Case Digest (G.R. No. 226443)
Facts:
Petitioner National Association of Electricity Consumers for Reforms, Inc. (NASECORE) sought review of the Court of Appeals' 29 February 2016 decision affirming the Energy Regulatory Commission's (ERC) Orders of 21 June 2011 and 4 February 2013 that declared Manila Electric Company (MERALCO)'s approved unbundled rates final; this Court promulgated its decision on 8 October 2019. The case arose from this Court's directive in MERALCO v. Genaro Lualhati to have the Commission on Audit (COA) audit MERALCO; COA's 12 November 2009 report found alleged over-recoveries and disallowed certain pension costs and assets as not used and useful, which the ERC declined fully to adopt, prompting appeal.
Issues:
- Did the ERC give proper weight and credence to the findings of the COA?
- Are MERALCO's operating expenses, including employees' pension and benefits for 2004 and 2007, recoverable from consumers?
- Should certain properties and facilities listed by COA be included in MERALCO's rate base?
- Must all costs recovered by MERALCO in excess of lawful limits be treated as over-recovery and refunded to consumers?
Ruling:
The Court partly granted the petition. It held that COA is statutorily authorized to audit public utilities and that the ERC failed to properly consider COA's findings and its statutory duty to ensure electricity is provided "in the least cost manner." The Court VOIDED the ERC's adoption of the current or replacement cost (ODRC) valuation of MERALCO's regulatory asset base and REMANDED the case to the ERC to determine, within ninety days from finality, the valuation of MERALCO's regulatory asset base and the parameters for passing non-operational expenses to consumers; other factual and rate-specific determinations were left to the ERC on remand.
Ratio:
The Court relied on Section 38 of the Government Auditing Code of the Philippines and Section 22 of the Administrative Code of 1987 to affirm COA's authority to audit public utilities in rate proceedings, and on this Court's instruction in Lualhati that COA audits be undertaken and considered. Under Republic Act No. 9136 (EPIRA) the ERC must set rates to supply electricity "in the least cost manner," which the Court found conflicted with ERC's adoption of current/replacement cost (ODRC) revaluation that tends to inflate the regulatory asset base and burden consumers; drawing on precedents including Republic of the Philippines v. Medina and principles in Federal Power Commission v. Hope Natural Gas Co., the Court concluded ODRC was unjustified here and required the ERC to revalue the asset base and set clear pass-through parameters.
Doctrine:
- Section 38 of the Government Auditing Code of the Philippines and Section 22 of the Administrative Code of 1987 authorize COA to examine and audit public utilities in connection with rate fixing.
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