NASECORE vs.
ERC and MERALCO o For their part, the consumer groups expressed that the ERC
J. Callejo, Sr. | February 2, 2006
(This is a long case, please bear with me. Thank you)
For the Ratio, please pay attention to highlighted parts. Thank you.
ON EPIRA and the ERC
 Congress enacted RA 9136, known as the Electric Power Industry Reform
Act of 2001 (EPIRA) on June 8, 2001.
 The Energy Regulatory Commission (ERC) was created under the EPIRA.
o The ERC superseded the Energy Regulatory Board (ERB) which
was created under EO 172.
o The ERC is tasked to promote competition, encourage market
development, ensure customer choice and penalize abuse of
market power in the restructured energy industry.
 Section 36 of EPIRA required every distribution utility to file its revised
rates for the approval of the ERC.
 Pursuant to the above provision, the ERC issued an Order requiring all
distribution utilities to file their application for unbundled rates.
 In compliance to the above, MERALCO filed its application with the ERC
for the approval of its unbundled rates and appraisal of its properties.
 Acting on above, the ERC issued an Order and a Notice of Public hearing
setting the case for initial hearing.
o In the same order, MERALCO was directed to cause the
publication of the notice of public hearing at its own expense twice
for two successive weeks in two newspapers of nationwide
circulation, the last date of publication to be made not later than
two weeks before the scheduled date of initial hearing.
 After a series of hearings, the ERC rendered the Decision approving
MERALCO’s unbundled schedule of rates effective the next billing cycle.
On the DÉCOR, DICER, GRAM, and ICERA
 In another proceeding, the ERC issued an Order setting for public
consultation its proposed IRR of Deferred Fuel and Independent Power
Producers Costs (DÉCOR) and Deferred Incremental Currency Exchange
Recovery (DICER).
o A notice of public consultation on the proposed IRR was caused
to be published by the ERC in the Philippine Star.
o In the said notice and order, the ERC directed the parties to submit
their comments on the proposed IRR.
 Several distribution utilities, including NASECORE, filed their comments
on the above IRR for the recovery of DÉCOR and DICER.
o Most of the utilities manifested strong objections to the adoption
of DÉCOR and DICER contending that these mechanisms would
defeat the purpose of escalator clauses such as PPA and CERA.
should have taken into consideration consumer protection in the
drafting of the proposed IRR.
 At the public consultation, the distribution utilities and consumer groups
appeared with their representatives.
o The consumer groups requested for a separate consultation
exclusively for them and the same was granted by the ERC.
 Another public consultation was conducted for the consumer group.
o At the consultation, NASECORE representatives and other
consumer groups were present.
o The ERC explained the DÉCOR and DICER.
o MERALCO on the other hand, explained the PPA and the
computation thereof.
o The consumer groups manifested their concerns, and these were
noted by the ERC.
 After taking into consideration the positions of the distribution utilities and
the consumer groups, the ERC promulgated the Order.
o In above Order, the ERC adopted the IRR for the Independent
Power Producers Cots: Generation Rate Adjustment Mechanism
(GRAM) and the IRR for the Recovery of the Incremental Currency
Exchange Rate Adjustment (ICERA).
 These IRRs were all contained or incorporated in the
Order.
 The GRAM replaced the PPA and the ICERA replaced the CERA.
o The respective effectivity clauses of the IRRs of the GRAM and
ICERA provided that they shall take effect immediately.
On MERALCO’s Petition and ERC’s Assailed Order
 In consonance with all the Orders and Decisions, MERALCO filed
with the ERC an amended application entitled “In the Matter of the
Application for the Recovery of the Independent Power Producers
Cost under the GRAM”
o In the amended application, MERALCO averred that it had
recalculated its proposed generation charge aimed at
updating the generation charge of P3.18 to P3.46
o Among others, MERALCO averred that the proposed
generation charge of P3.46 was computed in conformity with
the generation rate formula under the GRAM.
o Thus, MERALCO prayed that the said proposed generation
charged be approved for implementation.
 In the assailed June 2004 Order, the ERC approved the increase of
MERALCO’s generation charge albeit only from P3.18 to P3.31, the
same to take effect immediately.
 ISSUE / RATIO
1. WON the ERC committed GAOD in issuing the Order which approve
the increase of MERALCO’s generation charge effective immediately
without publication of the latter’s amended application – YES
A. NASECORE’s Arguments
 NASECORE seeks to nullify ERC’s June 2004 Order for lack of
requisite publication of MERALCO’s amended application, thereby
depriving them of procedural due process.
o They also invoked Sec. 4(e), Rule 3 of EPIRA (see Appendix)
 NASECORE contends that the Order is devoid of any basis as MERALCO
did not comply with the requisite publication such that its amended
application was not published in a newspaper of general circulation.
o As a result of the omission, they were not able to file their
comments on MERALCO’s amended application for the increase
of the generation charge.
