ORDER - erc.gov.ph

IN . THE MATTER OF THEAPPLICATION FOR THEAPPROVAL OF THE SALE OFVARIOUS SUB-TRANSMISSIONLINES/ASSETS OF THE NATIONALTRANSMISSION CORPORATION(TRANSCO) TO MANILA ELECTRICC9MPANY (MERALCO), ASCOVERED BY A CONTRACT TOSELL, WITH PRAYER FORPROVISIONAL AUTHORITY

ERC CASE NO. 2012-062 RC

ORDER

Before the Commission for resolution is the "Motion to ReopenProceedings" filed on October 10, 2014 by the Manila ElectricCompany (MERALCO) praying that the case be reopened and thatthe sale of the a) Dasmarifias - Abubot - Rosario 115 kV Line and b)Rosario Substation Equipment in favor of MERALCO be approvedwithout the need of forming a consortium or a new juridical entity withthe Philippine Economic Zone Authority (PEZA)/Cavite EconomicZone (CEZ).

In the said motion, MERALCO alleged, among others, thefollowing:

ERC CASE No. 2012-062 RCOrder/March 4, 2015Page 2 of 13

ISTATEMENT OF THE CASE

1. On April 17, 2012, it, together with the National TransmissionCorporation (TRANSCO) filed the instant application prayingfor the approval of the sale of various TRANSCOsubtransmission assets (STAs) within the franchise area ofMERALCO as covered by a Contract to Sell;

2. On January 19, 2013, it received the Commission'sDecision, the dispositive portion of the same reads:

"WHEREFORE, the foregoing premisesconsidered, the application for approval of the saleof various subtransmission lines/assets of theNational Transmission Corporation (TRANSCO) toManila Electric Company (MERALCO), as coveredby a Contract to Sell, with prayer for provisionalauthority, filed jointly by TRANSCO andMERALCO, is hereby APPROVED withmodification.

Accordingly, the sale of the followingsubtransmission assets of TRANSCO toMERALCO in the amount of One Hundred NineMillion One Hundred Eighty Six Thousand SixHundred Four and 30/100 Pesos(PhP1 09, 186,604.30), is hereby APPROVED:

a) Tayabas 115 kV Switchyard;

• Transformer (T1) - Two Winding 100 MVA;• 1 - 115 kV Power Circuit Breaker;• 6 - 115 kV Current Transformer;• 4 - 115 kV Voltage Transformer;• Site Establishment - Type 3 115;• 1 - Switch Bay 115 kV with 1 CB Feeder;• 1 - Switch Bay 115 kV with 1 CB Feeder

Protection; and

b) Ternate Substation Equipment.

• 3 - 115 kV Power Circuit Breaker;• 2 - 34.5 kV Power Circuit Breaker;


• 3 - 34.5 Potential Transformer;• Ancillaries - 115 kV;• Site Establishment - Type 3 115;• Site Establishment - Type 2 69;• 1 - Switch Bay 115 kV 1 & 1/2 bay with 3 CB;• 1 - Switch Bay 115 kV 1 & 1/2 bay with 3 CB

Protection;• 2 - Switch bay 34.5 kV with 1 CB Feeder; and• 2 - Switch bay 34.5 kV with 1 CB Feeder

Protection.

On the other hand, the sale of the followingsubtransmission assets of TRANSCO toMERALCO is hereby DISAPPROVED:

a) Dasmarifias - Abubot - Rosario 115 kVLine; and

b) Rosario Substation Equipment.

Upon the consummation of the sale, let acopy of the corresponding Deed of Absolute Salebetween TRANSCO and MERALCO be furnishedthe Commission, for record purposes.

SO ORDERED."

3. In connection with the ruling of the Commission disapprovingthe sale of Dasmarifias - Abubot - Rosario 115 kV Line andRosario Substation Equipment (hereinafter referred tocollectively as UDasma-Rosario STAs"), it pronounced thatUln order for the acquisition of the said assets to prosper,TRANSCO and MERALCO may file a new application withthe Commission through a consortium with CEZ;

4. In view of this ruling on the Dasma-Rosario STAs, it filed aMotion for Partial Reconsideration dated June 21, 2013while TRANSCO filed its Motion for Reconsideration datedJune 27,2013;

5. On May 22, 2014, it received a copy of the Commission'sOrder dated May 5,2014, which denied its Motion for PartialReconsideration and TRANSCO's Motion forReconsideration.


