tmo tli comment

8/13/2019 Tmo Tli Comment

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l ~ E f E D13 (.

REPUBLIC OF THE P I I l L I P P f N i @ J ~J N 2 P I 7SUPREME COURT

Manila

EN BANC

BAYAN MUNA REPRESENTATIVESNERI JAVIER COLMENARES ANDCARLOS ISA GANI ZARA TE, et al.,

Petitioners,

-versus-

ENERGY REGULATORYCOMMISSION AND MANILAELECTRIC COMPANY,

Respondents.x-------------------------------------------------x

NATIONAL ASSOCIATION OFELECTRICITY CONSUMERS FORREFORMS REPRESENTED BYPETRONILO L ILAGAN, et al.,

Petitioners,

-versus-

MANILA ELECTRIC COMPANY,ENERGY REGULATORYCOMMISSION AND DEPARTMENT OFENERGY,

Respondents.x-------------------------------------------------x

MANILA ELECTRIC COMPANY,Petitioner,

-versus-

PHILIPPINE ELECTRIC MARKETCORPORATION, t al.,

Respondents.x ~ x

G.R. No. 210245.

G.R. No. 210255

G.R. No. 210502


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CONSOLIDATED COMMENT

Respondents Therma Mobile, Inc. ( TMO ) and Therma Luzon Inc.( TLI ), through counsel, most respectfully submit this ConsolidatedComment to: (i) the Amended Petition for Certiorari and Prohibition withPrayer for a Temporary Restraining Order and/or Preliminary Injunctiondated January 13 2014 filed by Bayan Muna Representatives, et al., G.R.No. 210245, (ii) the Petition for Certiorari and/or Prohibition dated 16December 2013 filed by National Association o Electricity Consumers forReforms ( NASECORE ), et al., G.R. No. 210255 Gointly referred to as the

Petitions ); and (iii) the Consolidated Comment/Opposition with CounterPetition dated 8 January 2014 filed by Manila Electric Company( MERALCO ), G.R. No. 210502 (the Meralco Counter-Petition ), andmost respectfully state that:

This Consolidated Comment incorporates by reference as an integralpart o this submission the Regulatory Regime o the electric power industryo the Philippines set out in Annex 1 attached hereto.

Respondents TMO and TLI operate independently under thisRegulatory Regime within the confines o the law, government rules and

regulations, their contractual obligations and their responsibilities asgeneration companies.

Respondents TMO and TLI have been undeservedly vilified in thePetitions with unsubstantiated allegations. The Petitions ought to bedismissed outright as a wrong remedy and for being founded upon pureconjectures and misleading statements, and for utter lack o merit . TheMeralco Counter-Petition is also completely inappropriate and should

likewise be dismissed.

A wrong remedy is a fatal error and a petition that is rooted inmisleading narrative, twisted reasoning and overreaching interpretations olaw cannot pass muster and should be thrown out.

In fine, no good reason exists to keep the temporary restraining orderissued by the Honorable Court on 23 December 2013 ( TRO ) in effect andt should be lifted immediately to prevent MERALCO from further using the

TRO as an excuse to evade its contractual and legal payment obligations tothe generation companies.

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IFACTS RELEVANT TO TMO AND TLI

1 1 To the extent that any part of the allegations in the Petitions whichis passed off as a fact is inconsistent with the true circumstances statedbelow or is irrelevant to TMO or TLI or beyond the personal knowledge ofTMO or TLI, then it is deemed disputed by TMO and TLI.

A Facts Relevant to TMO

1 2 TMO is a corporation duly organized and existing under the laws

of the Republic of the Philippines.1

1 3 TMO is one hundred percent (100%) owned by Therma Power,Inc.,2 a wholly-owned subsidiary of Aboitiz Power Corporation, 3 which is asubsidiary of Aboitiz Equity Ventures, Inc. 4

1 4 TMO owns and operates four (4) barge-mounted bunker-fireddiesel power generating and interconnection facilities in Navotas Fishport,Manila with a total installed capacity of 242 MW, with only 100 MWcurrently available (the TMO Plant ).

1 5 TMO is registered with Philippine Electricity Market Corporation( PEMC ) as a direct member in the Wholesale Electricity Spot Market( WESM ). t is fully compliant with the basic rules, requirements andprocedures set out in the WESM Rules 5 and the relevant market manualsthat govern WESM. It is legally authorized and permitted to participate as ageneration company in the electricity spot market.

Shutdown o Malampaya

1 6 As early as 2012, it was made known by the National GridCorporation of the Philippines ( NGCP ) that the Malampaya Deep WaterGas-to-Power Project ( Malampaya ), operated by Shell PhilippinesExploration ( SPEX ) under Service Contract No. 38 entered into betweenSPEX, Chevron Malampaya LLC and PNOC Exploration Corporation(collectively, the SC38 Consortium ) as contractors and the Republic dfthePhilippines as represented by the President of the Philippines in December1990, would undergo maintenance works and will be shutdown in November2013. As representative of the ~ p u b l i cof the Philippines and pursuant tothe 1987 Philippine Constitution, the Department of Energy ( DOE ) has

1 Articles of Incorporation ofTMO as amended dated 30 September 2009.2 2013 General Information Sheet ofTMO.3 2013 General Information Sheet of Therma Power Inc.4 2013 General Information Sheet of Aboitiz Power Corporation.

The WESM Rules was formulated jointly with electric power industry participants and promulgated bythe DOE on 28 June 2002.

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control and supervision of SPEX' s activities as operator of Malampaya inconnection with the exploration, development and utilization of Malampayanatural gas.

1.7 Malampaya supplies natural gas to three (3) natural gas powerplants with an aggregate capacity of 2,700 MW, namely the 1,200 .MWIlijan Power Plant ( Ilijan ), the 1,000-MW Sta. Rita Power Plant ( Sta.Rita ) and the 500-MW San Lorenzo Power Plant ( San Lorenzo ). Thesale and purchase of Malampaya natural gas are governed by three (3)separate gas sale and purchase agreements between the SC 38 Consortium assellers and National Power Corporation ( NPC ) 6 First Gas PowerCorporation and FGP Corp., respectively.

1.8 MERALCO is highly dependent on Ilijan, Sta. Rita and SanLorenzo and provide for approximately forty percent ( 40%) of its base. loadrequirements. Accordingly, when Malampaya is shutdown for maintenanceor other reasons, MERALCO is unable to receive power from natural gasturbines of Ilijan, Sta. Rita and San Lorenzo and is constrained to obtain itselectricity requirements from sources other than natural gas.

1.9 On 27 September 2013, TMO and MERALCO executed a powersupply agreement with MERALCO (the MERALCO-TMO PSA ) with thefollowing key terms and conditions:

(a) The Contracted Capacity of 234MW, subject to the dependablecapacity of the TMO plant or the capacity of the electricalconnection facilities, whichever is lower;

(b) The Monthly Maximum Capacity Factor of forty percent(40%);

(c) The MERALCO-TMO PSA has a term of three (3) years andnine (9) months or from 27 September 2013 until 25 June 2017unless terminated earlier or extended in accordance with theterms of the PSA;

(d) The TMO Plant is embedded to MERALCO's distributionsystem through the Malabon-Grace Park 115 kV Line; and

( e) The Operating Procedures of the MERALCO-TMO PSA 7

require TMO to submit its generation offers to the WESMconsistent with the day-ahead nominations of MERALCO.Briefly, the daily WESM bidding procedure of TMO followsthe steps described below:

6 Pursuant to EPIRA, all contractual rights and obligations ofNP were transferred to PSALM.7 Appendix F, MERALCO-TMO PSA.

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(i) TMO submits the TMO Plants' capacity hourlyAvailability Schedule to MERALCO on or before 1 OOOHon the day before the relevant day;

(ii) MERALCO acknowledges receipt of TMO s capacityAvailability Schedule;

(iii) MERALCO submits its day-ahead 24-hour nominationschedule to TMO;

(iv) TMO acknowledges receipt of MERALCO s day-ahead24-hour nomination schedule on or before 1400H of the

preceding day; and

(v) TMO then makes its hourly generation offers (both priceand quantity) to the WESM based on MERALCO s dayahead 24-hour nomination schedule.

1.10 TMO responded to the call of MERALCO to address theimpending shortage in electricity supply with the Malampaya shutdown 8 andagreed to execute the MERALCO-TMO PSA albeit with the then 100-'.MWavailable capacity as TMO continued to rehabilitate the entire 234..:MWcapacity. In agreeing to execute the PSA, TMO had no design, premeditatedor otherwise, to manipulate the WESM spot prices for the benefit of anyWESM trading participant. TMO strictly adhered to the provisions of theMERALCO-TMO PSA and consistently followed the nominationinstructions ofMERALCO.

1.11 TMO was intended as a peaking power plant that will provideelectricity requirements to MERALCO s customers during peak hours. Inits application for ERC approval of the MERALCO-TMO PSA, MERALCO

stated thus:

10. First, it will lessen MERALCO s exposure toWESM during the Malampaya Gas Plant shutdown forscheduled maintenance starting 09 November to 08 December2013. t must be mentioned that a significant portion ofMERALCO s plant portfolio depends on the Malampaya GasFacility. During said period, MERALCO will be exposed to theWESM where the price is known to be volatile. What furtheraggravates the situation is that certain plants (such as Pagbilaopower plant - Unit 2, Ilijan power plant - Unit 2, Calaca powerplant - Uni t 2 and San Lorenzo power plant - Unit 50) will beundergoing maintenance schedule that would coincide with theMalampaya Gas Plant shutdown. In addition, Unit 60 of San

8 The shutdown was initially scheduled from 1November2013 to 30 November 2013 but was moved to 8November 2013 to 7 December 2013 and moved again to 11November2013 to 1 December 2013. '

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Lorenzo power plant is still undergoing repair until first quartero next year. The combination o these events will put muchstrain on the supply side that will likely drive the market priceinto very high levels thereby probably resulting to price shockson MERALCO's end-users.

