Iloilo I Electric Cooperative, Inc. (ILECO I), et al. vs. Executive Secretary Lucas P. Bersamin, et al.

Exclusive franchises are not sanctioned by the Constitution; a legislative franchise is subject to amendment, alteration, or repeal by Congress when the common good so requires, and the non-impairment clause cannot prevail over the State's police power in the amendment of a franchise. A franchise is a privilege granted by the State, not exclusive private property, and must yield to the common good as determined by Congress.

ILECO I, ILECO II, and ILECO III are electric cooperatives and grantees of separate certificates of franchise to operate electric light and power services in various municipalities in Iloilo and the city of Passi. MORE Electric and Power Corporation was granted a franchise by Republic Act No. 11212 to establish, operate, and maintain an electric power distribution system in Iloilo City. Republic Act No. 11918 amended Republic Act No. 11212 and expanded MORE's franchise area to include municipalities and a city previously within the petitioners' franchise areas. Article XII, Section 11 of the 1987 Constitution prohibits exclusive franchises and provides that franchises are subject to amendment, alteration, or repeal by Congress when the common good so requires.

Petitioners Iloilo I Electric Cooperative, Inc. (ILECO I), Iloilo II Electric Cooperative, Inc. (ILECO II), and Iloilo III Electric Cooperative, Inc. (ILECO III) are grantees of separate certificates of franchise to operate electric light and power services in various municipalities in the province of Iloilo and the city of Passi. Their respective certificates of franchise expire on August 22, 2053, December 12, 2029, and August 10, 2039.

On March 9, 2019, Republic Act No. 11212 took effect, granting MORE Electric and Power Corporation (MORE) a franchise to establish, operate, and maintain an electric power distribution system in Iloilo City. On August 30, 2022, Republic Act No. 11918 amended and expanded MORE's franchise area to include 15 municipalities and one city that were previously within the exclusive franchise areas of petitioners. Section 1 of Republic Act No. 11918 granted MORE a franchise to establish, operate, and maintain a distribution system for the conveyance of electric power to end users in the cities of Iloilo and Passi and the municipalities of Alimodian, Leganes, Leon, New Lucena, Pavia, San Miguel, Santa Barbara, Zarraga, Anilao, Banate, Barotac Nuevo, Dingle, Dueñas, Dumangas, and San Enrique, in the Province of Iloilo.

Petitioners asserted that MORE's expanded areas overlapped with their franchise areas. For ILECO I, the overlapping areas were the municipalities of Alimodian, Leganes, Leon, Pavia, San Miguel, and Santa Barbara. For ILECO II, these were the city of Passi and the municipalities of Barotac Nuevo, Dingle, Dueñas, Dumangas, New Lucena, San Enrique, and Zarraga. For ILECO III, these were the municipalities of Anilao and Banate. Petitioners challenged Section 1 of Republic Act No. 11918, and PHILRECA moved to intervene during the pendency of the case.

• Exclusive Franchise and Common Good: Petitioners argued that Section 1 of Republic Act No. 11918 violates Section 11, Article XII of the Constitution because there is no common good justifying the effective alteration of their respective franchises; expanding MORE's franchise area would result in wasteful competition and increase electricity prices to the damage and prejudice of consumers.
• Due Process: Petitioners maintained that the substantive due process requirement of legitimate or compelling government purpose was not met because there is no common good served by Republic Act No. 11918 and no necessity for expansion since petitioners already provide impeccable service in the affected areas.
• Non-Impairment of Contracts: Petitioners explained that they have supply contracts with generation companies containing take-or-pay provisions, under which they are obliged to pay for contracted capacities regardless of actual use; if consumers switch to MORE, petitioners' energy sales and revenues would decrease while they remain obligated to pay minimum contracted capacities, leading to stranded contract costs and imminent risk of default.
• Equal Protection: Petitioners argued that MORE was granted powers and benefits not normally found in other legislative franchisees, including the power to expropriate assets, buildings, poles, wires, cables, transformers, switching equipment, and stations previously used by other entities in the operation of a distribution system, while petitioners are subject to higher NEA requirements such as stringent key performance indicators and more procurement requirements.
• Exclusive Franchise under EPIRA and NEA Act: Petitioners claimed that under EPIRA, a franchise area is exclusively assigned or granted to a distribution utility and cannot be assigned or granted to another entity; under Section 41(c) of the NEA Act, no franchise shall be granted to any other person within any area in which a cooperative holds a franchise, and no exception applied.
• Economic Waste and Rate Impact: Petitioners argued that the economic characteristics of the electric utility industry bar application of traditional anti-monopoly concepts because electric utilities require huge capital investments and have substantial economies of scale; direct competition would require costly facility duplication and be economically wasteful, and potential rate increases for petitioners' remaining consumers could reach as high as 83% based on ERC data.

