Republic of the Philippines

SUPREME COURT

Manila

 

 

THIRD DIVISION

 

 

 

MACTAN ELECTRIC COMPANY, INC.,

 

Petitioner,

 

 

 

 

 

 

-  v e r s u s  -

 

G.R. No. 172960

 

 

Present:

 

CORONA, J., Chairperson,

VELASCO, JR.,

PERALTA,

DEL CASTILLO*, and

MENDOZA, JJ.

NATIONAL POWER CORPORATION, MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY and NATIONAL TRANSMISSION CORPORATION,

 

Respondents.

 

 

 

 

 

 

 

 Promulgated:

 

March 26, 2010

 

 

D E C I S I O N

 

CORONA, J.:

 

Mactan Electric Company, Inc. (MECO) posed the purely legal question of whether paragraph (v), Section 43 of RA 9136:1

 

SEC. 43. Functions of the ERC. The ERC shall promote competition, encourage market development, ensure customer choice and discourage/penalize abuse of market power in the restructured electricity industry.  Towards this end, it shall be responsible for the following key functions in the restructured industry:

xxx                              xxx                              xxx

 

(v)        The ERC shall have the original and exclusive jurisdiction over all cases contesting rates, fees, fines and penalties imposed by the ERC in the exercise of the abovementioned powers, functions and responsibilities and over all cases involving disputes between and among participants or players in the energy sector.  All notices of hearings to be conducted by the ERC for the purpose of fixing rates or fees shall be published at least twice for two successive weeks in two (2) newspapers of nationwide circulation.  (emphasis supplied)

 

clothed the Energy Regulatory Commission (ERC) with jurisdiction to resolve disputes involving  MECO as an energy distribution company with a public franchise, National Power Corporation (NPC) as an energy generation company, National Transmission Corporation (TRANSCO) as a transmission and sub-transmission company and Mactan Cebu International Airport Authority (MCIAA) as an energy end-user.

 

The facts are not disputed.

 

MECO holds a franchise to operate an electric light and power service in the areas comprising Lapu-Lapu City and the Municipality of Cordova.2  It has a contract with NPC for the supply of “contract energy”3 from September 26, 2005 to September 25, 2015.4  It is charged a minimum rate based on the contract energy per billing period, regardless of whether it fails to consume the contract energy allocated to it.5  However, it may apply for reduction of its contract energy upon payment of a buy-out fee6 except under the following circumstances:

 

4.7.1.   The reduction is caused by the transfer by a consumer of its power and energy source from [MECO] to [NPC] or, to another customer of [NPC] located within the same grid prompting the other customer to correspondingly increase its electric supply requirement with [NPC], notwithstanding that [MECO] may have itself imposed penalties or buy-out provisions to such transferring consumer. [MECO] shall have sixty (60) days from transfer within which to request the appropriate reduction and the decrease shall be deemed effective from such date of transfer. Provided further that [MECO] and [NPC] shall ensure that the transfer shall not disadvantage any assignee(s) of [NPC].

 

4.7.2.   Expected reduction in the Contracted Energy by the [MECO] with the [NPC] caused or initiated by the industrial customers of the [MECO] as listed in Annex 1a shall be excused by the SUPPLIER.  To be able to avail of this exemption, [MECO] must inform [NPC] in writing sixty (60) days prior to the effectivity of the reduction in the Contracted Energy.  It is understood that the expected reduction is neither due to self-generation nor transfer to another power SUPPLIER.7

 

MCIAA was listed as an industrial costumer of MECO in Annex 1a of the supply contract.8  MCIAA and MECO had a contract for electric power service connection9 for a period of one year, subject to automatic renewal, unless either party desired to terminate the contract, in which case said party must serve a 30-day written notice upon the other for the termination or amendment to take effect.10  Their contract began on September 19, 1995 and was renewed every year thereafter. On April 24, 2006, MECO received notice from MCIAA that it was terminating their contract effective May 24, 2006.11

 

MECO filed with the Regional Trial Court (RTC), Branch 54, Lapu-Lapu City, a complaint for damages with prayer for temporary restraining order and/or writ of preliminary injunction against MCIAA, NPC and TRANSCO.12  The material allegations in the complaint are reproduced below, for they are determinative of the question of law raised herein:

 

2.19     Although the MCIAA letter of termination does not indicate from whom MCIAA will get its electric power supply after May 24, 2006, there are strong indications as shown by the following circumstances recently validated, and thus reasonable grounds to believe that NPC will directly supply electric power to MCIAA and the latter will directly source and buy such electric power from the NPC without passing through the distribution system of MECO x x x.

