ZAMBALES II ELECTRIC COOPERATIVE, INC. (ZAMECO II) BOARD OF DIRECTORS, NAMELY, JOSE S. DOMINGUEZ (PRESIDENT), ISAIAS Q. VIDUA (VICE-PRESIDENT), VICENTE M. BARRETO (SECRETARY), J…

Zambales II Electric Cooperative versus Dominguez

The Case

This is a petition for review on certiorari filed by the members of the Board of Directors of Zambales II Electric Cooperative, Incorporated, known as ZAMECO II, against the National Electrification Administration, the NEA, and the Castillejos Consumers Association, Incorporated, known as CASCONA. The petitioners ask the Supreme Court to reverse the decision of the Court of Appeals which affirmed the NEA resolution and decision removing them from office with perpetual disqualification, and which upheld the NEA order designating a project supervisor for the cooperative. The case matters because it settles the boundary between two regulators: it defines how far the NEA's supervisory and disciplinary power over electric cooperatives survives the Cooperative Code, the Electric Power Industry Reform Act of 2001, and the Philippine Cooperative Code of 2008, and it fixes what an electric cooperative must actually do before it can escape the NEA's disciplinary reach by registering with the Cooperative Development Authority.

Procedural History

CASCONA filed a letter-complaint with the NEA seeking the removal of the petitioners from the board of directors. The complaint was endorsed to the NEA Office of the Administrative Committee, which conducted proceedings and recommended removal. The NEA then issued its resolution of November 24, 2004 removing the petitioners from office with the accessory penalty of perpetual disqualification, and it directed the designation of a project supervisor to manage the cooperative until a new board was elected. The petitioners moved for reconsideration, raising denial of due process because they had never been notified of charges based on a later audit report, but the NEA denied the motion in its decision of February 15, 2005.

The petitioners went to the Court of Appeals twice: first by a petition for review under Rule 43 against the NEA resolution and decision, and second by a special civil action for certiorari under Rule 65 against the NEA office order designating the project supervisor. The Court of Appeals consolidated the two cases and, on October 4, 2006, denied both petitions and affirmed the NEA issuances. It denied the petitioners' motion for reconsideration, so the petitioners elevated the matter to the Supreme Court by a petition for review under Rule 45.

On March 13, 2009, the Supreme Court denied the petition for lack of merit. It held that the NEA's regulatory power does not depend on any creditor-debtor relationship, and that the petitioners had indeed been denied due process as to the later audit report, but it refused to nullify the entire proceedings because substantial evidence supported the other allegations in the complaint. Because the validity of ZAMECO II's registration with the Cooperative Development Authority was a factual question, the Court remanded the case to the Court of Appeals to determine whether the conversion procedure under the Electric Power Industry Reform Act of 2001 and its implementing rules had been complied with. The Court denied the petitioners' motion for partial reconsideration, issued an entry of judgment, then recalled that entry of judgment on February 3, 2010 upon finding that its decision was interlocutory, since something still had to be done by the Court of Appeals. On March 25, 2010, the Court of Appeals submitted its compliance report, which the Court noted, and the case was then fully resolved.

Facts

ZAMECO II is an electric cooperative organized and registered under Presidential Decree Number 269. The petitioners were members of its board of directors. CASCONA, an organization of electric consumers within the cooperative's coverage area in Castillejos, Zambales, filed a letter-complaint with the NEA on November 21, 2002, seeking the removal of the petitioners from the board based on the NEA's financial audit report covering the period from January 1, 1989 to September 30, 1997. The NEA endorsed the complaint to its administrative committee, which conducted proceedings and recommended removal.

On November 24, 2004, the NEA issued its resolution removing the petitioners from office with perpetual disqualification to run for the same position, and it urged the designation of a project supervisor to manage the cooperative until a new board was elected and constituted. In reaching its conclusion, the NEA relied on a July 24, 2003 audit report that had never been part of the letter-complaint or of the proceedings before the administrative committee. The petitioners moved for reconsideration on due process grounds, and the NEA denied the motion on February 15, 2005. The NEA also designated a project supervisor by office order.

