G.R. No. 210245 - Dissenting Opinion




G.R. No. 210245/G.R. No. 210255/G.R. No. 210502, August 3, 2021, ♦ Decision, Lopez, J., [J] ♦ Dissenting Opinion, Leonen, [J] ♦ Dissenting Opinion, Lazaro-Javier, [J] [ G.R. No. 210245. August 03, 2021 ] BAYAN MUNA REPRESENTATIVES NERI JAVIER COLMENARES AND CARLOS ISAGANI ZARATE, GABRIELA WOMEN'S PARTY REPRESENTATIVES LUZ ILAGAN AND EMMI DE JESUS, ACT TEACHERS PARTY-LIST REPRESENTATIVE ANTONIO TINIO, AND KABATAAN PARTYLIST REPRESENTATIVE TERRY RIDON, PETITIONERS, VS. ENERGY REGULATORY COMMISSION (ERC) AND MANILA ELECTRIC COMPANY (MERALCO), RESPONDENTS. [G.R. No. 210255] NATIONAL ASSOCIATION OF ELECTRICITY CONSUMERS FOR REFORMS (NASECORE), REPRESENTED BY PETRONILO L. ILAGAN, FEDERATION OF VILLAGE ASSOCIATIONS (FOYA), REPRESENTED BY SIEGFRIEDO A. VELOSO, FEDERATION OF LAS PIÑAS HOMEOWNERS ASSOCIATION (FOLPHA), REPRESENTED BY BONIFACIO DAZO AND RODRIGO C. DOMINGO, JR., PETITIONERS, VS. MANILA ELECTRIC COMPANY (MERALCO), ENERGY REGULATORY COMMISSION (ERC) AND DEPARTMENT OF ENERGY (DOE), RESPONDENTS. [G.R. No. 210502] MANILA ELECTRIC COMPANY (MERALCO), PETITIONER, VS. PHILIPPINE ELECTRICITY MARKET CORPORATION, FIRST GAS POWER CORPORATION, SOUTH PREMIERE POWER CORPORATION, SAN MIGUEL ENERGY CORPORATION, MASINLOC POWER PARTNERS, CO., LTD., QUEZON POWER (PHILS.) LTD. CO., THERMA LUZON, INC., SEM-CALACA POWER CORPORATION, FGP CORPORATION AND NATIONAL GRID CORPORATION OF THE PHILIPPINES, AND THE FOLLOWING GENERATION COMPANIES THAT TRADE IN THE WESM NAMELY: 1590 ENERGY CORPORATION, AP RENEWABLES, INC., BAC-MAN ENERGY DEVELOPMENT CORPORATION/BAC-MAN GEOTHERMAL, INC., FIRST GEN HYDRO POWER CORPORATION, GNPOWER MARIVELES COAL PLANT LTD. CO., PANASIA ENERGY HOLDINGS, INC., POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, SN ABOITIZ POWER, STRATEGIC POWER DEVELOPMENT CORPORATION, BULACAN POWER GENERATION CORPORATION AND VIVANT STA. CLARA NORTHERN RENEWABLES GENERATION CORPORATION, RESPONDENTS. DISSENTING OPINION LAZARO-JAVIER, J.: I dissent. The principal issue revolves around what Energy Regulatory Commission (ERC) should have done with regard to Manila Electric Company's (MERALCO) proposal to charge its captive market of consumers with higher rates to recover its generation costs for the supply month of November 2013. The issue is not what its decision should have been on the proposal, but how it should have acted on it. On the facts of this case, I believe that ERC acted with grave abuse of discretion in conducting a process which ignored the bedrock principles that should have animated the exercise of its discretion. I am not questioning the outcome of the exercise of its discretion per se, but the manner by which it reached this outcome. Tainted as the process was, the outcome must also be set aside. Facts The facts are not disputed. One fine morning in December 2013, people in Metro Manila and nearby provinces could have woken up to an additional P800.00 to their 200 per KwH electric bill in November 2013. This increase represented 61% or P4.15 per KwH more than the average bill in November 2013. The total amount of this increase which every household would have to contribute to was P22.64 billion. The increase was not to pay for the household's additional use of electricity. Rather, it was for just one of the amounts billed and collected by MERALCO - here, for purchasing electricity from power generating companies which it then sells to the households in its franchise area. This is referred to in the electric power industry as the generation rates. Under the operational definition of generation rates, consumers would not be paying merely for the generator's cost of generating electricity, but for addons as well, like system loss charge, value added tax, and local franchise tax, among others. Nearly every household in Metro Manila and nearby provinces has had only one choice - to buy electricity from MERALCO. The alternative has been to live without electricity. This would have meant living with no lighting, refrigerator, electric fans, television, radio, none of the necessities of life. If one wants the necessities, there is only one choice. MERALCO consumers are captive market consumers. MERALCO runs a natural monopoly and inevitably captures them. With no one else to turn to now or in the future, MERALCO consumers will remain to be captives for the rest of their lives. Fortunately, consumers now live under a rule of law. Since electricity is a necessity, good sense has it that the business of the electric power industry must be regulated by law. Republic Act No. 9136 (RA 9136) is the governing statute. ERC is the government agency which electricity consumers may run to for help because its role is to regulate this industry. This case arose due to the perceived faulty action or interaction of ERC on MERALCO's generation rate increase. The allegation was that ERC reacted wrongly by following an improper process as soon as it received MERALCO's proposal to bill and collect that increase. Justice Leonen narrated the relevant events of MERALCO's action or inaction in greater detail: On December 5, 2013, Thursday, MERALCO wrote the Energy Regulatory Commission regarding its proposal to charge consumers with higher rates to recover its generation costs for the supply month of November 2013. In its letter, MERALCO discussed that it presented to the Energy Regulatory Commission on October 10, 2013 the possible impact of the SPEX-Malampaya natural gas facility shutdown. It estimates that this will result in a P7.86 per kWh generation charge to its subscribers. The shutdown will affect the Ilijan, San Lorenzo, and Santa Rita power plants, which in turn supplies MERALCO an aggregate capacity of 2,700 MW. This shutdown also coincides with the scheduled maintenance of Pagbilao and Sual power plants, which supplies over 950 MW to MERALCO's requirements. According to MERALCO, even if it undertook measures to mitigate the impact of these circumstances, its November 2013 bill from its power suppliers still stood at P22.64 billion. This generation cost, together with other bill components such as system loss charge, VAT, and local franchise tax, translates to a P4.15 per kWh price increase for a 200 kWh residential consumer. MERALCO mentioned in its letter that the Guidelines for the Automatic Adjustment of Generation Rate and System Loss Rates by Distribution Utilities ("AGRA Rules") authorizes it to automatically reflect this P22.64 billion cost in the December 2013 billing to its subscribers. MERALCO invoked the exception to these rules. Instead of applying the automatic rate adjustment, MERALCO proposed in its letter to mitigate the abrupt rate increase by (1) implementing a lower generation charge of P7.90 per kWh in the December 2013 billing instead of the calculated P9.107 per kWh, and (2) deferring recovery of the remaining P3 billion generation charge for the February 2014 billing, but with carrying costs since MERALCO has to pay