11 Second, it will greatly help in providing morereliable and quality electricity to the end-users as it willcontribute in voltage improvement at MERALCO's Sector 1 -115 kV buses and will relieve its transformer capacity at itsdelivery points in Balintawak, Duhay, Paco. Third, there will beno additional burden on the customers in terms o NGCP

transmission charges considering that the power barges areembedded within MERALCO's franchise. Fourth and asmentioned earlier, the capacity taken from TMO will reduceMERALCO's exposure to high spot market prices from theWESM as MERALCO will take energy from TMO during peakhours providing lower and/or stable electricity prices. Andlastly, the PSA would effectively serve as additional insuranceo continued supply o electricity at stable price during theperiod o unexpected outages or system failure. 9

ER provisionally approved the MERALCO-TMO PSA

1.12 The MERALCO-TMO PSA became operationally effectiveafter the issuance o a provisional authority by the Energy RegulatoryCommission ( ERC ) in an order dated 4 November 2013 (the ERCOrder ). The ERC. Order is herein attached as Annex 2 and made an integralpart o this Comment.

Daily WESM bidding process o f TMO

depends upon MERALCOs

instructions

1 13 TMO, from 12 November 2013 to 25 December 2013, madegeneration offers (price and quantity) in accordance with MERALCO'sinstructions in its day-ahead 24-hour nomination schedules.

1.14 Based on MERALCO's day-ahead 24-hour nominationschedules, TMO was trading consistent with MERALCO's intention for theTMO Plant to be a peaking plant, which is available only for dispatch duringMERALCO's peak load requirements.

1 15 In following MERALCO's instructions, TMO was merelyfulfilling its contractual obligations, believing in good faith that MERALCO

9 MERALCO's Application dated 27 September 2013, In the Matter o f he Application for Approval o f hePower Supply Agreement PSA) between Manila Electric Company MERALCO) and Therma Mobile Inc.TMO), ERC Case No. 2013-196 RC.

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was acting as a prudent distribution utility operator without any motive otherthan to ensure supply to its customers and without any intention o causing aspike in the WESM spot market prices.

TMO 's bidding pattern shows MERALCO s strategy

1.16 MERALCO would instruct TMO to bid at the Offer PriceCeiling o Php62,000/MWh or Php62.00/kWh 10 during MERALCO s offpeak period: (i) the intervals from OOOOH 01 OOH to 0700H-0800H and2300H-2400H during weekdays; and (ii) the intervals from OOOOH OlOOH to2300H-2400H during weekends.

1.17 By long practice and experience in trading, MERALCOpurposely instructed TMO to bid at the Offer Price Ceiling oPhp62,000/MWh or Php62.00/kWh during off-peak hours in the expectationthat the TMO Plant would not be dispatched. The supposed intent oMERALCO in instructing TMO to make a generation offer at the OfferPrice Ceiling o Php62,000/MWh or Php62.00/kWh, which at that time wasthe highest possible generation offer in the WESM 11 during that time, is forthe exclusion o the TMO Plant in the merit order dispatch schedule o theWESM.

1.18 Naturally, because o the high generation offer o TMO, theTMO Plant will be stacked last in the merit order dispatch schedule andsince normally during the off-peak period, supply is higher than demand, theTMO Plant, being last in the merit order dispatch, will not likely bescheduled for dispatch.

1.19 Conversely, during MERALCO s peak load requirements, itwould instruct TMO to submit a generation offer at a negative price oPhp0.00/kWh or a low price offer.

1.20 A negative or a low price offer means that the TMO Plant willbe stacked first in the merit order dispatch schedule and will therefore bescheduled for dispatch, thus allowing MERALCO to avail o TMO selectricity output during peak hours since the TMO Plant was meant to be apeaking plant.

1.21 Under normal circumstances, where: i) during peak hours thedemand for electricity is higher than the supply for electricity; and (ii)during off-peak hours where supply o electricity is higher than demand forelectricity, MERALCO s intended scenarios, as discussed above, wouldhave likely occurred, notwithstanding the shutdown o Malampaya from 11

10 WESM Tripartite Setting the Initial Pre-Emptive, Market Mitigating Measures for the CommercialOperations o he Philippine WESM Committee Joint Resolution No. 2, series of2006.

Id.

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November 2013 to 10 December 2013 and the occurrence o the scheduledoutages and forced outages o the natural gas plants and other power plants.

Unforeseen events reversedMERALCO s expected results o f bidding

1.22 As a result o the extraordinarily high demand for electricityduring November 2013 to December 2013 and the unexplained failure o theMalaya Power Plant to make generation offers to the WESM, TMO'sgeneration offers at the Offer Price Ceiling were cleared and TMO's Plantswere scheduled for dispatch several times from 12 November 2013 to 25December 2013, even during off-peak hours on weekdays and during

weekends, resulting in TMO setting the WESM spot market price.

1 23 After an analysis o the behavior o the WESM from 11November 2013 to 10 December 2013, it was determined that had theMalaya Power Plant been online and ordered to run by the System Operator( SO ), the National Grid Corporation Philippines ( NGCP ), and offeredcapacity during the Malampaya shutdown, WESM average prices (averageprice for 11 November 2013 to 10 December 2013) should go down byseventy-five percent (75%) from Php21,999/MWh or Php21.999/kWh(actual prices) to Php5;415/MWh or Php5.415/kWh (re-run projectedprices). The simulation scenario i the Malaya Power Plant was onlineduring the Malampaya shutdown is hereto attached as Annex 3 and maqe anintegral part hereof.

1.24 From 12 November 2013 to 25 December 2013, TMO set theWESM spot market price twenty-five (25) times out o one thousand fiftysix intervals (1,056). This number is insignificant in comparison to thenumber o times that the Limay Power Plant and Bauang Power Plant set thespot market prices o the WESM at generation offers ranging from

Php40,000/MWh or Php40.00/kWh up to the Offer Price Ceiling.o credible explanation {or the Malaya Plant s

Failure to comply with the must-offer rule

1 25 The Malaya Power Plant, a thermal power plant located inPililia, Rizal owned by Power Sector Assets and Liabilities ManageinentCorporation ( PSALM ) and operated by Salcon Power Corp. has aninstalled capacity o 650 MW

1.26 During the Malampaya shutdown from 11 November 2013 to10 December 2013, the Malaya Plant was offline and failed to make anygeneration offers to the WESM.

1.27 Because o the supply deficit caused by the Malampayashutdown and the occurrence o the scheduled outages o the natural gasplants reliant on Malampaya for fuel, there was grave and compelling need

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for the Malaya Power Plant to run, considering that its installed capacity o650 MW could have greatly minimized the supply deficit.

1.28 Under the EPIRA, all generation companies shall ensure theavailability o its generation facilities at all times subject only to technicalconstraints duly communicated to the SO (NGCP), in accordance withexisting rules and procedures. 12

1.29 All generation companies, including those with bilateral supplycontracts, connecting to the Grid 13 must register with the WESM 14 andsubmit a standing generation offer

5for all o its generating units during all

trading intervals which should not be less than the maximum available

capacity o the each generating unit.6

1.30 The above obligations under the EPIRA, WESM Rules; andDOE Department Circular No. DC 2010-03-0003, do not distinguishbetween generation companies/generating units that are privately owned orpublicly owned. A generation company is simply defined in the EPIRAand WESM Rules as any Person or entity authorized by the ERC to operatefacilities used in the generation o electricity , and registered with themarket operator in that capacity . 17

1.31 Pursuant to the foregoing, absent any technical constraintsmade known to the SO (NGCP), the Malaya Power Plant should have beenonline and made generation offers to the WESM during the Malampayashutdown up to its maximum available capacity.

1.32 It must be noted that i the Malaya Power Plant was not limitedby technical constraints communicated to the SO (NGCP) during theMalampaya shutdown and it intentionally did not make any generationoffers, such action would fall within the meaning o anti-competitive

behavior under the EPIRA IRR and WESM Market Manual MarketSurveillance, Compliance nd Enforcement Market Manual).

1.33 Section 7.4.3 o the WESM Market Manual MarketSurveillance, Compliance nd Enforcement Market Manual) states:

The following conduct o a WESM member shall,among others, be considered as Anti-Competitive

2 DOE Department Circular No. DC 2010-03-003 dated 26 February 2010, Directing All PowerGeneration Companies, the Transmission Service Provider, and all Distribution Utilities to EnsureAdequate and Reliable Electric Power Supply in the Country.

3 The Grid refers to the high voltage backbone system o interconnected transmission lines, substations andrelated facilities. (EPIRA, sec. 4(z)).14 WESM Rules, Section 4(h), Rule 5 Part II, EPIRA IRR; Section 2.3.1.1.15 WESM Rules, Section 3.5.5.1and3.5.5.2.16 WESM Rules, A 1.1 (e , Appendix A.17 WESM Rules, Definition o Generation Company, Chapter 11.


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Behavior when such conduct significantly affects pricesin the WESM:

(a) Physical withholding or the refusal to offer to sell,or schedule, the maximum available output o reserveto the WESM, by a facility available and capable oproducing such output or reserve. This type o conductmay, among others, include:

(i) Falsely declaring that a generation facility has beenforced out o service, or has otherwise becomeunavailable or has constraints that limits its output or

reserve; x x x

1.34 To date, no formal explanation has been given for the failure othe Malaya Power Plant to run and make generation offers during theMalampaya shutdown by either PSALM, the owner o the Malaya PowerPlant and Salcon Power Corp., the operator o the Malaya Power Plant.

