In Zambales II Electric Cooperative, Inc. (ZAMECO II) Board of Directors vs. Castillejos Consumers Association, Inc. (CASCONA), the Supreme Court held that the National Electrification Administration (NEA) retains regulatory authority over electric cooperatives until they fully comply with conversion requirements under the Electric Power Industry Reform Act (EPIRA) and the Philippine Cooperative Code, despite registration with the Cooperative Development Authority (CDA). This means that electric cooperatives must adhere to specific procedures, including a referendum of members, to validly transfer regulatory oversight from the NEA to the CDA or SEC. The decision reinforces the NEA’s supervisory powers and underscores the importance of strict compliance with statutory conversion processes for electric cooperatives seeking autonomy.

From NEA Oversight to Cooperative Freedom: The Battle for ZAMECO II’s Regulatory Independence

This case revolves around the struggle for regulatory control over Zambales II Electric Cooperative, Inc. (ZAMECO II). The central question is whether ZAMECO II’s registration with the Cooperative Development Authority (CDA) effectively ousted the National Electrification Administration (NEA) of its jurisdiction, particularly regarding disciplinary actions against the cooperative’s board of directors. This issue highlights the complex interplay between different government agencies and the statutory requirements governing the transition of electric cooperatives in the Philippines.

The factual backdrop begins with a letter-complaint filed by Castillejos Consumers Association, Inc. (CASCONA) with the NEA, seeking the removal of ZAMECO II’s board members. This complaint was based on a financial audit report citing irregularities. The NEA, acting on the complaint, issued a resolution removing the board members. Petitioners argued that the NEA’s jurisdiction over electric cooperatives originated from loans extended by the NEA. They contended that Republic Act (R.A.) No. 9136, also known as the “Electric Power Industry Reform Act of 2001”(EPIRA), effectively abrogated the NEA’s power to supervise and control electric cooperatives after it transferred to the Power Sector Assets and Liabilities Management Corporation (PSALM) all outstanding financial obligations of electric cooperatives to the NEA. Moreover, the NEA, in its decision, relied on an audit report that was not part of the original complaint, leading to claims of denial of due process.

The case then took a significant turn when ZAMECO II registered with the CDA. The cooperative argued that this registration transferred regulatory authority from the NEA to the CDA, thus nullifying the NEA’s earlier decision. The NEA, however, contested the validity of this registration, arguing that ZAMECO II failed to comply with the EPIRA’s formal conversion requirements. The Court of Appeals initially sided with the NEA, affirming its jurisdiction and the validity of its actions against the board members.

The Supreme Court, in its March 13, 2009 decision, initially denied the petition, affirming the NEA’s regulatory power. However, recognizing the potential impact of ZAMECO II’s registration with the CDA, the Court remanded the case to the Court of Appeals to determine whether the cooperative had complied with the necessary procedures for conversion under the EPIRA. The Court emphasized that the validity of ZAMECO II’s registration with the CDA was a factual question that needed resolution to ascertain the NEA’s continued jurisdiction.

Following the remand, the Court of Appeals submitted a report finding that ZAMECO II’s registration with the CDA did not comply with the referendum requirement under the EPIRA’s Implementing Rules and Regulations (IRR). This finding became crucial in the Supreme Court’s final resolution of the case. The absence of a referendum meant that ZAMECO II had not obtained the required simple majority vote to validly convert into either a stock cooperative or a stock corporation.

The Supreme Court’s analysis hinged on several key legal principles. First, the Court affirmed the NEA’s creation and disciplinary jurisdiction over electric cooperatives, rooted in its power of supervision and control under Presidential Decree (P.D.) No. 269, as amended by P.D. No. 1645. These decrees grant the NEA broad powers to issue orders, conduct investigations, and impose disciplinary sanctions on the board of directors of regulated entities.

The Court also addressed the impact of the Cooperative Code and the establishment of the CDA. While these developments transferred the registration functions of electric cooperatives to the CDA, they did not automatically divest the NEA of its regulatory jurisdiction. The Cooperative Code itself explicitly stated that nothing in the Code should be interpreted as amending or repealing any provision of P.D. No. 269.

The enactment of the EPIRA in 2001 introduced further complexities. The EPIRA allowed electric cooperatives to convert into either a stock cooperative under the Cooperative Code or a stock corporation under the Corporation Code. However, this conversion required the approval of a simple majority in a referendum. Crucially, the Supreme Court found that ZAMECO II failed to observe this requirement, as the petitioners themselves admitted.