its power suppliers in full on December 2013. x x x x On December 9, 2013, Monday, the Energy Regulatory Commission approved MERALCO's proposal for the staggered collection of its rate increase. The Commission's letter provides: The ERC therefore grants MERALCO the clearance it seeks to stagger implementation of its generation cost recovery by way of an exception to the AGRA Rules. Accordingly, MERALCO is authorized to implement a generation charge of P7.67/kWh in its December 2013 billing and add its calculated generation charge for February 2014 billing the generation rate of P1.00/kWh. The balance on the deferred generation amount without any carrying costs shall be included in MERALCO's generation charge for March 2014. Should MERALCO seek to recover its carrying costs on the entire deferred amount, it shall file a formal application for this. The foregoing should not in any way be construed as a confirmation of MERALCO's generation costs incurred in November 2013, which shall remain subject of the confirmation and post-verification proceedings in accordance with the applicable ERC resolution on the matter. This was the end of the matter at the ERC level. ERC did nothing else. On the other hand, MERALCO billed its captive market of consumers and collected from them (or us) according to what MERALCO had fed to ERC. Legal Framework How should ERC have acted on MERALCO's proposal? In the beginning, circa February 2002, the resolution of this process issue was straightforward. Subsection 4(e) of Rule 3 of the Implementing Rules and Regulations (IRR) of RA 9136 (Rules) dated February 27, 2002 provided a procedure to be followed for rate adjustment or any relief affecting consumers: (e) Any application or petition for rate adjustment or for any relief affecting the consumers must be verified, and accompanied with an acknowledgment of receipt of a copy thereof by the LGU Legislative Body of the locality where the applicant or petitioner principally operates together with the certification of the notice of publication thereof in a newspaper of general circulation in the same locality. The ERC may grant provisionally or deny the relief prayed for not later than seventy-five (75) calendar days from the filing of the application or petition, based on the same and the supporting documents attached thereto and such comments or pleadings the consumers or the LGU concerned may have filed within thirty (30) calendar days from receipt of a copy of the application or petition or from the publication thereof as the case may be. Thereafter, the ERC shall conduct a formal hearing on the application or petition, giving proper notices to all parties concerned, with at least one public hearing in the affected locality, and shall decide the matter on the merits not later than twelve (12) months from the issuance of the aforementioned provisional order. This Section 4(e) shall not apply to those applications or petitions already filed as of 26 December 2001 in compliance with Section 36 of the Act. This subsection 4(e) process was a rigid one. It provided no exceptions to the broad subject matter (i.e., any application or petition for rate adjustment or for any relief affecting the consumers) that the process included. Neither was discretion granted to ERC to shorten or abort the process when in its expert discretion it may or must do so. But this process is not decreed in RA 9136. It is not a statutory mandate. The process came about as a result of the mandate of administrative decision-makers to issue implementing rules or regulations and discretion as to what they thought would make for an effective and efficient enforcement of RA 9136. Therefore, the process was not cast in stone. The process may change as they changed it five (5) years later. In June 2007, the subsection 4(e) process was amended substantially. With the kilometric title Amendments to Section 4 (e) of Rule 3 and Section 7 of Rule 18 of the IRR of RA 9136 otherwise known as the Electric Power Industry Reform Act (EPIRA), hereafter Amended Rules, this regulation introduced several exceptions to the once all-encompassing subsection 4(e) process. The exceptions depend on the type of rates that a distributing utility wants to bill and collect. One of the exceptions to the subsection 4(e) process is generation charges computed using any of the recognized ERC-instituted mechanisms - Generation Rate Adjustment Mechanism, Automatic Generation Rate Adjustment Mechanism, and Incremental Generation Cost Adjustment Mechanism. The amended subsection 4(e) reads: "Section 4. Responsibilities of the ERC. (e) Any application or petition for rate adjustment or for any relief affecting the consumers must be verified, and accompanied with an acknowledgment of receipt of a copy thereof by the LGU Legislative Body of the locality where the applicant or petitioner principally operates together with the certification of the notice of publication thereof in a newspaper of general circulation in the same locality. The ERC may grant provisionally or deny the relief prayed for not later than seventy-five (75) calendar days from the filing of the application or petition, based on the same and the supporting documents attached thereto and such comments or pleadings the consumers or the LGU concerned may have filed within thirty (30) calendar days from receipt of a copy of the application or petition or from the publication thereof as the case may be. Thereafter, the ERC shall conduct a formal hearing on the application or petition, giving proper notices to all parties concerned, with at least one public hearing in the affected locality, and shall decide the matter on the merits not later than twelve (12) months from the issuance of the aforementioned provisional order. This Section 4 (e) shall not apply to those applications or petitions already filed as of 26 December 2001 in compliance with Section 36 of the Act. This section 4 (e) shall not apply to Generation Rate Adjustment Mechanism (GRAM), Incremental Currency Exchange Recovery Adjustment (ICERA), Transmission Rate Adjustment Mechanism, Transmission True-up Mechanism, System Loss Rate Adjustment Mechanism, Lifeline, Rate Recovery Mechanism, Cross-Subsidy Mechanism, Local Franchise Tax Recovery Mechanism, Business Tax Recovery Mechanism, Automatic Generation Rate Adjustment Mechanism, VAT Recovery Mechanism, Incremental Generation Cost Adjustment Mechanism, and Recovery of Deferred Accounting Adjustment for Fuel Cost and Power Producers by NPC and NPC-SPUG, Provided that, such adjustments shall be subject to subsequent verification by the ERC to avoid over/under recovery of charges." Generation Rate Adjustment Mechanism or GRAM was introduced in March 2004 long before the amendment of the subsection 4(e) process. The mechanisms were embodied in ERC's Guidelines for the Recovery of Costs for the Generation Component of the Distribution Utilities' Rates (GRAM Guidelines). The mechanisms are