 

xxx                              xxx                              xxx

 

All these were done notwithstanding the validity, enforceablity and existence of the “MECO-MCIAA Connection Contract” on one hand, and the validity, enforceability and existence of the “NPC-MECO Supply Contract” on the one hand.

 

2.20     It must be stressed that with the advent of the EPIRA of 2001, NPC is now without authority to sell electric energy directly to end-users including MCIAA.

 

xxx                                    xxx                              xxx

 

CAUSES OF ACTION

 

FIRST CAUSE OF ACTION AGAINST DEFENDANT NPC

 

(For Injunctive Relief)

 

xxx                              xxx                              xxx

 

                   3.1.  NPC is now without authority in law to directly sell electric energy to end users including MCIAA.  Such being the case, MECO has a clear and unmistakable right to secure an injunctive relief against NPC to enjoin the latter from committing an illegal act.

 

FIRST ALTERNATIVE CAUSE OF ACTION TO THE FIRST CAUSE OF ACTION

 

                    3.2.  Granting without conceding that NPC has authority to directly sell electric energy to end-users, NPC cannot lawfully do so to MCIAA without prior approval from the appropriate government regulatory agencies such as the ERC and DOE.  The intended sale of electric energy by NPC to MCIAA [not] having [the approval of] ERC and DOE, plaintiff has a clear and unmistakable right to an injunctive relief to enjoin NPC from committing such unauthorized act.

 

            SECOND ALTERNATIVE CAUSE OF ACTION TO THE FIRST CAUSE OF ACTION

 

                    3.3.  Granting without conceding that NPC has authority to directly sell electric energy to end-users MECO has a clear, positive and unmistakable property right as a franchise holder, guaranteed by the due process protection of the constitution, to be heard first before the NPC can directly supply electric energy to any end user within MECO’s franchise area.

 

                    3.4.  MECO likewise enjoys the priority in right to distribute electricity to any existing or prospective enterprises within its franchise area to the exclusion of any person or entity including the NPC.

 

                    3.5.  MECO furthermore enjoys the constitutional right to free enterprise as well as the protective mantle of P.D. 2029 from competition with government-owned or controlled corporation including the NPC in various economic activities like the distribution of services in which MECO is primarily engaged.

 

                    3.6.  The acts of NPC in directly supplying electric energy to MCIAA grossly violate the foregoing constitutional rights of MECO and seriously impair the franchise of MECO to exclusively operate a distribution system in the whole Island of Mactan and to directly convey electric power to end-users in that area of coverage.

 

                    3.7.  The acts complained of against NPC will result in MECO breaching the NPC-MECO Supply Contract and be penalized by NPC under the said contract MECO will not be able to fully consume or take out the level of electrical energy contracted for a particular period.

 

                    3.8.  The acts complained of against NPC also constitute an unlawful contractual interference by NPC with the contractual obligation of MCIAA to MECO as evidenced by the existing MECO-MCIAA Connection Contract which is valid until September 19, 2006.

 

xxx                                    xxx                              xxx

3.11.   As a matter of law, MECO is therefore entitled to a writ of prohibitory injunction against NPC, enjoining the latter from directly supplying electric energy to MCIAA.

 

In the event, however, that NPC is now directly supplying electric energy to MCIAA, MECO is as a matter of law entitled to a writ of mandatory injunction against NPC, directing the latter to discontinue directly supplying electric energy to MCIAA.

 

FIRST CAUSE OF ACTION AGAINST DEFENDANT MCIAA

(For Specific Performance & Injunctive Relief)

 

xxx                              xxx                              xxx

 

                   3.1.  MECO has a clear and unmistakable right to demand from MCIAA to honor and faithfully comply with the terms and conditions of the MECO-MCIAA Connection Contract which is valid, enforceable and existing until September 19, 2006.

 

xxx                                    xxx                              xxx

 

                   4.3.  Even assuming without conceding that MCIAA is given the right to terminate the said contract, the circumstances would show that such exercise of right by MCIAA was arbitrary amounting to bad faith, and grossly abused by MCIAA to the prejudice and damage of MECO, aware as it was that such termination would expose MECO to liability under the latter’s “NPC-MECO Supply Contract” which is valid until September 25, 2015.

 

xxx                                    xxx                              xxx

 

CAUSE OF ACTION AGAINST DEFENDANT TRANSCO

(For Injunctive Relief)

 

xxx                                    xxx                              xxx

 

                   5.1.  In the commission or performance of the acts complained of by NPC and MCIAA, NPC and MCIAA will unavoidably and consequently use the electrical transmission and sub-transmission facilities of TRANSCO and all other assets related to transmission operations.

