45) days from receipt thereof, before
 As stated earlier, among other reforms in the electric the costs may be passed on to the consumers. Otherwise, the
power industry, the said law created the ERC. application shall be deemed approved.
 Section 36 of the EPIRA directed all distribution utilities to  It would be allegedly violative of due process to require MERALCO to
file with the ERC an application for the approval of their comply with Section 4(e), Rule 3 of the IRR of the EPIRA and subject it to
unbundled rates. a long and tedious process of recovering its fuel and purchased power
 According to MERALCO, he GRAM is an adjustment recovery mechanism costs.
which replaces the automatic recovery adjustment mechanisms (Fuel and o Such would be contrary to the intent and purpose of the GRAM
Purchased Power Cost Adjustments) of NAPOCOR and the PPA of the IRR.
distribution utilities.
o The GRAM would allow the periodic (quarterly) adjustment of the On NASECORE’s Claim of Denial of Due Process
generation charge to reflect changes in fuel and purchased power  MERALCO refutes the NASECORE’s claim of denial of due process.
costs after review by the ERC and before the costs are passed on o It alleges that the petitioners were given every opportunity to be
to the customers. heard in a public consultation and submit their written comments.
o MERALCO quotes the ERC Order containing the GRAM IRR
NOTE: Skippable Part Ends Here (History of PPA and GRAM) which states that the same was issued only after the ERC "has
taken into consideration all the documents, data, comments and
 The authority of the ERC to promulgate the GRAM IRR is found in Sec. 43 concerns raised by all the parties concerned who have submitted
of the EPIRA which requires the said regulatory body to, among others, their respective positions thereon."
"establish and enforce a methodology for setting transmission and  MERALCO contends that the petitioners cannot deny any knowledge of
distribution wheeling rates and retail rates for the captive market of a the GRAM IRR particularly on the manner and timeline for filing an
distribution utility…” application for GRAM and the period within which the ERC must act and
 MERALCO asserts that Sec. 4 (e), Rule 3 of the EPIRA IRR requiring decide thereon.
the publication of its application in a newspaper of general o Accordingly, even without need of publication, posting and service
circulation and the service of a copy to the concerned local to the local government units concerned, the petitioners should
government is inapplicable. have allegedly filed their opposition to respondent MERALCO’s
o Rather, its amended application for the increase of its amended application to increase its generation charge.
generation charge is governed by the GRAM IRR Sec. 5 (see o Further, they should have filed their comment or opposition
Appendix) adopted by ERC. thereon within the forty-five (45) day-period within which the ERC
 MERALCO opines that to require it to comply with the requirements of was required to render its decision. The petitioners’ omission is
Section 4(e), Rule 3 of the IRR of the EPIRA would defeat the reason allegedly fatal to their present cause of action.
behind the implementation of the adjustment mechanism which, quoting  MERALCO observes that the petitioners did not appeal the Order dated of
the ERC, is "to balance the need for timely recoveries of costs by the the ERC adopting the GRAM IRR.
Utilities with the Commission’s need to review the reasonableness and o Neither have they allegedly shown that they were deprived of their
prudence of such costs." right to be heard when the said rules were promulgated.
o For this lapse, MERALCO stresses that the petitioners have no  Hence, petitioners cannot now claim denial of due process due to the non-
personality to claim denial of due process and prays that the Court publication of respondent MERALCO’s amended application.
dismiss the present petition. o The ERC contends that it resolved the same in accordance with
the GRAM IRR which, unlike the PPA, allowed the ERC to validate
C. ERC’s Counter-Arguments the costs associated in generating electricity before they are
 The ERC defends the validity of the June 2004 Order approving the passed on to the consumers.
increase of MERALCO’s generation charge from P3.18 to P3.32 effective o Consequently, ERC did not commit GAOD when it issued the June
immediately. 2004 Order approving respondent MERALCO’s revised
o According to the ERC, the said order was issued in accordance generation charge
with the GRAM IRR it promulgated
 The ERC denies having committed any GAOD in issuing the Order SUPREME COURT:
o Like MERALCO, the ERC asserts that the procedure prescribed
under the GRAM IRR, particularly Section 2 and 5 thereof,  Contrary to the stance taken by MERALCO and ERC, the amended
radically differs from that provided for in Section 4(e), Rule 3 of the application of respondent MERALCO for the increase of its
IRR of the EPIRA generation charge is covered by Section 4(e), Rule 3 of the IRR of the
o Specifically, the GRAM IRR do not require that the application EPIRA.
of a distribution utility like MERALCO under the said rules be  MERALCO and ERC contend that this provision applies only to
published or that comments of local government units and independent rate applications and not to adjustment mechanisms like the
the consumers thereon be solicited. GRAM; hence, MERALCO’s amended application for the increase of its
 The procedure prescribed by the GRAM Implementing Rules is generation charge is excluded and/or exempted from the application of the
markedly different from that of the IRR of the EPIRA because the requirements of the above-quoted provision.
