The Supreme Court (SC) has affirmed the validity of the P27.5-billion settlement agreement entered into by the Manila Electric Company and the National Power Corporation in 2003 covering their obligations under the ‘contract for the sale of electricity” (CSE).
In a 25-page decision, the SC’s First Division denied the petition for review filed by the government through the Office of the Solicitor General seeking for the reversal of the decision rendered by the Court of Appeals on April 15, 2014, which upheld the ruling of the Regional Trial Court of Pasig City issued on May 29, 2012.
To recall, the Pasig City trial court, in the said ruling, granted the petition for declaratory relief filed by the Meralco seeking to declare its agreement with NPC valid and binding.
But the trial court reserved for approval of the Energy Regulatory Commission (ERC) the “pass-through” provision of the agreement.
Under the agreement, the remaining balance was to be gradually collected by Meralco from its consumers pursuant to a pass-through provision in the settlement agreement allowing Meralco to pay NPC the balance from amounts paid by the customers.
However, the said provision requires the approval of the ERC to become effective.
“Having voluntarily agreed to undergo mediation and, thereafter, having signified its consent to be bound by the provision of the settlement agreement, NPC should not be allowed to renege on its obligations thereunder simply because it belatedly had a change of mind. NPC is bound by the terms of the settlement agreement and must comply therewith in utmost good faith,” the SC declared.
The OSG has opposed the settlement agreement for being grossly disadvantageous and prejudicial to the governments as it waives amounts worth billions of pesos.
The chief state lawyer asserted that the agreement has no force and effect since it was neither submitted to, nor reviewed by the OSG, in violation of the Revised Administrative Code of 1987 and the NPC Charter supposedly requiring the OSG’s approval and legal guidance in connection with the settlement agreement.
Besides, the OSG argued that the settlement agreement should have been submitted to the Office of the President, Congress and the Commission on Audit (COA) for approval.
But the SC ruled that the settlement agreement is valid even without authorization from them.
It noted that Section 20 of the Administrative Code provides that their intervention may only be required in “settled” claims.
“The fact alone that Meralco and NPC had to go through mediation and subsequently execute the settlement agreement in order to resolve their claims against each other more than suffices to show that their claims in question were unsettled as of this time,” the SC said.
“Therefore, Meralco and NPC’s claims against each other, disputed and negotiated prior to the execution of the Settlement Agreement, cannot by any stretch, be deemed settled so as to require the approvals of the President, the COA and Congress,” it added.
According to the SC, even the amount under the settlement agreement is still up for review and approval of the ERC.
The SC also countered OSG’s claim that the settlement agreement is grossly disadvantageous to the government.
It held that Meralco had legitimate claims against NPC under the CSE contract that needed to be offset from the total amount the former owed the latter.
“The offsetting of Meralco and NPC’s respective claims against each other is likewise tremendously advantageous to NPC because Meralco’s counterclaims against NPC are substantially greater than the credit given by NPC to Meralco under the settlement agreement,” the SC stressed.
“Meralco appears to be at the shorter end of the settlement for it had counterclaims that far exceed NPC’s claim, only for it to agree and pay some P20.05 billion more,” it said.
The SC also denied OSG’s claim that the agreement is not valid as this was executed without its guidance.
“The OSG’s participation and legal guidance, by themselves were never prerequisites for the entry of the NPC’s Board of Directors into a settlement agreement. There is no law that makes such requirements,” the SC said.
It can be recalled that Meralco and NPC entered into CSE on November 21, 1994 for 10 years starting January 1, 1995.
Under the CSE, NPC was obliged to supply and Meralco was obliged to purchase a minimum volume of electric power and energy from 1995 until 2004 at the rates approved by the Energy Regulatory Board (ERB), now the ERC.
It stated that any proposed amendments to the rates should not reduce the contract demand to less than 3,600 megawatts beginning in the year 2001.
Despite its CSE, Meralco still needed to source part of the power demand from independent power producers (IPPs) because of the inadequacy of NPC’s energy supply.
A provision of the CSE also required Meralco to pay minimum monthly charges even if the actual volume of the power and energy drawn from NPC fell below the stated minimum quantities.
The said provision was put to test In 2002, 2003 and 2004, after Meralco committed to purchase the minimum volume of 60,092-gigwatt hertz (GWH) but drew from NPC’s electric power less than the minimum quantities stipulated in the CSE for those years.
Meralco also failed to pay the minimum monthly charges despite demand by NPC and counter it with its own claims. This prompted NPC to serve on Meralco a claim for the contracted but undrawn electric power and energy starting the billing month of January 2002.
The dispute led to mediation proceedings and on July 15, 2003, a settlement agreement was reached between the two parties. In the settlement agreement, Meralco agreed to pay NPC the amount of P27.5 billion for 18,222 GWH for 2002-2004.
But the NPC extended credits to Meralco in the amount of P7.4 billion for the delay in the completion of the transmission facilities and the corresponding sales it made directly to customers within Meralco’s franchise area.
Because of this, Meralco’s payables were reduced to P20.05 billion. However, Meralco made payments to NPC between 2003-2004 further reducing the amount by P14 billion.
The parties agreed that the balance would be gradually collected from consumers under the “pass-through” provision of the settlement agreement.