two-pronged - one for generation costs corresponding to the term of a Transition Supply Contract and another for generation costs subsequent to term of the Transition Supply Contract. Under the GRAM Guidelines, distribution utilities were authorized to collect the costs for the generation component of their supply of electricity in their retail rate1 by passing these costs on to their respective captive market customers. But these pass-on charges were then severely restricted. These costs were not determined solely on the basis of a fixed formula but on benchmarks culled from submitted documents and on ERC-evaluated and approved costing rates. For this reason, "Generation Rate Adjustment Mechanism (GRAM)" was defined as the "mechanism which allows the periodic adjustment to the Generation Rate to reflect changes in fuel and purchased power costs after a review by the ERC before costs are passed on to customers." In October 2004 the GRAM Guidelines was abandoned. In its place ERC instituted the Guidelines for the Automatic Adjustment of Generation Rates and System. Loss Rates by Distribution Utilities (AGRA Guidelines). The AGRA Guidelines authorized distribution utilities to calculate on their own using a fixed formula prescribed in the AGRA Guidelines the generation rates that they could pass on to their respective captive market customers. The generation rates include not only the generation costs associated with the acquisition of purchased power but also "Other Generation Rate Adjustments (OGA)" which refers to "under(cover)-recoveries in generation costs, recoveries from violation of contracts and other pilferages, as well as other adjustments deemed necessary by the ERC." There appears to be two (2) types of OGA. The first is the OGA that may be computed, billed, and collected at once. The other is that OGA that may be billed and collected only after an ERC review and approval.2 But "any carrying charge" cannot be passed on as an OGA. The computation of the generation rates is done monthly - on the 10th day of each month. Thereafter, the generation rates as computed by the distribution utilities can be billed automatically by them effective on the same date they are computed - also on the 10th day of each month. Under the AGRA Guidelines, ERC's role is generally post-facto except for that type of OGA that cannot be billed and collected before an ERC review and approval. Thus: ARTICLE V Verification Process SECTION 1. Monthly Reporting Requirements. - On or before the twentieth (20th) day of each month, the Distribution Utilities shall provide the ERC with all calculations related to Articles III and IV along with supporting documentations, which shall include, but not limited to, the following: Invoices from power suppliers; Sample bills to end-users; Official receipts of payment of power supplier invoices ERC Forms M-001 & M-002; and Other documents deemed relevant by the ERC. SECTION 2. Post Verification. - At least every six (6) months, the ERC shall verify the recovery of Generation Costs by comparing the actual allowable costs incurred for the period with the actual revenues for the same period generated by the Generation Rates and the portion of the Systems Loss Rates attributable to Generation Costs. Should the ERC fail to verify the Generation Rate (including the OGA) and System Loss Rate within six (6) months from the submission of calculation and supporting documentations in accordance with the immediately preceding Section, the rates shall be deemed final and confirmed. Upon completion of the semi-annual verification process, the ERC shall issue an Order establishing the adjustments to be included in the OGA resulting from said semi-annual verification. These adjustments shall be implemented in the succeeding six (6) month period to reflect any over or under recovery. The AGRA Guidelines, nonetheless, is not as rigid as it seems to be. There is an escape clause from its provisions: ARTICLE VIII Final Provisions SECTION 1. Exception Clause. - Where good cause appears, the ERC may allow an exception from any provisions of these Guidelines, if such exception is found to be in the public interest and is not contrary to law or any other related rules and regulations. In other words, ERC has the discretion to reject the automatic computation, billing, and collection of generation rates, the formula used in the determination of generation rates, the post-verification procedure, and the deeming provision of finality and confirmation, among others, if public interest so requires and there is no violation of the law. The exception clause coincides with the nature of ERC as an administrative decision-maker in its regulatory role. The exception clause emphasizes the latitude of discretion it has to counter any semblance of regulatory or corporate capture.3 The exception clause also distinguishes clearly between the persuasive nature of the AGRA Guidelines (that is why it is called Guidelines) and the mandatory rule-of-law characterization of ERC's power of discretion under RA 9136. In other words, the AGRA Guidelines itself precludes ERC from fettering its expansive discretionary authority under RA 9136 through the exception clause. RA 9136 did not create ERC to be a mere wallflower. RA 9136 envisions the ERC as a powerful and discretion-laden administrative decision-maker in a regulatory role. The following notable provisions in RA 9136 show the breadth of ERC's discretionary mandate: SECTION 2. Declaration of Policy. - It is hereby declared the policy of the State: x x x x (b) To ensure the quality, reliability, security and affordability of the supply of electric power; (c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market; x x x x (f) To protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power; x x x x (j) To establish a strong and purely independent regulatory body and system to ensure consumer protection and enhance the competitive operation of the electricity market x x x x SECTION 6. Generation Sector. - Generation of electric power, a business affected with public interest, shall be competitive and open. x x x x Upon implementation of retail competition and open access, the prices charged by a generation company for the supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act. Pursuant to the objective of lowering electricity rates to endusers, sales of generated power by generation companies shall be value added tax zero-rated. The ERC shall, in determining the existence of market power abuse or anti-competitive behavior, require from generation companies the submission of their financial statements. SECTION 25. Retail Rate. - The retail rates charged by distribution utilities for the supply of electricity in their captive market shall be subject to regulation by the ERC based on the principle of full recovery of prudent and reasonable economic costs incurred, or such other principles that will promote efficiency as may be determined by the ERC. Every distribution utility shall identify and segregate in its bills to end-users the components of the retail rate, as defined in this Act. 