G.R. No. 183626 - Surigao del Norte Electric Cooperative, Inc. vs. Energy Regulatory Commission

Surigao Del Norte Electric Cooperative, Inc. (SURNECO) is a rural electric cooperative organized under Presidential Decree No. 269.
On February 8, 1996, the Association of Mindanao Rural Electric Cooperatives, representing SURNECO and 33 other Mindanao cooperatives, filed a petition before the Energy Regulatory Board (ERB) for approval of an automatic cost adjustment formula incorporating National Power Corporation’s (NPC) restructured rate adjustment, as mandated by Republic Act No. 7832 (Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994).
The petition was docketed as ERB Case No. 96-49 and later consolidated with similar petitions nationwide.

Sections 10 and 14 of R.A. No. 7832 mandated caps on recoverable system losses for rural electric cooperatives, phased down over five years starting January 17, 1995, from 22% to 14%, with authority for the ERB (now ERC) to further reduce the cap to a minimum of 9%.
The IRR of R.A. No. 7832, specifically Sections 4 and 5 of Rule IX, further detailed the system loss caps effective from February 1996 to February 2000 and established the automatic cost adjustment formula (PPA formula) to be approved by the ERB.

In February 1997, the ERB provisionally authorized SURNECO and other cooperatives to implement the PPA formula subject to submission of supporting documents.
Following the enactment of R.A. No. 9136 (EPIRA) which created the Energy Regulatory Commission (ERC) replacing the ERB, the pending cases, including ERB Case No. 96-49, were re-docketed with the ERC.

On June 17, 2003, the ERC clarified the PPA formula’s treatment of discounts from power suppliers, distinguishing between "gross" and "net" power cost computations to ensure uniformity:

After motions for clarification, on January 14, 2005, ERC adopted the policy confirming that the PPA is a cost recovery mechanism — distribution utilities must recover only actual purchased power costs, net of discounts unless discounts are passed on to consumers.
The ERC continued reviewing SURNECO’s PPA computations for the period February 1996 to July 2004.

The ERC found that SURNECO’s failure to deduct discounts from NPC from power cost computations led to over-recovery of P18,188,794 for Main Island consumers, which SURNECO was ordered to refund through billing adjustments.
For Hikdop Island consumers, an under-recovery of P2,478,045 was noted, authorizing SURNECO to collect this additional amount.
The ERC imposed directives on billing disclosures and reporting requirements for refund/collection implementation.
SURNECO’s motion for reconsideration was denied on May 29, 2007.

SURNECO elevated the case to the Court of Appeals (CA), which denied the petition in its April 17, 2008 Decision and likewise denied the motion for reconsideration on June 25, 2008.
SURNECO filed this petition for review on certiorari before the Supreme Court, assailing the CA and ERC decisions on several grounds including denial of the multiplier scheme for system loss computation, mandatory deduction of discounts from power costs, and alleged violation of due process.

SURNECO argued that the National Electrification Administration (NEA) authorized it by memorandum to use a multiplier scheme for recovering system loss exceeding 15%, with multipliers of 1.2 to 1.4 depending on system loss levels.
It contended that this multiplier scheme was a contractual obligation under a loan agreement between NEA and Asian Development Bank (ADB), and any ERC order superseding it violates the constitutional non-impairment clause.
SURNECO further maintained that the Electric Power Industry Reform Act (EPIRA) repealed arbitrary caps imposed by R.A. No. 7832, and that the ERC’s new PPA policies constituted an unauthorized administrative amendment requiring publication.
It also alleged denial of due process.

Whether SURNECO may validly use the multiplier scheme authorized by the NEA to compute its system loss beyond caps mandated by R.A. No. 7832.
Whether ERC correctly ordered SURNECO to deduct discounts from its power cost in computing the PPA and refund the resulting over-recoveries to consumers.
Whether SURNECO was denied due process when ERC issued the Orders requiring refunds and adjustments without giving further hearing.
Whether the ERC’s PPA policy orders amending the computation formula violated the publication requirement for administrative issuances.
Whether the caps on system loss under R.A. No. 7832 remain effective despite the enactment of EPIRA.