The petitioners also argued that Republic Act No. 9520, which amended the Cooperative Code, effectively recognized electric cooperatives as registered if they had previously registered with the CDA, without needing to convert into stock cooperatives. The Court rejected this argument, emphasizing that the law must be construed as a whole. It found that the Philippine Cooperative Code of 2008 continued the requirement for a referendum before an electric cooperative could be registered with the CDA and be entitled to the provisions of the Cooperative Code.

The Court emphasized that repeals by implication are not favored and that an implied repeal will not be allowed unless it is convincingly and clearly demonstrated that the two laws are clearly repugnant and patently inconsistent with each other that they cannot co-exist. The Supreme Court also judicially noticed that on February 4, 2013, Congress enacted R.A. No. 10531, known as the National Electrification Administration Reform Act of 2013. The Supreme Court notes that R.A. No. 10531 expressly provides that the NEA’s power of supervision applies whether an electric cooperative remains as a non-stock cooperative or opts to register with the CDA as a stock cooperative.

The Supreme Court ultimately denied the petition, holding that ZAMECO II’s registration with the CDA did not operate to oust the NEA of its jurisdiction because the petitioners failed to comply with the statutory requirement of conversion outlined under the EPIRA. The cooperative could not claim valid conversion under the Cooperative Code because the period to qualify and register under those laws had already lapsed. Thus, the lack of proper registration with the CDA justified the NEA’s continued exercise of jurisdiction over the petitioners.

FAQs

What was the key issue in this case?	The key issue was whether ZAMECO II’s registration with the CDA ousted the NEA of its jurisdiction to discipline the cooperative’s board of directors. This hinged on whether ZAMECO II complied with the requirements for conversion under the EPIRA and Cooperative Code.
What is the NEA’s role in regulating electric cooperatives?	The NEA has broad powers of supervision and control over electric cooperatives, including the power to conduct investigations and impose disciplinary sanctions. These powers are rooted in P.D. No. 269 and P.D. No. 1645, which grant the NEA authority to ensure the proper management and operation of electric cooperatives.
What is the significance of registering with the CDA?	Registration with the CDA can, under certain conditions, transfer regulatory authority away from the NEA. However, this transfer is contingent on strict compliance with statutory requirements, including a referendum of members and obtaining a simple majority vote.
What is a referendum, and why is it important in this context?	A referendum is a vote by the members of an electric cooperative on a significant issue, such as conversion to a stock cooperative or corporation. It is important because it ensures that the decision is made democratically and reflects the will of the cooperative’s members.
Did ZAMECO II comply with the referendum requirement?	No, the Court of Appeals found that ZAMECO II’s registration with the CDA did not comply with the referendum requirement under the EPIRA’s IRR. This was a critical factor in the Supreme Court’s decision to uphold the NEA’s jurisdiction.
What is the EPIRA, and how does it affect electric cooperatives?	The EPIRA is the Electric Power Industry Reform Act of 2001, which instituted reforms in the electric power industry. It allowed electric cooperatives to convert into either a stock cooperative or a stock corporation, but this conversion required compliance with specific procedures.
What is the Philippine Cooperative Code of 2008, and what changes did it introduce?	The Philippine Cooperative Code of 2008 (R.A. No. 9520) amended the Cooperative Code and included a new chapter specifically applicable to electric cooperatives. However, the Supreme Court clarified that this Code did not eliminate the requirement for a referendum before registration with the CDA.
What are the practical implications of this ruling for other electric cooperatives?	This ruling reinforces the importance of strict compliance with statutory conversion processes for electric cooperatives seeking autonomy from the NEA. It clarifies that registration with the CDA alone is not sufficient to transfer regulatory authority; the cooperative must also adhere to the specific requirements outlined in the EPIRA and the Cooperative Code.
What is R.A. No. 10531?	R.A. No. 10531, known as the National Electrification Administration Reform Act of 2013, was enacted to strengthen the NEA and empower electric cooperatives. It expressly provides that the NEA’s power of supervision applies whether an electric cooperative remains as a non-stock cooperative or opts to register with the CDA as a stock cooperative.

The ZAMECO II case serves as a clear reminder of the complex regulatory landscape governing electric cooperatives in the Philippines. It underscores the need for these cooperatives to navigate the statutory requirements carefully to achieve their desired level of autonomy while ensuring accountability and transparency. The NEA will retain regulatory power unless a formal referendum is properly held.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Zambales II Electric Cooperative, Inc. (ZAMECO II) Board of Directors vs. Castillejos Consumers Association, Inc. (CASCONA), G.R. Nos. 176935-36, October 20, 2014