 Invoking the SC’s ruling in FDC vs. ERC and MERALCO, NASECORE
concludes that failure to comply with the publication requirement renders
the assailed ERC’s June 2004 Order null and void.
B. MERALCO’s Counter-Arguments
 MERALCO argues that its amended application for the increase of its
generation charge is excluded and / or exempted from the application
of the publication requirement, among others, in Sec. 4 (e), Rule 3 of
the EPIRA IRR.
o The applicable rules are the GRAM IRR such that these rules
govern any petition for the recovery of fuel and purchased
power costs.
NOTE: Skippable Part (History of PPA and GRAM)
 To support its contention, MERALCO explains the nature and history of
the PPA which was replaced by GRAM:
o In 1974, MERALCO owned and operated all the power plants it
was using.
 At the time, it charged the basic power rates based on the
cost of fuel and exchange rate at the time of the
application for approval of the adjusted rates.
o Sometime in 1975, it sold to NAPOCOR its five baseload
generating power plants.
 As a result of the sale, MERALCO agreed with
NAPOCOR for the latter to supply all the electric power
needed by the former to service its customers within its
franchise areas.
 Under the agreement, the electric power and
energy purchased by MERALCO from
NAPOCOR would be priced at thermal
generating cost, subject to fuel cost adjustment
by NAPOCOR.
 The fuel cost adjustment allows the latter to
recover the increases in fuel oil over and above a
base price.
o In 1978, MERALCO applied with the Board of Power and
Waterworks (BPW) for the approval of Purchased Power Cost
Adjustment to cover the increase in the cost of electric power and
energy being purchased from NAPOCOR.
 MERALCO also applied for the approval of a fuel
adjustment clause for the three peak-load plants over
which it retained ownership.
o In 1980, the Board of Energy (BOE), which took over the functions
of the BPW, authorized the PPA clause stating that it was "strictly
for the purpose of cost recovery only."
 In other words, every increase in the cost of fuel oil to
NAPOCOR above a base price is reflected in its fuel cost
adjustment.
 NAPOCOR thus increases correspondingly the price of
the power sold to respondent MERALCO, which then
passes the same to the customers under the authority of
the PPA clause.
o In 1987, under EO No. 172, the Energy Regulatory Board (ERB)
was created.
 It was granted regulatory and adjudicatory powers and
functions covering the energy sector.
 In addition to its various powers and functions, the ERB
was mandated to enforce the pertinent provisions of RA
No. 7832.
 To ensure the viability of private electric utilities,
RA No. 7832 allows distribution utilities to pass on
to its consumers system losses equivalent to
either the actual kilowatt energy lost due to
technical and non-technical/pilferage causes, or
the cap imposed by law, whichever is lower.
 Said law provides that in no case shall the system
loss cap be lower than 9%
 Pursuant to RA No. 7832, the ERB adopted a formula to
be used in computing the PPA to be charged by
respondent MERALCO to its customers.
 The new PPA formula included among its
components the system loss, franchise tax, the
automatic cost adjustments and other
adjustments of NAPOCOR and other IPPs and
the generation cost of electricity.
 o The said PPA formula subsequently underwent several
modifications.
 Each revision was approved by the ERB after service of
the notices of public hearing on the respective mayors of
the cities and municipalities within respondent
MERALCO’s franchise area, posting thereof on the
respective bulletin boards of the said local government
units, and publication in two newspapers of general
circulation.
o Thereafter, the EPIRA was enacted on June 8, 2001.
 As stated earlier, among other reforms in the electric
power industry, the said law created the ERC.
 Section 36 of the EPIRA directed all distribution utilities to
file with the ERC an application for the approval of their
unbundled rates.
 According to MERALCO, he GRAM is an adjustment recovery mechanism
which replaces the automatic recovery adjustment mechanisms (Fuel and
Purchased Power Cost Adjustments) of NAPOCOR and the PPA of the
distribution utilities.
o The GRAM would allow the periodic (quarterly) adjustment of the
generation charge to reflect changes in fuel and purchased power
costs after review by the ERC and before the costs are passed on
to the customers.
