8. asso v energy

8/18/2019 8. Asso V Energy

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s(

$ R'6 R 'U/&T#R6 "#!! SS #$, Respondent(

9 " S # $

"&RP #, J(:

The "ase

This is a Petition for Re ie; on "ertiorari1 under Rule


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Section 10( RationaliCation of Syste* /osses by Phasin? out Pilfera?e /osses as"o*ponent Thereof( F There is hereby established a cap on the reco erable rate ofsyste* losses as follo;s:

b -or rural electric cooperati es:

i T;enty8t;o percent 22G at the end of the Drst year follo;in? the eHecti ity ofthis &ctI

ii T;enty percent 20G at the end of the second year follo;in? the eHecti ity ofthis &ctI

iii i?hteen percent 1+G at the end of the third year follo;in? the eHecti ity ofthis &ctI

i Si teen percent 1>G at the end of the fourth year follo;in? the eHecti ity ofthis &ctI and

-ourteen percent 1


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The *ple*entin? Rules and Re?ulations RR of R(&( $o( 7+=2 reKuired e ery ruralelectric cooperati e to Dle ;ith the ner?y Re?ulatory %oard R% , on or before =0Septe*ber 1))5, an application for appro al of an a*ended PP& "lauseincorporatin? the cap on the reco erable rate of syste* loss to be included in itsschedule of rates(+ Section 5, Rule L of the RR of R(&( $o( 7+=2 pro ided for thefollo;in? ?uidin? for*ula for the a*ended PP& "lause:

Section 5( &uto*atic "ost &dAust*ent -or*ula( F

The auto*atic cost adAust*ent of e ery electric cooperati e shall be ?uided by thefollo;in? for*ula:

Purchased Po;er &dAust*ent "lause

PP& M &

8

%8 " N 9

Where:

& M "ost of electricity purchased and ?enerated for the pre ious *onth

% M Total O;h purchased and ?enerated for the pre ious *onth


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" M The actual syste* loss but not to e ceed the *a i*u* reco erable rate ofsyste* loss in O;h plus actual co*pany use in O;hrs but not to e ceed 1G of totalO;hrs purchased and ?enerated

9 M O;h consu*ed by subsidiCed consu*ers

M &pplicable base cost of po;er eKual to the a*ount incorporated into theirbasic rate per O;h

n co*pliance ;ith the RR of R(&( $o( 7+=2, arious associations of rural electriccooperati es throu?hout the Philippines Dled on behalf of their *e*bers

applications for appro al of a*ended PP& "lauses( #n + -ebruary 1))>, &ST " Dledon behalf of its *e*bers includin? %&T / " , 3U 4 /"# and 3U 4 /"# aeriDed petition for the appro al of the a*ended PP& "lause( The eriDed petition of

&ST " ;as doc eted as R% "ase $o( )>8=5() #n ) -ebruary 1))>, "/ "& also Dledon behalf of its *e*bers includin? PR S"# a eriDed petition for the appro al ofthe a*ended PP& "lause( The eriDed petition of "/ "& ;as doc eted as R% "ase$o( )>8=7(10

The R% issued #rders on 1) -ebruary 1))711 and 25 &pril 1))712 pro isionally

authoriCin? the petitioners and the other rural electric cooperati es to use andi*ple*ent the follo;in? PP& for*ula, subAect to re ie;, eriDcation andconDr*ation by the R%:

PP& M &

8

%8 " N " N 9

Where:

& M "ost of lectricity purchased and ?enerated for the pre ious *onth lessa*ount reco ered fro* pilfera?es, if any


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" M &ctual syste* loss but not to e ceed the*a i*u* reco erable rate ofsyste* loss in O;h

"1 M &ctual co*pany use in O;hrs but not to e ceed 1G of total O;hrspurchased and ?enerated


M &pplicable base cost of po;er eKual to the a*ount incorporated into theirbasic rate per O;h

The R% further directed petitioners to sub*it rele ant docu*ents re?ardin? the*onthly i*ple*entation of the PP& for*ula for re ie;, eriDcation andconDr*ation( The #rders dated 1) -ebruary 1))7 and 25 &pril 1))7 co**onlypro ide:

&ccordin?ly, all electric cooperati es are hereby directed to sub*it to the %oard;ithin ten 10 days fro* notice hereof their *onthly i*ple*entation of the PP&for*ula fro* the -ebruary, 1))> to January, 1))7 for the %oard s re ie;,

eriDcation and conDr*ation( The sub*ission should include the follo;in?docu*ents:

1( PP& co*putation follo;in? the for*ula pro ided abo e

2( !onthly $P" bill or such other po;er bill purchased or ?enerated not yetfor;arded to R% fro* January 1))5 on;ard

=( !onthly -inancial and Statistical Report !-SRs not yet for;arded to R% fro* January 1))5 on;ard


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or the lectric Po;er ndustry Refor* &ct of 2001P R& ;as enacted( Section =+ of the P R& abolished the R%, and created the

ner?y Re?ulatory "o**ission R" ( The R" is an independent and Kuasi8Audicial

re?ulatory body *andated to Epro*ote co*petition, encoura?e *ar etde elop*ent, ensure custo*er choice and penaliCe abuse of *ar et po;er in therestructured electricity industry(E1< The po;ers and functions of the R% notinconsistent ;ith the pro isions of the P R& ;ere transferred to the R", to?ether;ith the applicable funds and appropriations, records, eKuip*ent, property andpersonnel of the R%(15

&s a result, R% "ase $o( )>8=5 in ol in? &ST " and its *e*bers includin?%&T / " , 3U 4 /"# and 3U 4 /"# ;as rena*ed and renu*bered as R"

"ase $o( 20018==+(1> R% "ase $o( )>8=7 in ol in? "/ "& and its *e*bersincludin? PR S"# ;as also rena*ed and renu*bered as R" "ase $o( 20018