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: x x x x (f) In the public interest, establish and enforce a methodology for setting transmission and distribution wheeling rates and retail rates for the captive market of a distribution utility, taking into account all relevant considerations, including the efficiency or inefficiency of the regulated entities. The rates must be such as to allow the recovery of just and reasonable costs and a reasonable return on rate base (RORB) to enable the entity to operate viably. The ERC may adopt alternative forms of internationally-accepted rate-setting methodology as it may deem appropriate. The rate-setting methodology so adopted and applied must ensure a reasonable price of electricity, the rates prescribed shall be nondiscriminatory. To achieve this objective and to ensure the complete removal of cross subsidies, the cap on the recoverable rate of system losses prescribed in Section 10 of Republic Act No. 7832, is hereby amended and shall be replaced by caps which shall be determined by the ERC based on load density, sales mix, cost of service, delivery voltage and other technical considerations it may promulgate. The ERC shall determine such form of rate-setting methodology, which shall promote efficiency. In case the rate setting methodology used is RORB, it shall be subject to the following guidelines: (i) For purposes of determining the rate base, the TRANSCO or any distribution utility may be allowed to revalue its eligible assets not more than once every three (3) years by an independent appraisal company: Provided, however, That ERC may give an exemption in case of unusual devaluation: Provided, further, That the ERC shall exert efforts to minimize price shocks in order to protect the consumers; (ii) Interest expenses are not allowable deductions from permissible return on rate base; (iii) In determining eligible cost of services that will be passed on to the end-users, the ERC shall establish minimum efficiency performance standards for the TRANSCO and distribution utilities including systems losses, interruption frequency rates, and collection efficiency; (iv) Further, in determining rate base, the TRANSCO or any distribution utility shall not be allowed to include management inefficiencies like cost of project delays not excused by force majeure, penalties and related interest during construction applicable to these unexcused delays; and (v) Any significant operating costs or project investments of the TRANSCO and distribution utilities which shall become part of the rate base shall be subject to verification by the ERC to ensure that the contracting and procurement of the equipment, assets and services have been subjected to transparent and accepted industry procurement and purchasing practices to protect the public interest. x x x x (u) 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. SECTION 75. Statutory Construction. - This Act shall, unless the context indicates otherwise, be construed in favor of the establishment, promotion, preservation of competition and people empowerment so that the widest participation of the people, whether directly or indirectly, is ensured. With respect to NPC's debts and IPP and related contracts, nothing in this Act shall be construed as: (1) an implied waiver of any right, action or claim, against any person or entity, of NPC or the Philippine Government arising from or relating to any such contracts; or (2) a conferment of new or better rights to creditors and IPP contractors in addition to subsisting rights granted by the NPC or the Philippine Government under existing contracts. Analysis ERC applied the AGRA Guidelines in a manner that unlawfully fetters its broad discretion under RA 9136. Where legislation gives a public authority discretion to make decisions, e.g., to award a licence or to grant a rate increase or to bill and collect automatically certain charges, the public authority must allow itself to consider each decision on its own merits.4 The public authority must not "fetter" its discretion by applying a rigid or one-size-fits-all policy to all applications without considering the specific facts of each case.5 A decision made by a public authority that has fettered its discretion in this way may be challenged on the ground that the decision is unlawful. The reasoning goes like this. Decision-makers must follow the law. If the law gives them discretion of a certain scope, they cannot, in a binding way, cut down that scope. To allow that is to allow them to rewrite the law. Only Congress or its validly authorized delegates through subordinate legislation can write or rewrite law.6 Slavishly adhering to guidelines that are neither legislation nor subordinate legislation and regardless of the breadth of statutory discretion and the facts of the case before them is unlawful.7 An administrative decision-maker entrusted with discretion must not disable itself from exercising its discretion in individual cases by the adoption of a fixed rule of policy. It is a fundamental rule for the exercise of discretionary power that discretion must be brought to bear on every case: each one must be considered on its own merits and decided as the public interest requires at the time. Here, ERC, in my opinion, unduly fettered its discretion by adopting an inflexible rule relating to the automatic computation, billing and collection of generation rates, which prevented it from giving consideration to the special circumstances when MERALCO's proposal was presented before it under the AGRA Guidelines. These circumstances were that the increase in the generation rates sought was exponential that even MERALCO had to back track from a one-time big-time billing and propose a staggered payment scheme though with carrying costs, and that the confluence of events more likely than not triggered such humongous increase in generation rates. It is clear that ERC did not exercise its expansive discretion under RA 9136 and the AGRA Guidelines itself (through the exemption clause) when it approved MERALCO's proposal sans the carrying costs in less than five (5) days using and echoing only MERALCO's submissions as basis. There is no question that the AGRA Guidelines was issued pursuant to the authority given to ERC by RA 9136. But the mechanisms for the computation, billing, and collection of generation rates under the AGRA Guidelines are not decreed in RA 9136. They are themselves discretionary devices of ERC, the enforceability thereof being dependent upon other factors within ERC's discretionary authority under RA 9136. In other words, the mechanisms in the AGRA Guidelines are not cast in stone. For this reason, the AGRA Guidelines itself includes an exception clause whereby the ERC may allow an exception from any of the provisions in