G.R. No. 112702 & G.R. No. 113613 September 26, 1997
NATIONAL POWER CORPORATION and PHIVIDEC INDUSTRIAL AUTHORITY, petitioners, vs. COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC. (CEPALCO), respondents.

FACTS

CEPALCO holds a legislative franchise under Republic Act No. 3247 , as amended, to operate an electric light and power system in Cagayan de Oro City and several municipalities in Misamis Oriental, including Tagoloan and Villanueva. The PHIVIDEC Industrial Authority (PIA) manages the PHIVIDEC Industrial Estate (PIE-MO) located within these municipalities. In 1979, PIA granted CEPALCO a temporary authority to distribute power within PIE-MO for a period of five years, renewable for another five, with an option for PIA to eventually take over the operations. Claiming CEPALCO was unable to meet the power demands of industries within the estate, PIA later applied for and obtained approval from the National Power Corporation (NPC) for a direct power connection to supply industries like Ferrochrome Philippines, Inc. (FPI) directly, bypassing CEPALCO.
CEPALCO filed a petition for prohibition, mandamus, and injunction against NPC, arguing the direct supply violated its franchise rights. The trial court ruled in CEPALCO’s favor, a decision affirmed by the Supreme Court in a prior case ( G.R. No. 72085 , December 28, 1989). The Court held that NPC’s authority to supply power directly to entities like FPI was subordinate to the national policy of area coverage electrification and required a prior hearing to determine if the local franchise holder was incapable or unwilling to match NPC’s reliability and rates. No such hearing was conducted before NPC approved the direct connection.

ISSUE

Whether the National Power Corporation has the jurisdiction to determine if it may supply electric power directly to an industrial consumer within the franchise area of an existing franchise holder without a prior administrative hearing.

RULING

No. The Supreme Court denied the petitions and affirmed the Court of Appeals’ decision, which upheld the trial court’s permanent injunction against NPC. The Court reiterated the doctrine established in the prior related case. NPC’s statutory authority to sell power “in bulk” to industrial consumers, such as those within the PHIVIDEC estate, is not absolute. It is expressly subordinated to the national policy of total electrification on an area-coverage basis, as enunciated in Presidential Decree No. 40. This policy aims to avoid wasteful duplication of facilities and protect the investments of franchise holders.
Consequently, a direct connection by NPC is permissible only after a proper administrative hearing establishes that the existing franchise holder is either incapable or unwilling to match the reliability and rates NPC can offer. In this case, no such hearing was ever conducted by NPC or any other administrative body before it approved the direct supply to FPI. The subsequent negotiations between CEPALCO and PIA do not cure this fatal procedural defect. The requirement for a hearing is a substantive condition precedent designed to protect the valuable, albeit non-exclusive, property rights of the franchise holder. Therefore, NPC acted without jurisdiction in authorizing the direct connection absent the mandated hearing, and its actions were correctly enjoined by the lower courts.