5.1 In this Order, the Commission ruled that basedon the single line. diagram (SLD) of the Dasma-RosarioSTAs, it and the Cavite Economic lone (CEl) are bothconnected to the said STAs, thus, there are two (2)distribution entities connected to the Dasma-Rosario STAs;and

5.2 The Commission further stated in the Order thatalthough it noted that CEl does not have the intention tocreate a consortium with MERALCO and had already waivedits right to acquire the subject assets in MERALCO's favor,and that MERALCO's claim that CEl is its customer, it stillupheld its ruling. The Commission also mentioned thatthough MERALCO claims that CEl is already its customer,it does not negate the fact that among its locators, PElAremains to be the utility distributing electric power;

6. On June 5, 2014, it filed a Motion for Leave to Admit Motionfor Reconsideration and Clarification, with attached Motionfor Reconsideration and Clarification. It sought thereconsideration of the May 5, 2014 Order and clarification onthe portion of the Order stating the Dasma-Rosario Assetsshall be reverted back to TRANSCO's Regulatory AssetBase;

7. On June 27, 2014, it received the Commission's Order datedJune 16, 2014 denying the Motion for Reconsideration andClarification;

8. Meanwhile, during the pendency of the case, PElA engagedMERALCO to provide, among other things, operation andmaintenance services on the distribution facilities withinCEl' ,

9. In view of the aforementioned ERC Orders, MERALCO hadseveral meetings with PElA representatives and proposedthe formation of consortium to acquire the Da~ma-RosarioAssets. However, in a letter dated August 14, 2014, PElAformally replied to MERALCO's proposal, to wit:

"Upon discussion and consultation with themembers of the PElA Board, we regret to


inform you that PEZA cannot enter into aconsortium with MERALCO no matter hownominal PEZA's share will be because it mightcreate legal complications since the aforesaidline and assets are located outside the CaviteEconomic Zone (CEZ). Under Section 12 (c) ofR.A. 7916, as amended, PEZA, can only'regulate and undertake the establishment,operation, maintenance of utilities, otherservices and infrastructure in the ECOZONE ... 'Thus, the subject 115 kV line and assets beingoutside the territorial boundaries of the CEZ,PEZA has no legal basis to enter into aconsortium with MERALCO to acquire thesame.

In addition, the acquisition of the power assetsis not in accordance with PEZA's privatizationthrust. As you are well aware, PEZA isdivesting its interest in the operation of powerdistribution systems in the public ecozones andwill now focus on its role as the regulator ofpower inside the ecozones. In fact, themanagement and operation of the CEZdistribution system was recently turned over toMERALCO through a Lease ConcessionAgreement. Before that, Mactan ElectricCompany, Inc. (MECO) took-over thedistribution utility functions in Mactan Ecozone1 (MEZ 1)."

IIGROUND TO REOPEN CASE

/10. As can be gleaned from the foregoing, there were new facts

and circumstances after the Commission has rendered itsDecision in this case, as well as the May 5, 2014 and June16, 2014 Orders. It is most respectfully submitted that thesenew facts and circumstances warrant the reopening of thiscase;

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ERC CASE No. 2012-062RCOrder/March 4, 2015Page 6 of 13

IIIDISCUSSION

11. It is most respectfully submitted the above-mentioned newfacts and circumstances are material facts that warrant thereopening of the case;

12. At this juncture, it is put forward that MERALCO is notunaware of Section 17, Rule 18 of the ERC Rules pertainingon the reopening of proceedings, which states in part thatsuch reopening should be before the promulgation of adecision, order, or resolution. MERALCO also notes thatwhile it is submitted that the Rules of Court, which applysuppletorily to the ERC Rules, may not have a specific ruleon the reopening of proceedings, it does have a rule onsetting aside of judgment of final order, or the holding of anew trial, but that is before the period for taking of appeal;

