Case Digest: SURNECO v. ERC

G.R. No. 183626 : October 4, 2010




The Association of Mindanao Rural Electric Cooperatives, as representative of SURNECO and of the other 33 rural electric cooperatives in Mindanao, filed a petition before the then Energy Regulatory Board (ERB) for the approval of the formula for automatic cost adjustment and adoption of the National Power Corporation (NPC) restructured rate adjustment to comply with Republic Act (R.A.) No. 7832.

The ERB granted SURNECO and other rural electric cooperatives provisional authority to use and implement the Purchased Power Adjustment (PPA). In the meantime, the passage of R.A. No. 9136led to the creation of the Energy Regulatory Commission (ERC), replacing and succeeding the ERB. All pending cases before the ERB were transferred to the ERC. Thereafter, the ERC continued its review, verification, and confirmation of the electric cooperatives implementation of the PPA formula based on the available data and information submitted by the latter.

The ERC issued its assailed Order, mandating that the discounts earned by SURNECO from its power supplier should be deducted from the computation of the power cost. SURNECO filed a motion for reconsideration, but it was denied. Aggrieved, SURNECO filed a petition for review to the CA but the same was denied. Upon denial of the motion for reconsideration, SURNECO files the instant petition.

ISSUE: Whether or not the CA erred in affirming the ERC Decision

HELD: No. CA Decision Affirmed

POLITICAL LAW- The State, in its exercise of police power, can regulate the rates imposed by a public utility such as SURNECO

The ERC was merely implementing the system loss caps in R.A. No. 7832 when it reviewed and confirmed SURNECOS PPA charges, and ordered the refund of the amount collected in excess of the allowable system loss caps through its continued use of the multiplier scheme. The Commission deemed it appropriate to clarify its PPA confirmation process particularly on the treatment of the Prompt Payment Discount (PPD) granted to distribution utilities (DUs) by their power suppliers. The foregoing clarification was intended to ensure that only the actual costs of purchased power are recovered by the DUs.

In directing SURNECO to refund its over-recoveries based on PPA policies, which only ensured that the PPA mechanism remains a purely cost-recovery mechanism and not a revenue-generating scheme for the electric cooperatives, the ERC merely exercised its authority to regulate and approve the rates imposed by the electric cooperatives on their consumers. The ERC simply performed its mandate to protect the public interest imbued in those rates.

As held in the case of Republic v. Manila Electric Company, the regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation.

Likewise, SURNECO cannot validly assert that the caps set by R.A. No. 7832 are arbitrary, or that they violate the non-impairment clause of the Constitution for allegedly traversing the loan agreement between NEA and ADB. Striking down a legislative enactment, or any of its provisions, can be done only by way of a direct action, not through a collateral attack, and more so, not for the first time on appeal in order to avoid compliance. The challenge to the laws constitutionality should also be raised at the earliest opportunity.

Even assuming, merely for arguments sake, that the ERC issuances violated the NEA and ADB covenant, the contract had to yield to the greater authority of the States exercise of police power. It has long been settled that police power legislation, adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people prevail not only over future contracts but even over those already in existence, for all private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.

POLITICAL LAW- Administrative due process simply requires an opportunity to explain ones side or to seek reconsideration of the action or ruling complained of.

Verily, the PPA confirmation necessitated a review of the electric cooperatives monthly documentary submissions to substantiate their PPA charges. The cooperatives were duly informed of the need for other required supporting documents and were allowed to submit them accordingly. In fact, hearings were conducted. Moreover, the ERC conducted exit conferences with the electric cooperatives representatives, SURNECO included, to discuss preliminary figures and to double-check these figures for inaccuracies, if there were any. In addition, after the issuance of the ERC Orders, the electric cooperatives were allowed to file their respective motions for reconsideration. It cannot be gainsaid, therefore, that SURNECO was not denied due process

Petition Denied

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