NASECORE v. ERC

An application for a generation-charge adjustment under the GRAM is still an “application or petition for rate adjustment or for any relief affecting the consumers” under Section 4(e), Rule 3 of the IRR of the EPIRA, so it must be published in a newspaper of general circulation; absent publication, the ERC order approving the adjustment is void for grave abuse of discretion. Administrative rules implementing the EPIRA, such as the GRAM Implementing Rules, must be published in the Official Gazette or a newspaper of general circulation and filed with the National Administrative Register to be effective; public consultation is not a substitute.

NASECORE, FOVA, and FOLPHA are consumer and homeowners’ federation petitioners; MERALCO is an electric distribution utility; and the ERC is the regulatory body created under RA No. 9136, the EPIRA, which superseded the ERB and is tasked to promote competition, encourage market development, ensure customer choice, and penalize abuse of market power in the restructured electricity industry. The EPIRA declares a policy of ensuring quality, reliability, security, and affordability of electric power, transparent and reasonable prices in a regime of free and fair competition, and a strong and purely independent regulatory body to ensure consumer protection. Section 36 of the EPIRA required distribution utilities to file revised rates for ERC approval and to unbundle distribution wheeling charges from the retail rate.

On June 8, 2001, Congress enacted RA No. 9136, the EPIRA, which created the ERC and, under Section 36, required every distribution utility to file its revised rates for ERC approval within six months. On October 30, 2001, the ERC issued an Order requiring all distribution utilities to file their applications for unbundled rates. In compliance, MERALCO filed on December 26, 2001 its application with the ERC for approval of its unbundled rates and appraisal of its properties, docketed as ERC Case No. 2001-900 and consolidated with ERC Case No. 2001-646.

Acting on the application, the ERC issued an Order and a Notice of Public Hearing both dated February 1, 2002, setting the case for initial hearing on March 11 and 12, 2002. The ERC directed MERALCO to cause publication of the notice of public hearing at its own expense twice for two successive weeks in two newspapers of nationwide circulation, with the last publication not later than two weeks before the initial hearing. The Office of the Solicitor General (OSG), the Commission on Audit, and the Committees on Energy of both Houses of Congress were furnished copies and requested to send representatives; the Offices of the Municipal/City Mayors within MERALCO’s franchise area were furnished copies for posting on their bulletin boards. At the initial hearing, MERALCO representatives were present, as were a representative from the OSG and Mr. Pete Ilagan representing NASECORE.

After a series of hearings, the ERC rendered a Decision dated March 20, 2003 approving MERALCO’s unbundled schedule of rates effective on the next billing cycle. In the same decision, the ERC directed MERALCO to discontinue charging the PPA upon effectivity of the approved unbundled rates and to reflect any change in the cost of power purchased as deferred charges or credits to be recovered through the GRAM approved by the ERC for implementation per ERC Order effective February 24, 2003. Before that, those costs were recovered through the PPA mechanism.

In ERC Case No. 2003-44, the ERC issued an Order dated January 29, 2003 setting for public consultation on February 17, 2003 its proposed Implementing Rules for the Recovery of Deferred Fuel and Independent Power Producers Costs (DÉCOR) and Deferred Incremental Currency Exchange Recovery (DICER), which were formulated to replace the PPA and the Currency Exchange Rate Adjustment (CERA). A notice of the public consultation was published in the Philippine Star on February 3, 2003, and interested parties were directed to submit comments on or before February 12, 2003. Several distribution utilities and consumer groups, including NASECORE, filed comments; the utilities objected to DÉCOR and DICER, while consumer groups asked that consumer protection be considered. At the February 17, 2003 consultation, distribution utilities and consumer groups appeared; the consumer groups requested a separate consultation, which the ERC granted for February 21, 2003. At that consultation, NASECORE and other consumer groups were present, the ERC explained DÉCOR and DICER, MERALCO explained the PPA and its computation, and the consumer groups’ concerns were noted. After considering the positions, the ERC promulgated an Order dated February 24, 2003 in ERC Case No. 2003-44 adopting the Implementing Rules for the Recovery of Fuel and Independent Power Producer Costs: GRAM and the Implementing Rules for the Recovery of the Incremental Currency Exchange Rate Adjustment (ICERA). The GRAM replaced the PPA, with review by the ERC before costs were passed on, quarterly rate changes, adjustment only through a petition subject to ERC approval within a maximum period of forty-five days, exclusion of transmission, system loss, and franchise tax, and with carrying cost; the ICERA replaced the CERA with review before costs were passed on, quarterly changes, and carrying cost. The effectivity clauses of both implementing rules provided that they shall take effect immediately.