 

                   5.2.  In order not to allow the commission by NPC and MCIAA of illegal acts, TRANSCO should be enjoined from allowing the use of its electrical transmission and sub-transmission facilities

 

COMMON CAUSES OF ACTION AGAINST DEFENDANTS NPC and MCIAA

(For Damages)

 

xxx                                    xxx                              xxx

6.2  These acts likewise constitute an abuse of right under Articles 19 and 20 of the Civil Code which requires every person to act with justice, give everyone his due and observe honesty and good faith in the exercise of his rights and in the performance of his duties. Furthermore, the commission of the acts complained of will willfully cause loss or injury to MECO in a manner that is contrary to morals, good customs or public policy in violation of Article 21 of the Civil Code.

 

6.3  More importantly, the acts complained of against NPC constitute an inducement by a third party to MCIAA to violate its existing contract with MECO which contract is valid until September 19, 2006 amounting to contract interference which is prohibited by Article 1311 of the Civil Code.13

 

The RTC issued a 72-hour temporary restraining order14 and later, a status quo order effective until June 11, 2006.15

 

MCIAA,16  NPC17 and TRANSCO18 each filed a motion to dismiss on the grounds of lack of jurisdiction and improper venue.  They argued that, under Section 43 of RA 9136, ERC had the primary administrative jurisdiction over the dispute as it involved players in the energy sector.  MCIAA further pointed out a stipulation in its contract with MECO that in case of suit, the same should be filed in Cebu City, not Lapu-Lapu City.19

 

NPC20 and MCIAA21 filed oppositions to the application of MECO for preliminary injunction.  They disclosed that, in compliance with the requirements set forth in Cagayan Electric Power and Light Company vs. National Power Corporation22 (i.e., that an electric franchisee must be given the opportunity to be heard before NPC may provide direct service to enterprises within the franchise area), NPC and MCIAA disclosed to MECO on February 3, 2001,23 August 20, 200124  and October 2, 200125  their planned direct sale of bulk power and invited it to make a better offer, but MECO did not heed the invitation.

           

The RTC dismissed the case on the following ground:

 

After a judicious review of the records and on the basis of the hearings conducted on June 05 and 08, 2006 the court is convinced and hereby concludes that the ERC, the government regulatory agency that has original and exclusive jurisdiction to try disputes between and among players in the energy sector.  This is clear under Sec. 43 (u) of Republic Act No. 9136,  x x x.

 

xxx                              xxx                              xxx

 

While it is true that the plaintiff and defendants MCIAA, NPC and NTC had forged contractual relations with each other involving or affecting electricity and that disputes arising therefrom may involve provisions in the Civil Code of the Philippines and may even involve contractual interference, yet the indubitable fact remains that the controversy in its entirety necessarily involves, affects and/or pertains to the generation, transmission, distribution, and consumption of electricity – matters that are within the jurisdiction and competence of the ERC to adjudicate as an independent, quasi-judicial regulatory body.  Notably, as admitted by the plaintiff, technical words and phrases will be utilized in the course of the proceedings; this is precisely the reason why the ERC has been tasked to hear and adjudicate disputes involving participants in the energy sector, it has the technical expertise and experience to deal with technical matters.

 

The doctrine of primary jurisdiction also comes into play in that courts will not resolve a controversy involving a question which is within the jurisdiction of an administrative tribunal, especially where the question demands the exercise of sound administrative discretion requiring the special knowledge and experience of the said tribunal in determining technical and intricate matters of fact.  x x x26

 

MECO filed the instant petition for this Court to declare that the RTC and not ERC had jurisdiction over its dispute with NPC, MCIAA and TRANSCO because the dispute was purely civil in nature.  It arose from a mere violation of its (MECO’s) rights under the Constitution and the Civil Code, and required for the resolution thereof an interpretation and application of said laws.  No technical matter was involved and no expertise of ERC was needed.27

 

MECO further argued that not all the parties to the dispute were players in the energy sector.  MCIAA was neither a generation company, nor a transmission utility, nor a supplier of energy, nor a distributor thereof, but a mere end-user.  Thus, the dispute was not “between and among participants or players in the energy sector” which would have brought it within the ambit of Section 43 (v) of RA 9136.28

  

In their respective memoranda, NPC, MCIAA and TRANSCO maintain that the case arose from a dispute among energy players over electric power connection and distribution; hence, it fell within the primary administrative jurisdiction of ERC under Section 43 (v) of RA 9136.