the AGRA Guidelines where good cause appears and if the exception is found to be in the public interest and is not contrary to law or any other related rules and regulations. I recognize that effective decision-making by administrative agencies often involves striking a balance between general rules and the exercise of ad hoc discretion. Put in another way, there is that tension between the benefits of certainty and consistency on the one hand, and of flexibility and fact-specific solutions on the other. Legislative instruments (including nonlegally binding "soft law" documents as policy statements, guidelines, manuals, and handbooks) can assist members of the public to predict how an agency is likely to exercise its statutory discretion and to arrange their affairs accordingly, and enable an agency to deal with a problem comprehensively and proactively, rather than incrementally and reactively on a case by case basis. This is especially important in an agency like ERC. But- ... while agencies may issue guidelines or policy statements to structure the exercise of statutory discretion in order to enhance consistency, administrative decision-makers may not apply them as if they were law. Thus, a decision made solely by reference to the mandatory prescription of a guideline, despite a request to deviate from it in the light of the particular facts, may be set aside, on the ground that the decision-maker's exercise of discretion was unlawfully fettered. This level of compliance may only be achieved through the exercise of a statutory power to make "hard" law, through, for example, regulations or statutory rules made in accordance with statutorily prescribed procedure.8 ERC's inflexible reference to the AGRA Guidelines may also be challenged on the ground that the procedure by which it was made was unfair, or on the ground that it is unreasonable. In having regard to the above objectives of RA 9136, ERC cannot hope to achieve public interest as well as industry transparency and efficiency if its proceedings are conducted unfairly or appear to be conducted unfairly or if the effect of the imposition is or appears to be unfair. If the captive market customers are treated arbitrarily or unfairly, a simmering sense of injustice will prevail. Grudges will be harbored. Confidence in ERC will fall. In short, the concept of fairness goes to the very heart of RA 9136. Here, ERC's decision is unreasonable because it was based on an inflexible and one-sided policy determination that despite their exponential increase, these generate rates may still be imposed and collected perfunctorily. The ERC process failed to consider whether, on the facts not disputed by anyone, it would be unfair and therefore contrary to both the principles expressed or implied in RA 9136 and the exception clause in the AGRA Guidelines to accede to MERALCO's proposal. The language of RA 9136, especially the above-quoted provisions, is broad enough, having regard to the purpose of ERC's power of review, to permit it to intervene to ensure that in the end, a fair hearing of the exponential increase is achieved and that harmony in the power industry is fostered. The refusal to hear other stakeholders and admit their submissions, regardless of the circumstances and without regard to the merits of the other stakeholders' inputs, resulted as we now know in an unfair hearing. The adoption of such an inflexible rule is a fettering of discretion resulting in an unfairness in the process.9 As Justice Leonen opined, the Court should not allow ERC to fetter its discretion under RA 9136 by invoking the AGRA Guidelines. Aside from the fact that the Guidelines is simply a set of guidelines, persuasive at best and not binding, the Guidelines itself has an exception clause precisely to prevent ERC from boxing itself to a corner and fettering the discretion it must exercise per RA 9136. Conversely, if we were to allow the AGRA Guidelines to take precedence and control the disposition of the principal issue here, we would be encouraging dereliction by ERC of its duty to exercise the discretion reposed upon it by RA 9136. Wittingly or unwittingly, the circumstances attending ERC's approval of MERALCO's proposal indicate regulatory or corporate capture that is antithetical to the bed-rock though motherhood principles enunciated in RA 9136. Regulatory agencies are "considered 'captured' when they 'regulate businesses in accordance with the private interests of the regulated as opposed to the public interest for which they were established.'"10 Regulatory or corporate capture is therefore bad for it deflects the administrative agency's attention and action from the principles outlined in a statute defining public interest to policies that only benefit the regulated sector. Regulatory or corporate capture signifies either negligent/reckless or intentional dereliction of duty. Either way, it betrays not only the legislative will as expressed in the relevant statute, but more important, the public interest that the agency vowed to protect, defend, and promote. Often, this shift in allegiance is not easy to detect because the principles an agency ought to foster are embodied in motherhood and therefore textually ambiguous statements. It is easy to fry under one's own fat without feeling the heat. But not here - a confluence of circumstances has made the capture a proposition that more likely than not occurred. Justice Leonen mentioned these circumstances - 61% increase in generation rates from November 2013 to December 2013; quick ERC approval of MERALCO's proposal; sole reliance by ERC upon MERALCO's claims in justifying the proposal's approval; and the ERC leaders' admitted lack of specialized knowledge of and familiarity with the details of MERALCO's proposal to be able to deal competently with it. Regulatory or corporate capture arises from three (3) diverse circumstances.11 The first deals with the traditional capture threat: personal benefits. Here, regulators are influenced in their decision-making by the chance of personal gain offered by the regulated industry.12 Regulators may also be captured through threats from the regulated industry. The regulator's current job may be threatened, or the agency is faced with defunding if certain decisions are not made.13 I do not think this circumstance is involved or relevant here. The second considers regulators to be driven by something other than their own pecuniary interests. The theory is that capture is not always the result of regulators seeking personal benefits. Instead, capture may result from regulators making poor regulatory decisions because they lack good information about the consequences of those decisions.14 Because the regulator often must rely upon the regulated industry to provide the data necessary for effective decision-making, the regulator is at the mercy of the regulated industry.15 Underfunded and overworked staff may simply not have sufficient resources to