NOTE: Skippable Part Ends Here (History of PPA and GRAM)
 The authority of the ERC to promulgate the GRAM IRR is found in Sec. 43
of the EPIRA which requires the said regulatory body to, among others,
"establish and enforce a methodology for setting transmission and
distribution wheeling rates and retail rates for the captive market of a
distribution utility…”
 MERALCO asserts that Sec. 4 (e), Rule 3 of the EPIRA IRR requiring
the publication of its application in a newspaper of general
circulation and the service of a copy to the concerned local
government is inapplicable.
o Rather, its amended application for the increase of its
generation charge is governed by the GRAM IRR Sec. 5 (see
Appendix) adopted by ERC.
 MERALCO opines that to require it to comply with the requirements of
Section 4(e), Rule 3 of the IRR of the EPIRA would defeat the reason
behind the implementation of the adjustment mechanism which, quoting
the ERC, is "to balance the need for timely recoveries of costs by the
Utilities with the Commission’s need to review the reasonableness and
prudence of such costs."
 MERALCO points out that Section 4(e), Rule 3 of the IRR of the EPIRA is
inconsistent with the GRAM IRR specifically with respect to the period
within which the ERC is mandated to render its decision on the application.
o Under the former, the ERC may issue a provisional authority within
seventy-five (75) days from the filing of the application or petition
and shall decide the matter on the merits not later than twelve (12)
months from the issuance of said provisional order.
o On the other hand, the GRAM IRR allows the distribution utilities
to apply for adjustment quarterly and the ERC must decide the
application within forty-five (45) days from receipt thereof, before
the costs may be passed on to the consumers. Otherwise, the
application shall be deemed approved.
 It would be allegedly violative of due process to require MERALCO to
comply with Section 4(e), Rule 3 of the IRR of the EPIRA and subject it to
a long and tedious process of recovering its fuel and purchased power
costs.
o Such would be contrary to the intent and purpose of the GRAM
IRR.
On NASECORE’s Claim of Denial of Due Process
 MERALCO refutes the NASECORE’s claim of denial of due process.
o It alleges that the petitioners were given every opportunity to be
heard in a public consultation and submit their written comments.
o MERALCO quotes the ERC Order containing the GRAM IRR
which states that the same was issued only after the ERC "has
taken into consideration all the documents, data, comments and
concerns raised by all the parties concerned who have submitted
their respective positions thereon."
 MERALCO contends that the petitioners cannot deny any knowledge of
the GRAM IRR particularly on the manner and timeline for filing an
application for GRAM and the period within which the ERC must act and
decide thereon.
o Accordingly, even without need of publication, posting and service
to the local government units concerned, the petitioners should
have allegedly filed their opposition to respondent MERALCO’s
amended application to increase its generation charge.
o Further, they should have filed their comment or opposition
thereon within the forty-five (45) day-period within which the ERC
was required to render its decision. The petitioners’ omission is
allegedly fatal to their present cause of action.
 MERALCO observes that the petitioners did not appeal the Order dated of
the ERC adopting the GRAM IRR.
o Neither have they allegedly shown that they were deprived of their
right to be heard when the said rules were promulgated.
 o For this lapse, MERALCO stresses that the petitioners have no
personality to claim denial of due process and prays that the Court
dismiss the present petition.
C. ERC’s Counter-Arguments
 The ERC defends the validity of the June 2004 Order approving the
increase of MERALCO’s generation charge from P3.18 to P3.32 effective
immediately.
o According to the ERC, the said order was issued in accordance
with the GRAM IRR it promulgated
 The ERC denies having committed any GAOD in issuing the Order
o Like MERALCO, the ERC asserts that the procedure prescribed
under the GRAM IRR, particularly Section 2 and 5 thereof,
radically differs from that provided for in Section 4(e), Rule 3 of the
IRR of the EPIRA
o Specifically, the GRAM IRR do not require that the application
of a distribution utility like MERALCO under the said rules be
published or that comments of local government units and
the consumers thereon be solicited.
 The procedure prescribed by the GRAM Implementing Rules is
markedly different from that of the IRR of the EPIRA because the
GRAM was intended to be an adjustment mechanism and not an
independent rate application by itself.
o Only the latter falls within the contemplation of the IRR of the
EPIRA.
On the Publication of the GRAM IRR
 The ERC stresses that the GRAM IRR set forth in its Order dated
February 24, 2003 was duly published and submitted for exhaustive
public consultation.
o The ERC points out that, as recounted in the said order, the
following procedural steps were taken leading to the
adoption of the GRAM and ICERA Implementing Rules:
 On Jan. 29, 2003, the ERC issued an Order setting for
public consultation its proposed IRR for (DÉCOR) and
(DICER) on February 17, 2003.
