Expropriation in Energy Disputes

Last week, I wrote about a big energy fight in Iloilo over who has the right to distribute electricity there. On one hand, this looks like a narrow dispute between Panay Electric Company (PECO) and MORE Power Electric Corp over who should be holding a franchise. A deeper analysis however yields the conclusion that critical policy issues are at stake here. This come from two sections of R.A. 11212, Section 10, that delegate the power of eminent domain to MORE with respect to its power generation operations in Iloilo. Section 17 likewise allows MORE to take over by expropriation the existing distribution system in Iloilo City.

The policy issue is: May the distribution assets of the company whose franchise has expired, be acquired by a new distribution facility with the new franchise, through expropriation, to ensure the continuous and uninterrupted service in the area?

According to reports, MORE argues that the power distribution in Iloilo City is a public utility asset designed and intended to serve only the community and end users in Iloilo. Under the Electric Power Industry Reform Act (EPIRA), that only public utilities with a franchise can operate the Iloilo power distribution system, which the Panay Electric Company, Inc. (PECO) could no longer do since it has no franchise. MORE argues that Congress granted MORE express authority under secs. 10 and 17 of R.A. 11212 to expropriate the assets which form part of the distribution system of Iloilo.

MORE denies that it was given unwarranted benefits by the franchise law as against other distribution utilities because it was given authority to expropriate the assets of PECO; this provision for take-over is the solution by Congress to ensure the continued and uninterrupted supply of electricity in the service area.

PECO’s main counter-argument hinges on the theory that R.A. 11212 is a franchise that enables a mining corporation—with absolutely no experience in power distribution and zero assets and infrastructure to distribute electricity—to be the sole power distribution utility in Iloilo City. With no experience or expertise, to render public service, MORE relies solely on another’s merit—PECO’s assets, business, and century’s worth of experience and hard work.

First, PECO’s rights to property, due process and against unlawful taking exist independently of any franchise that may be granted by Congress. Indeed, PECO needs no franchise to demand the protection of its rights. It must be noted that more than half year after having been given a franchise, MORE has yet to install a single electric pole; but instead, it is devoting much of its time, not to build, but to take over the facilities owned by PECO.

Second, PECO, citing its own support in jurisprudence, insists that taking private property for the same public purpose is not the taking contemplated by the Constitution that would warrant the exercise of eminent domain. In its petition, MORE fails to address the lack of public use to satisfy the constitutional due process requirement for a valid expropriation. In principle, no private property for public use can be expropriated for the same use because no public use or necessity could be served by such taking.

Third, the property to be expropriated by MORE will be used to serve the same public purpose and therefore it will serve no public necessity. What it will do is to serve a private purpose by benefiting MORE in forcing the transfer of PECO’s assets.

Fourth, sections 10 and 17 violate PECO’s right to substantive due process. In essence, the franchise law is a piece of legislation that grants MORE the right to take over PECO’s business by seizing its assets under the veil of expropriation.

Fifth, the grant of power in section 10, R.A. 11212, is patently overly-broad and confiscatory. The grant of authority to expropriate is unusual compared to other franchises of other distribution utilities. It contains inclusions not usually found in other franchises of the same class. Indeed, there is violation of substantial due process when private property in taken from one private person to give to another person for the latter’s benefit.

I do not take a position between these two private companies. That is their business. But as a scholar and policy expert on energy, my concern is that of energy security and access and good electricity governance. At the heart of any energy fight must be upholding public interest and public welfare, in this case what is good for the people of Iloilo City. Allowing MORE, a company with little experience and competence, to take over the assets of a utility that has fulfilled its mandate for decades certainly does not benefit the public. That is why PECO retains the loyalty and support of Ilonggos.

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