SUPREME COURT ORDERS ALL POWER SUPPLY AGREEMENTS SUBMITTED BY DISTRIBUTION UTILITIES WITH ERC ON OR AFTER 30 JUNE 2015 TO UNDERGO COMPETITIVE SELECTION PROCESS

May 6, 2019

The Supreme Court in their special En Banc session on 03 May 2019 and in a decision penned by Senior Associate Justice Antonio T. Carpio, ruled that all Power Supply Agreements (“PSA”) submitted by Distribution Utilities (“DU”) with the Energy Regulatory Commission (“ERC”) on or after 30 June 2015 must undergo a Competitive Selection Process (“CSP”).

The decision was in connection with the case entitled:

Alyansa Para Sa Bagong Pilipinas, Inc., represented by Evelyn V. Jallorin and Noel Villones, Petitioner vs. Energy Regulatory Commission, represented by its Chairperson Jose Vicente B. Salazar, Department of Energy, represented by Alfonso G. Cusi, Meralco, Central Luzon Premier Power Corporation, St. Raphael Power Generation Corporation, Panay Energy Development Corporation, Mariveles Power Generation Corporation, Global Luzon Energy Development Corporation, Atimonan One Energy Inc., Redondo Peninsula Energy Inc., and Philippine Competition Commission (G.R. No. 227670).

CSP is a form of competitive public bidding for the purchase of electricity by DUs. The requirement for a competitive public bidding in the power sector is primarily aimed at ensuring a fair, reasonable, and cost effective generation charge for consumers, under a transparent power sale mechanism between the generation companies and the DUs. The CSP was formulated for the protection of the consuming public.

Pursuant to the mandate of the Department of Energy (“DOE”) under the Electric Power Industry Reform Act of 2001 (“EPIRA”) to “formulate such rules and regulations as may be necessary to implement the objectives of this Act (EPIRA),”  the DOE in 2015 issued DOE Circular No. DC2015-06-0008 (“2015 DOE Circular”).

The 2015 DOE Circular mandated all DUs to undergo CSP in securing PSAs. The said 2015 DOE Circular became effective on 30 June 2015 after its publication.

However, on 20 October 2015, the ERC issued Resolution No. 13. The said ERC Resolution No. 13 stated that pending the issuance by the ERC of a prescribed CSP, a DU may adopt any accepted form of CSP, subject to certain minimum requirements or standards to be incorporated in the terms of reference. It also allowed direct negotiation after at least two failed CSPs.

More significantly, ERC Resolution No. 13 set the cut-off date for the compliance of the CSP requirement to 07 November 2015 instead of 30 June 2015. This effectively postponed the implementation of the provisions of the 2015 DOE Circular requiring the conduct of CSPs in the purchase of electricity by the DUs by 130 days.

Section 4 of ERC Resolution No. 13 provides:

Section 4. Applicability. The CSP requirement herein mandated shall not apply to PSAs already filed with the ERC as of the effectivity of this Resolution . For PSAs already executed but are not yet filed or for those that are still in the process of negotiation, the concerned DUs are directed to comply with the CSP requirement before their PSA applications will be accepted by the ERC.

Hence, ERC Resolution No. 13 no longer required a CSP for PSAs already filed with the ERC on or before 07 November 2015.

Thereafter on 15 March 2016, the ERC issued ERC Resolution No. 1. This time, the said resolution restated that the effectivity of the CSP requirement for PSAs is on 30 April 2016 instead of 07 November 2015, as previously set in ERC Resolution No. 13.

With the issuance of ERC Resolution No. 13 and ERC Resolution No. 1, the implementation of the CSP under the 2015 DOE Circular was effectively postponed for total of 305 days, from 30 June 2015 to 29 April 2016.

In the meantime, a total of ninety (90) PSAs were submitted for approval with the ERC for the period covering 16 April 2016 to 29 April 2016. The Supreme Court likewise noted that several of the submitted PSAs had terms spanning more than twenty years.

In granting the petition, the Supreme Court ruled that the ERC committed grave abuse of discretion amounting to lack or excess of jurisdiction when it unilaterally postponed the effectivity of the CSP requirement by issuing ERC Resolution No. 13 and ERC Resolution No. 1.

The Supreme Court said that the authority of the ERC was limited only to the implementation of the CSP, and that the ERC had no power and authority to postpone the CSP’s application.

Justice Carpio wrote:

“The ERC’s delegated authority is limited to implementing or executing Competitive Selection Process (CSP) in accordance with the 2015 DOE Circular, not postponing CSP so as to freeze CSP for at least 20 years, effectively suspending CSP for one entire generation of Filipinos. The delegated authority to implement CSP does not include the authority to postpone or suspend CSP for 20 years, beyond the seven-year terms of office of the ERC Commissioners postponing or suspending the CSP, and beyond the seven-year terms of office of their next successors, as well as beyond the six-year terms of office of three Presidents of the Republic.”

As a consequence of the ruling by the Supreme Court, all PSA applications submitted by the DUs on or after 30 June 2015 were required to comply with the CSP in accordance with 2015 DOE Circular. Thereafter, the Supreme Court further ordered that the power purchase cost after compliance with the CSP shall retroact to the date of the effectivity of the PSA, but in no case earlier than 30 June 2015, for purposes of passing the purchase cost to the consumers.

The court voted as follows:

The following Justices voted to grant the petition –

  1. Chief Justice Lucas P. Bersamin
  2. Senior Associate Justice Antonio Carpio
  3. Justice Diosdado Peralta
  4. Justice Mariano Del Castillo
  5. Justice Estela Perlas-Bernabe
  6. Justice Marvic M.V.F. Leonen
  7. Justice Jose Reyes, Jr.
  8. Justice Ramon Paul Hernando, and
  9. Justice Rosmari Carandang
  10. Justice Amy Lazaro-Javier

The following Justices voted to deny the petition –

  1. Justice Alfredo Benjamin Caguioa
  2. Justice Andres Reyes, Jr.

The following Justice abstained –

  1. Justice Francis Jardeleza

The following Justice took no part –

  1. Justice Alexander Gesmundo (on official leave)