G.R. No. L-78605 May 5, 1988
NATIONAL POWER CORPORATION, petitioner, vs. HON. COURT OF APPEALS AND CAGAYAN ELECTRIC POWER AND LIGHT CO., INC., respondents.

FACTS

Petitioner National Power Corporation (NPC) is a government-owned corporation. Private respondent Cagayan Electric Power and Light Co., Inc. (CEPALCO) holds a legislative franchise to operate an electric power system in specific municipalities in Misamis Oriental and Cagayan de Oro City. NPC alleges that since 1958, prior to CEPALCO’s franchise, it has directly supplied power at 34.5 KV to the Philippine Packing Corporation (PPC) cannery in Bugo, Cagayan de Oro City. In 1984, due to increased power needs, PPC began constructing a 69 KV transmission line for additional supply.
CEPALCO filed a petition for Prohibition, Mandamus, and Injunction before the Regional Trial Court of Quezon City to prevent the direct connection. The trial court issued an ex-parte order and later a writ of preliminary injunction against NPC, enjoining it from connecting the 69 KV service to PPC. NPC’s petition for certiorari was referred to the Court of Appeals, which dismissed it. NPC’s motion for reconsideration was also denied, prompting this appeal.

ISSUE

Whether the Court of Appeals erred in applying the ruling in National Power Corporation vs. Canares to prohibit NPC from directly supplying increased power at 69 KV to PPC, an existing customer, without first affording CEPALCO, the franchise holder, a hearing to determine its capability to match NPC’s service.

RULING

The Supreme Court ruled against NPC and affirmed the Court of Appeals’ decision. The legal logic centers on the statutory framework governing power distribution and the protection of franchise rights. Presidential Decree No. 395, as amended, establishes a state policy where NPC is empowered to directly service all requirements of a BOI-registered enterprise. However, this is expressly conditioned upon two requirements: first, any affected private franchise holder must be afforded an opportunity to be heard on the application; and second, it must be established from such a hearing that the franchise holder is incapable or unwilling to match the reliability and rates of NPC.
The Court found the principles in the Canares and Jacinto cases directly applicable. It rejected NPC’s distinction that this case involved merely an “improvement” or “increase” in voltage under a pre-existing contract, whereas Canares involved a new connection. The Court deemed this distinction immaterial. The construction of a new 69 KV transmission line constituted a new and separate electric service connection. The law and implementing PDC Resolution No. 77-01-02 mandate that in any service area, priority must be given to the authorized franchise holder. A direct connection with NPC may only be granted after a hearing establishes the franchise holder’s incapacity or unwillingness to match NPC’s service. Since no such hearing was conducted where CEPALCO’s capability was assessed, NPC’s action in proceeding with the direct 69 KV connection violated CEPALCO’s statutory and due process rights. The franchise is a property right entitled to constitutional protection. Therefore, the injunction was proper.