SC: Exclusive Franchises are Prohibited by the Constitution
August 1, 2024
From sc.judiciary.gov.ph
Electric cooperatives do not have a constitutional right to an exclusive franchise within their coverage areas.
This was the ruling of the Supreme Court En Banc in a Decision dated July 30, 2024, penned by Associate Justice Rodil V. Zalameda. The Court dismissed the petition of Iloilo Electric Cooperative, Inc. I, II, and III (ILECOs) challenging the validity of Republic Act No. (RA) 11918. The law expanded the franchise of another electricity provider, MORE Electric and Power Corporation (MORE), to areas within ILECOs’ franchise.
ILECOs hold franchise certificates to operate electric light and power services in various municipalities in the province of Iloilo and in Passi City. MORE initially held a franchise to operate the same in Iloilo City until RA 11918 expanded its franchise to include 15 municipalities and one city previously within ILECO’s exclusive franchise area.
ILECOs filed before the Court a petition for certiorari and prohibition, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction, to invalidate Section 1 of RA 11918 for violating their rights to exclusive franchises, due process, non-impairment of contracts, and equal protection.
In dismissing the petition, the Court ruled that Section 11, Article XII of the Constitution prohibits exclusive franchises.
A franchise, as a privilege granted by the state, is not the exclusive private property of the franchisee. Thus, it must yield to serve the common good, as determined by Congress.
In the present case, Congress enacted RA 11918 to make electricity more affordable for the people of Iloilo province. Congress determined that expanding MORE’s franchise would promote healthy competition since MORE was capable of offering lower energy rates.
Without competition, ILECOs can easily dictate the price of electricity. Allowing the entry of another player thus benefits consumers, who no longer have to wait until ILECOs’ franchises expire in 2029, 2039, and 2053. This is in accordance with the Electric Power Industry Reform Act (EPIRA), which encourages competition in the electricity industry.
The Court added that contract rights must give way to the broader authority of the State’s police power when exercised for the general welfare, as in this case. In any case, ILECOs failed to show how RA 11918 affected their contracts with their suppliers.
Neither does RA 11918 give preferential treatment in favor of MORE. As a new franchise holder, MORE is not similarly situated with other utilities which already have existing and functioning distribution systems. Thus, the added powers granted to MORE are needed to ensure it is able to provide uninterrupted supply of electricity to its covered areas.
The Supreme Court Public Information Office will upload a copy of the Decision in G.R. No. 264260 (Iloilo Electric Cooperative, Inc. [ILECO I], et al. v. Executive Secretary Lucas P. Bersamin, et al.) once it receives the same from the Office of the Clerk of Court En Banc.