13. These rules notwithstanding, it is most respectfully submittedthat the Supreme Court has recognized and allowed thereopening of proceedings even after the promulgation of adecision and after the period for taking an appeal haslapsed, in the interest of substantial justice;

14. Furthermore, in the case of Alegre vs. Reyes and People ofthe Philippines, 1 the Supreme Court has ruled that "a motionfor reopening, unlike a motion for new trial, is not specificallymentioned and prescribed as a remedy by the Rules ofCourt. There is no specific provision in the Rules of Courtgoverning motions to reopen. It is albeit a recognizedprocedural recourse of device, deriving validity andacceptance from long, established usage. 11

15. The Court has further stated in said case that: "On the otherhand, the reopening of a case for the reception ofadditional evidence after a case has been submitted fordecision but before judgment is actually rendered is, it hasbeen said, controlled by no other rule than that of theparamount interest of justice, resting entirely in the soundjudicial discretion of a Trial Court; and its concession, ordenial, by said Court in the exercise of that discretion will notbe reviewed in appeal unless a clear abuse thereof isshown."

1 G.R. No. L-56923, 9 May 1988. Emphasis supplied.

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/16. It is most respectfully submitted that the subsequent facts

and circumstances after the Decision in this case and thetwo Orders thereafter have been rendered warrant thereopening of the proceedings so as to afford substantialjustice on the part of herein applicant;

17. For one, MERALCO is now the legitimate provider of electricservice within CEZ. As such, there is no longer any need forMERALCO and PEZA to form a consortium to purchase theDasma-Rosario Assets;

18. Furthermore, with PEZA's pronouncement in its August 14,2014 letter, the Commission's mandate that PEZA andMERALCO form a consortium cannot be applied to thedivestment of the Dasma-Rosario Assets inasmuch as suchmandate is an imposition of an impossible condition on thepart of the parties. As stated in the letter, the PEZA Boardexpressed that "PEZA cannot enter into a consortiumwith MERALCO no matter how nominal PEZA's sharewill be because it might create legal complications sincethe aforesaid line and assets are located outside theCavite Economic Zone (CEZ). Under Section 12 (c) ofR.A. 7916, as amended, PEZA, can only 'regulate andundertake the establishment, operation, maintenance ofutilities, other services and infrastructure in theECOZONE... Thus, the subject 115 kV line and assetsbeing outside the territorial boundaries of the CEZ,PEZA has no legal basis to enter into a consortium withMERALCO to acquire the same."

19. Practically, PEZA stated that it does not have the authorityunder its charter to enter into a consortium with distributionutility to acquire subtransmission assets. In other words,PEZA from the onset was never a qualified DU that canacquire STAs either solely or through a consortium;

20. Accordingly, considering PEZA's legal impediment to enterinto a consortium agreement with MERALCO to acquire theDasma-Rosario Assets, with all due respect, a black andwhite imposition of the "consortium agreement" under theEPIRA is tantamount to an imposition of a condition that isimpossible for MERALCO and PEZA to fulfill;


21. It is further submitted that when the EPIRA mandated thedivestment of residual subtransmission assets to aconsortium of the commonly connected utilities, it did notintend for such divestment to be under an impossiblecondition as in the instant case. This is because if PElA, ascan be gleaned from its August 14, 2014 letter, co-acquiresthe Dasma-Rosario Assets under a consortium withMERALCO, it will be in violation of law, particularly R.A.7916, as amended;

22. As the legal maxim states, {{lexnon cogit and impossibilia" or'the law does not require the impossible." Thus, it is mostrespectfully submitted that under the circumstances, coupledwith the fact that PElA has long determined to waive itsinterest in the acquisition of the Dasma-Rosario Assets,which waiver should be presumed to be in CEl's bestinterest and will not tantamount to diminution of servicewithin CEl, there is valid and legal basis to construe that the"consortium agreement" under the EPIRA may not beapplied here as the particular circumstances surrounding theacquisition of the Dasma-Rosario Assets as expoundedherein is a situation not comtemplated under the EPIRA.Otherwise, the rights of one party (MERALCO) would betrumped by the legal impossibility of the other party (PElA)to exercise a similar right. It is also most respectfullysubmitted that a supposed right that is legally impossible toperform is not a right at all;