GRAM was intended to be an adjustment mechanism and not an o This contention is erroneous. Section 4(e), Rule 3 of the IRR
independent rate application by itself. of the EPIRA could not be any clearer with respect to its
o Only the latter falls within the contemplation of the IRR of the coverage as it refers to "any application or petition for rate
EPIRA. adjustment or for any relief affecting the consumers."
 Section 4(e), Rule 3 of the IRR of the EPIRA speaks of "any
On the Publication of the GRAM IRR application or petition for rate adjustment" without making any
 The ERC stresses that the GRAM IRR set forth in its Order dated distinctions.
February 24, 2003 was duly published and submitted for exhaustive o Hence, any application or petition that would result in the
public consultation. adjustment or change in the total price (retail rate) paid by the
o The ERC points out that, as recounted in the said order, the end-users, whether this change or adjustment is occasioned
following procedural steps were taken leading to the by the adjustment or change in the charges for generation,
adoption of the GRAM and ICERA Implementing Rules: transmission, distribution, supply, etc., falls within its
 On Jan. 29, 2003, the ERC issued an Order setting for contemplation.
public consultation its proposed IRR for (DÉCOR) and o In any case, that respondent MERALCO’s amended application is
(DICER) on February 17, 2003. covered by the said provision is mandated by the fact that the relief
 Likewise, a Notice of the same tenor as the above- prayed for therein clearly affects the consumers as it results in the
mentioned Order was published by the Commission increase of the costs of their electricity consumption.
in the Philippine Star on February 3, 2003.
 In the aforesaid Order and Notice, interested parties Application of FDC vs. ERC and MERALCO
were directed to submit their written comments on the  Among the important requirements under Sec. 4 (e) of the EPIRA IRR are:
said proposed implementing rules on or before o First, the publication of the application itself, not merely the notice
February 12, 2003. of hearing issued by the ERC, in a newspaper of general
circulation in the locality where the applicant operates and;
ERC’s Conclusion
o Second, the need for the ERC to consider the comments or heard and submit their stand as to the propriety and
pleadings of the customers and LGU concerned in its action on reasonableness of the of the rates within the period allowed
the application or motion for provisional rate adjustment. by the Rule.
 The SC reasoned that the publication and comment requirements are in o Without the publication of the application, the consumers are
keeping with the avowed policies of the EPIRA, to wit: “To protect the left to second-guess the substance and merits of the
public interest vis-à-vis the rates and services of electric utilities and other application.
providers of electric power, to ensure transparent and reasonable prices  At this point, it should be stated that the Court is not convinced by
of electricity…” MERALCO’s argument that to require it to comply with Section 4(e), Rule
o Clearly, therefore, although the new requirements are procedural 3 of the IRR of the EPIRA would be a violation of its right to due process
in character, they represent significant reforms in public utility because it would be subjected to a long and tedious process of recovering
regulation as they engender substantial benefits to the its fuel and purchased power costs.
consumers. o In FDC, the Court categorically upheld the ERC’s power to grant
o It is in this light that the new requirements should be appreciated provisional adjustments or power of interim rate-regulation.
and their observance enforced. o Such power is intended precisely for the ERC to, as Mr. Justice
Reynato S. Puno in his Concurring and Dissenting Opinion
SC’s Conclusion: succinctly put it, "be able to swiftly and flexibly respond to the
 The lack of publication of respondent MERALCO’s amended exigencies of the times."
application for the increase of its generation charge is thus fatal.  He elucidated further on the raison d’etre of the power of
o By this omission, the consumers were deprived of the right interim rate-regulation particularly in the context of our
to file their comments thereon. country’s economic history:
o Consequently, the assailed Order dated June 2, 2004 issued  Our economic history teaches us that the
by the ERC, approving the increase of respondent Philippines is vulnerable to the rapid fluctuations
MERALCO’s generation charge from ₱3.1886 to ₱3.3213 per in the exchange rate. In recent years, we saw how
kWh effective immediately, was made without giving the numerous industries failed to survive the Asian
consumers any opportunity to file their comments thereon in financial crises fueled by the uncertainties of
violation of Section 4(e), Rule 3 of the IRR of the EPIRA. exchange rates. All these have had adverse
 Indeed, the basic postulate of due process ordains that the consumers be financial impact on public utilities such as Meralco
notified of any application, and be apprised of its contents, that would in terms of skyrocketing costs of debt servicing,
result in compounding their economic burden. and maintenance and operating expenses. A
o In this case, the consumers have the right to be informed of the regulator such as the ERC should have sufficient
bases of respondent MERALCO’s amended application for the power to respond in real time to changes wrought
increase of its generation charge in order to, if they so desire, by multifarious factors affecting public utilities.