1 35 Further, despite knowing the consequences o the Malampayashutdown and the high demand for electricity in November 2013 andDecember 2013 during the shutdown, neither the DOE nor the SO (NGCP),inconsistent with their mandate and functions, compelled Malaya to run.

1.36 The DOE is duty-bound under the EPIRA to ensure thereliability, quality and security o electric power supply while the SO(NGCP) pursuant to the EPIRA, ERC Resolution No. 115 otherwise knownas the Philippine Grid Code and the WESM Rules has the responsibility toensure the safety, power quality, stability, reliability and security o the Grid.

TMO i not benefit from being a price setter

1.37 Further, it must be noted that TMO did not benefit from beingthe marginal plant and setting the WESM spot market price. TMO sgeneration offer is irrelevant to the payment it receives for its generatedcapacity dispatched to the Grid. Because TMO s generation capacity is fullycontracted pursuant to the MERALCO-TMO PSA, it will only be paid thecontract price based on a pre-determined formula regardless o the priCe oits generation offers to the WESM.

1.38 From the foregoing it is clear that TMO did not receive anybenefit from setting its generation offer at the Offer Price Ceiling.

1.39 TMO merely followed the instructions o MERALCO andcomplied with its contractual obligations under the MERALCO-TMO PSA,the terms and conditions o which have been provisionally approved by theERC and which have become operationally effective as o 12 November2013.

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1.40 TMO was obligated to make a generation offer pursuant to theWESM Rules, specifically Section 3.5.5, Chapter 3 and Section Al.IAppendix A of the WESM Rules, which state:

CHAPTER3THE MARKET

3.5 SUBMISSION OF OFFERS, BIDS, AND DATA

3.5.5 Generation Offers and Data

3.5.5. l Each Scheduled Generation Company including

Generation Companies with bilateral contracts shallsubmit a standing generation offer for each of itsscheduled generating units for each trading interval ineach trading day of the week in accordance with thetimetable

3.5.5.2 Each generation offer shall include theinformation specified in Appendix A 1 1

xxx

APPENDIX AAPPENDICES TO CHAPTER 3

Appendix Al. Information to be Supplied with Offersto Supply and to Buy Electricity

Al.1 Generation Offer

Generation offers:

xxx

c) May include up to ten 10) energy offer blocks peraggregate) unit. The maximum combined capacity of

generation and reserve offers must not be less than themaximum available capacity of the generator. Asamended by DOE DC No. 2006-01-0001 dated 10January 2006)

1 41 Pursuant to the foregoing, TMO has to make a generation offerduring every trading interval. However, TMO is also obligated under theMERALCO-TMO PSA to supply electricity to the Grid when MERALCOwill need it, which is usually during peak hours.


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1.42 Thus, in order for TMO to comply with the requirements oSection 3.5.5, Chapter 3 and Section Al.1, Appendix A o the WESM Rulesand to fulfill its obligations under the MERALCO-TMO PSA, MERALCO'srecourse was to instruct TMO to bid at a negative or low price during peakhours, when MERALCO would have greater need o electricity and to bid atthe Offer Ceiling Price during off-peak hours when MERALCO did not needelectricity.

1 43 MERALCO expects that when it instructs TMO to make ageneration offer at a negative or low price during peak hours, the TMO Plantwill be dispatched and when it instructs TMO to make a generation offer atthe Offer Ceiling Price during off-peak hours, the TMO Plant will not be

dispatched since there is more supply than demand during those hours.

1.44 Further, it must be noted that the TMO Plant had a MonthlyMaximum Capacity Factor o only forty percent (40 ). Since, MERALCOwill naturally need to allocate the electricity production o the TMO Plantduring its peak load requirements and not during off-peak hours.

1.45 The instructions o MERALCO to TMO do not constitute aform o anti-competitive behavior. TMO did not derive any economic: gainfrom it. TMO believed in good faith that MERALCO was merelyguaranteeing that its demand requirements for its customers during peakhours will be met by TMO considering that it is entitled to the same pursuantto the MERALCO-TMO PSA.

1.46 The WESM Rules and market manuals do not prohibit makinggeneration offers at the Offer Ceiling Price.

TMO is bound by its contractual obligations to MER LCO

1.47 Had TMO disregarded the instructions ofMERALCO to submitgeneration offers at the Offer Ceiling Price, TMO would be liable for breacho its contractual obligations.

1.48 Absent its contractual obligations to MERALCO to mirrorMERALCO's day-ahead 24-hour nomination schedules, it was not in thebest interest o TMO to make generation offers at the Offer Ceiling Pricewhere dispatch was unlikely.

1.49 Hence, TMO could not have colluded with MERALCO as

TMO did not stand to gain in setting the WESM spot market price at theOffer Ceiling Price in excess o the contracted price under the pRapproved MERALCO-TMO PSA.

1.50 Any accusation against TMO o taking part in pricemanipulation or market abuse is readily belied by the true circumstances.

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B Facts Relevant to TLI

1 51 TLI is a corporation duly organized and existing under the lawsof the Republic of the Philippines. 18 TLI is one hundred percent (100%)owned by Therma Power, Inc.,

9a wholly-owned subsidiary of Aboitiz

Power Corporation, 20 which is a subsidiary of Aboitiz Equity Ventures,Inc.

2

TL as P P Administrator

1.52 TLI is the IPP Administrator 22 of a coal-fired power generatingfacility in Pagbilao, Quezon with an installed capacity of 764 MW (the

Pagbilao Plant ), which is owned, operated and maintained by the IPP,TeaM Energy Corp.

1.53 The Pagbilao Plant is composed of two (2) power generatingunits each with an installed capacity of 382 MW or an aggregate capacity of764 MW. The two (2) units are referred to as Pagbilao Unit 1 and PagbilaoUnit 2

1.54 As IPP Administrator, TLI is responsible for paying monthlyfees to PSALM, procuring the fuel requirements of and selling the electricitygenerated by the Pagbilao Plant of up to 700 MW, while TeaM EnergyCorp., as owner, is responsible for the physical operation and maintenanceof the Pagbilao Plant which includes approving the period for scheduledoutages as recommended by the IPP Administrator and restoring theoperations and generating capacity of the Pagbilao Plant (both Pagbilao Unit1 and Pagbilao Unit 2) in the event that it goes on a scheduled or forcedoutage.

1.55 TLI is registered with PEMC as a direct member in the WESM.t

is fully compliant with the basic rules, requirements and procedures set outin the WESM Rules that govern the operation of the Philippine electricitymarket and is legally authorized and permitted to participate as a generationcompany in the electricity spot market.

18 Certificate of Incorporation ofTLI dated 20 October 2008.19 2013 General Information Sheet ofTLI.2 2013 General Information Sheet of TPI.21 2013 General Information Sheet of Aboitiz Power Corporation.22 IPP Administrator refers to qualified independent entities appointed by PSALM who shall administer,conserve and manage the contracted energy output of NPC IPP contracts, including selling the contractedenergy output of hese contracts and offering Ancillary Services, where applicable.

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TL committed all o Pagbilao Unit 1 output to MERALCO

1.56 Pursuant to its functions as IPP Administrator, on 29 February2012, TLI executed a power supply agreement with MERALCO (theMERALCO-TLI PSA ) committing all of Pagbilao Unit 1 s electrical

output of up to 350,000 kW or 350 MW to supply MERALCO's electricityneeds.

1.57 Under the MERALCO-TLI PSA Pagbilao Unit 1 is allowed togo on scheduled outages or be shutdown for a x i m u ~period of thirty (30)days for scheduled repairs and maintenance, during which time MERALCOwill independently source replacement electricity from the WESM at its own

cost.23

1.58 MERALCO and TLI agreed to the scheduled outages period of16 February 2013 to 17 March 2013 upon prior concurrence and approval ofthe SO (NGCP) and the IPP, TeaM Energy. To TLI's best knowledge, theapproved scheduled outage of Pagbilao Unit 1 is known only to TLI,MERALCO, TeaM Energy and SO (NGCP).

1.59 The SO (NGCP) having the responsibility to ensure the safety,power quality, stability, reliability and security of the Grid has informationof all the scheduled outages of all generating facilities in the country.

1.60 Thus, on 16 February 2013, pursuant to the agreement withMERALCO and with the approval of NGCP, Pagbilao Unit 1 went on ascheduled outage for repairs and maintenance.

1.61 On 29 November 2013 to 13 December 2013, unforeseen byTLI, Pagbilao Unit 1 went on a forced outage as a result of a tube leak.

1.62 Under the MERALCO-TLI PSA, the Pagbilao Unit 1 is allowedforced outages not to exceed fifteen ( 15 days for every contract year. ThusPagbilao Unit l s forced outages from 29 November 2013 to 13 December2013 were within its allowed number of forced outages under theMERALCO-TLI PSA.

1.63 TLI has no control over when a forced outage would occilr forPagbilao Unit 1 or when it can go back online. t is merely the IPPAdministrator and is not in charge of the operations and maintenance of thePagbilao Plant.

23 Article 7, Power Supply Agreement between Therma Luzon, Inc. and Manila Electric Company dated 29February 2012.

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TL offered Pagbilao Unit 2 output to other buyers

1.64 TLI also executed various power supply agreement withcooperatives and other distribution utilities in relation to the electricityoutput of Pagbilao Unit 2.

Pagbilao Unit 2 forced outage coincided withPagbilao Unit 1 forced outage

1.65 On 31 August 2013 to 26 November 2013, Pagbilao Unit 2went on a scheduled outage for repairs and maintenance.

1.66 Operationof

Pagbilao Unit 2 was restored after the scheduledoutage. However, only days after being online it was discovered during thetesting and commissioning of Pagbilao Unit 2 that there was a tube leakprompting the immediate shutdown of Pagbilao Unit 2 from 29 November2013 to 14 December 2013 also the scheduled outage of Pagbilao Unit 1and at the tail end of the Malampaya shutdown on 11November2013 to 10December 2013.