• Political Question and Hierarchy of Courts: Respondents argued through the Office of the Solicitor General that the petition should be dismissed for raising a political question and violating the hierarchy of courts.
• Plenary Power and Non-Exclusivity: Respondents maintained that Congress has plenary power to issue franchises under Section 11, Article XII of the Constitution and that a legislative franchise for the operation of a public utility is not exclusive in character.
• No Impairment or Equal Protection Violation: Respondents argued that there was no violation of petitioners' arguments on impairment of contract and equal protection of laws.

• Hierarchy of Courts: Whether the petition may be entertained directly by the Supreme Court despite the doctrine of hierarchy of courts.
• Exclusive Franchise: Whether petitioners have exclusive franchise over their coverage areas under Section 11, Article XII of the Constitution, the NEA Act, and EPIRA.
• Due Process: Whether Section 1 of Republic Act No. 11918 violates petitioners' right to due process under Section 1, Article III of the Constitution.
• Non-Impairment of Contracts: Whether Section 1 of Republic Act No. 11918 violates petitioners' constitutional right to non-impairment of obligation of contracts under Section 10, Article III of the Constitution.
• Equal Protection: Whether Section 1 of Republic Act No. 11918 violates petitioners' right to equal protection of the laws under Section 1, Article III of the Constitution.
• Intervention: Whether PHILRECA's motion to intervene should be granted.

• Hierarchy of Courts: Yes, the Court may take cognizance of the case at first instance because the petition presented genuine issues of constitutionality and involved questions of transcendental importance, public welfare, advancement of public policy, and broader interest of justice; nonetheless, the petition was dismissed on the merits.
• Exclusive Franchise: No. Exclusive franchises are not sanctioned by the Constitution; Section 11, Article XII expressly prohibits exclusive public utility franchises and makes them subject to amendment, alteration, or repeal by Congress when the common good so requires. The NEA Act and EPIRA cannot override the Constitution.
• Due Process: No. Congress exhaustively discussed the relevant issues and determined that expanding MORE's franchise would promote a healthy competitive environment and serve the common good; a franchise is a privilege, not exclusive private property, and must yield to the common good.
• Non-Impairment of Contracts: No. Petitioners failed to show that Republic Act No. 11918 changed the terms of their contracts, imposed new conditions, dispensed with agreed terms, or withdrew remedies; their continued obligation under take-or-pay provisions shows the contracts remain valid and efficacious. Even if impaired, police power prevails over the non-impairment clause.
• Equal Protection: No. The petition was dismissed; the provided majority opinion does not separately set out an equal-protection analysis, and the dispositive dismisses the petition.
• Intervention: No. PHILRECA's interest is not of a direct and immediate character because it is merely hinged on the rights of its members who are already petitioners; it merely reiterated petitioners' arguments, and allowing intervention would serve no other purpose but to delay resolution.

