Republic of the Philippines

COURT OF APPEALS
Manila

SPECIAL FIRST DIVISION

********

NATIONAL GRID CORPORATION CA-G.R. SP NO. 113947

OF THE PHILIPPINES (NGCP),
Petitioner, Members:

PJ REYES, JR., A.B.,

- versus - Chairperson
DIMAAMPAO, and
*
BARRIOS, JJ:
SKK STEEL CORPORATION
(SKK), ENERGY REGULATORY PROMULGATED:
COMMISSION (ERC),
Respondents. 31 May 2011
x-------------------------------------------------------------------------------------------------------------------------------------------------------------x

DECISION
DIMAAMPAO, J.:
Petitioner National Grid Corporation of the Philippines
1
(NGCP) inveighs against the Decision dated 14 December 2009
2
and Order dated 12 April 2010 of the Energy Regulatory
Commission (ERC) ordaining that the transmission billing for
private respondent SKK Steel Corporation (SKK Steel) should
be calculated based on coincident peak demand, and denying
the Motion for Reconsideration thereof, respectively, in ERC
Case No. 2009-049 MC.

The precursor facts are uncomplicated.

*
Vice Justice Jane Aurora C. Lantion, per Office Order No.167-11-ABR dated 26 May 2011.
1
Rollo, pp. 81-96.
2
Id., pp. 112-117.
CA- G.R. SP NO. 113947 Page 2
DECISION

NGCP is a private corporation operating the power

transmission system of the country. It took over the National
Transmission Corporation (TransCo), a government owned and
controlled corporation created pursuant to Section 8 of
3
Republic Act No. 9136, which assumed over the electrical
transmission facilities and functions of the National Power
Corporation (Napocor), among others.

SKK Steel is a domestic steel manufacturing company

which derives its entire power requirements directly from
Napocor through the transmission line of TransCo.

The controversy has its provenance in August 2005 when

TransCo and SKK Steel entered into a Memorandum of
4 5
Agreement (MOA), duly approved by the ERC, pertinent
portions of which read:

“TransCo's UNDERTAKINGS

TransCo shall provide SKK with transmission services

at two (2) 69 kV delivery points;

TransCo shall equip the said delivery points with

electronic multi-function meters that are capable of
supporting billings based on SKK's actual demand
coincident with the system peak demand;

TransCo shall use SKK's actual demand on the two (2)

billing meters coincident with the system peak for the
determination of billing determinants based on the Energy
Regulatory Commission (ERC)-approved OATS Rules, Terms
and Conditions of 2004;

TransCo shall apply to SKK the prevailing ERC-

approved rates for transmission services, based on the ERC-
approved OATS Rules, as may be amended from time to
time, and the Transmission Wheeling Rates Guidelines
(TWRG).

3
Electric Power Industry Reform Act of 2001.
4
Rollo, pp. 20-24.
5
Id., p. 81.
CA- G.R. SP NO. 113947 Page 3
DECISION

II
SKK'S UNDERTAKINGS

SKK shall enter into a Transmission Service Agreement

(TSA) with TransCo. It shall promptly and fully pay TransCo
for the amount of its transmission services.

SKK shall specify its Contract Demand which shall

serve as the basis of its minimum charges with TransCo.

In any event that its actual demand consumption

becomes lower than the contracted demand, SKK shall pay
TransCo a minimum charge on the basis of its contracted
demand level of ___________ or as provided in the
6
Transmission Service Agreement (TSA).”

The aforesaid MOA was executed to accord SKK Steel a

preferential rate lower than the prevailing rate charged by
7
Napocor and TransCo to its customers.

SKK Steel dutifully paid its bills which were computed by

TransCo pursuant to the coincident peak method. However, for
the billing period March to April 2008, SKK Steel was
astounded when NGCP calculated its Ancillary Service Charge
using the non-coincident peak method. While it paid its dues
8
under protest, SKK Steel forthwith filed a Petition before the
ERC contesting NGCP's unilateral change in its billing
determinant from the coincident peak method to the non-
coincident peak method.

For its defense, NGCP claimed that the change in the

billing determinant was undertaken pursuant to its Ancillary
Services-Cost Recovery Mechanism (AS-CRM) which was
9
approved by no less than the ERC itself. NGCP asserted that
the MOA allowed TransCo to change the billing determinant,
harking on this provision:

6
Rollo, pp. 20-22.
7
Id., p. 26.
8
Id., pp. 25-36.
9
Id., p. 69.
CA- G.R. SP NO. 113947 Page 4
DECISION

ANOTHER METHODOLOGY

“The Parties to this MOA agree that the method of

calculating the billing determinant herein prescribed shall
cease to be implemented once ERC approves another
methodology for the determination of the billing determinant
(such as a billing determinant based on the coincident peak,
10
etc.)”

