Power to Set Fees and Other Charges merely incidental, the imposition is a tax; but if regulation is the primary
a tax; but if regulation is the primary purpose, the
G.R. No. 159796 - Gerochi vs. DOE
Nachura, J.
Congress enacted the EPIRA, Sec. 34 and Rule 18 of the IRR of which imposed a universal
charge on the electric bills of all end-users. Petitioners filed the original action before the SC
assailing the constitutionality of the EPIRA, arguing that its unconstitutional because it gives
the ERC unlimited discretion to exercise the legislative power of taxation and this constitutes
an undue delegation of legislative power. The SC agreed with the respondents and held that
the universal charge is not a tax but rather a valid exercise of police power because its
primary purpose (enumerated under Sec. 34) does not involve generating revenue for public
purposes; it involves ensuring the viability of the electric power industry to the end that public
welfare is promoted.
DOCTRINE
TAXATION AND POLICE POWER
The power to tax is an incident of sovereignty and is unlimited in its range,
security against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on its constituents. It is based on the principle that taxes are the
lifeblood of the government, and their availability is an imperious need. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot promote the general welfare and well-being of the people.
Police power is the power of the state to promote public welfare by restraining
and regulating the use of liberty and property. It is the most pervasive, the least limitable,
and the most demanding of the three fundamental powers of the State. The justification is
found in the Latin maxims salus populi est suprema lex (the welfare of the people is the
supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to
injure the property of others). The power to "regulate" means the power to protect, foster,
promote, preserve, and control, with due regard for the interests, first and foremost, of the
public, then of the utility and of its patrons.
The distinction between these two powers rests in the purpose for which the
charge is made. If generation of revenue is the primary purpose and regulation is
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SECTION 34. Universal Charge. Within one (1) year from the effectivity of this Act, a universal
charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-
users for the following purposes:
(a) Payment for the stranded debts in excess of the amount assumed by the National Government
and stranded contract costs of NPC and as well as qualified stranded contract costs of distribution
utilities resulting from the restructuring of the industry;
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of
energy vis--vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
(P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed
rehabilitation and management. Said fund shall be managed by NPC under existing
arrangements; and
fact that revenue is incidentally raised does not make the imposition a tax.
UNDUE DELEGATION OF POWERS
There are two requisites of a valid exercise of delegated legislative power:
(a) the regulation must be germane to the purpose and object of the law
(completeness test, the only thing the delegate has to do is to enforce
the law); and
(b) the regulation must be in conformity with the standards prescribed in
the law (sufficiency test, guidelines must determine the boundaries of the
delegates authority).
FACTS
1. Congress enacted the Electric Power Industry Reform Act (EPIRA), Sec. 34 1 of which
imposed a universal charge. Rule 18 of its IRR implements this provision.
2. ERC CASE 2002-165: National Power Corporation Strategic Power Utilities Group
(NPC-SPUG) filed with the Energy Regulatory Commission (ERC) a petition to avail of
the universal charge for its missionary electrification. The ERC approved the amount of
0.0168/kWh for NPC-SPUGs share of the universal charge for the missionary
electrification and authorized National Transmission Corporation (TRANSCO) and
Distribution Utilities (Dus) to collect said amount from end-users. The ERC
modified its decision and increased the amount to 0.0373 per kWh to be withdrawn from
the Special Trust Fund (STF) managed by Power Sector Assets and Liabilities
Management Group (PSALM).
3. ERC CASE 2002-194: NPC filed a petition praying that the universal charge of 0.0025
per kWh be approved for withdrawal from the STF. ERC decided to authorize NPC to
withdraw P70M from PSALMs STF for the watershed rehabilitation budget.
4. On the strength of the two decisions, Panay Electric Company (PECO) charged
petitioners with the universal charge as reflected in their electric bills, thus petitioners
filed this original action assailing the constitutionality of Sec. 34 of the EPIRA and its
Rule 18 of its IRR.