=


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1( n the conDr*ation of past PP&s, the po;er cost shall still be based on E?rossEIand

2( n the conDr*ation of future PP&s, the po;er cost shall be based on EnetE(

Relati e thereto, petitioners are directed to i*ple*ent their respecti e PP& usin?the po;er cost based on net at the ne t billin? cycle upon receipt of this #rder untilsuch ti*e that their respecti e rates ha e already been unbundled(

Petitioners are hereby directed to sub*it to the "o**ission on or before the 20thday of the follo;in? *onth, their i*ple*entation of the PP& for*ula for re ie;,

eriDcation and conDr*ation by the "o**ission(21

#n 2) !arch 200


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Se eral rural electric cooperati es subseKuently Dled *otions for clariDcation andBorreconsideration ;ith respect to the R" s process of co*putation and conDr*ationof the PP&( The rural electric cooperati es ad anced the follo;in? alle?ations:

1( They are non8proDt or?aniCations and their rate co*ponents do not include anypossible e tra re enue e cept the discountsI and

2( They are burdened ;ith e penses in their continuin? e pansion pro?ra*s of ruralelectriDcation to the re*otest baran?ays and sitios of their respecti e franchiseareas and could not ?i e any beneDt or incenti e to their e*ployees(2=

#n 1< January 2005, the R" issued an #rder addressin? the *otions forclariDcation andBor reconsideration Dled by the rural electric cooperati es( n thesaid #rder, the R" e pounded on the ?eneral fra*e;or of the ne; PP&conDr*ation sche*e( The R" stated that Ethe ne; PP& sche*e creates a enue;here both the electric cooperati es can reco er and the end8users can be char?edthe true cost of po;er(E2< The R" stressed that Ethe purchased po;er cost is apass throu?h cost to custo*ers and as such, the sa*e should be re enueneutral(E25 n other ;ords, rural electric cooperati es should only reco er fro* their*e*bers and patrons the actual cost of po;er purchased fro* po;er suppliers(2>

n the sa*e #rder, the R" clariDed certain aspects of the ne; PP& conDr*ationsche*e( With respect to the data to be utiliCed in the conDr*ation of the PP&, the

R" stated:

&ll electric cooperati es ;ere directed to i*ple*ent the PP& in the *anner the thenner?y Re?ulatory %oard R% had prescribed( n calculatin? their respecti e PP&s,

the electric cooperati es had no alternati e but to adopt the *ost a ailable data forthe respecti e billin? *onths, i(e( the pre ious *onth, due to ti*e la? diHerences(Under the ne; PP& conDr*ation sche*e, the actual data for the billin? *onth shallbe adopted pri*arily because they re ect the true cost of po;er, they are a ailableat the ti*e the conDr*ation is underta en and they ha e already been char?ed tothe end8users( Thus, the ne; PP& sche*e creates a enue ;here both the electriccooperati es can reco er and the end8users can be char?ed the true cost of po;er(

There ;ill also be proper *atchin? of re enue and cost(27


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&s re?ards the cap on the reco erable rate of syste* loss, the R" e plained:

The caps on the reco erable syste* loss pro ided in R(&( 7+=2 ;ere established toencoura?e distribution utilities to operate e@ciently( Since the PP& is *erely a costreco ery *echanis*, the electric cooperati es are not supposed to earn re enuenor suHer losses therefro*( To allo; the* to adopt the caps e en in cases ;herethe syste* losses are actually lo;er ;ould be contrary to the underlyin? principle of a reco ery *echanis*(2+

-inally, ;ith respect to the Pro*pt Pay*ent 9iscount PP9 e tended by po;ersuppliers to rural electric cooperati es, the R" reiterated that rural electric

cooperati es should only reco er the actual costs of purchased po;er(2) Thus, anydiscounts e tended to rural electric cooperati es *ust necessarily be e tended toend8users by char?in? only the EnetE cost of purchased po;er(

n li?ht of the fore?oin? clariDcations, the R" outlined the follo;in? directi es inthe said #rder:

&( The co*putation and conDr*ation of the PP& prior to the "o**ission s #rderdated June 17, 200= shall be based on the appro ed PP& for*ulaI

%( The co*putation and conDr*ation of the PP& after the "o**ission s #rder dated June 17, 200= shall be based on the po;er cost EnetE of discountI and

"( f the appro ed PP& for*ula is silent on the ter*s of discount, the co*putationand conDr*ation of the PP& shall be based on the po;er cost at E?rossE, subAect to

the sub*ission of proofs that said discounts are bein? e tended to the end8users(=0

SubseKuently, the R" issued the follo;in? #rders:


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1( 22 !arch 200> #rder in R" "ase $o( 20018==+ re?ardin? the *onthly PP&i*ple*entation of %&T / " I

2( 1> -ebruary 2007 #rder in R" "ase $o( 20018==+ re?ardin? the *onthly PP&i*ple*entation of 3U 4 /"# I

=( 7 9ece*ber 2005 #rder in R" "ase $o( 20018==+ re?ardin? the *onthly PP&i*ple*entation of 3U 4 /"# I and

#rder in R" "ase $o( 20018=


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The R" then directed petitioners to refund their respecti e o er8reco eries to end8users arisin? fro* the i*ple*entation of the PP& "lause under R(&( $o( 7+=2 and its

RR, as follo;s:

1( 22 !arch 200> #rder=2

n the #rder dated 22 !arch 200>, the R" e aluated the *onthly PP&i*ple*entation of %&T / " co erin? the period fro* -ebruary 1))> to Septe*ber2005,)+1(00 to its total po;er costI and

=( The ne; ?rossed8up factor *echanis* adopted by the "o**ission ;hichpro ided a true8up *echanis* that allo;s the distribution utilities to reco er theactual cost of purchased po;er(==