In due course, the ERC rendered the assailed Decision

ruling in favor of SKK Steel, thus:

“WHEREFORE, the foregoing premises considered, the

Commission hereby confirms that the transmission billing
for (private respondent SKK Steel) should be calculated on
the basis of the Coincident Peak Demand of the Luzon
system peak. Accordingly, the (petitioner) and the National
Transmission Corporation (TRANSCO) are directed to:

a) Calculate (private respondent SKK Steel's) Ancillary

Service charge based on its actual demand coincident
with the system peak demand; and

b) Refund the total amount they collected from (private

respondent SKK Steel) representing its over payment of
Ancillary Service charges.
11
SO ORDERED.”

Expostulating with the ERC's judgment, NGCP filed its

12
Motion for Reconsideration asseverating that its obligation to
compute transmission charges based on the coincident peak
method ceased upon the approval of the AS-CRM in 2007
which prescribed for another methodology. The ERC remained
unswayed as it issued the disputed Order denying NGCP's
Motion.

Left with no other recourse, NGCP (now, petitioner)

comes to Us for relief through this Petition for Review on these
assignment of errors:

10
Rollo, p. 22.
11
Id., pp. 94-95.
12
Id., pp. 97-111.
CA- G.R. SP NO. 113947 Page 5
DECISION

I
THE ENERGY REGULATORY COMMISSION COMMITTED
ERROR IN RULING THAT SKK AND TRANSCO (OR ITS
SUCCESSOR NGCP) IS STILL BOUND BY THE MOA WITH
REGARDS (SIC) THE COMPUTATION OF THE ANCILLARY
SERVICE CHARGE DESPITE THE PROMULGATION OF
THE AS-CRM.

II
THE ENERGY REGULATORY COMMISSION COMMITTED
ERROR IN RULING THAT IT DID NOT ADOPT A DIFFE-
RENT BILLING DETERMINANT FOR ANCILLARY SERVICE
CHARGE.

III
THE ENERGY REGULATORY COMMISSION COMMITTED
ERROR IN RULING THAT IN EXECUTING THE MOA WITH
SKK, TRANSCO HAS WAIVED ITS RIGHT TO USE THE
NON-COINCIDENT PEAK DEMAND PRESCRIBED UNDER
THE OATS RULES AND THE AS-CRM AND THAT
TRANSCO AND NGCP ARE ESTOPPED FROM CHANGING
THE METHODOLOGY WHICH SKK HAS COMPLIED WITH
AND RELIED UPON IN GOOD FAITH.

The Petition lacks merit.

The issues raised by petitioner touched on the

interpretation of the MOA. As these issues are inextricably
intertwined, We shall tackle them in one fell swoop.

It is petitioner's threshold posture that the MOA provided

for a change of billing methodology so that the shift from
coincident peak to non-coincident peak demand was justified.
It propounds the theory that the ERC approved the AS-CRM in
2007 and thus, the same is binding on the consumers at large
as well as on all power industry participants, including private
respondent.

We are not convinced.

In resolving this controversy, We are guided by the

doctrinal enunciation in Chung v. Ulanday Construction,
Inc.—
CA- G.R. SP NO. 113947 Page 6
DECISION

“In contractual relations, the law allows the parties

leeway and considers their agreement as the law between
them. Contract stipulations that are not contrary to law,
morals, good customs, public order or public policy shall be
binding and should be complied with in good faith. No party
is permitted to change his mind or disavow and go back
upon his own acts, or to proceed contrary thereto, to the
13
prejudice of the other party. x x x.”

There is no quibbling that the MOA bestowed upon SKK

Steel (now, private respondent) the privilege of being billed
under the coincident peak determinant. The MOA was
executed so that private respondent may be given a measure
of respite in paying its transmission charges. The ERC
acknowledged that private respondent operates on a 24-hour
basis utilizing a vast amount of electric power to melt and
manufacture steel. Its hourly electric consumption is said to
be erratic ensuing in an inherently low load compared to other
14
industrial companies.

It is precisely for this reason that the ERC approved the

MOA authorizing the change in the billing determinant from
non-coincident peak to coincident peak demand insofar as
private respondent is concerned. This corollary shift in
methodology was approved to afford private respondent the
flexibility to run its second furnace outside of the system
15
peak.

To Our mind, while the AS-CRM was implemented with

the ERC's authorization, this did not automatically supersede
the MOA. The AS-CRM was formulated to apply to petitioner's
clients, other than private respondent. Petitioner must bear in
mind that its relationship with private respondent is peculiarly
governed by the MOA so that any change in its billing
methodology may be done after they both agree on such
change, and only upon the subsequent approval of the ERC.
In sooth, to countenance petitioner's scheme to change the

13
632 SCRA 485, 496 (11 October 2010).
14
Rollo, p. 42.
15
Id., p. 43.
CA- G.R. SP NO. 113947 Page 7
DECISION

billing methodology is a brazen transgression of the pith and

core of the MOA.