23. Further, it is most respectfully reiterated the peculiarsituation that CEl would be in if the Dasma-Rosario Assetswill be reverted back to TRANSCO's RAB because from theDasmarinas - Abubot - Rosario 115 kV Line, there is alsothe FCIE - Rosario 115 kV Line that was constructed byMERALCO to ensure the reliability of service to CEl thatwas duly approved by the Commission. Accordingly, if theDasmarinas - Abubot - Rosario 115 kV Line and theRosario Substation Equipment are reverted back toTRANSCO or NGCP's RAB, there would be that peculiarsituation wherein CEl will become a transmission customerand at the same time a customer of MERALCO. This wouldbe disadvantageous to CEl as it stands to be billed by twoentities which would perform separate service to supplyCEl',

.;

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24. On the other hand, to hold that the "consortium agreement"under the EPIRA may not apply to the Dasma-RosarioAssets would allow the divestment of the same and would bein furtherance of the declared policies of the EPIRA,particularly "to ensure transparent and reasonable prices ofelectricity in a regime of free and fair competition and fullpublic accountability to achieve greater operational andeconomic efficiency and enhance the competitiveness ofPhilippine products in the global market" and "to protect thepublic interest as it is affected by the rates and services ofelectric utilities and other providers of electric power" as thedisposal of these subtransmission assets to those who aresolely or jointly using it to the exclusion of other utilities orentities, will ensure fair and reasonable prices to those notusing it since it would not be fair to those not using thesesubtransmission assets to pay for the costs associated withthem. This is the spirit of law. As held in Hidalgo vs.Hidalgo:2

it ••• where the true intent of the law is clear thatcalls for the application of the cardinal rule ofstatutory construction that such intent or spiritmust prevail over the letter thereof, for whateveris within the spirit of a statute is within thestatute, since adherence to the letter wouldresult in absurdity, injustice andcontradictions and would defeat the plain andvital purpose of the statute." (Emphasissupplied.)

25. Wherefore, it is most respectfully submitted that with theoccurrence of the aforementioned materially new facts andcircumstances, there is valid and legal basis, in the interestof substantial justice, to reopen the case and admit thesenew facts and circumstances together with the otherevidence offered in this case and hold that the Dasma-Rosario Assets may be divested. by TRANSCO toMERALCO without the need to form a consortium betweenPEZA and MERALCO.

2 G.R. No. L-25326, May 29, 1970,33 SCRA 105. Cited in Peralta vs. Civil Service Commission,G.R. No. 95832 August 10, 1992.

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COMMISSION'S RULING

Based on the ocular inspection conducted and the submitteddocuments by the parties, the Commission remains steadfast in itsposition that MERALCO is not the only distribution utility (DU)connected to the following subtransmission assets:

a) Dasmaririas-Abubot-Rosario 115 kV Line; and

b) Rosario Substation Equipment.

Thus, the Commission's decision in the instant case remainsundisturbed despite the contractual arrangement between MERALCOand CEl which effectively makes CEl as MERALCO's customer anddespite the waiver of CEl's rights to purchase these assets issued onDecember 13,2010 in favor of MERALCO.

Section 8 of Republic Act No. 9136, otherwise known as theElectric Power Industry Reform Act of 2001 (EPIRA), provides that:

ttthe take over by a distribution utility of anysubtransmission asset shall not cause a diminution ofservice and quality to the end-users. Where there aretwo or more connected distribution utilities, theconsortium or juridical entity shall be formed by andcomposed of all of them and thereafter shall be granteda franchise to operate the subtransmission asset by theERG."

It must be noted that the abovementioned provision does notdistinguish whether the concerned DUs should be directly or indirectlyconnected to the subject subtransmission assets. Whether or notCEl has become a MERALCO customer or that PElA has legalconstraints that prevent it from entering into a consortium are notmaterial in this case.

Moreover, the alleged peculiar situation contemplated byMERALCO wherein CEl will become a transmission customer and atthe same time a customer of MERALCO and as such will be


disadvantageous to CEl as it stands to be billed by two entitiesdeserves scant consideration.