The R" conDr*ed the PP& of %&T / " co erin? the period fro* -ebruary 1))> toSepte*ber 200


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2( 1> -ebruary 2007 #rder=5

n the #rder dated 1> -ebruary 2007, the R" e aluated the *onthlyPP&i*ple*entation of 3U 4 /"# for the period fro* January 1))) to &pril 20011,0=>(00I


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The R" conDr*ed the PP& of 3U 4 /"# for the period of January 2000 to$o e*ber 200=, and directed 3U 4 /"# Eto refund the a*ount of P0(1000B Whstartin? on the ne t billin? cycle fro* receipt of this #rder until such ti*e that the

full a*ount shall ha e been refunded(E to June 200


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2,1+5,+12(00( PR S"# did not e tend the discounts to the end users( Thus, the"o**ission considered PR S"# s actual re enue( to June 200 #rder of the R" directin? the rural electric cooperati e to refund itso er8reco eries( The petition li e;ise assailed the ) !ay 2007 #rder of the R"denyin? the *otion for reconsideration of PR S"#( The case ;as doc eted as "&8'(R( SP $o( ))25=( The "ourt of &ppeals subseKuently consolidated these cases;ith the petitions Dled by other rural electric cooperati es and their associations inrelation to the refund of their respecti e o er8reco eries( The consolidated casesinclude "&8'(R( SP $os( ))2


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2( Whether the syste* loss caps should still be i*posed e en after the eHecti ity ofR(&( )1=>I

=( Whether the R" *ay alidly issue rules and re?ulations for the i*ple*entationof the pro isions of R(&( $o( 7+=2 by ;ay of #rders or 9ecisions ;ith retroacti eeHectI


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n its 2= 9ece*ber 200+ 9ecision, the "ourt of &ppeals denied the petitions forre ie; of the rural electric cooperati es, and a@r*ed the #rders of the R"directin? the arious rural electric cooperati es to refund their respecti e o er8reco eries( &t the outset, the "ourt of &ppeals stated that Eto the e tent that thead*inistrati e a?ency has not been arbitrary or capricious in the e ercise of its

po;er, the ti*e8honored principle is that courts should not interfere(E>0

With respect to the constitutionality of Section 10 of R(&( $o( 7+=2, the "ourt of&ppeals ruled that the challen?e a*ounts to a collateral attac that is prohibited bypublic policy(>1

With re?ard to the i*position of the syste* loss caps after the eHecti ity of theP R&, the "ourt of &ppeals reco?niCed the a*end*ent to Section 10 of R(&( $o(

7+=2( Section 2

The "ourt of &ppeals li e;ise reAected the contention of petitioners that the R"issued rules and re?ulations for the i*ple*entation of the pro isions of R(&( $o(7+=2 by ;ay of orders or decisions ;ith retroacti e eHect( &ccordin? to the "ourt of&ppeals, the conDr*ation process of the R" enco*passed PP& i*ple*entationperiods after the eHecti ity of R(&( $o( 7+=2, particularly fro* -ebruary 1))> to


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Septe*ber 200= Thus, the "ourt of &ppeals concluded that there ;as noretroacti e application of the la;(

The "ourt of &ppeals further reAected the clai* of denial of due process( The "ourtof &ppeals ruled:

Petitioners li e;ise failed to sho; to #ur satisfaction that the ?uidelines containedin the assailed #rders of respondent R" ;ent beyond *erely pro idin? for the*eans that can facilitate or render less cu*berso*e the i*ple*entation of the la;(

nterpretati e rules ?i e no real conseKuence *ore than ;hat the la; itself hasalready prescribed, and are desi?ned *erely to pro ide ?uidelines to the la; ;hichthe ad*inistrati e a?ency is in char?e of enforcin?(><

&s re?ards the alidity of the denial of petitioners *otions for reconsideration, the"ourt of &ppeals noted that the #rders speciDcally indicated that the si?nature ofthe "o**issioner ;as E-#R &$9 %6 &UT.#R T6 #- T. "#!! SS #$(E>5 The"ourt of &ppeals stated that the R" e a*ined the *otions for reconsideration as acolle?ial body(>> t further e*phasiCed that the interests of substantial Austicepre ail o er the strict application of technical rules(>7

The "ourt of &ppeals further ruled that the R" had le?al and factual bases inchar?in? petitioners ;ith o er8reco eries( The "ourt of &ppeals stated:

Prior to the enact*ent of R(&( $o( 7+=2, petitioners used the !ultiplier Sche*ei*ple*ented by the $ & $ational lectriDcation &d*inistration to reco erincre*ental costs in the po;er purchased fro* $P" F the sole a?ency authoriCed to?enerate electric po;er before the enact*ent of the P R& F and conseKuentsyste* losses that are not included in their respecti e appro ed basic rates( Withthe use of *ultipliers ran?in? fro* 1(2 to 1(


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1(= !ultiplier F -or "s ;ith syste* loss ran?in? fro* 1>G to 22GI and

1(< !ultiplier F -or "s ;ith syste* loss ran?in? fro* 2=G and abo e(

The $ & li e;ise appro ed the inclusion in the basic rates of a separate ite* for/oss /e y "har?e for those electric cooperati es "s ;hose loan co enants ;ithDnancial institutions such as the &sian 9e elop*ent %an &9% li*it theirreco erable syste* loss to 15G(

Thus, petitioners char?ed their consu*ers ESyste* /oss /e yE for syste* losses ine cess of 15G(

Petitioners ad*itted ha in? continued to use the pricin? *echanis*s authoriCed bythe $ & e en after the passa?e of R(&( $o( 7+=2, ;hich repealed the sa*e($eedless to say, the use of said *echanis*s allo;ed the reco ery of syste* lossesbeyond the caps set by the said la;( Petitioners cannot, therefore, successfullyar?ue that respondent R" had no basis in char?in? the* of o er8reco eries as aresult of their failure to co*ply ;ith the la;(>+