1.67 Because of Pagbilao Unit 2 s forced outage from 29 November2013 to 14 December 2013, TLI was constrained to source replacementelectricity from the WESM at the spot market price to service the electricityneeds of the customers being supplied electricity by Pagbilao Unit 2.

1.68 TLI, as IPP Administrator, has no control over the forcedoutages of Pagbilao Unit 1 from 29 November 2013 to 13 December 2013and Pagbilao Unit 2 from 29 November 2013 to 14 December 2013 duringthe shutdown ofMalampaya.

1.69 The Philippine Grid Code defines a forced outage as an

Outage24

that results from emergency conditions directly associated with aComponent, 25 requiring that it be taken out of service immediately, eitherautomatically or as soon as switching operations can be performed. Also, anOutage can be caused by human error or the improper operation ofEquipment.

1.70 As stated earlier, TLI is only the IPP Administrator of thePagbilao Plant, it is not involved in the operations and maintenance of thePagbilao Plant and cannot therefore foresee or cause a forced outage.

24 Outage refers to the state of a Component when it is not available to perform its intended function due tosome event directly associated with that Component. An outage may or may not cause an Interruption ofservice to Customers Philippine Grid Code).25 Component refers to a piece of Equipment, a line or circuit, a section of line or circuit, or a group ofitems, which is viewed as a unit for a specific purpose. Philippine Grid Code).Equipment refers to all appratus, machines, conductors, etc. used as part of, or in connection with, anelectrical installation. Philippine Grid Code).

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1 71 Further, it is not in the best interest of TLI for any o f the unitso f the Pagbilao Plant to go on a forced outage.

1 72 The capacity of the Pagbilao Plant is has been contractedthrough power supply agreements with MERALCO and other distributionutilities and cooperatives, i f any o f the units o f the Pagbilao Plant go on aforced outage, TLI will be required to source replacement electricity fromthe WESM to comply with its obligations under the relevant power supplyagreements.

1 73 In fact, during Pagbilao Unit 2 s recent forced outage from 29November 2013 to 14 December 2013, TLI suffered losses amounting to

Nine Hundred Eight Two Million Philippine Pesos Php982,000,000.00) dueto its purchase o f replacement electricity from the WESM.

1 74 Under some o f its power supply agreements, i f Pagbilao Unit 2goes on a forced outage beyond the number o f allowable forced outagesunder the relevant power supply agreement, it will be required to sourceelectricity from the WESM at spot market price and it will bear the cost o fthe difference between the contract price and the WESM spot market price.

f he WESM spot market price is higher than the contract price, TLI will bepaid by its counter-parties only at the contract price and TLI will bear thedifference between the WESM spot market price and the contract price .

1 7 5 Thus, TLI paid more for energy purchased at the WESM thanwhat it received for energy sold to its other counter-parties.

I 76 I t is therefore not logical for TLI to intentionally place thePagbilao Plant on a forced outage and conspire with other generationcompames.

C acts Relevant to both TMO and TLI

1 77 Although TMO and TLI are affiliates, both have separatejuridical personalities. TMO and TLI are operationally independent fromeach other, having separate trading offices.

1 78 TMO and TLI are differently-situated since TMO is a peakingplant with fully contracted capacity to MERALCO, while TLI is an IPPAdministrator which sells to MERALCO and many other buyers

1 79 The operational strategies o f TMO and TLI are very different,and they act on distinct motives.

1.80 TLI had nothing to gain from TMO s compliance withMERALCO s instructions to bid at the Offer Ceiling Price o f P62.00/kwh.

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In the same manner, TMO did not gain from the forced outage of TLI'sPagbilao Unit 2.

1. 81 In fact, during TLI' s forced outage, TLI was constrained tosource replacement electricity from the WESM at a high spot market price inorder to fulfill its contractual obligations under the power supply agreementsfor Pagbilao Unit 2 suffering losses amounting to Nine Hundred Eight TwoMillion Philippine Pesos (Php982,000,000.00).

1.82 Taking into account the foregoing, any accusation of collusionbetween TMO and TLI is utterly absurd.

1.83 TMO and TLI conducted their businesses in the regular courseand in accordance with the relevant laws and regulations.

I I

REASONS WHY THE PETITIONSAND THE MERALCO COUNTER PETITION

SHOULD BE DISMISSED

A. Certiorari is the wrong remedy;B. In any case, the Petitions lack merit; andC. The Meralco Counter-Petition is inappropriate.

DISCUSSION

A. CERTIORARI IS THE WRONG REMEDY.

2.1 Certiorari26

involves the judicial or quasi-judicial functions of atribunal, board or officer. The 9 December 2013 letter (the December 9letter ) of the ERC 27 can hardly be described as a quasi-judicial act of theERC.

26 Section 1 Rule 65 clearly states that:Section 1. Petition for certiorari. - When any tribunal, board o rofficer exercising judicial or quasi-judicial functions has acted without or inexcess o f its or his jurisdiction, or with grave abuse o f discretion amounting tolack or excess of urisdiction, and there is no appeal, nor any plain, speedy, andadequate remedy in the ordinary course of law, a person aggrieved thereby mayfile a verified petition in the proper court, alleging the facts with certainty andpraying that judgment be rendered annulling or modifying the proceedings ofsuch tribunal, board or officer, and granting such incidental reliefs as law andjustice may require. Emphasis supplied)

27 Attached as Annex C to Bayan Muna's Petition. In the letter dated 9 December 2013, the ERC grantedMERALCO the clearance to stagger implementation of its generation cost recovery (for November 2013supply month) by way of an exception to the AGRA Rules. MERALCO was authorized to implement ageneration charge of Php7.67/kWh in its December 2013 billing and add to its calculated generation chargefor February 2014 billing the generation rate of Phpl.00/kWh. The letter further stated that [t]he balanceof the deferred generation amount without any carrying costs shall be included in MERALCO's generation

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2.1.1 Quasi-judicial function is a term that applies to theaction or discretion of public administrative officers or bodies giventhe authority to investigate facts or ascertain the existence of facts,hold hearings, and draw conclusions from them as a basis for theirofficial action using discretion of a judicial nature. 28

2.1.2 The Supreme Court has previously dismissed a Petitionfor Certiorari questioning the validity of a regulation issued by theERC (i.e., Distribution Services and Open Access Rules) because suchrules do not involve the ERC's exercise of its quasi-judicial functions,as in this case. The Supreme Court ruled that:

[I]n Philnabank Employees Association v. Estanislao, wedid not grant a petition for certiorari against theDepartment Secretary who did not act in any judicialor quasi-judicial capacity but merely promulgated thequestioned implementing rules under the mandate ofRepublic ct No. 6971, the applicable law in this citedcase. (Emphasis supplied

2.1.3 The December 9 letter of the ERC was not issued by theERC in the exercise of its quasi-judicial function. There was noconclusion drawn as a basis for official action after investigating factsor holding hearings, as what a quasi-judicial function has beendescribed. Instead, the December 9 letter of the ERC was issuedpursuant to the following regulations allowing the automatic increasein generation rates, which rules are quasi-legislative in nature:

(a) Article III, Section 2 of the Guidelines for the AutomaticAdjustment of Generation Rates and System Loss Ratesby Distribution Utilities (the AGRA Guidelines ),

which allows Distribution Utilities ( DU ) to bill theircustomers the generation rates calculated in accordancewith the stated formula, effective on the 10th day ofeachmonth:

Section 2. Billing of New Generation Rate -The Distribution Utilities shall bill theircustomers the Generation Rates calculatedin accordance with the immediatelypreceding Section effective on the tenth (10)day of each month.

charge for March 2014. Should MERALCO seek to recover its carrying costs on the entire deferredamount, it shall file a formal application on this.28 Chamber of Real Estate and Builders Associations, Inc. CREBA) v. Energy RegulationCommission ERC), G.R. No. 174697, 8 July 2010.29 Id.

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(b) Article VIII, Section 1 of the AGRA Guidelines, whichempowers the ERC to allow an exception from anyprovisions of the AGRA Guidelines, i f such exceptionis found to be in the public interest and is not contrary tolaw or any other related rules and regulations .

( c) Amendment to Section 4( e), Rule III of the EPIRA IRR,which provides that the verification, hearing andpublication requirements shall not apply to, amongothers, Automatic Generation Rate AdjustmentMechanism. Notably, the EPIRA IRR and theamendments were issued by the DOE and not the ERC.

2.1.4 Clearly, questioning the validity of the December 9 letterof the ERC by way of certiorari was a fatal mistake because of thewrong remedy.

2.2 Moreover, certiorari is a wrong remedy i f there is an appeal, orother plain, speedy, and adequate remedy in the ordinary course o f law . TheERC Rules of Procedure provides for an adequate remedy either by filing aPetition or a complaint, and making the December 9 letter of the ERC thesubject-matter of the action. The Petitioners could have availed o f thefollowing remedies under the ERC Rules of Procedure:

Section 4 Petition - By means of a petition, a person,other than an applicant or complainant, petitions theCommission for affirmative relief under any statute orother authority delegated to the Commission. t shall stateclearly and concisely the petitioner's grounds of interestin the subject matter, the facts relied upon, and the reliefsought, and shall cite by appropriate reference the

statutory provision or other authority relied upon forrelief. I f the relief sought affects the rights of otherpersons, it shall implead all these other persons asrespondents and state their complete names andaddresses.

Section 5 Complaint. - The complaint is a concisestatement of the ultimate facts of the matter complainedof within the regulatory power of the Commission, andshall specify the principal relief sought. It shall state thecomplete name and address of the respondent againstwhom the complaint i f directed.