Thereafter, in consonance with the March 20, 2003 Decision and the February 24, 2003 Order, MERALCO filed with the ERC an amended application entitled “In the Matter of the Application for the Recovery of the Independent Power Producer Costs under the Generation Rate Adjustment Mechanism (GRAM),” docketed as ERC Case No. 2004-112. Earlier, acting on MERALCO’s first application under the GRAM, the ERC in an Order dated January 21, 2004 in ERC Case No. 2004-20 approved a generation charge of ₱3.1886 per kWh, inclusive of the deferred PPA. In the amended application, MERALCO averred that it had recalculated its proposed generation charge to update the ₱3.1886 per kWh allowed in the January 21, 2004 Order to ₱3.4664 per kWh, inclusive of a computed Deferred Accounting Adjustment (DAA) of ₱0.0028 per kWh, inclusive of the remaining balance in the DAA under the first GRAM, and a deferred PPA of ₱0.1248 per kWh, increasing by ₱0.0022 from the ₱0.1226 previously authorized under ERC Case No. 2004-20 to account for the remaining two months, December 2003 and January 2004, of IPP VAT savings passed on as part of the Mandated Rate Reduction (MRR). MERALCO averred that the proposed generation charge was computed in conformity with the generation rate formula in Section 6 of the GRAM Implementing Rules and prayed for its approval. In the assailed Order dated June 2, 2004, the ERC approved the increase of MERALCO’s generation charge from ₱3.1886 to ₱3.3213 per kWh, effective immediately.

Petitioners then filed with the SC a petition for certiorari, prohibition and injunction seeking to nullify the June 2, 2004 ERC Order for lack of the requisite publication of MERALCO’s amended application, which they claimed deprived them of procedural due process and the opportunity to file comments.

• Publication and Due Process: Petitioners argued that MERALCO’s amended application was not published in a newspaper of general circulation as required by Section 4(e), Rule 3 of the IRR of the EPIRA, depriving consumers of procedural due process and the opportunity to file comments.
• Nullity under Freedom from Debt Coalition: Petitioners maintained that under Freedom from Debt Coalition vs. ERC and MERALCO, failure to comply with the publication requirement renders the June 2, 2004 ERC Order null and void.

• Exemption from Publication (MERALCO): MERALCO contended that its amended application for the increase of its generation charge is excluded and/or exempted from the publication requirement in Section 4(e), Rule 3 of the IRR of the EPIRA, because the applicable rules are the GRAM Implementing Rules embodied in the ERC Order dated February 24, 2003, which govern any petition for recovery of fuel and purchased power costs.
• Nature and Due Process of GRAM (MERALCO): MERALCO argued that the GRAM is an adjustment recovery mechanism replacing automatic recovery mechanisms, allows quarterly adjustment after ERC review before costs are passed on, and is authorized by Section 43 of the EPIRA; requiring compliance with Section 4(e), Rule 3 would defeat the adjustment mechanism and violate MERALCO’s due process by subjecting it to a long and tedious recovery process.
• Prior Consultation and Lack of Appeal (MERALCO): MERALCO countered that petitioners were given every opportunity to be heard in public consultation and to submit comments, knew of the GRAM Implementing Rules, should have filed opposition within the forty-five-day period, and did not appeal the February 24, 2003 ERC Order, so they had no personality to claim denial of due process.
• ERC Authority and Inapplicability of Section 4(e) (ERC): The ERC defended the June 2, 2004 Order as issued in accordance with the GRAM Implementing Rules, anchored on Sections 43(f), 25, 43(u), and 36 of the EPIRA, and asserted that the procedure under the GRAM Implementing Rules differs from Section 4(e), Rule 3 of the IRR of the EPIRA and does not require publication or solicitation of comments because the GRAM is an adjustment mechanism, not an independent rate application.
• Due Process and Prior Consultation (ERC): The ERC stressed that the GRAM Implementing Rules were duly published and submitted for exhaustive public consultation, that petitioner NASECORE’s representative participated and submitted comments, and that petitioners did not appeal the February 24, 2003 Order or complain when the first GRAM application reduced the generation charge, so they cannot now claim denial of due process due to non-publication of MERALCO’s amended application.
• No Grave Abuse of Discretion (ERC): The ERC denied committing grave abuse of discretion and maintained that it resolved ERC Case No. 2004-112 in accordance with the GRAM Implementing Rules, which allowed it to validate costs before they were passed on to consumers.