With respect to the PP9 and other discounts e tended by po;er suppliers, the "ourtof &ppeals e*phasiCed that rural electric cooperati es *ay only reco er the actualcost of purchased po;er( The "ourt of &ppeals stated:

$o error can li e;ise be attributed to respondent R" in directin? thei*ple*entation of the respecti e PP& of the petitioners usin? the po;er cost net ofdiscounts( &s held in the case of $ational Po;er "orporation s( Philippine lectricPlant #;ners &ssociaton P P#& , nc(, discounts are not a*ounts paid or char?edfor the sale of electricity, but are reductions in rates( !oreo er, We e*phasiCed

here that rate D in? calls for a technical e a*ination and specialiCed re ie; ofspeciDc details ;hich the courts are ill8eKuipped to enter, hence, such *atters arepri*arily entrusted to the ad*inistrati e or re?ulatin? authority( To;ards this end,the ad*inistrati e a?ency, respondent R" in this case, possesses the po;er toissue rules and re?ulations to i*ple*ent the statute ;hich it is tas ed to enforce,and ;hate er is incidentally necessary to a full i*ple*entation of the le?islati eintent should be upheld as ?er*ane to the la;( Respondent R" is *andated toprescribe a rate8settin? *ethodolo?y Ein the public interestE and Eto pro*ote


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e@ciencyE, hence its ?oal of D in? purchased po;er at actual cost should beupheld(>)

The "ourt of &ppeals further reAected the clai* that petitioners ;ere depri ed of theopportunity to be heard( The "ourt of &ppeals ?a e credence to the assertion of the#@ce of the Solicitor 'eneral that Epetitioners ;ere allo;ed to Austify their PP&char?es throu?h the docu*ents that they ;ere reKuired to DleI that the technicalstaH of the R" conducted e it conferences ;ith petitioners representati es todiscuss preli*inary D?ures and they ;ere authoriCed to ?o o er the ;or in? papersto chec out inaccuraciesI and that petitioners ;ere allo;ed to Dle their respecti e*otions for reconsideration after the issuance of the PP& conDr*ation #rders(E70

The rural electric cooperati es thereafter Dled their respecti e *otions forreconsideration of the 2= 9ece*ber 200+ 9ecision of the "ourt of &ppeals( n its 2>&pril 2010 Resolution, the "ourt of &ppeals denied the *otions for reconsideration(

The "ourt of &ppeals obser ed that the issues raised in the *otions forreconsideration ;ere E*ere reiterationsE of the issues addressed in the 2=9ece*ber 200+ 9ecision(71 The "ourt of &ppeals further stated:

$onetheless, We Dnd that the follo;in? disKuisition of the #@ce of the Solicitor'eneral a*ply supports the a@r*ance of the assailed 9ecision, thus:

E12( $otably, respondent did not i*pose rules to set ne; rates, rather, it *erelyconDr*ed ;hether petitioners ha e faithfully co*plied ;ith the reKuire*ents ofreco eries under the pro isionally appro ed PP& for*ula( There is therefore nothin?ne; or no el about the conDr*ation policies of respondent as to ?i e any occasionto retroacti ity(

1=( Kually si?niDcant, it should be underscored that fro* the be?innin?,petitioners authority to reco er their losses based on the PP& for*ula ;erePR# S #$&/, that is, the authority ?ranted to petitioners for reco eries and the*ode of its i*ple*entation is subAect to further reconDr*ation by respondent R"(

The erst;hile R% earlier allo;ed electric cooperati es to i*ple*ent their PP&based on the PP& for*ula that the R% pro isionally appro ed( &s spelled out in the#rder of appro al, ho;e er, such authoriCation ;as pro isional and te*porary, thatis, it is subAect to re?ulation and post hoc re ie;, eriDcation and conDr*ation bythe R%(


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1 to Septe*ber 200


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co*plained of( Where an opportunity to be heard is accorded, as in this case, thereis no denial of due process( $either ;as there a need for the assailed #rders of the

R" to be published as petitioners so ada*antly insist( &s pointed out by the #S',said #rders did not create a ne; obli?ation, i*pose a ne; duty, or attach a ne;disability on the electric cooperati es( They *erely clariDed the policy ?uidelines

adopted in the i*ple*entation of the PP&( &s We ha e said, interpretati e rules ?i eno real conseKuence *ore than ;hat the la; itself has already prescribed(72

.ence, this instant petition Dled by %&T / " , 3U 4 /"# , 3U 4 /"# andPR S"#(

The ssues

Petitioners raise the follo;in? issues:

1( Whether the policy ?uidelines issued by the R" on the treat*ent of discountse tended by po;er suppliers are ineHecti e and in alid for lac of publication, non8sub*ission to the Uni ersity of the Philippines U(P( /a; "enter, and theirretroacti e applicationI and

2( Whether the ?rossed8up factor *echanis* i*ple*ented by the R" in theco*putation of the o er8reco eries is ineHecti e and in alid for lac of publication,non8sub*ission to the U(P( /a; "enter, and its retroacti e application(

The Rulin? of the "ourt

The petition is partly *eritorious(

(


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Petitioners assail the alidity of the 22 !arch 200> #rder,7= 1> -ebruary 2007#rder,7< 7 9ece*ber 2005 #rder,75 and 27 !arch 200> #rder7> of the R"directin? the refund of o er8reco eries for ha in? been issued pursuant toineHecti e and in alid policy ?uidelines( Petitioners assert that the policy ?uidelineson the treat*ent of discounts e tended by po;er suppliers are ineHecti e and

in alid for lac of publication, non8sub*ission to the U(P( /a; "enter, and theirretroacti e application(