2.2.1 t is settled that certiorari cannot take the place o f otherremedies. Accordingly, the Supreme Court dismissed cases for failureto exhaust administrative remedies. The Supreme Court explained the

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rationale of the rule on exhaustion of administrative remedies mGonzales v Court o Appeals:

30

The thrust of the rule on exhaustion of administrativeremedies is that the courts must allow theadministrative agencies to carry out their functionsand discharge their responsibilities within thespecialized areas of their respective competence. It ispresumed that an administrative agency, if afforded anopportunity to pass upon a matter, will decide the samecorrectly, or correct any previous error committed in itsforum. Furthermore, reasons of law, comity and

convenience prevent the courts from entertaining casesproper for determination by administrative agencies.Hence, premature resort to the courts necessarilybecomes fatal to the cause of action of the petitioner.Emphasis supplied)

2 3 Furthermore, certiorari is the wrong remedy for what is actuallya rate dispute disguised as a supposed challenge to the validity of theDecember 9 letter of the ERC.

2.3.1 By questioning the December 9 letter of the ERC, thePetitioners are actually disputing the electricity rate that MERALCOis passing on to consumers. Such rate dispute is within the originaland exclusive jurisdiction of the ERC. Section 43(v) of the EPIRAstates:

(v) The ER shall have the original and exclusivejurisdiction over all cases contesting rates, fees, finesand penalties imposed by the ERC in the exercise of the

abovementioned powers, functions and responsibilitiesand over all cases involving disputes between and amongparticipants or players in the energy sector. All notices ofhearings to be conducted by the ERC for the purpose offixing rates or fees shall be published at least twice fortwo successive weeks in two (2) newspapers ofnationwide circulation. Emphasis supplied)

2.3.2 The technical nature of this controversy (involvingdisputes on the increase in generation rates) requires the ERC sexpertise, which is the government agency tasked to regulate theelectric power industry sector. The Supreme Court cannot thus. takecognizance of this rate dispute without violating the doctrine ofprimary administrative jurisdiction. The Supreme Court explained the

30 G R No 106028, 9 May 2001

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doctrine o primary administrative jurisdiction in Ferrer et.al. vRaco et al :3

Under the doctrine o primary administrative jurisdiction,courts cannot or will not determine a controversy wherethe issues for resolution demand the exercise o soundadministrative discretion requiring the specialknowledge, experience, and services o theadministrative tribunal to determine technical andintricate matters o fact. In other words, i a case is suchthat its determination requires the expertise, specializedtraining and knowledge o an administrative body, relief

must first be obtained in an administrative proceedingbefore resort to the courts is had even i the matter maywell be within their proper jurisdiction.

2.3 3 Resolution o rate disputes also requires factualdetermination o the propriety o the generation charges. TheSupreme Court cannot therefore take cognizance o rate disputes as itis not a trier o facts.

2.3 4 The Supreme Court has explained the limits o itsexercise o certiorari jurisdiction. t explicitly declared that factualissues are not proper subjects for a certiorari. In PM Colleges vNational Labor Relations Commission 32 the Supreme Court held that:

A mere perusal o the issues raised by petitioner alreadyinvites dismissal for demonstrated ignorance anddisregard o settled rules on certiorari. Except perhaps forthe third issue, the rest glaringly call for a reexamination, evaluation and appreciation o the weight

and sufficiencyo

factual evidence presented before theLabor Arbiter. This, o course, the Court cannot do in theexercise o its certiorari jurisdiction without transgressingthe well-defined limits thereof. The corrective power othe Court in this regard is confined only to jurisdictionalissues and a determination o whether there is such graveabuse o discretion amounting to lack or excess ojurisdiction on the part o a tribunal or agency. Sounyielding and consistent are the decisional rules thereonthat it is indeed surprising why Petitioner s counsel failedto accord them the observance they deserve. Thus, in SanMiguel Foods Inc Cebu B-Meg Feed Plant v HonBienvenido Laguesma we were emphatic in declaringthat: This Court s definitely not the proper venue to

31 G.R. No. 174129, 5 July2010.32 G.R. No. 121466, 15 August 1997.

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consider this matter for it is not a trier of factsCertiorari is a remedy narrow in its scope andinflexible in character. t is not a general utility tool inthe legal workshop. Factual issues are not a propersubject for certiorari, as the power of the SupremeCourt to review labor cases is limited to the issue ofjurisdiction and grave abuse of discretion Of thesame tenor was our disquisition in locos Sur ElectricCooperative, Inc v NLRC where we made plain that:

In certiorari proceedings under Rule 65 of the Rulesof Court, judicial review by this Court does not go sofar as to evaluate the sufficiency of evidence upon

which the Labor Arbiter and the NLRC based theirdeterminations, the inquiry being limited essentiallyto whether or not said public respondents had actedwithout or in excess of its jurisdiction or with graveabuse of discretion. (Emphasis supplied)

2.3.5 The Supreme Court is not a trier of facts in a proceedingfor certiorari under Rule 65. The above rulings of the Supreme Courtshow that this rule is unyielding . While there are exceptions to thisrule, as enumerated below, these exceptions pertain to the cases whichwhere brought to the Supreme Court on petition for review oncertiorari under Rule 45 and not Rule 65:

2.3 .5.1 When the findings of fact of the lower courtor administrative agency and the Court of Appeals areconflicting; 33

2.3.5.2 Findings of facts of the trial courts and theCourt of Appeals may be set aside when such findings are not

supported by the evidence or when the trial court failed toconsider the material facts which would have led to aconclusion different from what was stated in its judgment; 34

2.3.5.3 Where the conclusion is a finding grounded. 1 1 . . d . senttre yon specu atlon, surmise an conjectures;

2.3.5.4mistaken 36

2.3.5.5

Where the inference made is manifestly

Where there is grave abuse of discretion; 37

33 Commissioner o nternal Revenue v Benguet Corp., G.R. Nos. 134587 & 134588, 8 July 2005.34 McKee v Intermediate Appellate Court, G.R. No. 68102, 6 July 1992.35 Asset Privatization Trust v Sandiganbayan, G.R. No. 138598, 29 June 200 I; Cosme v People o thePhilippines, G.R. No. 149753, 27 November 2006.36 ld.37 Id.

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2.3.5.6 The findings of fact are premised on theabsence o f evidence; 38

2.3.5.7 The findings o f fact are contradicted byevidence on record. 39

2.3.5.8 When the findings are conclusions withoutcitation o f specific evidence on which they are based; 40 and

2.3.5.9 When the facts set forth in the petition aswell as in the petitioner's main and reply briefs are not disputedby the respondent. 41

2.3 .6 t is clear from the said exceptions that the SupremeCourt only considered facts after a lower court or administrativeagency has already received evidence, but made wrong findings o ffact, which is not the case at bar.

2.4 Furthermore, the other questioned rules and regulations,namely: the amendments to Section 4( e ), Rule III of the EPIRA IRR, theAGRA Guidelines, and the ERC's Resolutions No. 10-01 and 10-04, bothseries o f 2004, were issued pursuant to regulatory and quasi-legislative (notquasi-judicial) power. Certiorari is the wrong remedy to question quasilegislative issuances because certiorari applies only to judicial or quasijudicial acts.

2.5 Finally, certiorari 1s the wrong remedy to challenge theconstitutionality o f laws.

2.5.1 A perusal of NASECORE's petition reveals that byquestioning the December 9 letter o f the ERC, it is collaterally

questioning the constitutionalityo f

the Amendments to Section 4 ( e)o f Rule 3 and Section 7 o f Rule 18 o f the Implementing Rules andRegulations (IRR) o f Republic Act No. 9136, otherwise known as theElectric Power Industry Reform Act (the Amendments to the IRR ),for purportedly effectively doing away with the requirement o fpublication in certain rate increases and adjustment applications o fdistribution utilities. 42

2.5.2 Bayan Muna also filed a Petition for Certiorari underRule 65 o f the Rules o f Court to assail (1) ERC s approval o f

MERALCO' s proposal to pass on to consumers the increase in thegeneration cost for November 2013 not only as a violation o f

38 Mendoza v. People, G.R. No. 146234 29 June 2005.39 Id.40 Heirs o Carlos Alcaraz v Republic o he Philippines G.R. No. 131667, 28 July 2005.41 Id.42 NASECORE's Petition, par. 24, pp. 11-12.

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Petitioners' and the public's right to due process but also because itapproved the same despite indications that the power rate increase wasa result of combinations in restraint of trade prohibited under the 1987Constitution and relevant Philippine laws; (2) Sections 6 and 29 ofRepublic Act 9136, An Act Ordaining Reforms in the Electric PowerIndustry, Amending for the Purpose Certain Laws and for OtherPurposes (Electric Power Industry Reform Act of 2001, orhereinafter, the EPIRA); and (3) assail the constitutionality of Section45 of the EPIRA which allows cross-ownership among energy playersfrom the distribution to the generation sector.

2.5.3 Clearly, NASECORE and Bayan Muna are questioning

the constitutionality of Sections 6 and 9 of the EPIRA,, theAmendments to Section 4( e ), Rule III of the EPIRA IRR, the AGRAGuidelines and Resolution Nos. 10-01 and 10-04, both series of 2004.These laws should have been questioned separately through a Petitionfor Declaratory Relief under Rule 6 of the Rules of Court, assumingthe requisites are present (and there is no ground to make thatassumption).

2.5.4 The Supreme Court has repeatedly dismissed petitionsfor certiorari which were intended to question the constitutionality oflaws and administrative rules and regulations.