• Publication of Amended Application: Whether the ERC committed grave abuse of discretion in issuing the Order dated June 2, 2004 in ERC Case No. 2004-112 approving the increase of MERALCO’s generation charge from ₱3.1886 to ₱3.3213 per kWh effective immediately without publication of MERALCO’s amended application.
• Validity of GRAM Implementing Rules: Whether the GRAM Implementing Rules, set forth in the ERC Order dated February 24, 2003 in ERC Case No. 2003-44, could validly support the assailed Order despite not being published in the Official Gazette or a newspaper of general circulation and not filed with the National Administrative Register.

• Publication of Amended Application: Yes. MERALCO’s amended application was covered by Section 4(e), Rule 3 of the IRR of the EPIRA, which requires publication of the application itself and an opportunity for consumers to comment; the lack of publication rendered the June 2, 2004 Order void for grave abuse of discretion.
• Validity of GRAM Implementing Rules: No. The GRAM Implementing Rules were ineffective because they were never published in the Official Gazette or a newspaper of general circulation and were not filed with the National Administrative Register; public consultation and submission of comments did not substitute for publication.

• Publication of Amended Application: Section 4(e), Rule 3 of the IRR of the EPIRA applies to “any application or petition for rate adjustment or for any relief affecting the consumers.” The SC rejected respondents’ distinction between independent rate applications and adjustment mechanisms. The EPIRA defines “Retail Rate” as the total price paid by end-users consisting of charges for generation, transmission and related ancillary services, distribution, supply and other related charges for electric service. Since Section 4(e) speaks of any application or petition for rate adjustment without distinctions, any application that would result in an adjustment or change in the total price paid by end-users, whether occasioned by generation, transmission, distribution, supply, or other charges, falls within its contemplation. MERALCO’s amended application clearly affects consumers because it results in an increase in the costs of their electricity consumption. In Freedom from Debt Coalition vs. ERC and MERALCO, the SC outlined the requirements of Section 4(e), Rule 3: (1) a verified application/petition for rate adjustment, indicating that a copy was received by the legislative body of the LGU concerned and including a certification of notice of publication in a newspaper of general circulation in the same locality; (2) within 30 days from receipt of the application/petition or publication, any affected consumer or the LGU concerned may file a comment; (3) if a comment is filed, the ERC must consider it in its action on the motion for provisional rate adjustment; if no comment is filed within the 30-day period, the ERC may resolve the provisional rate adjustment on the documents submitted; (4) the ERC need not conduct a hearing on the motion for provisional rate adjustment, and it is sufficient that it consider the written comment, if any; (5) the ERC must resolve the motion for provisional rate adjustment within 75 days from filing; and (6) thereafter, the ERC must conduct a full-blown hearing on the application/petition not later than 30 days from the date of issuance of the provisional order, effectively limiting the lifetime of the provisional order to 12 months. Among the important requirements are the publication of the application itself, not merely the notice of hearing issued by the ERC, and the need for the ERC to consider the comments or pleadings of the customers and LGU concerned. These requirements are in keeping with the EPIRA’s policies of protecting public interest, ensuring transparent and reasonable prices, and balancing the interests of consumers and public utilities. The lack of publication of MERALCO’s amended application was fatal; by this omission, consumers were deprived of the right to file comments. The assailed Order was issued without giving consumers any opportunity to file comments in violation of Section 4(e), Rule 3. Due process requires that consumers be notified of any application and be apprised of its contents that would result in compounding their economic burden. The publication requirement gives consumers the opportunity to weigh the application and decide whether to contest it; the requirement that the ERC consider comments extends the assurance that their interest will be taken into account. MERALCO’s argument that requiring compliance with Section 4(e), Rule 3 would violate its due process because it would be subjected to a long and tedious process is not convincing. In Freedom from Debt Coalition, the SC upheld the ERC’s power to grant provisional adjustments or interim rate-regulation, intended precisely for the ERC to respond swiftly and flexibly to exigencies. The ERC is not precluded from promulgating rules, guidelines, or methodology, such as the GRAM, for the recovery by distribution utilities of fuel and purchased power costs, but these rules must conform to pertinent laws, including Section 4(e), Rule 3 of the IRR of the EPIRA.
• Validity of GRAM Implementing Rules: Even assuming reliance on the GRAM Implementing Rules, the SC found that the GRAM Implementing Rules set forth in the ERC Order dated February 24, 2003 in ERC Case No. 2003-44 were not published in the Official Gazette or in a newspaper of general circulation. Executive Order No. 200 provides that laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless otherwise provided. In Tañada vs. Tuvera, the SC held that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity; covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers, and administrative rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant to a valid delegation. Interpretative regulations and those merely internal in nature, and letters of instructions issued by administrative superiors concerning rules or guidelines to be followed by subordinates, need not be published. The procedural antecedents showed no publication of the GRAM Implementing Rules in the Official Gazette or a newspaper of general circulation. The effectivity clauses of both the GRAM and ICERA Implementing Rules uniformly provided that they “shall take effect immediately” and made no mention of publication. Per the Certification dated January 11, 2006 of the Office of the National Administrative Register (ONAR), the implementing rules and regulations were not filed with that office, in contravention of the Administrative Code of 1987. Applying Tañada, the SC had previously declared administrative issuances with no force and effect for non-publication or non-filing. In Republic vs. Express Telecommunications Co., Inc., the SC emphasized that publication in the Official Gazette or a newspaper of general circulation is a condition sine qua non before statutes, rules or regulations can take effect. Thus, the GRAM Implementing Rules must be declared ineffective as they were never published or filed with the National Administrative Register. The fact that parties participated in public consultation and submitted comments is not compliance with the publication requirement. Public consultation and submission of comments are procedures prior to the adoption of the implementing rules; publication occurs after promulgation or adoption and serves to apprise the public of the contents of the rules. The GRAM Implementing Rules implement key provisions of the EPIRA and affect the public as consumers of electricity who pay the charges; the public has the right to be apprised of their contents by publication in the Official Gazette or a newspaper of general circulation, to be given the opportunity to voice opposition. The assailed ERC Order dated June 2, 2004 in ERC Case No. 2004-112 was therefore nullified for having been issued with grave abuse of discretion.