locate the facts needed to regulate properly, resulting in an overly-heavy reliance on the industry to identify problematic practices.16 Agencies are thus captured when the regulated industries are the sole possessors of information which the agency itself ought to possess as well to make informed regulatory decisions.17 This is worsened by the fact that the information that the agency needs to make an informed regulatory decision may be shielded from public view.18 This insulates both the regulated industry and the agency from public oversight and criticism, thus: This version of capture as an informational problem is rooted in collective action concerns. Information capture drives up participation costs for some groups, like those concerned with the public interest, while advantaging larger groups within the industry that control the information. Some scholars have written about the various problems that can arise from information capture, including excessive, undigested facts at the agency level, discussions that take place at too high of a level, and discussions that delve into the minutiae of the regulatory decision. To these scholars, the solution to information capture is the creation of "filters," which allow the regulatory creation process to remain open to all interested parties. In this way, decision-makers have the optimal quantity and quality of information. At the same time, these transfers of information would have to occur with public scrutiny if they were to be effective.19 The third focuses on cultural and behavioral forces as the cause of the capture.20 This is distinct from personal benefits or information.21 This form of capture is more concerned with the informal influence of the regulated industries through their interpersonal interactions with agency employees.22 The result of these interactions is for the agency to come to discern the regulated sector the same way that its regulated entities do.23 While agency people may believe they are doing their best, their worldview is affected by the industries they interact with.24 This form of capture does not rely on self-interested agency employees trying to make as much personal gain as possible. Viewed from the lens of regulatory or corporate capture, I agree with Justice Leonen's conclusion that the ERC's decision is fraught with grave abuse of discretion. The confluence of circumstances indicates that more likely than not, the decision was not reached with the bedrock principles of RA 9136 in mind. The investigation and evaluation that ERC was tasked to complete before it could be said that ERC had competently and diligently approved MERALCO's proposal, would have been a complex process that could not have been completed within four (4) or five (5) days and with only MERALCO's inputs on hand. It stands to reason, thus, that the ERC decision could have arisen more likely than not from either information or cultural capture or both. To counter any indication of information or cultural capture, it is important for the talking heads of ERC to already internalize their expertise and the powers their agency wields in the regulation of the electric power industry. The ERC Chairperson and its Commissioners should embrace the importance of their roles in this everyday multi-trillion worth commodity. They cannot sit idly by while large corporate interests game the process for their profit at the peoples' expense. It is, thus, not amiss for Justice Leonen to have noted and noted keenly how the ERC Chair passed on to the ERC Executive Director the responsibility of answering the important questions plaguing MERALCO's proposal to increase exponentially the generation rates it had billed and collected from its captive market customers, because the Chair did not know or was not familiar with the important questions and the answers to them. ERC should have conducted a fair, principled, thorough, competent and independent investigation of MERALCO's proposal before approving it. Justice Leonen further stated that the subsection 4(e) process applied because MERALCO had asked for carrying cost as a premium on the staggered payment of the hefty generation rates. I agree. The subsection 4(e) process is the general rule whenever rates are changed or relief is sought against consumers. The exceptions to this general rule are spelled out clearly and distinctly. Whatever is not included in the list of exceptions is covered by the general rule. Since carrying cost is not among the exceptions, the general rule of a subsection 4(e) process applies to it. The fact that the proposal for carrying cost was rejected by the ERC is irrelevant to the statutory requirement of a subsection 4(e) process. Laws are not dispensed with by the non-use or disrespect of the process. In the exercise of judicial review, the Court is duty-bound to call out this error so ERC would not repeat the mistake and apply the correct process in the future. As regards the substance of MERALCO's proposal, the humongous generation rate to be computed, billed, and collected, the proper process should have been a fair, principled, thorough, competent, and independent investigation. While I do not share Justice Leonen's view that this involved both an investigative and quasi-judicial processes, I nonetheless agree that the investigation should have been robust to bring about the principles called for in RA 9136. Justice Leonen summarizes these principles as follows: ... transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market. The State is also required to "establish a strong and purely independent regulatory body and system to ensure consumer protection and enhance the competitive operation of the electricity market." Under Section 25 of the EPIRA, it states that "retail rates charged by distribution utilities for the supply of electricity in the captive market shall be subject to the regulation by the ERC x x x." .... Under Section 43 (f) of the EPIRA, one of ERC's key function is that "[i]n the public interest, establish and enforce a methodology for setting x x x retail rates for the captive market of a distribution utility, x x x The rate setting methodology so adopted and applied must ensure a reasonable price of electricity." Also under Section 43 (k) of the EPIRA is the function of the ERC to "[m]onitor and take measures in accordance with this Act to penalize abuse of market power, cartelization, and anti-competitive or discriminatory behavior by any electric power industry participant." Related to this is Section 43 (o) directs that the ERC "[m]onitor the activities in the generation x x x of the electric power industry with the end in view of promoting free market competition and ensuring that the allocation or pass through of bulk purchase cost by distributors is transparent, nondiscriminatory x x x." The determination of the proper amount of generation rates to be computed, billed, and collected is essentially a legislative and not an adjudicative act. Thus: Defendants also argue that setting rates is a legislative act, to which procedural due process does not apply. Thus, even if a property interest exists, which the Court does not concede, Plaintiffs were not entitled to the protections of procedural due process in the setting of RS 17. 