(a) In Chamber o Real Estate and Builders Associations,Inc (CREBA) v Energy Regulatory Commission, supra.,the petition was dismissed for committing the samemistake of filing a petition for certiorari under Rule 65and not a declaratory rel ief under Rule 63 of the Rufos ofCourt. In the said case, petitioner filed a Petition forCertiorari with Prayer for the Issuance of a Temporary

Restraining Order and/or Writ of Preliminary Injunctionto nullify Section 2.6 of the Distribution Services andOpen Access Rules (DSOAR), promulgated byrespondent ERC on January 18, 2006. The SupremeCourt held that:

xxx Even if they had been properlyaggrieved parties, the petition must still bedismissed for violation of yet another basicprinciple applicable to Rule 65. This rulerequires, for a petition for certiorari to be anappropriate remedy, that there be no appealor plain, speedy, and adequate remedy in theordinary course of law. Since the petitionerassails the validity of a rule or statute andseeks our declaration that the rule isunconstitutional a petition for

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declaratory relief under Section 1, Rule6 of the Rules of Court provides aremedy more appropriate than certiorari.

In the present case, the petitioner cannot comebefore this Court using an incorrect remedyand claim that it was oppressed, or that itsrights to due process and equal protection havebeen violated by an administrative issuance thatdoes not even affect its rights and obligations.The writ of certiorari is an extraordinaryremedy that the Court issues only under closely

defined grounds and procedures that litigantsand their lawyers must scrupulously observe.They cannot seek refuge under the umbrella ofth.is remedy on the basis of an undemonstratedclaim that they raise issues of transcendentalimportance, while at the same time flouting thebasic ground rules for the remedy s grant.Emphasis supplied)

(b) In Galicto v. Aquino 111 43 the Supreme Court dismissedthe Petition for Certiorari and Prohibition filed byGalicto, which questioned the constitutionality ofExecutive Order No. (EO) 7 issued by the Office of thePresident on September 8 2010, and held that:

Under the Rules of Court, petitions forCertiorari and Prohibition are availed of toquestion judicial, quasi-judicial andmandatory acts. Since the issuance of an

EO is not judicial, quasi-judicial or amandatory act, a petition for certiorariand prohibition is an incorrect remedy;instead a petition for declaratory reliefunder Rule 6 of the Rules of Court filedwith the Regional Trial Court (RTC), isthe proper recourse to assail the validityofE07xxx

Second, although the instant petition isstyled as a petition for certiorari, inessence, it seeks the declaration by thisCourt of the unconstitutionality orillegality of the questioned ordinance and

43 G.R. No. 193978, 28 February 2012.

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executive order. It thus, partakes of thenature of a petition for declaratory reliefover which this Court has only appellate,not original, jurisdiction. Section 5 ArticleVIII of the Constitution provides:

As such, this petition must necessar[ily]fail, as this Court does not have originaljurisdiction over a petition fordeclaratory relief even if only questions of

law are involved.

While we have recognized in the past thatwe can exercise the discretion andrulemaking authority we are granted underthe Constitution, and set aside proceduralconsiderations to permit parties to bring asuit before us at the first instance throughcertiorari and/or prohibition, this liberalpolicy remains to be an exception to thegeneral rule, and thus, has its limits. InConcepcion v. Commission on ElectionsCOMELEC), we emphasized the

importance of availing of the properremedies and cautioned against the wrongfuluse of certiorari in order to assail the quasi-legislative acts of the COMELEC, especiallyby the wrong party. In ruling that liberalityand the transcendental doctrine cannot

trump blatant disregard of proceduralrules, and considering that the petitionerhad other available remedies such as apetition for declaratory relief with theappropriate RTC under the terms of Rule63 of the Rules of Court), xxx Emphasissupplied)

2.6 Clearly, certiorari is the wrong remedy and the Supreme Courtshould dismiss the Petitions consistent with its previous rulings.

No justiciable controversy

2.7 More importantly, the Petitions should be dismissed becausethere is no justiciable controversy.

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2. 7 1 The case is actually a complaint against the rates ofMERALCO which is within the exclusive original jurisdiction of theERC but to give the appearance of a challenge to the constitutionalityof the EPIRA provisions, Petitioners improperly included other issues.

f indeed there was an actual justiciable controversy about theconstitutionality of certain EPRIA provisions, then Petitioners shouldhave filed an action for declaratory relief.

2. 7 2 One of the requirements for the filing of a petition fordeclaratory relief is the existence of a justiciable controversy, which isdefined as a definite and concrete dispute touching on the legalrelations of parties having adverse legal interests which may be

resolved by a court of law through the application of a law.44

2. 7.3 There is no justiciable controversy in this case. t issettled that when the issue of unconstitutionality of a legislative act israised, the Court may exercise its power of judicial review only i f thefollowing requisites are present: ( 1 an actual and appropriate case andcontroversy; (2) a personal and substantial interest of the party raisingthe constitutional question; (3) the exercise of judicial review ispleaded at the earliest opportunity; and ( 4 the constitutional questionraised is the very lis mota of the case. 45 .

2. 7.4 The first and the fourth requisites are not present in thiscase.

2. 7 5 There is no actual and appropriate case. The Petitionsunduly attack the wisdom of behind the law, which the Supreme Courthas no jurisdiction to resolve.

2.7.5.l In Garcia v Executive Secretary 46 the

Supreme Court dismissed the petition for certiorari whichquestioned the propriety of implementing full deregulation byremoving the system of price controls in the local downstreamoil industry:

The petition fails to satisfy the very first of theserequirements - the existence of n actual caseor controversy calling for the exercise ofjudicial power. An actual case or controversy isone that involves a conflict of legal rights, anassertion of opposite legal claims susceptible ofjudicial resolution; the case must not be moot oracademic or based on extra-legal or other similar

44 Cutaran v Department o f Environment nd Natural Resources G.R. No. 134958, 31January200145 Estarija v Ranada et.al. G.R. No. 159314, 26 June 2006.46 G.R. No. 157584, 2 April 2009.

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considerations not cognizable by a court o justice.Stated otherwise, it is not the mere existence o aconflict or controversy that will authorize theexercise by the courts o its power o review; moreimportantly, the issue involved must be susceptibleo judicial determination. Excluded from theseare questions o policy or wisdom, otherwisereferred to s political questions:

As Tanada v Cuenca puts it, political questionsrefer to those questions which, under theConstitution, are to be decided by the people in

their sovereign capacity, or in regard to whichfull discretionary authority has been delegatedto the legislative or executive branch ogovernment. Thus, i an issue is clearlyidentified by the text o the Constitution as mattersfor discretionary action by a particular branch ogovernment or to the people themselves then it isheld to be a political question. In the classicformulation o Justice Brennan in Baker v. Carr,[p]rominent on the surface o any case held to

involve a political question is found a textuallydemonstrable constitutional commitment o theissue to a coordinate political department; or a lacko judicially discoverable and manageablestandards for resolving it; or the impossibility odeciding without an initial policy determination oa kind clearly for non-judicial discretion; or theimpossibility o a court s undertaking independentresolution without expressing lack o the respect

due coordinate brancheso

government; or anunusual need for unquestioning adherence to apolitical decision already made; or the potentialityo embarrassment from multifariouspronouncements by various departments on theone question. Emphasis supplied)

2.7.5.2 The Supreme Court further held that thecourts should not involve themselves with or delve into thepolicy or wisdom o a statute, because it sits, not to review orrevise legislative action, but to enforce the legislative will:

In Tatad, we declared that the fundamentalprinciple espoused by Section 19 Article XII othe Constitution is competition. Congress, byenacting R.A. No. 8479, determined that thisobjective is better realized by liberalizing the oil

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market, instead of continuing with a highlyregulated system enforced by means of restrictiveprior controls. This legislative determination was alawful exercise of Congress' prerogative and onethat this Court must respect and uphold.Regardless of the individual opinions of theMembers of this Court, we cannot, acting as abody, question the wisdom of a co-equaldepartment's acts. The courts do not involvethemselves with or delve into the policy orwisdom of a statute; it sits, not to review orrevise legislative action, but to enforce the

legislative will. For the Court to resolve aclearly non-justiciable matter would be todebase the principle of separation of powersthat has been tightly woven by the Constitutioninto our republican system of government xxx(Emphasis supplied)

2.7.5.J The constitutional challenge to theprovisions of the EPIRA is not the is mota of the case.

2.7.5.4 The Supreme Court explained the concept ofis mota in General v. Urro:

7

Lis mota literally means the cause of the suit oraction. This last requisite of judicial review issimply an offshoot of the presumption of validityaccorded the executive and legislative acts of ourco-equal branches of the government. Ultimately,it is rooted in the principle of separation of powers.

Given the presumed validity of an executive act,the petitioner who claims otherwise has the burdenof showing first that the case cannot be resolvedunless the constitutional question he raised isdetermined by the Court.

2.7.5.5 The cause of this suit or action is the allegedanti-competitive behaviour and market abuse of the generationcompanies. The constitutionality of the provisions o theEPIRA is inconsequential to the complaint about the rateincrease ofMERALCO, which is allegedly caused by the anticompetitive behavior and market abuse of the generationcompames.

47 G.R. No. 191560, 29 March 2011.

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B. IN ANY CASE, THE PETITIONS LACK MERIT.

No grave abuse of discretion

2.8 Petitioners fail to substantiate their allegation that the ERCcommitted grave abuse of discretion in issuing the December 9 letter of theERC and approving MERALCO's request for clearance to stagger thecollection of generation costs for the November 2013 supply month.

2.8.l In Dumangcas, Jr v Hon. Marcelo, t al.,48

the SupremeCourt defined grave abuse of discretion as:

Grave abuse of discretion is the capricious and whimsical exercise of judgment on the part of publicofficer concerned which is equivalent to an excess or lack of jurisdiction. The abuse of discretion must be sopatent and gross as to amount to an invasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of lawas where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.Emphasis supplied)

2.8.2 The ERC acted within its powers and pursuant to validlaws in issuing the December 9 letter. The December 9 letter of theERC implemented the AGRA Guidelines and the amendments toSection 4( e ), Rule III of the EPIRA IRR. In tum, these laws arepresumed valid and constitutional.