• Hierarchy of Courts: The Court acknowledged that direct invocation of its original jurisdiction is allowed only when there are special and important reasons clearly set out in the petition. It found that petitioners sufficiently alleged exceptions: genuine issues of constitutionality that must be addressed immediately, transcendental importance, cases of first impression, constitutional issues better decided by the Court, the time element, and questions dictated by public welfare and the broader interest of justice. The Court therefore took cognizance of the case but still dismissed it on the merits.
• Exclusive Franchise: Article XII, Section 11 of the 1987 Constitution provides that no franchise, certificate, or other form of authorization for the operation of a public utility shall be exclusive in character and that such franchise shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. The Court relied on Tawang Multi-Purpose Cooperative vs. La Trinidad Water District, which explained that the 1935, 1973, and 1987 Constitutions all expressly prohibit exclusivity of franchise, with no exception. The Court held that the Constitution must prevail over Section 41(c) of the NEA Act and any EPIRA provision suggesting exclusivity. A franchise is a privilege granted by the State, not exclusive private property of the franchisee, and must yield to serve the common good as determined by Congress. The Court also noted that while Alyansa Para sa Bagong Pilipinas vs. Energy Regulatory Commission characterized MERALCO's franchise as monopolistic, that status does not preclude Congress from awarding other franchises to accommodate future competition that may lead to better public service and public good.
• Due Process: Petitioners anchored their due process argument on the alleged absence of common good. The Court found this contention unmeritorious. A perusal of the deliberations showed that Congress exhaustively discussed the issues relevant to determining common good. Legislators weighed the possible consequences to remaining consumers who would bear capital expenditures and considered possible solutions. In the Senate deliberations, the rates charged by the utilities were discussed: ILECO I at P1.91, ILECO II at P1.97, ILECO III at P1.89, and MORE at P1.76. The potential rate increases for remaining consumers were also discussed, including 58% for ILECO I, 83% for ILECO II, and 4.16% for ILECO III if all customers transferred to MORE. Congress nonetheless awarded MORE a franchise in the overlapping areas to promote a healthy competitive environment in Iloilo, considering MORE's capability of offering lower rates. The Court emphasized that until petitioners' franchises expire, without competition, they can easily dictate the price of electricity on a take-it-or-leave-it basis, leaving consumers no other choice. A franchise is a privilege granted by the State, not exclusive private property, and must yield to the common good as determined by Congress.
• Non-Impairment of Contracts: The Court explained that impairment occurs when a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon, or withdraws remedies for the enforcement of the rights of the parties. Petitioners failed to prove how Republic Act No. 11918 changed the terms of their contracts with suppliers. Their continued obligation to pay minimum contracted capacities under take-or-pay provisions did not support a conclusion that the contract terms were changed; on the contrary, it showed that their power supply contracts and electric service agreements remained valid and efficacious. The Court also noted that under Section 23 of EPIRA, distribution utilities are mandated to supply electricity to their captive market in the least cost manner, and that Rule 11, Section 7(d) of the EPIRA Implementing Rules and Regulations empowers the ERC to stop and redress any unfair trade practice that harms consumers. Even assuming that the law changed the terms of their contracts, the State, in the exercise of police power, may validly limit the non-impairment clause because every contract carries an implied reservation that it is subject to police power. This is especially true for a franchise, which partakes of the nature of a grant beyond the purview of the non-impairment clause. The Court cited Carlos Superdrug Corp. vs. Department of Social Welfare and Development for the principle that property rights must bow to the primacy of police power when conditions demand. The Court also noted that petitioners' franchises contained conditions subject to amendment, alteration, or repeal by Congress when the common good requires. Thus, as between petitioners' existing contracts and police power, the latter must prevail.
• Equal Protection: The provided majority opinion does not set out a separate equal-protection rationale. The dispositive portion dismisses the petition, but the majority text as provided does not discuss the equal-protection claim. The dissenting opinion discusses equal protection, but that discussion is not the majority holding.
• Intervention: Under Rule 19, Section 1 of the Rules of Court, intervention is not a matter of absolute right but may be permitted only when the applicant shows facts satisfying the requirements of the statute authorizing intervention. The legal interest must be of a direct and immediate character so that the intervenor will either gain or lose by the direct legal operation of the judgment; it must be actual and material, not indirect, contingent, remote, conjectural, consequential, or collateral. Even with legal interest, permission to intervene is subject to the sound discretion of the court, which considers whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether the intervenor's rights may be fully protected in a separate proceeding. The Court found that PHILRECA's interest was not direct and immediate because it was merely hinged on the rights of its members, ILECO I, ILECO II, and ILECO III, who were already petitioners. PHILRECA merely reiterated the arguments raised by petitioners. Allowing intervention would serve no other purpose but to delay resolution.