• Rate Adjustment Application Requirements under Section 4(e), Rule 3, IRR of EPIRA — Any application or petition for rate adjustment or for any relief affecting consumers must comply with the following:
  • A verified application/petition for rate adjustment, indicating that a copy was received by the legislative body of the LGU concerned and including a certification of notice of publication in a newspaper of general circulation in the same locality.
  • Within 30 days from receipt of the application/petition or publication, any affected consumer or the LGU concerned may file a comment on the application/petition, as well as on the motion for provisional rate adjustment.
  • If a comment is filed, the ERC must consider it in its action on the motion for provisional rate adjustment, together with the documents submitted by the applicant; if no comment is filed within the 30-day period, the ERC may resolve the provisional rate adjustment on the documents submitted.
  • The ERC need not conduct a hearing on the motion for provisional rate adjustment; it is sufficient that it consider the written comment, if any.
  • The ERC must resolve the motion for provisional rate adjustment within 75 days from the filing of the application/petition.
  • Thereafter, the ERC must conduct a full-blown hearing on the application/petition not later than 30 days from the date of issuance of the provisional order, effectively limiting the lifetime of the provisional order to 12 months. Applied: MERALCO’s amended application was covered by Section 4(e), Rule 3; lack of publication and opportunity to comment invalidated the June 2, 2004 Order.
• Publication of Administrative Rules — Administrative rules and regulations whose purpose is to enforce or implement existing law must be published in the Official Gazette or a newspaper of general circulation and filed with the National Administrative Register; publication is a condition sine qua non to effectivity, and public consultation is not a substitute. Applied: the GRAM Implementing Rules were not published or filed, so they were ineffective.
• Coverage of “Any Application or Petition for Rate Adjustment” — Section 4(e), Rule 3 of the IRR of the EPIRA does not distinguish between independent rate applications and adjustment mechanisms; any application that would result in an adjustment or change in the total price paid by end-users falls within its contemplation. Applied: MERALCO’s GRAM amended application increasing the generation charge was covered.
• Provisional Rate Adjustment as Due Process Answer — The ERC’s power to grant provisional rate adjustments or interim rate-regulation allows it to respond swiftly and flexibly to exigencies and addresses a utility’s concern over a long and tedious recovery process; requiring publication does not violate the utility’s due process. Applied: MERALCO’s apprehension of a long process was addressed by the ERC’s power to grant provisional rate adjustments.

