Case Summary (G.R. No. 183626)
Legislative Framework: Caps on System Losses and PPA Formula
Republic Act No. 7832 mandated specific caps on recoverable system losses for rural electric cooperatives, to be progressively reduced starting from 22% in the first year after the Act’s effectivity to 14% by the fifth year, with a possible further reduction to a floor of 9%, as authorized to be determined by the ERB (now ERC). These caps aimed to phase out pilferage losses and improve efficiency in rural electric cooperatives.
The IRR of RA No. 7832 provided a model for the Purchased Power Adjustment (PPA) formula, establishing a cost-recovery mechanism where electric cooperatives must file for approval of their PPA containing system loss caps and reflect these in their rates. The Electric Cooperative must adjust its power cost based on actual system losses, capped at the level prescribed by law, and pass this cost onto consumers via the PPA.
Procedural and Regulatory Developments
SURNECO and other cooperatives were granted provisional authority to use the PPA formula by the ERB in 1997. Pending cases were transferred to the ERC upon its creation by EPIRA. The ERC, in its Orders in 2003 and 2005, clarified uniformity in the calculation of power costs in the PPA formula with respect to the treatment of power supplier discounts, specifying that power costs should be computed net of discounts extended by power suppliers to electric cooperatives, as the PPA is a cost-recovery, not revenue-generating, mechanism.
In the 2007 ERC Order, the Commission reviewed SURNECO’s PPA implementation from 1996 to 2004 and found over-recoveries arising from the use of a multiplier scheme that allowed recovery of system losses beyond statutory caps, and failure to deduct discounts obtained from the National Power Corporation (NPC). The ERC directed SURNECO to refund excess amounts to its main island consumers and authorized appropriate collection from consumers on Hikdop Island to settle under-recoveries.
Petitioner's Claims
SURNECO contended that:
- The multiplier scheme, authorized by the National Electrification Administration (NEA) and incorporated in a loan agreement with the Asian Development Bank (ADB), allowed it to recover system losses in excess of RA 7832’s caps and could not be abrogated or superseded by ERC orders without violating the constitutional non-impairment clause (Article III, Section 10).
- That the caps under RA 7832 were arbitrary and violated its contractual rights under the NEA-ADB loan agreement.
- The PPA confirmation policies that reduced recoverable costs were new administrative rules requiring proper publication.
- That it was denied due process as it was not given adequate opportunity to be heard before the issuance of the ERC orders.
Supreme Court Analysis and Ruling: Legislative Supremacy and Police Power
The Supreme Court rejected SURNECO’s reliance on the multiplier scheme authorized by the NEA and the loan agreement as it was inconsistent with the statutory caps under RA No. 7832. Legislative enactments prevail over administrative issuances since RA No. 7832 is a law enacted by Congress with the clear intent to impose a ceiling on recoverable system losses for efficiency and public interest reasons. The caps took effect upon the law’s effectivity on January 17, 1995, without requiring additional implementing rules.
The Court held that the multiplier scheme allowing recovery beyond the caps is incompatible with RA 7832 and was effectively repealed by the law’s repealing clause (Section 16). The NEA Memorandum and related agreements are administrative issuances and contracts subject to statutory limitations and police power regulation.
The ERC’s implementation of system loss caps and requirement to refund over-recoveries accorded with the State’s constitutionally vested police power to regulate rates imposed by public utilities, as established in jurisprudence. The regulation serves the public good by protecting consumers against excessive charges. Challenges to the law or caps must be raised via direct action; collateral attacks on legislative provisions or administrative enforcement measures are impermissible.
Even if the contractual loan agreement with ADB were allegedly impaired, the State’s police power to regulate rates for public welfare prevails over prior contracts. Additionally, EPIRA did not abolish the system loss caps; rather, it preserved them, giving the ERC authority to adjust the caps based on technical criteria, ensuring continued regulatory oversight.
Procedural and Due Process Considerations
The Court found that the ERC did not amend the IRR of RA 7832 in its PPA confirmation policies but exercised its regulatory authority to approve, review, and confirm the electric cooperatives’ implementation of the PPA formula in line with the law. The IRR provided only a model PPA formula, with the ERC given discretion to approve specific formulas filed by the cooperatives.
Regarding due process, the opportu
...continue reading
Case Syllabus (G.R. No. 183626)
Background and Procedural History
- SURNECO, a rural electric cooperative under Presidential Decree No. 269, participated along with other Mindanao rural electric cooperatives in filing a petition before the Energy Regulatory Board (ERB) for approval of an automatic cost adjustment formula and adoption of the National Power Corporation (NPC) restructured rate adjustment following Republic Act No. 7832.
- The case, initially docketed as ERB Case No. 96-49, was subsequently consolidated with similar petitions nationwide.
- The ERB granted provisional authority to SURNECO in 1997 to implement the Purchased Power Adjustment (PPA) formula as per R.A. No. 7832 guidelines, which was later overseen by the Energy Regulatory Commission (ERC) after the law creating ERC took effect, transferring pending cases.
- ERC reviewed and revised policies regarding PPA computation, notably clarifying treatment of discounts from power suppliers (gross versus net power cost).
- SURNECO was ordered by ERC to refund over-recoveries derived from implementation of the PPA formula, leading to SURNECO’s motion for reconsideration and subsequent appeal to the Court of Appeals (CA).
- The CA affirmed the ERC’s orders, culminating in the present petition for review on certiorari before the Supreme Court.
Statutory Framework: Republic Act No. 7832 and Applicable Rules
- R.A. No. 7832, the Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994, established caps on the recoverable rate of system losses for rural electric cooperatives, with scheduled gradual reduction from 22% to 14% over five years and the possibility for further reductions not below 9%.
- Sections 10 and 14 of R.A. No. 7832 specifically mandated these caps and required the issuing of implementing rules by the ERB to ensure effective enforcement.
- Implementing Rules and Regulations (IRR) of R.A. No. 7832 detailed system loss caps per year and included a formula representing the automatic cost adjustment (PPA) containing variables for purchased electricity cost, system loss limits, and subsidized consumer consumption.
- The PPA formula was intended as a guideline for electric cooperatives to incorporate the system loss caps in their rate adjustments subject to ERC’s approval.
Issues on the Use of the Multiplier Scheme versus Legislative Caps on System Losses
- SURNECO argued it was authorized by the National Electrification Administration (NEA) via a loan agreement with the Asian Development Bank (ADB) and NEA memoranda to use a multiplier scheme for recovering system losses, which permitted recovering system losses in excess of 15%, conflicting with R.A. No. 7832 caps.
- The multiplier was initially set at 1.4, allowing recovery for s