G.R. No. 72085 , December 28, 1989
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO), petitioner-appellee, vs. NATIONAL POWER CORPORATION (NPC), respondent-appellant.

FACTS

CEPALCO is a private corporation holding a legislative franchise to operate an electric power system within specific municipalities in Misamis Oriental, including Cagayan de Oro City. The National Power Corporation (NPC), a government-owned corporation, is authorized under its charter to generate and transmit electric energy nationwide. On August 20, 1980, NPC entered into an agreement to directly sell and supply all the power requirements of Ferrochrome Philippines, Inc. (FPI), a BOI-registered enterprise whose plant is located within CEPALCO’s franchise area at the Phividec Industrial Estate in Tagoloan, Misamis Oriental.
CEPALCO filed a petition for prohibition, mandamus, and injunction before the Regional Trial Court, arguing that NPC’s direct supply agreement with FPI violated its franchise rights and the national electrification policy. CEPALCO contended that, under prevailing law, the distribution of power generated by NPC should be coursed through authorized franchise holders like itself. The trial court ruled in favor of CEPALCO, ordering NPC to permanently desist from directly supplying power to FPI and to course such supply through CEPALCO’s lines. NPC appealed, contending its charter allowed bulk sales to BOI-registered enterprises without restriction.

ISSUE

Whether the National Power Corporation (NPC) is legally authorized to sell electric power directly to a BOI-registered enterprise located within the franchise area of a private utility, without coursing the supply through the franchised operator.

RULING

The Supreme Court denied NPC’s appeal and affirmed the trial court’s decision. The legal logic is anchored on the hierarchy of statutory policies and the property rights inherent in a legislative franchise. The Court ruled that while NPC’s charter, as amended by P.D. No. 395, grants it authority to sell power in bulk, this authority is not absolute and must be subordinate to the overarching national policy of total electrification on an area-coverage basis as established by P.D. No. 40. This policy designates NPC as responsible for generation and transmission, but mandates that distribution be undertaken by authorized entities, including franchised utilities like CEPALCO.
Crucially, the Court, reiterating its rulings in National Power Corporation v. Caneres and National Power Corporation v. CEPALCO, held that a franchise constitutes a valuable property right protected by due process. Therefore, a direct connection by NPC to an end-user within a franchise area is permissible only after a hearing where it is established that the franchise holder is incapable or unwilling to match the reliability and rates offered by NPC. In this case, no such hearing was conducted, and CEPALCO’s capability and willingness were never contested. The fact that CEPALCO’s franchise was non-exclusive does not diminish this protected right. Consequently, NPC’s direct supply contract with FPI, undertaken without affording CEPALCO this procedural priority, was illegal and void.