Publication is a basic postulate of procedural due process( The purpose ofpublication is to duly infor* the public of the contents of the la;s ;hich ?o ernthe* and re?ulate their acti ities(77 &rticle 2 of the "i il "ode, as a*ended bySection 1 of ecuti e #rder $o( 200, states that Ela;s shall ta e eHect after Dfteendays follo;in? the co*pletion of their publication either in the #@cial 'aCette or ina ne;spaper of ?eneral circulation in the Philippines, unless it is other;ise

pro ided(E Section 1+, "hapter 5, %oo of ecuti e #rder $o( 2)2 or the&d*inistrati e "ode of 1)+7 si*ilarly pro ides that E l a;s shall ta e eHect afterDfteen 15 days follo;in? the co*pletion of their publication in the #@cial 'aCetteor in a ne;spaper of ?eneral circulation, unless it is other;ise pro ided(E

Procedural due process de*ands that ad*inistrati e rules and re?ulations bepublished in order to be eHecti e(7+ n Ta ada ( Tu era, this "ourt articulated thefunda*ental reKuire*ent of publication, thus:

We hold therefore that all statutes, includin? those of local application and pri atela;s, shall be published as a condition for their eHecti ity, ;hich shall be?in Dfteendays after publication unless a diHerent eHecti ity date is D ed by the le?islature(

"o ered by this rule are presidential decrees and e ecuti e orders pro*ul?ated bythe President in the e ercise of le?islati e po;ers ;hene er the sa*e are alidlydele?ated by the le?islature or, at present, directly conferred by the "onstitution(&d*inistrati e rules and re?ulations *ust also be published if their purpose is toenforce or i*ple*ent e istin? la; pursuant also to a alid dele?ation(7) %oldfacin?supplied

There are, ho;e er, se eral e ceptions to the reKuire*ent of publication( -irst, aninterpretati e re?ulation does not reKuire publication in order to be eHecti e(+0 Theapplicability of an interpretati e re?ulation Eneeds nothin? further than its bare


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issuance for it ?i es no real conseKuence *ore than ;hat the la; itself has alreadyprescribed(E+1 t Eadds nothin? to the la;E and Edoes not aHect the substantialri?hts of any person(E+2 Second, a re?ulation that is *erely internal in nature doesnot reKuire publication for its eHecti ity(+= t see s to re?ulate only the personnel of the ad*inistrati e a?ency and not the ?eneral public(+< Third, a letter of instruction

issued by an ad*inistrati e a?ency concernin? rules or ?uidelines to be follo;ed bysubordinates in the perfor*ance of their duties does not reKuire publication in orderto be eHecti e(+5

The policy ?uidelines of the R" on the treat*ent of discounts e tended by po;ersuppliers are interpretati e re?ulations( The policy ?uidelines *erely interpret R(&($o( 7+=2 and its RR, particularly on the co*putation of the cost of purchasedpo;er( The policy ?uidelines did not *odify, a*end or supplant the RR(

The policy ?uidelines ;ere Drst enunciated by the R" in its 17 June 200= #rder( nthe said #rder, the R" e plained that the cost of electricity purchased and?enerated is co*puted at E?rossE if the discounts e tended by the po;er supplierare not passed on to end8users, ;hile the cost of electricity is co*puted at EnetE ifthe discounts are passed on to end8users(+>

The R" subseKuently issued its 1< January 2005 #rder( t e*phasiCed therein thatrural electric cooperati es should only reco er the actual costs of purchasedpo;er(+7 &ny discounts e tended to rural electric cooperati es *ust therefore bee tended to end8users by char?in? only the EnetE cost of purchased po;er( The R"issued the follo;in? directi es in the said #rder:

&( The co*putation and conDr*ation of the PP& prior to the "o**ission s #rderdated June 17, 200= shall be based on the appro ed PP& for*ulaI

%( The co*putation and conDr*ation of the PP& after the "o**ission s #rder dated June 17, 200= shall be based on the po;er cost EnetE of discountI and

"( f the appro ed PP& for*ula is silent on the ter*s of discount, the co*putationand conDr*ation of the PP& shall be based on the po;er cost at E?rossE, subAect tothe sub*ission of proofs that said discounts are bein? e tended to the end8users(++


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The R" thereafter clariDed its policy ?uidelines in the 22 !arch 200> #rder, 1>-ebruary 2007 #rder, 7 9ece*ber 2005 #rder and 27 !arch 200> #rder( The R"outlined the follo;in? principles ?o ernin? the treat*ent of the PP9 e tended by

po;er suppliers to distribution utilities includin? rural electric cooperati es:

( The o er8or8under reco ery ;ill be deter*ined by co*parin? the &llo;able Po;er"ost ;ith the 9istribution Utility s &ctual Re enue &R billed to end8users(

( "alculation of the &llo;able Po;er "ost as prescribed in the PP& -or*ula:

a( -or a 9istribution Utility ;hich PP& for*ula e plicitly pro ides the *anner by;hich discounts a ailed fro* the po;er supplierBs shall be treated, the allo;ablepo;er cost ;ill be co*puted based on the speciDc pro ision of the for*ula, ;hich*ay either be at EnetE or E?rossEI and

b( -or a 9istribution Utility ;hich PP& for*ula is silent in ter*s of discounts, theallo;able po;er cost ;ill be co*puted at EnetE of discounts a ailed fro* the po;ersupplierBs, if there is any(

( "alculation of the 9istribution Utility s &ctual Re enuesB&ctual &*ount %illed tond8users(

a( #n &ctual PP& "o*puted at $et of 9iscounts & ailed fro* Po;er SupplierBs:

a(1( f a 9istribution Utility bills at net of discounts a ailed fro* the po;er supplierBs

i(e( 'ross po;er cost *inus discounts fro* po;er supplierBs and the distributionutility is not e tendin? discounts to end8users, the actual re enue should be eKualto the allo;able po;er costI and

a(2( f a 9istribution Utility bills at net of discounts a ailed fro* the po;er supplierBsi(e( 'ross po;er cost *inus discounts fro* po;er supplierBs and the distribution