• “Section 4(e), Rule 3 of the IRR of the EPIRA could not be any clearer with respect to its coverage as it refers to "any application or petition for rate adjustment or for any relief affecting the consumers."" — The SC used this passage to reject the distinction between an independent rate application and an adjustment mechanism under the GRAM.
• “The lack of publication of respondent MERALCO’s amended application for the increase of its generation charge is thus fatal.” — The SC held that the omission deprived consumers of the right to comment and invalidated the ERC Order.
• “The requirement of publication of implementing rules of statutes is mandatory and may not be dispensed with altogether even if, as in this case, there was public consultation and submission by the parties of their comments.” — The SC held that public consultation and submission of comments before adoption do not satisfy the publication requirement for implementing rules.
• “In this case, the GRAM Implementing Rules must be declared ineffective as the same was never published or filed with the National Administrative Register.” — The SC declared the GRAM Implementing Rules ineffective for non-publication and non-filing.

• Freedom from Debt Coalition vs. ERC and MERALCO, G.R. No. 161113, June 15, 2004 (432 SCRA 157) — Controlling precedent, followed; outlined the requirements of Section 4(e), Rule 3 of the IRR of the EPIRA and upheld the ERC’s power to grant provisional rate adjustments.
• Tañada vs. Tuvera, 230 Phil. 528 (1986) — Controlling precedent, applied; required publication of statutes and administrative rules as a condition for effectivity and was used to invalidate the GRAM Implementing Rules.
• Republic vs. Express Telecommunications Co., Inc., 424 Phil. 372 (2002) — Relied on; held that publication in the Official Gazette or a newspaper of general circulation is a condition sine qua non before statutes, rules or regulations can take effect.

• Section 4(e), Rule 3, IRR of EPIRA — Requires any application or petition for rate adjustment or for any relief affecting consumers to be verified, accompanied by an acknowledgment of receipt by the LGU legislative body of the locality where the applicant principally operates, and a certification of notice of publication in a newspaper of general circulation in the same locality; the ERC may grant provisionally or deny the relief within 75 days, consumers or the LGU may file comments within 30 days, and the ERC shall conduct a formal hearing and decide on the merits within 12 months from the provisional order; the provision does not apply to applications or petitions already filed as of December 26, 2001 in compliance with Section 36. Applied: MERALCO’s amended application was covered; lack of publication rendered the June 2, 2004 Order void.
• Section 4(ss), RA No. 9136 (EPIRA) — Defines “Retail Rate” as the total price paid by end-users consisting of charges for generation, transmission and related ancillary services, distribution, supply and other related charges for electric service. Applied: the SC used this definition to hold that any application resulting in a change in the total price paid by end-users falls under Section 4(e), Rule 3.
• Section 36, RA No. 9136 (EPIRA) — Required every distribution utility to file its revised rates for ERC approval within six months and to unbundle the distribution wheeling charge from the retail rate. Applied: MERALCO filed its unbundled rates; the ERC approved them and directed that changes in purchased power costs be recovered through the GRAM.
• Section 43(f) and (u), RA No. 9136 (EPIRA) — Authorizes the ERC to establish and enforce a methodology for setting transmission and distribution wheeling rates and retail rates for the captive market of a distribution utility, and vests the ERC with original and exclusive jurisdiction over cases contesting rates, fees, fines and penalties imposed by the ERC. Applied: the ERC anchored its authority to promulgate the GRAM Implementing Rules on these provisions; the SC recognized the ERC’s rule-making power but held that the rules must conform to Section 4(e), Rule 3.
• Section 25, RA No. 9136 (EPIRA) — Provides that retail rates charged by distribution utilities for the supply of electricity in their captive market shall be subject to ERC regulation based on the principle of full recovery of prudent and reasonable economic costs incurred, or such other principles that will promote efficiency. Applied: the ERC cited this as part of its basis for the GRAM; the SC did not rely on it to excuse non-publication.
• Executive Order No. 200 — Provides that laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless otherwise provided. Applied: the GRAM Implementing Rules were not published, so they did not validly take effect.
• Administrative Code of 1987, Book VII, Chapter 2, Section 3 — Requires every agency to file with the University of the Philippines Law Center three certified copies of every rule adopted by it, and rules not filed within three months shall not thereafter be the basis of any sanction against any party or persons. Applied: the ONAR Certification dated January 11, 2006 showed the GRAM Implementing Rules were not filed.
• 1987 Constitution, Article III, Section 7 — Recognizes the right of the people to information on matters of public concern. Applied: the SC held that publication of the GRAM Implementing Rules was required because they affect the public as consumers of electricity.