ISSUE with HOLDING
1. Whether or not the petitioners violated the doctrine of hierarchy of courts -
YES
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall be passed on and collected
from all end-users on a monthly basis by the distribution utilities. Collections by the distribution
utilities and the TRANSCO in any given month shall be remitted to the PSALM Corp. on or before
the fifteenth (15th) of the succeeding month, net of any amount due to the distribution utility. Any
end-user or self-generating entity not connected to a distribution utility shall remit its corresponding
universal charge directly to the TRANSCO. The PSALM Corp., as administrator of the fund, shall
create a Special Trust Fund which shall be disbursed only for the purposes specified herein in an
open and transparent manner. All amount collected for the universal charge shall be distributed to
the respective beneficiaries within a reasonable period to be provided by the ERC.
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 a. The SCs jurisdiction to issue writs of certiorari, prohibition, mandamus, c. Provisions of the EPIRA such as, among others, to ensure the total
quo warranto, and habeas corpus are concurrent with the RTC and CA. electrification of the country and the quality, reliability, security and
Petitioners should have filed with the RTC, but the SC resolved the case affordability of the supply of electric power and watershed rehabilitation
because of public interest and to avoid delay. and management meet the requirements for valid delegation, as they
provide the limitations on the ERCs power to formulate the IRR. The
2. Whether the universal charge is a tax or an exercise of police power EPIRA passes the sufficiency test. There is no undue delegation of
POLICE POWER (See Doctrine.) legislative power.
a. Petitioners: the universal charge is a tax because it is collected for a
public purpose which is to fund the operations of the NPC. DISPOSITIVE PORTION
b. Respondent PSALM: the universal charge is levied not for public Petition DISMISSED.
purposes, but for a regulatory purpose which is to ensure the viability of
the electric power industry. It is an exercise of police power. DIGESTER: Liana Oliveros
c. Respondents DOE, ERC, and NPC: the imposition of the universal
charge will redound to the benefit of the electric power industry, not of
the public. The rate is uniformly levied on end-users, unlike a tax that is
levied based on the taxpayers ability to pay.
d. Sec. 34 pars. a-e are the purposes for which the universal charge is
imposed. It is not mainly for generating revenue, it is regulatory in
character, thus, an exercise of police power.
e. The STF for the universal charge is part of the governments
responsibility to secure the physical and economic survival and
well-being of the community, it ensures viability of the electric power
industry, thus the STF feature of the universal charge strengthens the
argument that the universal charge is an exercise of police power, not
taxation.

3. Whether or not there is undue delegation of the power to tax on the ERC
NO
a. There are two requisites of a valid exercise of delegated legislative
power:
i. the regulation must be germane to the purpose and object of
the law (completeness test, the only thing the delegate has to
do is to enforce the law), and
ii. the regulation must be in conformity with the standards
prescribed in the law (sufficiency test, guidelines must
determine the boundaries of the delegates authority).
b. The amount of the universal charge that is to be determined and fixed by
the ERC is provided in Sec. 43 (b) (ii)2. The ERC does not have unlimited
discretion in determining the charge, as provided in Sec. 51 (d) and (e) 3.
The EPIRA passes the completeness test.

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SECTION 43. Functions of the ERC. The ERC shall promote competition, encourage market
development, ensure customer choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order
after due notice and hearing. Towards this end, it shall be responsible for the following key
functions in the restructured industry:
(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance
with law, a National Grid Code and a Distribution Code which shall include, but not limited to the
following:
(ii) Financial capability standards for the generating companies, the TRANSCO, distribution
utilities and suppliers: Provided, That in the formulation of the financial capability standards, the
nature and function of the entity shall be considered: Provided, further, That such standards are
set to ensure that the electric power industry participants meet the minimum financial standards
to protect the public interest. Determine, fix, and approve, after due notice and public hearings the
universal charge, to be imposed on all electricity end-users pursuant to Section 34 hereof;
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SECTION 51. Powers. The PSALM Corp. shall, in the performance of its functions and for the
attainment of its objective, have the following powers:
(d) To calculate the amount of the stranded debts and stranded contract costs of NPC which shall
form the basis for ERC in the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other
property contributed to it, including the proceeds from the universal charge.
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