2.8.3 No amount of rationalizing by the Petitioners can change

the fact that the questioned provisions of the AGRA Guidelines andthe amendments to Section 4( e ), Rule III of the EPIRA IRR arepresumed valid and constitutional hence, legally binding. Thus, ERCis legally bound to implement these provisions.

2.8.4 Laws enjoy the presumption of validity . andconstitutionality. In Dasmarifzas Water District v Monterey FoodsCorporation, 49 the Supreme Court upheld the validity andconstitutionality of a law i.e., Section 39 of P.D. 198) and held that alaw is deemed valid unless declared null and void by a o m p ~ t e n t

court . AGRA Guidelines and the amendments to Section 4( e), RuleIII of the EPIRA IRR are quasi-legislative issuances which have theforce of law. These laws were not, and still have not, been declared

48 G.R. No. I 59949, 27 February 2006.49 G.R. No. 175550, 7 September 2008.

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null and void by any court. Thus, the ERC is duty-bound to implementthese.

2.8.5 Moreover, the Petitioners cannot be allowed tocollaterally attack certain provisions o the EPIRA. The Petitionsmainly question the issuance o the December 9 letter o the ERC, yetcollaterally attack the amended Section 4( e , Rule III o the EPIRAIRR, the AGRA Guidelines, and Resolutions No. 10-01 and 10-04,both series o 2004. This collateral attack cannot be allowed. In thesame case o Dasmarinas Water District v Monterey FoodsCorporation supra. the Supreme Court declared that:

[A] collateral attack on a presumably valid law is notallowed. We have ruled time and again that theconstitutionality or validity o laws, orders, or such otherrules with the force o law cannot be attackedcollaterally. There is a legal presumption o validity othese laws and rules. Unless a law or rule is annulled in adirect proceeding, the legal presumption o its validitystands.

2.8.6 In ABS-CBN v Philippine Multi-Media Inc. et al.50

theSupreme Court refused to rule on the validity o MemoraridumCircular No. 04-08-88 because it constituted a collateral attack on itsvalidity, thus:

The records show that petitioner assailed theconstitutionality o Memorandum Circular No. 04-08-88by way o a collateral attack before the Court o Appeals.In Philippine National Bank v. Palma, we ruled that forreasons o public policy, the constitutionality o a law

cannot be collaterally attacked. A law is deemed validunless declared null and void by a competent court; moreso when the issue has not been duly pleaded in the trialcourt.

2.8.7 In implementing the foregoing laws and regulations, theERC is fulfilling its legal duty under Section 43 (a) o the EPIRA toenforce the implementing rules and regulations o the said law.

2.8.8 The ERC validly issued the December 9 letter o theERC even without prior investigation. Price manipulation, anticompetitive behavior and other similar conduct cannot be presumed.These are subject to formal proceedings under the ERC's CompetitionRules and Complaints Procedures (the Competition Rules).

s G.R. Nos. 175769-70, January 19, 2009.

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2.8.9 Petitioners erroneously argue that the December 9 lettero the ERC is invalid because it was allegedly issued without priorinvestigation. Petitioners make it appear that the ERC is under thelegal obligation to conduct an investigation and penalize anticompetitive behavior and market power abuse, among others, evenwithout any competent evidence to support such speculations.

2.8.lOAs discussed, MERALCO's 5 December 2013 letter 5

requested for a staggered implementation o the increase in generationcosts. In tum, these generation costs have automatically increased inaccordance with the AGRA Guidelines. In fact, MERALCOrequested for a staggered (and not outright) implementation o the

increase in generation costs so that the consumers will not be requiredto pay the increase in a single instance. In other words, MERALCOproposed the staggered implementation o the increase in generationcosts for the benefit o the public. This being the case, the ERC has noreason to even speculate that MERALCO's request was tainted withany anti-competitive behavior and/or intentions to abuse the market.

2.8.11 While the ERC has the power to investigate instances oanti-competitive behavior and market power abuse, such powercannot be loosely and haphazardly exercised. Thus, ERC'sCompetition Rules prescribes a detailed manner and procedure bywhich the allegations o such conduct can be monitored, investigatedand penalized.

(a) Among other things, Rule 21, Section o theCompetition Rules requires that a formal complaint befiled, and that proceedings for alleged violations shouldinclude all supporting affidavits and documents,would reasonably tend to establish prima facie the

trutho

the allegations therein.

(b) Further, Rule 21, Section 2 o the Competition Rulesprovides that the Complaint and all proceedingsthereafter shall be governed by the ERC's Rules oPractice and Procedure.

2.8.12The foregoing requirements under the Competition Rulesclearly demonstrate that the complaints for alleged anti-competitivebehavior and market power abuse, among others, must undergo rigidand formal proceedings, and cannot be founded on emptyspeculations. Thus, there being no prima facie case o any pricemanipulation, monopoly, anti-competitive behavior and/or marketpower abuse, the ERC is clearly not obliged to conduct anyinvestigation before issuing the December 9 letter.

5 Attached as Annex A to Bayan Muna's Petition.

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2.9 At any rate, TMO and TLI did not commit any act o pricemanipulation, anti-competitive behavior, market abuse and/or restraint otrade.

2.9.1 Petitioners speculate that there was a so-calledcollusion and that the power plant shutdowns were supposedly

orchestrated to drive up the prices o electricity. Such allegations aremore imagined than real. Petitioners obviously use these termscasually without even understanding their legal meaning.

2.9.2 Section 45 o the EPIRA reads:

Section 45. Cross Ownership Market Power Abuse ndAnti-Competitive Behavior. - No participant in theelectricity industry may engage in any anti-competitivebehavior including, but not limited to, cross-subsidization,price or market manipulation, or other unfair tradepractices detrimental to the encouragement and protectiono contestable markets.

No generation company or distribution utility, or its respective subsidiary or affiliate or stockholder or official

o a generation company or distribution utility, or otherentity engaged in generating and supplying electricityspecified by ERC shall be allowed to hold any interest,direct or indirect, in TRANSCO or its concessionaire.Likewise, the TRANSCO, or its concessionaire or any o

. its stockholders or officials or any o their relatives withinthe fourth civil degree o consanguinity or affinity, shallnot hold any interest, whether direct or indirect, in anygeneration company or distribution utility. Except for

government-appointed representatives, no person who isan officer or director o TRANSCO or its concessionaireshall be an officer or director o any generation company,

. distribution utility or supplier.

To promote true market competition and prevent harmfulmonopoly and market power abuse, the ERC shall enforcethe following safeguards:

(a) Starting not later than five (5) years from theapproval o this Act and until such time that theERC has reduced the threshold level to onehundred kilowatts lOOkW), no company or relatedgroup can own and operate or control and operatemore than forty percent ( 40%) o the installedgenerating capacity o a grid and/or thirty percent(30%) o the national installed capacity; and

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b) Distribution utilities may enter into bilateral powersupply contracts subject to review by ERC.

For purposes o this Section, the grid basis shall consisto three 3) separate grids, namely Luzon, Visayas andMindanao. The ERC shall have the authority to modifyor amend this definition o a grid when two or more othe three separate grids become sufficientlyinterconnected to constitute a single grid or as conditionsmay otherwise permit.

Exceptions from these limitations shall be allowed for

isolated grids that are not connected to the high voltagetransmission system. Except as otherwise provided for inthis Section, any restriction on ownership and/or controlbetween or within sectors o the electricity industry maybe imposed by ERC only insofar as the enforcement othe provisions o this Section is concerned.

The ERC shall, within one 1 year from the effectivity othis Act, promulgate rules and regulations to promotecompetition, encourage market development andcustomer choice and discourage/penalize abuse o marketpower, cartelization and any anti-competitive ordiscriminatory behavior, in order to further the intent othis Act and protect the public interest. Such rules andregulations shall define the following:

a) the relevant markets for purposes o establishingabuse or misuse o monopoly or market position;

b) areas o isolated grids; and

c) the periodic reportorial requirements o electricpower industry participants as may be necessary toenforce the provisions o this Section.

The ERC shall, motu propio, monitor and penalize anymarket power abuse or anti-competitive or discriminatoryact or behavior by any participant in the electric powerindustry.

Upon finding that a market participant has engaged insuch act or behavior, the ERC shall stop and redress thesame. Such remedies shall, without limitation, includethe imposition o price controls, issuance o injunctions,requirement o divestment or disgorgement o excess

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profits and imposition o fines and penalties pursuant tothis Act.

The ERC shall, within one 1 year from the effectivity othis Act, promulgate rules and regulations providing for acomplaint procedure that, without limitation, provides theaccused party with notice and an opportunity to be heard.

2.9.3 Further, Rule 4, Section 1 o the Competition Rulesexplains the concept o anti-competitive agreements, as follows:

Section 1. Anti-Competitive agreements. Subject to Rule8, 9 and 10, a Person shall not:

a) make an agreement or arrangement, or arrive at anunderstanding, i a provision thereof:

i) would have, or would be likely to have, theeffect o substantially lessening competitionin the Market; or

ii) is a price-fixing provision; or

b) give effect to a provision o an agreement,arrangement or understanding entered into after theeffectivity o the EPIRA i that provision:

i) would have, or would be likely to have, theeffect o substantially lessening competitionin the Market; or

ii) is a price-fixing provision.

2.9.4 On the other hand, Rule 5, Sections 1 to 4 o theCompetition Rules explain the legal concept o misuse o marketpower as follows:

Section 1. Prohibition. A Person that has a substantialdegree o power in a Market shall not misuse that power.In this Rule, a reference to power is a reference to marketpower.