• Non-exclusivity of public utility franchises — Article XII, Section 11 of the 1987 Constitution expressly prohibits franchises, certificates, or other forms of authorization for the operation of a public utility from being exclusive in character. The provision also states that such franchise or right shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. The Court applied this doctrine to hold that petitioners do not enjoy exclusive franchises over their coverage areas and cannot prevent Congress from expanding MORE's franchise to overlap with theirs.
• Franchise as a privilege subject to police power and common good — A franchise is a privilege granted by the State, not exclusive private property of the franchisee, and must yield to serve the common good as may be determined by Congress as the people's elected representatives. The very essence of a franchise is to serve public welfare. The Court applied this doctrine to uphold Republic Act No. 11918, finding that Congress decided a healthy competition would improve public welfare in Iloilo.
• Due process and legislative determination of common good — Congress has the crucial role of determining the existence of common good that would warrant the amendment, alteration, or repeal of a franchise. Courts must tread with deliberate care in striking down a law enacted pursuant to this mandate, and there must be a compelling reason to undo an act of the legislature. The Court applied this doctrine to reject petitioners' due process claim, finding that Congress exhaustively deliberated and determined that competition would serve the common good.
• Non-impairment of contracts and police power — There is impairment of contracts when a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon, or withdraws remedies for the enforcement of the rights of the parties. However, the State, in the exercise of police power, may validly limit the non-impairment clause because every contract carries an implied reservation that it is subject to police power, especially a franchise, which partakes of the nature of a grant beyond the purview of the non-impairment clause. The Court applied this doctrine to hold that petitioners failed to show impairment and that, in any event, police power prevails.
• Intervention — Intervention is not a matter of absolute right but may be permitted only when the applicant shows facts satisfying the requirements of the statute authorizing intervention. The legal interest must be direct and immediate, actual and material, not indirect, contingent, remote, conjectural, consequential, or collateral. Even with legal interest, permission to intervene is subject to the sound discretion of the court, considering whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether the intervenor's rights may be fully protected in a separate proceeding. The Court applied this doctrine to deny PHILRECA's motion.
• Hierarchy of courts and direct invocation of Supreme Court jurisdiction — Direct invocation of the Supreme Court's original jurisdiction to issue extraordinary writs should be allowed only when there are special and important reasons clearly and specifically set out in the petition. Exceptions include genuine issues of constitutionality that must be addressed immediately, transcendental importance, cases of first impression, constitutional issues better decided by the Court, the time element, and questions dictated by public welfare and the broader interest of justice. The Court applied this doctrine to take cognizance of the petition but still dismissed it on the merits.

• "Under the Constitution, the crucial role of determining the existence of common good that would warrant the amendment, alteration, or repeal of a franchise lies with the legislature." — This passage states the Court's deferential framework for reviewing Congress's determination of common good in franchise legislation.
• "We deem it necessary to state at the outset that exclusive franchises are not sanctioned by the Constitution. Moreover, franchises are subject to amendment, alteration, or repeal by the Congress when the common good so requires." — This is the core ratio on the non-exclusivity of public utility franchises under Article XII, Section 11.
• "Ultimately, a franchise is a privilege granted by the State. It is not an exclusive private property of the franchisee and must yield to serve the common good, as may be determined by Congress as the people's elected representatives." — This passage defines the nature of a franchise and underpins the rejection of petitioners' due process and exclusive franchise claims.
• "Thus, as between petitioners' existing contracts and police power, the latter must prevail. In other, words, petitioner cannot validly prevent Congress from amending its franchise on account of its existing contracts." — This passage states the ratio on the non-impairment clause and the supremacy of police power over contract rights in franchise amendment.