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utility is e tendin? discounts to end8users, the discount e tended to end8users ;illbe added bac to actual re enue(

b( #n &ctual PP& "o*puted at 'ross

b(1( f a 9istribution Utility bills at ?ross i(e( 'ross po;er cost not reduced bydiscounts fro* po;er supplierBs and the distribution utility is e tendin? discountsto end8users, the actual re enue ;ill be calculated as: 'ross Po;er Re enue less9iscounts e tended to end8users( The result ;ill then be co*pared to the allo;ablepo;er costI and

b(2( f a 9istribution Utility bills at ?ross i(e( 'ross po;er cost not reduced bydiscounts fro* po;er supplierBs and the distribution utility is not e tendin?discounts to end8users, the actual re enue ;ill be ta en as is ;hich shall beco*pared to the allo;able po;er cost(

( n calculatin? the 9istribution Utility s actual re enues, in no case shall thea*ount of discounts e tended to end8users be hi?her than the discounts a ailed bythe 9istribution Utility fro* its po;er supplierBs(+)

The abo e8stated policy ?uidelines of the R" on the treat*ent of discounts *erelyinterpret the cost of purchased po;er as a co*ponent of the PP& for*ula pro idedin Section 5, Rule L of the RR of R(&( $o( 7+=2( The cost of purchased po;er isdeno*inated as the ariable E&E in the nu*erator of the PP& for*ula, particularly:

Section 5( &uto*atic "ost &dAust*ent -or*ula( F

The auto*atic cost adAust*ent of e ery electric cooperati e shall be ?uided by thefollo;in? for*ula:


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PP& M &

8

%8 " N 9

Where:



" M The actual syste* loss but not to e ceed the *a i*u* reco erable rate ofsyste* loss in O;h plus actual co*pany use in O;hrs but not to e ceed 1G of totalO;hrs purchased and ?enerated


M &pplicable base cost of po;er eKual to the a*ount incorporated into theirbasic rate per O;h %oldfacin? supplied

The cost of purchased po;er e pressed as the ariable E&E in the nu*erator of thePP& for*ula is plain and una*bi?uous( Webster s Third $e; nternational 9ictionarydeDnes the ter* EcostE as Ean ite* of outlay incurred in the operation of a businessenterprise as for the purchase of ra; *aterials, labor, ser ices, supplies includin?the depreciation and a*ortiCation of capital assets(E)0 %lac s /a; 9ictionarydeDnes the ter* EcostE as Ethe a*ount paid or char?ed for so*ethin?I price ore penditure(E)1 When the policy ?uidelines of the R" directed the e clusion ofdiscounts e tended by po;er suppliers in the co*putation of the cost of purchasedpo;er, the ?uidelines *erely a@r*ed the plain and una*bi?uous *eanin? of EcostEin Section 5, Rule L of the RR of R(&( $o( 7+=2( E"ostE is an ite* of outlay, and*ust therefore e clude discounts since these are Enot a*ounts paid or char?ed forthe sale of electricity, but are reductions in rates(E)2


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-urther*ore, the policy ?uidelines of the R" uphold and preser e the nature of thePP& for*ula( The nature of the PP& for*ula precludes an interpretation that includesdiscounts in the co*putation of the cost of purchased po;er( The PP& for*ula is an

adAust*ent *echanis* the purpose of ;hich is purely for the reco ery of cost( n$ational &ssociation of lectricity "onsu*ers for Refor*s $&S "#R ( ner?yRe?ulatory "o**ission,)= this "ourt noted the e planation of the R" on thenature and purpose of an adAust*ent *echanis*:

t is clear fro* the fore?oin? that EescalatorE or Etrac erE or any other si*ilarauto*atic adAust*ent clauses are *erely cost reco ery or cost E o;8throu?hE*echanis*sI that ;hat they purport to co er are operatin? costs only ;hich are

ery olatile and unstable in nature and o er ;hich the utility has no controlI andthat the use of the said clauses is dee*ed necessary to enable the utility to *a ethe conseKuent adAust*ents on the billin?s to its custo*ers so that ulti*ately itsrate of return ;ould not be Kuic ly eroded by the escalations in said costs ofoperation( The total of all rate adAust*ents should not operate to increase o erallrate of return for a particular utility co*pany abo e the basic rates appro ed in thelast pre ious rate case Re &dAust*ent "lause in Telephone Rate Schedules, = PUR


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#b iously, if the PP& is co*puted ;ithout factorin? the discounts ?i en by po;ersuppliers to electric cooperati es, electric cooperati es ;ill i*per*issibly retain ore en earn fro* the i*ple*entation of the PP&()5

Thus, the policy ?uidelines of the R" on the treat*ent of discounts e tended bypo;er suppliers E?i e no real conseKuence *ore than ;hat the la; itself hasalready prescribed(E)> Publication is not necessary for the eHecti ity of the policy?uidelines(

&s interpretati e re?ulations, the policy ?uidelines of the R" on the treat*ent ofdiscounts e tended by po;er suppliers are also not reKuired to be Dled ;ith the U(P(/a; "enter in order to be eHecti e( Section


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The policy ?uidelines of the R" on the treat*ent of discounts e tended by po;ersuppliers are not retrospecti e( The policy ?uidelines did not ta e a;ay or i*pairany ested ri?hts of the rural electric cooperati es( The usa?e and i*ple*entation

of the PP& for*ula ;ere pro isionally appro ed by the R% in its #rders dated 1)-ebruary 1))7105 and 25 &pril 1))7(10> The said #rders speciDcally stated thatthe pro isional appro al of the PP& for*ula ;as subAect to re ie;, eriDcation andconDr*ation by the R%( Thus, the rural electric cooperati es did not acKuire any

ested ri?hts in the usa?e and i*ple*entation of the pro isionally appro ed PP&for*ula(