Section 2. Degree o power; Factors. Without prejudice

to the preceding paragraph, a Person is to be taken tohave a substantial degree o power in that Market if:a) an Affiliate o a Person, or two or more Affiliates

o a Person; orb) a Person and its Affiliate, or a Person and two

more o its Affiliates,together, have a substantial degree o power in a Market.

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Section 3 Misuse of power; Factors. In determiningwhether or not a Person has misused its power in aMarket, the following factors, among others, shall be

considered:a) that Person would have acted in the way it did,whether or not it had a substantial degree o fmarket power; and

b) the Person was reasonably justified in using itspower in the way it did.

Section 4 Use/Misuse o f power; How done. Thecircumstances in which a Person uses or misuses itspower in a Market may include where that Person:a) does an act; orb) refuses to do, or intentionally refrains from doing,

an act; orc) makes it known that an act or will not be done; ord) refuses to do an act, or to offer to do an act, except

on a condition or conditions; ore) makes it known that an act will not be done, except

on a condition or conditions; or) makes it known that an act will be done on a

condition or conditions.

2.9.5 Other than bare conjectures and insinuations, Petitionersfailed to establish that TMO and TLI committed any act of anticompetitive behavior and market abuse, as defined under the EPIRAand the Competition Rules.

2.9.6 The fact that TMO and TLI are affiliate companies is notin itself an anti-competitive behavior or a form o f market abuse.TMO and TLI did not make an agreement or arrangement, or arrive atan understanding o f give effect to a provision that i) would have, orwould be likely to have, the effect of substantially lesseningcompetition in the market; or ii) has a price-fixing provision.

2.9.7 TMO and TLI, although affiliate companies, did notmisuse their market power to do an act; refuse to do, or intentionallyrefrain from doing, an act; make it known that an act will or will notbe done; refuse to do an act, or to offer to do an act, except on acondition or conditions; make it known that an act will not be done,

except on a condition or conditions; or make it known that an act willbe done on a condition or conditions.

2.9.8 In fact, TLI was put at a disadvantage when TMO sgeneration offers that were at the Offer Ceiling Price set the WESMspot market price during the time that Pagbilao Unit 2 was on a forcedoutage. TLI was constrained to purchase replacement electricity as the

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WESM spot market price set by TMO at the Offer Ceiling Price oPhp62,000/MWh or Php62.00/kWh to fulfill it s contractualobligations to supply power to it s customers, consequently suffering

a loss amounting to Nine Hundred Eighty Two Million PhilippinePesos (Php982,000,000.00).

2.9.9 From the foregoing, there can be no basis to even suggestthat TMO and TLI engaged in anti-competitive behavior and marketabuse.

2.9.lOFurther, there is no basis to the allegation o monopoly.No one entity controls all energy industry participants. Nocombination and restraint in trade occurred. There was no collusionin the shutdowns o the power plants. The plants have to undergomaintenance shutdowns and since they were not allowed to shutdownin May during the elections, most postponed and coincided with othershutdowns. These were not orchestrated to drive up the prices oelectricity.

2.9.10.1 TMO and TLI are separate entities and areoperationally separate from each other. More importantly,TMO and TLI distinct entities with separate operational

strategies. TMO is a peaking plant while TLI is an IPPAdministrator.

2.9.10.2 TMO and TLI did not conspire with eachother and/or other generation companies regarding the forcedoutages o Pagbilao Unit 1 (from 9 November to 3 December2013) and Pagbilao Unit 2 (from 29 November to 4 December2013), during the shutdown o Malampaya. These forcedoutages were neither planned nor anticipated by any o theparties concerned.

(a) Pagbilao Unit is allowed to go on scheduledoutages or be shutdown for a maximum period o thirty (30)days for scheduled repairs and maintenance. 52 The scheduledoutages period o 6 February 2013 to 7 March 2013 wasscheduled upon prior concurrence and approval o NGCP andthe IPP, TeaM Energy. Thus, on 6 February 2013, PagbilaoUnit 1 went on a scheduled outage for repairs and maintenance.

(b) However, on 29 November 2013 to 3 December2013, Pagbilao Unit 1 went into a forced outage due to a tubeleak. This incident was neither planned nor scheduled, andcould not have been foreseen or controlled by TLI.

52 Article 7, MERALCO-TLI PSA.

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(c) Pagbilao Unit is allowed to go on scheduledoutages from 31 August 2013 to 26 November 2013 for repairsand maintenance.

(d) However, only a few days after restoring itsoperations, a tube leak was discovered, prompting theimmediate shutdown o Pagbilao Unit 2 from 29 November2013 to 14 December 2013. This forced shutdown was at thetail end o the Malampaya shutdown on 9 November to 8December 2013. As with Pagbilao Unit 1 this incident wasneither planned nor scheduled, could not have been foreseen orcontrolled by TLI.

2.9.10.3 As discussed, TLI did not, and will notbenefit from the forced outages o Pagbilao Units 1 and 2. fany o the units o the Pagbilao Plant go on a forced outage,TLI may be required to source replacement electricity from theWESM depending on the provisions o the relevant powersupply agreements o TLI. TLI will thus bear the cost o thedifference between the contract price and the WESM spotmarket price.

2.9 .10.4 In view o the foregoing, it is clearly notlogical for TLI to intentionally place the Pagbilao Plant on aforced outage and collude with other generation companies todrive up the prices o electricity.

No violation o due process or failure to regulate

2.9.l lFurthermore, the December 9 letter o the ERC does notviolate substantive and procedural due process o law because theapproval o the pass-through o the generation charge to consumers isnot yet final. t is still subject to the AGRA Guidelines' postverification procedure.

2.9.11.1 The substantive and procedural aspect oConstitutional due process was explained by the Supreme Courtin Corona et al v United Harbor Pilots Association o thePh 1 . l 531 ippmes et a .

Section 1 o the Bill o Rights lays down what is

known as the due process clause o theConstitution, viz.:

53G.R. No. 111953, 12 December 1997.

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SEC. 1 No person shall bedeprived of life, liberty, or propertywithout due process of law,

In order to fall within the aegis of this provision,two conditions must concur, namely, that there is adeprivation and that such deprivation is donewithout proper observance of due process. Whenone speaks of due process of law, however, adistinction must be made between matters ofprocedure and matters of substance. In essence,procedural due process refers to the methodor manner by which the law is enforced, whilesubstantive due process requires that the lawitself, not merely the procedures by which thelaw would be enforced, is fair, reasonable, andjust. PPA-AO No. 04-92 must be examined inlight of this distinction. Emphasis supplied)

2.9.11.2 The respondents in the said case argued thatdue process was not observed in the adoption of PPA-AO No.04-92

54allegedly because no hearing was conducted whereby

relevant government agencies and the pilots themselves couldventilate their views. The Supreme Court pointed out that theywere referring to procedural due process and explained why thesame was not violated:

They are obviously referring to the proceduralaspect of the enactment. Fortunately, the Court hasmaintained a clear position in this regard, a stanceit has stressed in the recent case of Lumiqued vHon Exevea, where it declared that (a)s longas a party was given the opportunity to defendhis interests in due course, he cannot be said tohave been denied due process of law, for thisopportunity to be heard is the very essence ofdue process. Moreover, this constitutionalmandate is deemed satisfied if a person is grantedan opportunity to seek reconsideration of theaction or ruling complained of. Emphasissupplied)

2.9.11.3 Bayan Muna's claim that due process wasviolated is baseless. ERC's allowance of the pass-through of

54 PP A-AO No. 04-92 provides for the limiting of the term of Appointment of harbor pilots to one (1) yearsubject to renewal or cancellation by the authority after conduct of a rigid evaluation of the appointee'sperformance.

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the generation charges to consumers s provisional in naturebecause it s still subject to the post-verification procedure inthe AGRA Guidelines.

2.9.11.4 The allowance of provisional approval ofpass-through of generation charge complies with substantivedue process. t s fair, reasonable and just given the volatility ofgeneration cost, which s highly dependent on fuel costs andforeign exchange rates.

2.9.11.5 The amendment to Section 4 (e), Rule III ofthe EPIRA IRR, removing the GRAM, etc. from the ambit ofthe rule on publication and notice complies with procedural dueprocess. This s because the procedure for recovery ofgeneration charges, while automatic, still needs to comply withnotice and hearing to determine whether the rate that wasautomatically charged was reasonable and does not result nover or under recovery.

2.9.11.6 Petitioners erroneously assume that the ratesimposed have not been regulated and/or are not being regulatedby the ERC at all. This haphazard conclusion is both incorrect

and misleading.

2.9.11.7 DUs enter into power supply contracts withpower producers when they procure bulk power supply for theircaptive market. On the other hand, the uncontracted energy sdeemed purchased from the WESM. In tum, the energydeemed purchased from the WESM s priced in accordancewith a price determination methodology formulated by theDOE, and approved by the ERC, in accordance with Section 30of the EPIRA.

2.9.11.8 The DUs thereafter submit these powersupply contracts t the ERC for approval. The ERC thensubject these applications t publication and a full blownnotice and hearing process as mandated under Section 4 e)Rule III o the EPlRA IRR. Thus, the power supply contractscomply with due process requirements.

2.9.11.9 In tum, Rule 6 of ERC s Rules of Practice

and Procedure provide the ERC s pre-filing requirements of forrate applications and other application or petitions for reliefaffecting the consumers. These rate applications are alsosubjected to due process requirements of notice and hearing.The ERC may either approve or modify the proposed powersupply contract. The DUs then automatically pass-on to itscaptive market the retail rate of its generation costs using the

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ERC-approved formula or mechanism for calculating thegeneration costs stipulated in the power supply contract.

2. 9 11.10 Thus, the pre-filing requirements providedunder Rule 6 of ERC s Rules of Practice and Procedure areconsistent with Section 25 of the

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