• Tawang Multi-Purpose Cooperative vs. La Trinidad Water District, 661 Phil. 390 (2011) — Controlling precedent relied upon by the Court to hold that the 1935, 1973, and 1987 Constitutions expressly prohibit exclusive franchises, with no exception, and that a statute conflicting with the Constitution must yield.
• Alyansa Para sa Bagong Pilipinas vs. Energy Regulatory Commission, 852 Phil. 1 (2019) — Cited to explain that while MERALCO's franchise was characterized as monopolistic, that status does not preclude Congress from awarding other franchises to accommodate future competition that may lead to better public service and public good.
• Carlos Superdrug Corp. vs. Department of Social Welfare and Development, 553 Phil. 120 (2007) — Cited for the principle that when conditions demand, property rights must bow to the primacy of police power because property rights must yield to general welfare.
• Siska Development Corp. vs. Office of the President, 301 Phil. 678 (1994) — Cited for the definition of impairment of contracts under Section 10, Article III of the Constitution.
• PAGCQR vs. BIR, 660 Phil. 636 (2011) — Cited for the rule that every contract carries an implied reservation that it is subject to police power, especially a franchise, which is beyond the purview of the non-impairment clause.
• Virra Mall Tenants Association, Inc. vs. Virra Mall Greenhills Association, Inc., 674 Phil. 517 (2011) — Cited for the requirements of intervention, including direct and immediate legal interest and the court's discretion to deny intervention to avoid delay or prejudice.
• People vs. Cuaresma, 254 Phil. 418 (1989) — Cited for the doctrine of hierarchy of courts and the policy of preventing inordinate demands upon the Court's time and attention.

• Article XII, Section 11, 1987 Constitution — Provides that no franchise, certificate, or other form of authorization for the operation of a public utility shall be exclusive in character and that such franchise shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. Applied to hold that petitioners have no exclusive franchise and that Republic Act No. 11918 is constitutional.
• Article III, Section 1, 1987 Constitution — Guarantees due process and equal protection. Applied to reject petitioners' due process claim; the majority text does not separately discuss equal protection.
• Article III, Section 10, 1987 Constitution — Prohibits laws impairing the obligation of contracts. Applied to hold that petitioners failed to show impairment and that police power prevails.
• Section 1, Republic Act No. 11918 — The assailed provision expanding MORE's franchise area to include the cities of Iloilo and Passi and the enumerated municipalities in Iloilo. Upheld as constitutional.
• Section 23, Republic Act No. 9136 (EPIRA) — Mandates distribution utilities to supply electricity to their captive market in the least cost manner. Cited to note that petitioners' remedy regarding take-or-pay provisions may lie with the ERC.
• Rule 11, Section 7(d), EPIRA Implementing Rules and Regulations — Empowers the ERC to monitor and penalize market power abuse, anti-competitive behavior, or unfair trade practices that distort competition or harm consumers. Cited as a remedy available to petitioners.
• Section 41(c), Republic Act No. 6038 (NEA Act) — Prohibits the grant of a franchise to any other person within any area in which a cooperative holds a franchise unless exceptions apply. Held to yield to the Constitution's prohibition on exclusive franchises.
• Rule 19, Section 1, Rules of Court — Governs who may intervene, requiring a legal interest in the matter in litigation or in the success of either party, or an interest against both, and allowing denial if intervention will unduly delay or prejudice the adjudication of the rights of the original parties. Applied to deny PHILRECA's motion.

Gesmundo, C.J., Caguioa, Hernando, Lazaro-Javier, Inting, M. Lopez, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concur.

• Justice Leonen, Senior Associate Justice — Dissented. Section 1 of Republic Act No. 11918 is unconstitutional. It introduces competition in electricity distribution, a naturally monopolistic industry that should be operated by a single entity if stable prices are to be maintained. By implication, it amended petitioners' franchises without satisfying the common good standard in Article XII, Section 11 of the Constitution. Petitioners were not given the opportunity to be heard despite the encroachment on their franchise areas, violating procedural due process. The expansion impairs the obligation of contracts because petitioners entered into off-take agreements with generation companies obliging them to pay for fixed amounts of electricity regardless of actual consumption; the expansion results in higher stranded costs, lower revenues, and higher risk of default. Section 1 also violates equal protection because it is class legislation granting unwarranted benefits to MORE, including extraordinary eminent domain powers not granted to other distribution utilities similarly situated. PHILRECA should have been allowed to intervene. The dissent proposed reading Article XII, Section 11 together with Article XII, Section 19 to allow exclusive franchises for natural monopolies when the public interest so requires. It voted to grant the petition, declare Section 1 unconstitutional, issue a writ of prohibition, and grant the motion for intervention.