-urther*ore, the policy ?uidelines of the R" did not create a ne; obli?ation andi*pose a ne; duty, nor did it attach a ne; disability( &s pre iously discussed, thepolicy ?uidelines *erely interpret R(&( $o( 7+=2 and its RR, particularly on theco*putation of the cost of purchased po;er(The policy ?uidelines did not *odify,a*end or supplant the RR(

(

Petitioners further assail the alidity of the 22 !arch 200> #rder, 1> -ebruary 2007#rder, 7 9ece*ber 2005 #rder and 27 !arch 200> #rder of the R" directin? the

refund of o er8reco eries for ha in? been issued pursuant to an ineHecti e andin alid ?rossed8up factor *echanis*( Petitioners clai* that the ?rossed8up factor*echanis* i*ple*ented by the

R" in the re ie;, eriDcation and conDr*ation of the PP& is ineHecti e and in alidfor lac of publication, non8sub*ission to the U(P( /a; "enter, and its retroacti eapplication(

t does not appear fro* the records that the ?rossed8up factor *echanis* ;aspublished or sub*itted to the U(P( /a; "enter( The R" did not dispute the clai* ofpetitioners that the ?rossed8up factor *echanis* ;as not published, nor did the

R" dispute the clai* that the ?rossed8up factor *echanis* ;as not disclosed tothe rural electric cooperati es prior to the re ie;, eriDcation and conDr*ation ofthe PP&(107 The 22 !arch 200> #rder and 1> -ebruary 2007 #rder *erely statedthat one of the bases of the o er8reco eries ;as Ethe ne; ?rossed8up factor


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*echanis* adopted by the "o**ission ;hich pro ided a true8up *echanis* thatallo;s the distribution utilities to reco er the actual cost of purchased po;er(E10+

The 7 9ece*ber 2005 #rder si*ilarly stated that one of the bases of the o er8reco eries ;as Ethe ne; ?rossed8up factor sche*e adopted by the "o**ission;hich pro ided a diHerent result is8a8 is the ori?inally appro ed for*ula(E10) The

R" did not e plain or disclose in the said #rders any details re?ardin? the ?rossed8up factor *echanis*(

%ased on the records, the Drst instance ;herein the R" disclosed the details of the?rossed8up factor *echanis* ;as in its co**ents Dled ;ith the "ourt of &ppeals in"&8'(R( SP $os( ))2


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100,000 1810G

'ross8up -actor M )0,000

M 1

)0,000

The 'ross8up -actor, ;hich in this illustration is eKui alent to 1, ;ill be used indeter*inin? the reco erable po;er cost of an electric cooperati e, such that:

Reco erable "ost M 'ross8Up -actor "ost of Purchased Po;er

Reco erable "ost M 1 PhP =00,000(00 M PhP =00,000(00112

%oldfacin? supplied

n its "onsolidated "o**ent, the R" stated that the PP& Ecaptures the incre*entalcost in purchased and ?enerated electricity plus reco erable syste* loss in e cessof ;hat had already been included as po;er cost co*ponent in the electriccooperati e s basic rates(E11= #n the other hand, the ?rossed8up factor *echanis*is a E*athe*atical calculation that ensures that the electric cooperati es are ableto reco er costs incurred fro* electricity purchased and ?enerated plus syste* loss

co*ponents ;ithin allo;able li*its(E11< The R" proceeded to e plain therelationship bet;een the PP& and the ?rossed8up factor *echanis* thus:

20(2 This ?ross8up factor *echanis* did not *odify the PP& for*ula or state ho;the PP& is to be co*puted( The reco erable a*ount deri ed fro* applyin? the?ross8up factor is still the *a i*u* allo;able cost to be reco ered fro* the electriccooperati e s custo*ers for a ?i en *onth( f the PP& collected e ceeded thereco erable cost, the diHerence should be refunded bac to the consu*ers(115

This "ourt a?rees ;ith the R" that the ?rossed8up factor *echanis* Edid not*odify the PP& for*ula or state ho; the PP& is to be co*puted(E11> .o;e er, the?rossed8up factor *echanis* a*ends the RR of R(&( $o( 7+=2 as it ser es as anadditional nu*erical standard that *ust be obser ed and applied by rural electriccooperati es in the i*ple*entation of the PP&( While the RR e plains, andstipulates, the PP& for*ula, the RR neither e plains nor stipulates the ?rossed8upfactor *echanis*( The reason is that the ?rossed8up factor *echanis* is


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ad*ittedly Ene;E and pro ides a EdiHerent result,E ha in? been for*ulated onlyafter the issuance of the RR(

The ?rossed8up factor *echanis* is not the sa*e as the PP& for*ula pro ided inthe RR of R(&( $o( 7+=2( $either is the ?rossed8up factor *echanis* subsu*ed inany of the D e ariables of the PP& for*ula( &lthou?h both the ?rossed8up factor*echanis* and the PP& for*ula account for syste* loss and use of electricity bycooperati es, they ser e diHerent Kuantitati e purposes(

The ?rossed8up factor *echanis* ser es as a threshold a*ount to ;hich the PP&for*ula is to be co*pared( &ccordin? to the R", any a*ount collected under thePP& that e ceeds the Reco erable "ost co*puted under the ?rossed8up factor*echanis* shall be refunded to the consu*ers(117 The Reco erable "ostco*puted under the ?rossed8up factor *echanis* is Ethe *a i*u* allo;able costto be reco ered fro* the electric cooperati e s custo*ers for a ?i en *onth(E11+ neHect, the PP& alone does not ser e as the ariable rate to be collected fro* theconsu*ers( The PP& for*ula and the ?rossed8up factor *echanis* ;ill both ha e tobe obser ed and applied in the i*ple*entation of the PP&(