effectively contest the same. o Thus, respondent MERALCO’s apprehension of being subjected
 It has also been stated that: “The requirement of due process is not some to a long and tedious process with respect to the recovery of its
favor or grace that the ERC may dole out on a bout of whim or on occasion fuel and purchased power costs is, in fact, addressed by the power
of charity. Rather, it is a statutory right to which the consuming public is of the ERC to grant provisional rate adjustments.
entitled.”
 The requirement of publication in applications for rate adjustment is On the Non-Publication of the GRAM IRR in the Official Gazette
not without reason or purpose.  There is another compelling reason why reliance by MERALCO and the
o It is ancillary to the due process requirement of notice and ERC on the GRAM IRR is unavailing.
hearing. Its purpose is not merely to inform the consumers o To recall, they advance the view that the June 2004 ERC Order is
that an application for rate adjustment has been filed by the valid, notwithstanding the fact that MERALCO’s amended
public utility. application was not published in a newspaper of general
o It is to adequately inform them that an application has been circulation, because the same was issued in accordance with the
made for the adjustment of the rates being implemented by GRAM IRR which does not require such publication.
the public utility in order to afford them the opportunity to be
o It does not appear from the records, however, that the GRAM IRR, publication), it is not unlikely that persons not aware of it would be
has been published in the Official Gazette or in a newspaper of prejudiced as a result; and they would be so not because of a
general circulation. failure to comply with it simply because they did not know of its
 EO 200, which repealed Article 2 of the Civil Code, provides that "laws existence.
shall take after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the On the Bill of Right – The Right of the People to Information on matters
Philippines, unless it is otherwise provided." of Public Concern
o In Tañada vs. Tuvera: “Administrative rules and regulations must  With respect to the GRAM IRR, its publication in the Official Gazette or in
also be published if their purpose is to enforce or implement a newspaper of general circulation is mandated by the fact that these rules
existing law pursuant also to a valid delegation” seek to implement key provisions of the EPIRA.
o More importantly, the GRAM IRR, insofar as it lays down the
On the Non-Publication of the GRAM IRR with the National procedure by which generation costs of distribution utilities are
Administrative Register recovered, affect ultimately the public as consumers of electricity
 In many cases, the administrative issuances questioned therein were and who pay the charges therefor.
uniformly struck down as they were not published or filed with the National  Clearly, the GRAM IRR affects the public inasmuch as it determines the
Administrative Register. costs of electricity consumption.
 In this case, the GRAM IRR must be declared ineffective as the same was o The public, not only the parties to the cases before the ERC, has
never published or filed with the National Administrative Register. the right to be apprised of the contents of the GRAM IRR by
publication of the same in the Official Gazette or in a newspaper
On the Participation of Concerned Parties in Public Consultations vis-à- of general circulation in the Philippines – to the end that it be given
vis the Publication Requirement amplest opportunity to voice out whatever opposition it may have,
 To show that there was compliance with the publication requirement, and to ventilate its stance on the matter.
MERALCO and the ERC dwell lengthily on the fact that the parties,
particularly the distribution utilities and consumer groups, were duly OVERALL
notified of the public consultation on the ERC’s proposed implementing  In light of the foregoing disquisition, the assailed ERC Order dated
rules. These parties participated in the said public consultation and even June 2, 2004 approving the increase of respondent MERALCO’s
submitted their comments thereon. generation charge from ₱3.1886 to ₱3.3213 per kWh effective
 The fact that the parties participated in the public consultation and immediately is nullified for having been issued with grave abuse of
submitted their respective comments is not compliance with the discretion.
fundamental rule that the GRAM IRR, or any administrative rules
whose purpose is to enforce or implement existing law, must be DISPOSITIVE NASECORE’s PETITION is GRANTED
published in the Official Gazette or in a newspaper of general ERC’s June 2004 ORDER is DECLARED VOID, SET-ASIDE
circulation.
o The requirement of publication of implementing rules of
statutes is mandatory and may not be dispensed with
altogether even if, as in this case, there was public
consultation and submission by the parties of their
comments.
 It is not correct to say that under the disputed clause publication may be
dispensed with altogether.
o The reason is that such omission would offend due process
insofar as it would deny the public knowledge of the laws that are
supposed to govern it.
o Surely, if the legislature could validly provide that a law shall
become effective immediately upon its approval notwithstanding
the lack of publication (or after an unreasonably short period after