When Regulatory Approvals Matter: CSP Rules and Power Agreements After Alyansa

The Supreme Court's recent decision in Peakpower San Francisco, Inc. v. Energy Regulatory Commission (G.R. No. 268094, October 30, 2024) clarifies when the Competitive Selection Process (CSP) applies to power supply agreements. The ruling is significant for distribution utilities, power generators, and businesses entering into electricity contracts, as it affirms that regulatory requirements existing at the time of filing—not merely at the time of contract execution—govern the approval of such agreements.

The Case: A Power Plant Expansion Without CSP

Peakpower San Francisco, Inc. (PSFI) operated a diesel-fired power plant exclusively for Agusan del Sur Electric Cooperative, Inc. (ASELCO), a distribution utility. In December 2014, the parties executed a second Power Purchase and Transfer Agreement (PPTA) for an additional generating unit. They filed their application for approval with the Energy Regulatory Commission (ERC) on April 28, 2016.

Meanwhile, the Department of Energy (DOE) issued Circular No. DC2015-06-0008 on June 30, 2015, requiring all distribution utilities to procure power supply agreements exclusively through a CSP. The ERC provisionally approved the parties' PPTA in 2017 and extended that approval in 2018.

In 2019, however, the Supreme Court decided Alyansa Para Sa Bagong Pilipinas, Inc. v. ERC, requiring compliance with CSP requirements for all power supply agreement applications filed with the ERC on or after June 30, 2015. Following this ruling, the ERC ordered PSFI and ASELCO to comply with CSP requirements and submit a DOE certification within 90 days. When they failed to do so, the ERC dismissed their application with prejudice and ordered them to stop implementing the PPTA.

The Issue

The sole issue was whether the ERC committed grave abuse of discretion in dismissing the application for failure to comply with CSP requirements.

The Ruling: CSP Requirements Apply to Applications Filed After June 30, 2015

The Supreme Court upheld the ERC's dismissal, rejecting PSFI's arguments on several grounds.

First, the Court clarified that the CSP requirement is prospective, not retroactive. It applies to power supply agreement applications submitted to the ERC on or after June 30, 2015—the effectivity date of the 2015 DOE Circular. The Second PPTA was filed on April 28, 2016, well after this date.

Second, the Court rejected the argument that the arrangement was a Build-Operate-Transfer (BOT) agreement exempt from CSP. Under Republic Act No. 6957, a BOT requires transfer of the facility to a government agency or local government unit. Since ASELCO is a private electric cooperative, not a government entity, the arrangement was simply a bilateral contract between two private parties.

Third, the Court held that contractual and property rights are not absolute. While contracts bind the parties, no stipulation may contradict law, morals, good customs, public order, or public policy. The CSP requirements serve the public interest in ensuring transparent, competitive, and affordable electricity prices.

Fourth, the Court rejected the ex-post facto law argument, noting that this constitutional prohibition applies only to penal laws. The DOE Circulars are regulatory, not criminal, in nature.

The Court's Practical Clarification

Significantly, the Court acknowledged that the parties executed the Second PPTA on December 8, 2014—before the 2015 DOE Circular took effect. The Court found it unreasonable for the ERC to require specific CSP compliance in the application three years after granting provisional approval. However, this did not save the petition because the application was filed after the June 30, 2015 cutoff. The Court also noted that PSFI failed to implead ASELCO as an indispensable party, which was fatal to the petition.

Practical Takeaways

• Power supply agreements filed with the ERC on or after June 30, 2015 must comply with the CSP requirements under the 2015 and 2018 DOE Circulars, regardless of when the underlying contract was executed.
• Contracting parties cannot rely on the timing of contract execution alone; the date of filing with the ERC is the controlling factor for CSP compliance.
• Exemptions from CSP requirements are strictly construed and must be obtained from the DOE through a Certificate of Exemption—they cannot be presumed.
• Private electric cooperatives are not government entities for purposes of BOT arrangements under RA 6957.
• When challenging ERC orders, all indispensable parties must be impleaded, and the proper remedy is generally an appeal under Rule 43 of the Rules of Court, not certiorari.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.