 Likewise, a Notice of the same tenor as the above-
mentioned Order was published by the Commission
in the Philippine Star on February 3, 2003.
 In the aforesaid Order and Notice, interested parties
were directed to submit their written comments on the
said proposed implementing rules on or before
February 12, 2003.
ERC’s Conclusion
 Hence, petitioners cannot now claim denial of due process due to the non-
publication of respondent MERALCO’s amended application.
o The ERC contends that it resolved the same in accordance with
the GRAM IRR which, unlike the PPA, allowed the ERC to validate
the costs associated in generating electricity before they are
passed on to the consumers.
o Consequently, ERC did not commit GAOD when it issued the June
2004 Order approving respondent MERALCO’s revised
generation charge
SUPREME COURT:
 Contrary to the stance taken by MERALCO and ERC, the amended
application of respondent MERALCO for the increase of its
generation charge is covered by Section 4(e), Rule 3 of the IRR of the
EPIRA.
 MERALCO and ERC contend that this provision applies only to
independent rate applications and not to adjustment mechanisms like the
GRAM; hence, MERALCO’s amended application for the increase of its
generation charge is excluded and/or exempted from the application of the
requirements of the above-quoted provision.
o This contention is erroneous. 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."
 Section 4(e), Rule 3 of the IRR of the EPIRA speaks of "any
application or petition for rate adjustment" without making any
distinctions.
o Hence, any application or petition that would result in the
adjustment or change in the total price (retail rate) paid by the
end-users, whether this change or adjustment is occasioned
by the adjustment or change in the charges for generation,
transmission, distribution, supply, etc., falls within its
contemplation.
o In any case, that respondent MERALCO’s amended application is
covered by the said provision is mandated by the fact that the relief
prayed for therein clearly affects the consumers as it results in the
increase of the costs of their electricity consumption.
Application of FDC vs. ERC and MERALCO
 Among the important requirements under Sec. 4 (e) of the EPIRA IRR are:
o First, the publication of the application itself, not merely the notice
of hearing issued by the ERC, in a newspaper of general
circulation in the locality where the applicant operates and;
 o Second, the need for the ERC to consider the comments or
pleadings of the customers and LGU concerned in its action on
the application or motion for provisional rate adjustment.
 The SC reasoned that the publication and comment requirements are in
keeping with the avowed policies of the EPIRA, to wit: “To protect the
public interest vis-à-vis the rates and services of electric utilities and other
providers of electric power, to ensure transparent and reasonable prices
of electricity…”
o Clearly, therefore, although the new requirements are procedural
in character, they represent significant reforms in public utility
regulation as they engender substantial benefits to the
consumers.
o It is in this light that the new requirements should be appreciated
and their observance enforced.
SC’s Conclusion:
 The lack of publication of respondent MERALCO’s amended
application for the increase of its generation charge is thus fatal.
o By this omission, the consumers were deprived of the right
to file their comments thereon.
o Consequently, the assailed Order dated June 2, 2004 issued
by the ERC, approving the increase of respondent
MERALCO’s generation charge from ₱3.1886 to ₱3.3213 per
kWh effective immediately, was made without giving the
consumers any opportunity to file their comments thereon in
violation of Section 4(e), Rule 3 of the IRR of the EPIRA.
 Indeed, the basic postulate of due process ordains that the consumers be
notified of any application, and be apprised of its contents, that would
result in compounding their economic burden.
o In this case, the consumers have the right to be informed of the
bases of respondent MERALCO’s amended application for the
increase of its generation charge in order to, if they so desire,
effectively contest the same.
 It has also been stated that: “The requirement of due process is not some
favor or grace that the ERC may dole out on a bout of whim or on occasion
of charity. Rather, it is a statutory right to which the consuming public is
entitled.”
 The requirement of publication in applications for rate adjustment is
not without reason or purpose.
o It is ancillary to the due process requirement of notice and
hearing. Its purpose is not merely to inform the consumers
that an application for rate adjustment has been filed by the
public utility.
o It is to adequately inform them that an application has been
made for the adjustment of the rates being implemented by
the public utility in order to afford them the opportunity to be
heard and submit their stand as to the propriety and
reasonableness of the of the rates within the period allowed
by the Rule.
o Without the publication of the application, the consumers are
left to second-guess the substance and merits of the
application.
 At this point, it should be stated that the Court is not convinced by
MERALCO’s argument that to require it to comply with Section 4(e), Rule
3 of the IRR of the EPIRA would be a violation of its right to due process
because it would be subjected to a long and tedious process of recovering
its fuel and purchased power costs.
o In FDC, the Court categorically upheld the ERC’s power to grant
provisional adjustments or power of interim rate-regulation.
o Such power is intended precisely for the ERC to, as Mr. Justice
Reynato S. Puno in his Concurring and Dissenting Opinion
succinctly put it, "be able to swiftly and flexibly respond to the
exigencies of the times."