 

On July 11, 2007, MCIAA filed a manifestation with motion to dismiss, informing the Court that, pursuant to RA 6395,29 it filed with ERC an application for direct electric connection30 with NPC and TRANSCO under Section 3 (g)31 of said law.  MCIAA urges the Court to dismiss the instant petition for having been rendered moot and academic by the filing of its application with ERC.32

 

 The question of law before the Court is:  was it the RTC or the ERC which had jurisdiction over the dispute involving MECO, on one hand, and MCIAA, NPC and TRANSCO, on the other?  The issue is not hypothetical even as MCIAA has filed a petition with ERC for direct electrical connection with NPC and TRANSCO.  Jurisdiction is not conferred on ERC by the mere filing of a petition with it.  Its jurisdiction is bestowed by law, specifically RA 9136.

           

There is, however, nothing in either RA 9136 or its implementing rules which grants ERC jurisdiction over the dispute.

 

Section 43 (v) confers on ERC original and exclusive jurisdiction over two kinds of cases: 

 

(1)      all cases contesting rates, fees, fines and penalties imposed by ERC in the exercise of its powers, functions and responsibilities under Section 43 (a) through (u); and

 

(2)      all cases involving disputes between and among participants or players in the energy sector.

 

Section 4 (n), Rule 3 of the Rules and Regulations to Implement RA 9136 (implementing rules) provides an administrative interpretation of the scope of Section 43 (v) of RA 9136, to wit:

 

SEC. 4.  Responsibilities of the ERC.  –

xx                    xx                    xx

 

(n)      The ERC shall have the original and exclusive jurisdiction over all cases contesting rates, fees, fines and penalties imposed in the exercise of its powers, functions and responsibilities and over all cases involving disputes between and among participants or players in the energy sector relating to the foregoing powers, functions and responsibilities.  (emphasis supplied)

 

Disputes between and among participants or players in the energy sector which may possibly be related to the powers, functions and responsibilities of ERC are those arising from cross-ownership, abuse of market power, cartelization and anti-competitive or discriminatory behavior by any electric power industry participant as defined and penalized under Section 45 of RA 9136 and Sections 3, 4, 5 and 8, Rule 11 of the implementing rules.  It is ERC which is authorized to monitor and penalize these prohibited acts and to stop and redress the same through such remedial measures as the issuance of injunction.33

 

The subject matter of the dispute between the parties is neither cross-ownership, nor abuse of market power, nor cartelization, nor anti-competitive or discriminatory behavior.  Based on the allegations of MECO in its complaint and the essence of the relief it sought, the subject matter of its dispute with MCIAA, NPC and TRANSCO involved the distribution of energy resource, specifically the direct supply of electricity by NPC through TRANSCO to MCIAA, without passing through the distribution system of MECO as the franchise holder in the area.  Therefore, their dispute was not within the authority of ERC to resolve.

 

But neither did the RTC have jurisdiction over the dispute.  That power belonged to the Department of Energy (DOE).

 

In Energy Regulatory Board and Iligan Light & Power, Inc. v. Court of Appeals, et al.,34 we declared that jurisdiction over the regulation of the marketing and distribution of energy resources is vested in the DOE.  In the consolidated cases National Power Corp. v. Court of Appeals and Cagayan Electric Power and Light Co.35 and Phividec Industrial Authority v. Court of Appeals and Cagayan Electric Power and Light Co.,36  the Court traced the history of this regulatory function of DOE:

 

The ERB, which used to be the Board of Energy, is tasked with the following powers and functions by Executive Order No. 172 which took effect immediately after its issuance on May 8, 1987:

 

“SEC. 3.  Jurisdiction, Powers and Functions of the Board.  – When warranted and only when public necessity requires, the Board may regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining, marketing and distributing energy resources. x x x.

 

xx                    xx                    xx

 

As may be gleaned from said provisions, the ERB is basically a price or rate-fixing agency.  Apparently recognizing this basic function, Republic Act No. 7638 (An Act Creating the Department of Energy, Rationalizing the Organization and Functions of Government Agencies Related to Energy, and for Other Purposes), which was approved on December 9, 1992 and which took effect fifteen days after its complete publication in at least two (2) national newspapers of general circulation, specifically provides as follows:

 

“SEC. 18.  Rationalization or Transfer of Functions of Attached or Related Agencies.  The non-price regulatory jurisdiction, powers, and functions of the Energy Regulatory Board as provided for in Section 3 of Executive Order No. 172 are hereby transferred to the Department.

 

In Batelec II Electric Cooperative Inc. v. Energy Industry Administration Bureau (EIAB), et al.,37 the Court further reiterated that the DOE had regulatory authority over matters involving the marketing and distribution of energy resources.