-urther*ore, the ?rossed8up factor *echanis* accounts for a ariable that is notincluded in the D e ariables of the PP& for*ula( n particular, the ?rossed8up factor*echanis* accounts for the a*ount of po;er sold in proportion to the a*ount ofpo;er purchased by a rural electric cooperati e, e pressed as the 'ross8Up -actor(

t appears that the 'ross8Up -actor li*its the Reco erable "ost by allo;in? reco eryof the "ost of Purchased Po;er only in proportion to the a*ount of po;er sold( Thisis sho;n by inte?ratin? the for*ula of the 'ross8Up -actor ;ith the for*ula of theReco erable "ost, thus:

The ?rossed8up factor *echanis* consists of the follo;in? for*ulas:

'ross8Up -actor M O;h Sales N "oop Use

O;h Purchased 18G Syste* /oss

Reco erable "ost M 'ross8Up -actor "ost of Purchased Po;er


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nte?ratin? the abo e8stated for*ulas ;ill result in the follo;in? for*ula:

Reco erable "ost M O;h Sales N "oop Use

"ost of Purchased

Po;er

O;h Purchased 18G Syste* /oss

#n the other hand, the PP& for*ula pro ided in the RR of R(&( $o( 7+=2 does notaccount for the a*ount of po;er sold( t accounts for the a*ount of po;erpurchased and ?enerated, e pressed as the ariable E%E in the follo;in? PP&for*ula:


PP& M &

8

%8 " N 9

Where:



" M The actual syste* loss but not to e ceed the *a i*u* reco erable rate of

syste* loss in O;h plus actual co*pany use in O;hrs but not to e ceed 1G of totalO;hrs purchased and ?enerated



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M &pplicable base cost of po;er eKual to the a*ount incorporated into theirbasic rate per O;h11) %oldfacin? supplied

n li?ht of these, the ?rossed8up factor *echanis* does not *erely interpret R(&($o( 7+=2 or its RR(1V;phi1 t is also not *erely internal in nature( The ?rossed8upfactor *echanis* a*ends the RR by pro idin? an additional nu*erical standardthat *ust be obser ed and applied in the i*ple*entation of the PP&( The ?rossed8up factor *echanis* is therefore an ad*inistrati e rule that should be publishedand sub*itted to the U(P( /a; "enter in order to be eHecti e(

&s pre iously stated, it does not appear fro* the records that the ?rossed8up factor*echanis* ;as published and sub*itted to the U(P( /a; "enter( Thus, it isineHecti e and *ay not ser e as a basis for the co*putation of o er8reco eries( Theportions of the o er8reco eries arisin? fro* the application of the *echanis* aretherefore in alid(

-urther*ore, the application of the ?rossed8up factor *echanis* to periods of PP&i*ple*entation prior to its publication and disclosure renders the said *echanis*in alid for ha in? been applied retroacti ely( The ?rossed8up factor *echanis*i*poses an additional nu*erical standard that clearly Ecreates a ne; obli?ation andi*poses a ne; duty in respect of transactions or consideration alreadypast(E120

Rural electric cooperati es cannot be reasonably e pected to co*ply ;ith andobser e the ?rossed8up factor *echanis* ;ithout its publication( This "ourtreco?niCes that the *echanis* ai*s to re ect the actual cost of purchased po;erfor the beneDt of consu*ers( .o;e er, this obAecti e *ust at all ti*es be balanced;ith the iability of rural electric cooperati es( The R% itself *ade the follo;in?obser ation re?ardin? the operational and econo*ic condition of rural electriccooperati es in its #rder dated 1) -ebruary 1))7:

lectric cooperati es are created under Presidential 9ecree $o( 2>) in the nature ofnon8proDt or?aniCations( Thus, they do not ha e the funds they can dispose of to*eet their future e*er?ency obli?ations and operational needs( They are notentitled return on their in est*ent as their rates are based on cash o;*ethodolo?y( .ence, if the appropriate rate le el to eep the* ?oin? or iable,shall not be pro ided, the Dnances and operations of the said cooperati es ;ill be


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AeopardiCed ;hich ulti*ately ;ill result in ine@cient electric ser ice to theirrespecti e custo*ers or ;orse shut do;n ;hen they fail to pay the sources of theirelectricity li e $ational Po;er "orporation and their loans to the $ &(121

&d*inistrati e co*pliance ;ith due process reKuire*ents culti ates a re?ulatoryen iron*ent characteriCed by predictability and stability( These characteristicsensure that rural electric cooperati es are ?i en the opportunity to achie ee@ciency, and that ulti*ately, consu*ers ha e access to reliable ser ices andaHordable electric rates(

W. R -#R , ;e P&RT6 'R&$T the petition and rule that the ?rossed8up factor*echanis* is $ -- "T and $ &/ 9( We further rule that the portions of theo er8reco eries that *ay ha e arisen fro* the application of the ?rossed8up factor*echanis* in the 22 !arch 200> #rder, 1> -ebruary 2007 #rder, 7 9ece*ber 2005#rder and 27 !arch 200> #rder of the ner?y Re?ulatory "o**ission are $ &/ 9(Respondent ner?y Re?ulatory "o**ission is 9 R "T 9 to co*pute the portions ofthe o er8reco eries arisin? fro* the application of the ?rossed8up factor *echanis*and to i*ple*ent the collection of any a*ount pre iously refunded by petitioner totheir respecti e consu*ers on the basis of the ?rossed8up factor *echanis*( The2= 9ece*ber 200+ 9ecision and 2> &pril 2010 Resolution of the "ourt of &ppealsare hereby !#9 - 9 accordin?ly(

S# #R9 R 9(

&$T#$ # T( "&RP #

&ssociate Justice

W "#$"UR:

8. asso v energy

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