Invariably, We hew to the line drawn by the ERC in the

challenged Decision—

“There can be no question that under the MOA,

(private respondent) and TRANSCO agreed to use the
coincident peak demand as the basis in calculating (private
respondent's) transmission charges. The TRANSCO billings
showed that the coincident peak arrangement was applied
by TRANSCO to (private respondent's) actual consumptions.

xxx xxx

Article 1371 of the New Civil Code provides that:

“Article 1371. In order to judge the intention of the

contracting parties, their contemporaneous and subsequent acts
shall be principally considered.”

The intention of TRANSCO to apply the coincident

peak demand to the transmission charges as well as to the
Ancillary Service charges is manifestly shown by the sample
calculation attached to the MOA and in its billings issued to
(private respondent).

xxx xxx

x x x (Private respondent) and TRANSCO should still

be bound by the provisions of their MOA despite the
promulgation of the AS-CRM. It must be emphasized that
under the AS-CRM, the Commission did not adopt a
different billing determinant for Ancillary Service
charge.

In executing the MOA with (private respondent),

TRANSCO has virtually waived its right to use the non-
coincident peak demand prescribed under the OATS Rules
and AS-CRM. TRANSCO and (petitioner) are estopped from
changing the methodology which (private respondent) has
complied with and relied upon in good faith. TRANSCO and
(petitioner) should have used (private respondent's) actual
demand coincident with the system peak as its billing
determinant in the calculation of Ancillary Service
charges. x x x
CA- G.R. SP NO. 113947 Page 8
DECISION

Mutual considerations were taken into account by

both parties in the execution of the MOA particularly the
rate methodology applicable to (private respondent). It is
significant to note that the provisions of the MOA are
peculiar and exclusive compared to the Transmission
Service Agreements (TSAs) of TRANSCO with other
customers. A different rate methodology was extended to
(private respondent) taking into account the preferential
rate approved by the Commission. To hold otherwise
would be to unduly impose additional burden to (private
respondent) and defeating the purpose of granting a
preferential rate. While the authority of TRANSCO to
impose Ancillary Service charges to its customers is
unquestionable, such authority is not intended to be
inconsistent and violative of the constitutional provision
of non-impairment of obligations and contracts, and in
derogation of or to defeat the vested rights duly acquired
pursuant to the MOA.

It must be recalled that the Commission granted

(private respondent) a preferential rate in view of its
significant contribution to the Luzon peak and
improvement of energy sales of NPC and TRANSCO. The
Commission's approval of the MOA between TRANSCO and
(private respondent) is consistent with the mandate of the
government to reduce the cost of electricity as declared in
the 2006 State of the Nation Address (SONA) of Her
Excellency, President Gloria Macapagal-Arroyo.
16
xxx x x x” (Emphasis supplied)

Along this grain, We again stress the long established

doctrine that findings of administrative or regulatory agencies
on matters which are within their technical area of expertise
are generally accorded not only respect but at times even
finality if such findings and conclusions are supported by
17
substantial evidence. In the absence of substantial showing
that such findings are made from an erroneous estimation of
the evidence presented, they are conclusive and should not be
18
disturbed. This is the diegesis obtaining in this case.

16
Rollo, pp. 92-94.
17
Republic v. Manila Electric Company, 401 SCRA 130, 141 (9 April 2003).
18
See Soliva v. Commission on Elections, 357 SCRA 336, 344 (20 April 2001).
CA- G.R. SP NO. 113947 Page 9
DECISION

With the foregoing disquisition, We strike down

petitioner's assertion that it validly billed private respondent
using the non-coincident peak demand. Having taken over its
predecessor, the defunct TransCo, petitioner is bound by the
provisions of the MOA as if it was an original party signatory
thereto.

A final cadence. In ploughing through the merits of this

legal squabble, We are bound by the time-honored rule that
contracts are the law between the parties. Given that
petitioner is bent on billing private respondent following the
non-coincident peak demand, the parties must negotiate anew
to discuss the possibility of modifying the terms of the MOA.
This must be done upon consultation with and approval of the
ERC.

WHEREFORE, the Petition for Review is hereby DENIED.

The Decision dated 14 December 2009 and Order dated 27
April 2010 of the Energy Regulatory Commission in ERC Case
No. 2009-049 MC, are AFFIRMED.

SO ORDERED.

JAPAR B. DIMAAMPAO
Associate Justice

WE CONCUR:

ANDRES B. REYES, JR. MANUEL M. BARRIOS

Presiding Justice Associate Justice
CA- G.R. SP NO. 113947 Page 10
DECISION

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it

is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to
the writer of the opinion of the Court.

ANDRES B. REYES, JR.

Presiding Justice
Chairperson, Special First Division

/e