 

DOE has retained such regulatory authority even with the enactment of RA 9136.  Section 80 thereof provides that “[t]he applicable provisions of  x  x  x  Republic Act 7638, otherwise known as the ‘Department of Energy Act of 1992’ x   x   x  shall continue to have full force and effect except in so far as inconsistent” with RA 9136.  Corollary to Section 80, Section 37 assigned to DOE certain powers and functions in the supervision of the restructuring of the electricity industry, but these are “[i]n addition to its existing powers and functions.”  Among the existing powers and functions of DOE is the regulation of the marketing and distribution of energy resource as provided in Section 18 of RA 7638, amending Section 3 of EO 172.

 

In fine, the RTC was correct when it dismissed the complaint of MECO for lack of jurisdiction.  However, it erred in referring the parties to ERC because the agency with authority to resolve the dispute was the Department of Energy.

 

WHEREFORE, the petition is hereby DENIED.

 

Costs against petitioner.

 

SO ORDERED.

 

 

 

 

RENATO C. CORONA

Associate Justice

Chairperson

 

WE CONCUR:

 

 

 

 

PRESBITERO J. VELASCO, JR.

Associate Justice

 

 

 

 

 

 

 

DIOSDADO M. PERALTA

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

 

 

 

 

A T T E S T A T I O N

 

 

            I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

RENATO C. CORONA

Associate Justice

Chairperson

 

 

C E R T I F I C A T I O N

 

 

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

 

ANTONIO T. CARPIO

Acting Chief Justice

 

 

*Additional member per raffle dated March 24, 2010 in lieu of Justice Antonio Eduardo B. Nachura.

 

1Republic  Act  No. 9136 or the “Electric Power Industry Reform Act of 2001”; effective June 26, 2001.

 

2Rollo, p. 75.

 

3Section 2.1 of the MECO-NPC contract defines “contract energy” as “energy in kilowatt-hour (kWh), whether monthly or hourly (in case of Time of Use Rate) allocated by [NPC] to [MECO] within the contract period, as stated in ‘Annex I’ of the Contract.” Rollo, p. 79.

 

4Sec. 3.1 of MECO-NPC contract, rollo, p. 78.

 

5Section 6.2, rollo, p. 82.

 

6Section 4.6, rollo, p. 79.

 

7Id.

 

8Rollo, pp. 100-109.

 

9Id., p. 112.

 

10Section 21 of the MECO-MCIAA contract. Rollo, p. 115.

 

11Id., p. 118.

 

12Id., p. 50.

 

13Complaint, rollo, pp. 57-64.

 

14Rollo, p. 127.

 

15Id., p. 128.

 

16Id., p. 129.

 

17Id., p. 133.

 

18Id., p. 140.

 

19Id., p. 130.

 

20Id., p. 215.

 

21Id., p. 231.

 

22180 SCRA 628.

 

23Rollo, p. 227.

 

24Id., p. 228.

 

25Id., p. 229.

 

26Id., pp. 48-49.

 

27Petition, id., pp. 24-25.

 

28Supplement to Memorandum for Petitioner, id., pp. 445-451.

 

29An Act Revising the Charter of the National Power Corporation, effective September 10, 1971.

 

30Rollo, p. 471.

 

31SEC. 3. Powers and General Functions of the Corporation. The powers, functions, rights and activities of the Corporation shall be the following: xx

 

           xx xx (g) x  x  x  to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and  (5) real estate subdivisions:  Provided, That the sale of power in bulk to industrial enterprises and real estate subdivisions may be undertaken by the corporation when the power requirement of such enterprises or real estate subdivision is not less than 100 kilowatts, when in the judgment of the Public Service Commission the franchise holder is not in a position or fails or refuses to adequately supply such power requirement, unless the franchise holder consents thereto:  Provided, further, That the Corporation shall continue to sell electricity to industrial enterprises under existing contracts; and provide for the collection of the charges for any service rendered x x x.

 

32Supra at 30, p. 468.

 

33Section 45, par. 7, RA 9136. See also Sec. 7, Article III, Guidelines to Govern the Imposition of Administrative Sanctions in the Form of Fines and Penalties Pursuant to Section 46 of Republic Act No. 9136.

 

34G.R. No. 127373, 25 March 1999, 364 Phil. 811.

 

35G.R. No. 112702, 26 September 1997, 279 SCRA 506.

 

36G.R. No. 113613, Ibid.

 

37G.R. No. 135925, 22 December 2004, 447 SCRA 482.

 

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