17 18 Procedural due process does not apply to legislative acts. Bi-Metallic Inv. Co. v.. State Bd. of Equalization, 239 U.S. 441, 445-46, 36 S.Ct. 141, 60 L.Ed. 372 (1915). Therefore, before procedural due process rights attach, a plaintiff must show that the deprivation occurred as a result of an adjudicatory process rather than a legislative process. See Harris v. Cty. of Riverside, 904 F.2d 497, 501 (9th Cir. 1990). The parties dispute whether the adoption of RS 17, including Plaintiffs' placement in the Evolving Industries category, was a legislative act. Plaintiffs argue that, because RS 17 applies to relatively few people, it should be characterized as an adjudicatory act, to which procedural due process rights apply. Plaintiffs find support for their argument in the case of Londoner v. City & Cty. of Denver, 210 U.S. 373, 385-86, 28 S.Ct. 708, 52 L.Ed. 1103 (1908). In Londoner, a local board had to decide "whether, in what amount, and upon whom" a tax for paving a street should be levied. Bi-Metallic Inv. Co., 239 U.S. 441, 445-6, 36 S.Ct. 141 (quoting Londoner, 210 U.S. at 385, 28 S.Ct. 708). Because only a few people were affected by the tax, and because each of them was affected "upon individual grounds," the Court found that the affected individuals had a due process right to a hearing before the tax was passed. Plaintiffs claim that, because RS 17 only has been applied to cryptocurrency mining companies, Londoner applies and requires certain procedural due process protections, such as notice and a hearing. While there is merit to Plaintiffs' Londoner argument, Plaintiffs do not adequately respond to precedent that explicitly identifies rate setting as a legislative act, rather than an adjudicatory act. In Prentis v. Atlantic Coast Line Co., a case involving train ticket rates, the Supreme Court explained why rate setting is legislative in nature. 211 U.S. 210, 29 S.Ct. 67, 53 L.Ed. 150 (1908). In Prentis, a Virginia commission regulated the maximum rates that railway companies could charge their customers. Id. at 224, 29 S.Ct. 67. The commission was responsible for creating and enforcing those rates, and ensuring that they were "reasonable and just." Id. Prior to passing a new rate schedule, the commission held a hearing, during which it heard objections to the proposed rates. Id. After the hearing, the commission enacted * 1041 a rate schedule, setting different rates for different railway companies. Id. at 225, 29 S.Ct. 67. Under the new rate regime, some railways were permitted to charge customers more than others. Id. Plaintiff railways challenged the new rates as confiscatory. Id. at 223, 29 S.Ct. 67. The Prentis Court concluded that the commission's proceedings in adopting the new rate scheme were plainly legislative. Id. at 226, 29 S.Ct. 67. In doing so, it explained the difference between a judicial inquiry and a legislative act, stating: A judicial inquiry investigates, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and changes existing conditions by making a new rule, to be applied thereafter to all or some part of those subject to its power. The establishment of a rate is the making of a rule for the future, and therefore is an act legislative, not judicial, in kind.... Id. The Court further announced that a legislative action cannot be recast as an adjudicatory action simply because the commission or other legislative body engaged in fact-finding prior to reaching a decision. Id. at 227, 29 S.Ct. 67. As the Supreme Court explained, "[m]ost legislation is preceded by hearings and investigations." Id. Therefore, "it does not matter what inquiries may have been made as a preliminary to the legislative act." Id. The Supreme Court decided Prentis six months after deciding Londoner and still concluded that rate setting is legislative in nature. Since Prentis, courts consistently have held that rate setting is a legislative act.... 19 Because rate setting is a legislative act, procedural due process rights do not attach.ℒαwρhi৷ Therefore, even if Plaintiffs could point to a valid property interest, which the Court does not concede that they did, Plaintiffs' procedural due process claim fails as a matter of law.25 While ERC is not mandated to conduct the subsection 4(e) process on MERALCO's proposal to increase the generation rates, the fact that ERC is mandated to conduct an investigation pursuant to the requirements of abiding by the principles mentioned in RA 9136 and the exception clause in the AGRA Guidelines, only means that the investigation will have to be fair, principled, thorough, competent, and independent. The reason for requiring this type of investigation is RA 9136 itself. RA 9136 demands fairness, thoroughness, competence, and independence in the investigation process and a principled outcome. It does not mean that simply because the process is called an investigation, ERC can already throw caution to the wind as to the procedure it ought to observe. As explained elsewhere: The Commission has a public interest mandate and the statutory obligation to fix just and reasonable rates for the utilities under its jurisdiction. In fulfilling this obligation, the Commission, acting through its staff and the assigned panel, must be able to probe into the evidence filed before it in order for the Commission panel to determine the merits and the weight to accord such evidence, subject always to the rules of procedural fairness. The Commission cannot simply rely on counsel for the parties to act in the public interest or to test the evidence sufficiently to satisfy the Commission's statutory obligations when they do not bear the same statutory obligations, have completely different objectives in participating in the proceeding and where each has a stake in the outcome. One commentator has remarked on this issue as follows: The work of most tribunals cannot be adequately accomplished by means of an adversarial system of evidence-gathering. Most tribunals have a "public interest" clement that is not adequately covered off by the material put forward by the participants. Our civil justice system is based on an assumption that issue identification, evidence-gathering and argument can be left in the safekeeping of the parties. Our criminal justice system is based on a similar assumption, with the parties being the Crown and the defense. Administrative justice is different. There is the "public interest." To cover off the "public interest" angle, tribunals have to become inquisitorial (some more than others). And inquisitorial tribunals need more legal advice tha[n] more passive decision-makers.26 A fair investigation is not a contradiction in