 He elucidated further on the raison d’etre of the power of
interim rate-regulation particularly in the context of our
country’s economic history:
 Our economic history teaches us that the
Philippines is vulnerable to the rapid fluctuations
in the exchange rate. In recent years, we saw how
numerous industries failed to survive the Asian
financial crises fueled by the uncertainties of
exchange rates. All these have had adverse
financial impact on public utilities such as Meralco
in terms of skyrocketing costs of debt servicing,
and maintenance and operating expenses. A
regulator such as the ERC should have sufficient
power to respond in real time to changes wrought
by multifarious factors affecting public utilities.
o Thus, respondent MERALCO’s apprehension of being subjected
to a long and tedious process with respect to the recovery of its
fuel and purchased power costs is, in fact, addressed by the power
of the ERC to grant provisional rate adjustments.
On the Non-Publication of the GRAM IRR in the Official Gazette
 There is another compelling reason why reliance by MERALCO and the
ERC on the GRAM IRR is unavailing.
o To recall, they advance the view that the June 2004 ERC Order is
valid, notwithstanding the fact that MERALCO’s amended
application was not published in a newspaper of general
circulation, because the same was issued in accordance with the
GRAM IRR which does not require such publication.
 o It does not appear from the records, however, that the GRAM IRR,
has been published in the Official Gazette or in a newspaper of
general circulation.
 EO 200, which repealed Article 2 of the Civil Code, provides that "laws
shall take 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 it is otherwise provided."
o In Tañada vs. Tuvera: “Administrative rules and regulations must
also be published if their purpose is to enforce or implement
existing law pursuant also to a valid delegation”
On the Non-Publication of the GRAM IRR with the National
Administrative Register
 In many cases, the administrative issuances questioned therein were
uniformly struck down as they were not published or filed with the National
Administrative Register.
 In this case, the GRAM IRR must be declared ineffective as the same was
never published or filed with the National Administrative Register.
On the Participation of Concerned Parties in Public Consultations vis-à-
vis the Publication Requirement
 To show that there was compliance with the publication requirement,
MERALCO and the ERC dwell lengthily on the fact that the parties,
particularly the distribution utilities and consumer groups, were duly
notified of the public consultation on the ERC’s proposed implementing
rules. These parties participated in the said public consultation and even
submitted their comments thereon.
 The fact that the parties participated in the public consultation and
submitted their respective comments is not compliance with the
fundamental rule that the GRAM IRR, or any administrative rules
whose purpose is to enforce or implement existing law, must be
published in the Official Gazette or in a newspaper of general
circulation.
o 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.
 It is not correct to say that under the disputed clause publication may be
dispensed with altogether.
o The reason is that such omission would offend due process
insofar as it would deny the public knowledge of the laws that are
supposed to govern it.
o Surely, if the legislature could validly provide that a law shall
become effective immediately upon its approval notwithstanding
the lack of publication (or after an unreasonably short period after
publication), it is not unlikely that persons not aware of it would be
prejudiced as a result; and they would be so not because of a
failure to comply with it simply because they did not know of its
existence.
On the Bill of Right – The Right of the People to Information on matters
of Public Concern
 With respect to the GRAM IRR, its publication in the Official Gazette or in
a newspaper of general circulation is mandated by the fact that these rules
seek to implement key provisions of the EPIRA.
o More importantly, the GRAM IRR, insofar as it lays down the
procedure by which generation costs of distribution utilities are
recovered, affect ultimately the public as consumers of electricity
and who pay the charges therefor.
 Clearly, the GRAM IRR affects the public inasmuch as it determines the
costs of electricity consumption.
o The public, not only the parties to the cases before the ERC, has
the right to be apprised of the contents of the GRAM IRR by
publication of the same in the Official Gazette or in a newspaper
of general circulation in the Philippines – to the end that it be given
amplest opportunity to voice out whatever opposition it may have,
and to ventilate its stance on the matter.
OVERALL
 In light of the foregoing disquisition, the assailed ERC Order dated
June 2, 2004 approving the increase of respondent MERALCO’s
generation charge from ₱3.1886 to ₱3.3213 per kWh effective
immediately is nullified for having been issued with grave abuse of
discretion.
DISPOSITIVE NASECORE’s PETITION is GRANTED
ERC’s June 2004 ORDER is DECLARED VOID, SET-ASIDE