The Supreme Court ruled in favor of Peakpower San Francisco, Inc. (PSFI), reversing the Energy Regulatory Commission’s (ERC) decision that had dismissed PSFI’s power purchase agreement with Agusan Del Sur Electric Cooperative, Inc. (ASELCO). The Court found that the ERC acted with grave abuse of discretion by retroactively imposing a strict Competitive Selection Process (CSP) requirement, especially after previously granting provisional approvals and given the unique circumstances of the agreement’s continuation from a prior approved contract. This decision emphasizes the importance of consistent regulatory practices and the protection of legitimately established contractual expectations in the energy sector.

Powering Through: Did Regulators Err in Applying New Rules to an Old Agreement?

This case revolves around a power supply agreement between Peakpower San Francisco Inc. (PSFI) and Agusan Del Sur Electric Cooperative, Inc. (ASELCO). PSFI operated a power plant that exclusively served ASELCO, a distribution utility reliant on PSFI for electricity, particularly during peak demand and supply shortages. The original agreement was followed by a second Power Purchase and Transfer Agreement (PPTA) in 2014 for an additional generating unit, with PSFI financing and eventually transferring the unit to ASELCO. However, the Department of Energy (DOE) issued a circular in 2015 requiring distribution utilities to procure power supply agreements through a Competitive Selection Process (CSP). This requirement became a point of contention when PSFI and ASELCO sought approval for their second PPTA, leading to the ERC’s dismissal of their application due to non-compliance with CSP. The Supreme Court ultimately had to decide whether the ERC’s application of the CSP requirement was appropriate given the prior agreements and provisional approvals already in place.

The Supreme Court began by addressing procedural concerns. While PSFI filed a Petition for Certiorari, the ERC argued that a petition for review under Rule 43 of the Rules of Court would have been the proper remedy. The Court acknowledged that ERC decisions are typically appealable to the Court of Appeals. However, it also recognized an exception:

[A]lthough Section 1, Rule 65 of the Rules of Court provides that the special civil action of certiorari may only be invoked when “there is no appeal, nor any plain speedy and adequate remedy in the course of law,” this rule is not without exception.

Therefore, given the potential for injustice, the Court proceeded to consider the merits of the case.

The Court then addressed the core issue of the Competitive Selection Process (CSP) requirement. It acknowledged that the 2015 DOE Circular mandated that distribution utilities undergo a competitive selection process in securing power supply agreements. The CSP aims to ensure transparency, promote competition, and protect the public interest by securing the least-cost electricity supply. The Court emphasized that the EPIRA’s policies aim to ensure affordable, reliable electricity and promote competition in the power sector. The 2015 DOE Circular operationalized these policies by requiring CSP for all PSAs filed after its effectivity on June 30, 2015.

Taking all these provisions together, all PSAs submitted to the ERC after the effectivity of the 2015 DOE Circular, on or after 30 June 2015, are required to undergo CSP.

The Court also addressed arguments regarding impairment of contracts and due process. The petitioner argued that the ERC’s orders amounted to a confiscation of property and violated the constitutional prohibition against impairment of contracts. The Court clarified that the right against impairment of contracts is not absolute and is subject to the State’s police power to promote public welfare. It noted that the EPIRA and the 2015 DOE Circular were enacted to ensure the quality, reliability, and affordability of electricity. Thus, enforcing the CSP requirement aligns with these objectives and does not constitute an unconstitutional impairment of contracts.

Furthermore, the Court addressed the petitioner’s claim that the retroactive application of the CSP requirement amounted to an ex post facto law. It clarified that the proscription against ex post facto laws applies only to penal laws, not to regulations like the CSP requirement. The Court also rejected the application of the doctrine of operative fact, as the 2015 DOE Circular was already in effect when PSFI applied for approval of the second PPTA.

However, the Court ultimately ruled in favor of PSFI, finding that the ERC acted with grave abuse of discretion. This decision was based on the unique circumstances of the case. First, the second PPTA was a continuation of a first PPTA that had already been approved by the ERC. Second, PSFI and ASELCO had relied on the ERC’s provisional approval of the second PPTA and had already begun its implementation. Given these factors, the Court found that it was unreasonable for the ERC to retroactively impose strict CSP requirements that were not initially specified. The Court noted that the ERC had initially found the application sufficient in form and substance and had even extended the provisional authority without mentioning the CSP requirement. Thus, the ERC’s later insistence on strict CSP compliance appeared arbitrary and unreasonable.

The Supreme Court also stated that while the general rule is that the State cannot be put in estoppel, this is subject to exceptions:

Estoppels against the public are little favored. They should not be invoked except in a rare and unusual circumstances, and may not be invoked where they would operate to defeat the effective operation of a policy adopted to protect the public. They must be applied with circumspection and should be applied only in those special cases where the interests of justice clearly require it.

Therefore, the Supreme Court emphasized that its ruling was specific to the unique facts of this case and did not diminish the mandatory nature or enforceability of the 2015 DOE Circular in general.

FAQs

What was the key issue in this case?	The key issue was whether the Energy Regulatory Commission (ERC) committed grave abuse of discretion in applying the Competitive Selection Process (CSP) requirements to a power purchase agreement that had already received provisional approval.
What is the Competitive Selection Process (CSP)?	The Competitive Selection Process (CSP) is a method of procuring power supply agreements (PSAs) that requires distribution utilities to undergo a competitive bidding process to ensure transparency, promote competition, and secure the least-cost electricity supply for consumers.
Why did the ERC dismiss the application?	The ERC dismissed the application because PSFI and ASELCO failed to comply with the CSP requirements outlined in the 2015 DOE Circular, which mandated a competitive bidding process for PSAs filed after June 30, 2015.
What was the Supreme Court’s ruling?	The Supreme Court reversed the ERC’s decision, finding that the ERC acted with grave abuse of discretion by retroactively imposing strict CSP requirements, especially after granting provisional approval and considering the unique circumstances of the agreement.
What is the significance of the 2015 DOE Circular?	The 2015 DOE Circular mandates that all distribution utilities must undergo a Competitive Selection Process (CSP) when procuring power supply agreements (PSAs) to ensure transparency, promote competition, and secure the least-cost electricity supply for consumers.
Did the Supreme Court invalidate the 2015 DOE Circular?	No, the Supreme Court did not invalidate the 2015 DOE Circular. It emphasized that its ruling was specific to the facts of this case and did not affect the mandatory nature or enforceability of the 2015 DOE Circular in general.
What is the non-impairment clause?	The non-impairment clause in the Constitution protects the obligation of contracts from unwarranted government interference. However, this clause is not absolute and is subject to the State’s police power to promote public welfare.
What is the doctrine of operative fact?	The doctrine of operative fact recognizes that even an invalid law or executive act may have consequences that cannot be ignored. However, the Court found that this doctrine did not apply in this case, as the 2015 DOE Circular was already in effect when PSFI applied for approval of the second PPTA.

This case serves as a reminder that regulatory bodies must exercise their authority reasonably and consistently, taking into account the specific facts and circumstances of each case. While the CSP requirement remains in effect, this ruling underscores the importance of protecting legitimately established contractual expectations and avoiding arbitrary retroactive application of regulations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Peakpower San Francisco, Inc. vs. Energy Regulatory Commission, G.R. No. 268094, October 30, 2024