terms. In fact, only a proper investigation is a fair investigation. Thus: 7. Regardless of the nature of the Coroner's inquest, which is fundamentally a process of inquiry and reporting, rather than the determination of rights and liabilities, when a person applies for standing under s. 33, the Coroner must embark upon an inquiry and make a finding whether or not the applicant has such an interest. In so doing, the Coroner is required to act judicially in the sense of that expression as it denotes a standard of conduct. He must therefore afford the applicant full opportunity to be heard. He is not required to follow the procedure and other requirements in the Statutory Powers Procedure Act, 1971 (Ont.), c. 47, as that Act does not apply to Coroners. He nevertheless must make a finding on the basis of a fair hearing which he may conduct in his own way. In so doing he must follow the principles stated in Board of Education v. Rice et al., 1911 A.C. 179, per Lord Loreburn at p. 182: In such cases the Board of Education will have to ascertain the law and also to ascertain the facts.ℒαwρhi৷ I need not add that in doing either they must act in good faith and fairly listen to both sides, for that is a duty lying upon everyone who decides anything. But I do not think they are bound to treat such a question as though it were a trial. They have no power to administer an oath and need not examine witnesses. They can obtain information in any way they think best, always giving a fair opportunity to those who are parties in the controversy for correcting or contradicting any relevant statement prejudicial to their view. Provided this is done, there is no appeal from the determination of the Board under s. 7, sub-s. 3, of this Act....27 Unfortunately, the investigation done by ERC, if at all, was not fair, principled, thorough, competent, and independent. It failed to hear other stakeholders, was based exclusively on MERALCO's submissions, did not indicate ERC's independence, and grossly ignored the principles per RA 9136 that ought to have shaped, colored, and controlled the exercise of its discretion. Had ERC given a respectful and thoughtful attention to the proposal, it would have looked into diverse factors such as patterns and human behavior in applying the broad and amorphous RA 9136 legal standards like public interest, competition, transparency, or reasonableness to a set or sets of behaviour. ERC most likely would have needed analogic analysis of comparing and contrasting past and present behaviour and facts. The scope and extent of the investigation ERC did is nowhere near this type of investigation which it should have done. As discussed, what happened was that the ERC process was most likely or probably captured by MERALCO if not by the regulated industries as a whole and its discretion was fettered by its unreasonable refusal to deviate from the mechanisms in the AGRA Guidelines despite its authority to do so under the exception clause. By any stretch of imagination, the process by which the ERC resolved or acted upon MERALCO's proposal cannot be described as fair, principled, thorough, competent and independent. Conclusion ACCORDINGLY, I vote to (a) DECLARE as VOID the Order dated March 3, 2014 of ERC; (b) DECLARE as VOID the Letter dated December 9, 2013 of ERC approving the Letter Request dated December 5, 2013 of MERALCO for having been issued with grave abuse of discretion; (c) REMAND the aforesaid Letter Request dated December 5, 2013 to ERC for proper disposition and DIRECT MERALCO to notify all affected parties on its Letter Request and comply with a fair, thorough, competent, principled, and independent investigation; and (d) DIRECT the ERC to submit a report to the Court regarding the status of the Letter Request dated December 5, 2013 of MERALCO within ninety (90) days from notice. Footnotes 1 SECTION 4. Definition of Terms. - x x x (ss) "Retail Rate" refers to the total price paid by end-users consisting of the charges for generation, transmission and related ancillary services, distribution, supply and other related charges for electric service.... 2 ARTICLE V, Verification Process. SECTION 3. Prior Verification of Other Generation Rate Adjustments (OGA). - OGA other than those included in Article V, Section 2 shall be verified and confirmed by the ERC within forty-five (45) days from date of its filing and only thereafter shall they be recoverable. 3 See Jason Maclean, "Regulatory Capture and the Role of Academics in Public Policymaking: Lessons from Canada's Environmental Regulatory Review Process" (2019) 52 UBC L Rev 479 at 480 (WL Can), citing Daniel Carpenter & David A Moss, "Introduction" in Daniel Carpenter & David A Moss, eds, Preventing Regulatory Capture: Special Interest Influence and How to Limit It (New York: Cambridge University Press, 2014) at 13: "Regulatory capture is at once the process and effect of regulated entities or entire industries systematically redirecting regulation away from the public interest and toward the private, special interests of regulated parties themselves." See also Brink Lindsey & Steven M Teles, The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality (New York: Oxford University Press, 2017). 4 HEU, Local 180 v. Peace Arch District Hospital, 1989 Carswell BC 29, [1989] BCWLD 1002, 57 DLR (4th) 386: "Thus, a tribunal which has power to award costs fails to exercise its discretion judicially if it fixes specific amounts to be applied indiscriminately to all cases before it; but its statutory discretion may be wide enough to justify the adoption of a rule not to award any costs save in exceptional circumstances, as distinct from a rule never to award any costs at all." And: "a body entrusted with a discretion must not disable itself from exercising its discretion in individual cases by adopting a fixed rule of policy. In modern administrative law this issue arises most often when an administrative agency of its own volition seeks to structure its discretion by formulating and following policy statements, guidelines, and the like." 5 Id. 6 Stemijon Investments Ltd v. Canada (Attorney General), 2011 FCA 299 at par. 22. 7 Thamotharem v. Canada (Minister of Citizenship & Immigration), 2007 FCA 198 at par. 11. 8 Id. at par. 75. 9 HEU, Local 180 v. Peace Arch District Hospital, 1989 Carswell BC 29, [1989] BCWLD 1002, 57 DLR (4th) 386. 10 Ma. Lourdes Sereno, Dissenting Opinion, Biraogo v. The Philippine Truth Commission of 2010, 651 Phil. 374 (2010). 11 J. Jonas Anderson, Court Capture, 59 BCL Rev 1543 (May 2018). 12 Id. 13 Id. 14 Id. 15 Id. 16 Id. 17 Id. 18 Id. 19 Id. 20 Id. 21 Id. 22 Id. 23 Id. 24 Id. 25 Blocktree Properties LLC v. Public Utility District No. 2 (2020), 447 F Supp 3d 1030. 26 Milner Power Inc. v. Alberta Utilities Commission, 2019 ABCA 127 at par. 74. 27 Brown et al. and Patterson, [1974] OJ No 2189, 6 OR (2d) 441, 53 DLR (3d) 64, 21 CCC (2d) 373. The Lawphil Project - Arellano Law Foundation