At present, NGCP operates the Dasmarinas-Abubot-RosarioLine (as subtransmission asset) wherein MERALCO is connected.Thus, MERALCO is the customer of NGCP. On the other hand, CElis connected to MERALCO, thus making CEl its customer. NGCPcharges MERALCO the Transmission Charge (or PDS) andSubtransmission Charge (RSTC). MERALCO in turn passes thesecharges to CEl, proportionate to its load including distributioncharges.

If the subject asset is reclassified from subtransmission intotra~smission, the same asset shall still be operated by NGCP. Insuch case, NGCP will charge MERALCO transmission charge only.It can no longer collect subtransmission charge for the subjectsubtransmission asset since the same will already becometransmission. MERALCO in turn will pass this charge to CElincluding other charges which are just the same as before thereclassification. It is expected that CEl will have a minimal reductionin rate because of the exclusion of the subtransmission charge.

Moreover, with the reclassification, CEl will have the option toremain connected to MERALCO or connect directly to NGCP,whichever is more beneficial to its locators.

More importantly, it behooves upon the Commission torecognize the NGCP's claim that with the proposed connection of the40 MW Solar Power Plant of Majestic Energy Corporation to thesubject Dasmarinas-Abubot-Rosario 115 kV Line, this subject lineshould be reclassified as transmission asset and therefore, can nolonger be the subject of sale. Section 2, Article III of Resolution No.15, Series of 2011 entitled, "Amended Guidelines Covering the Sale& Transfer of Subtransmission Assets and Franchising of QualifiedConsortiums" provides that:

... "Lines, power transformers and other assetsheld by TransCo or NGCP, which allows thetransmission of electricity to a grid from one ormore directly connected generators, shall beclassified as transmission assets."


WHEREFORE, the foregoing premises considered, the "Motionto Reopen Proceedings" filed on October 10, 2014 by the ManilaElectric Company (MERALCO) is hereby DENIED for lack of merit.

SO ORDERED.

Pasig City, March 4, 2015.

~fc~~Chairperson rJ

ALF~~NCommissioner

(), •• -~~ ~~A t.-GL~VICTORIA 1-vf(AP-TARUC

Commissioner

JOSEFINA PATR~MAGPALE-ASIRITc~l~tioner

...ERC CASE No. 2012-062 RCOrder/March 4, 2015Page 13 of 13

Copy Furnished:

1. NATIONAL TRANSMISSION CORPORATION (TRANSCO)Attention: Attys. NOEL Z. DE LEON, LEON T. TAPEL, JR.,

GINA LOURDES D. VALEROS and SOLEDAD T. DEVEGA-CABANGISCounsel for TRANSCOTRANSCO Main Building, Quezon Avenuecorner BIR Road, Diliman, Quezon City

2. MANILA ELECTRIC COMPANY (MERALCO)Attention: Attys. JOSE RONALD V. VALLES, ROMMEL L. YAP,

FRANCIS DINO S. ANTONIO, and PAUL B. SORINOCounsels for the MERALCOLopez Building, Meralco CenterOrtigas Avenue, Pasig City

3. Attys. Mark Anthony S. Actub, Raycell D. Baldovino andJacqueline Kate T. SalienteNational Grid Corporation of the Philippines (NGCP)NGCP Building, Quezon Avenue cor. BIR RoadDiliman, Quezon City, Metro Manila

4. MS. LILIA B. DE LIMADirector GeneralPhilippine Economic Zone AuthorityRoxas Boulevard corner San Luis StreetPasay City, Metro Manila

5. The Office of the Solicitor General134 Amorsolo Street, Legaspi Village, Makati CityMetro Manila

6. The Commission on AuditDon Mariano Marcos AvenueDiliman, Quezon City, Metro Manila

7. The Committee on EnergySenate of the PhilippinesGSIS Building, Roxas Blvd., Pasay City, Metro Manila

8. The Committee on EnergyHouse of RepresentativesBatasan Hills, Quezon City, Metro Manila

9. Mr. Edgardo G. LacsonPresidentPhilippine Chamber of Commerce and Industry (PCCI)3rd Floor, ECC Building, Sen. Gil Puyat AvenueMakati City

Documents

ORDER - erc.gov.ph