While the case was pending, ZAMECO II registered with the Cooperative Development Authority on December 4, 2007, and the petitioners claimed this registration ousted the NEA of jurisdiction. The NEA countered that the registration was invalid because the cooperative had not complied with the conversion requirements of the Electric Power Industry Reform Act of 2001. On remand, the Court of Appeals found that no referendum had been conducted and no simple majority vote obtained, and that the registration therefore did not comply with the law. Counsel for the petitioners himself admitted during the proceedings that there was no referendum and no simple majority vote.

Issues

• Whether or not the NEA retains regulatory and disciplinary jurisdiction over electric cooperatives despite the passage of the Electric Power Industry Reform Act of 2001 and the transfer of the cooperatives' financial obligations to the Power Sector Assets and Liabilities Management Corporation.
• Whether or not the enactment of the Cooperative Code and the law creating the Cooperative Development Authority divested the NEA of its control over electric cooperatives.
• Whether or not ZAMECO II's registration with the Cooperative Development Authority in December 2007 was valid and operated to oust the NEA of jurisdiction over the petitioners.
• Whether or not the Philippine Cooperative Code of 2008 impliedly repealed the NEA's disciplinary powers and dispensed with the referendum requirement for registration.

Applicable Provisions

Section 10 of Presidential Decree Number 269, as amended by Presidential Decree Number 1645, provides:

Section 10. Enforcement Powers and Remedies. In the exercise of its power of supervision and control over electric cooperatives and other borrower, supervised or controlled entities, the NEA is empowered to issue orders, rules and regulations and motu-propio or upon petition of third parties, to conduct investigations, referenda and other similar actions in all matters affecting said electric cooperatives and other borrower, or supervised or controlled entities. If the electric cooperative concerned or other similar entity fails after due notice to comply with the NEA orders, rules and regulations and/or decisions, or with any of the terms of the Loan Agreement, the NEA Board of Administrators may avail of any or all of the following remedies: (e) Take preventive and/or disciplinary measures including suspension and/or removal and replacement of any or all of the members of the Board of Directors, officers or employees of the Cooperative, other borrower institutions or supervised or controlled entities as the NEA Board of Administrators may deem fit and necessary and to take any other remedial measures as the law or the Loan Agreement may provide.

This is the source of the NEA's power to remove the petitioners from the board.

Section 24 of Presidential Decree Number 269, as amended by Presidential Decree Number 1645, provides:

Section 24. Board of Directors. (a) The Management of a Cooperative shall be vested in its Board, subject to the supervision and control of the NEA which shall have the right to be represented and to participate in all Board meetings and deliberations and to approve all policies and resolutions.

This places the board of directors itself under the NEA's supervision and control.

Section 128 of the Cooperative Code provides:

Section 128. Transitory Provisions. All cooperatives registered under Presidential Decrees Nos. 175 and 775 and Executive Order No. 898, and all other laws shall be deemed registered with the Cooperative Development Authority: Provided, however, That they shall submit to the nearest Cooperative Development Authority office the certificate of registration, copies of the articles of cooperation and by-laws and their latest duly audited financial statements within one (1) year from the effectivity of this Act, otherwise their registration shall be cancelled: Provided further, That cooperative created under Presidential Decree No. 1645, shall be given three (3) years within which to qualify and register with the Authority: Provided finally, That after these cooperatives shall have qualified and registered, the provisions of Sections 3 and 5 of Presidential Decree No. 1645 shall no longer be applicable to said cooperatives.

This fixes the three-year period within which ZAMECO II had to qualify and register to leave the NEA's coverage.

Section 57 of the Electric Power Industry Reform Act of 2001 provides:

Section 57. Conversion of Electric Cooperatives. Electric cooperatives are hereby given the option to convert into either stock cooperative under the Cooperatives Development Act or stock corporation under the Corporation Code. Nothing contained in this Act shall deprive electric cooperatives of any privilege or right granted to them under existing laws, particularly those under the provisions of Republic Acts No. 6938, 7160 and 8241.

This grants the option to convert, which the petitioners failed to exercise properly.

Rule 7, Section 7, paragraph c, subparagraph i of the implementing rules of the Electric Power Industry Reform Act of 2001 provides:

Electric Cooperatives shall, upon approval of a simple majority of the required number of turnout of voters as provided in the Guidelines in the Conduct of Referendum, in a referendum conducted for such purpose, be converted into a Stock Cooperative or Stock Corporation and thereafter shall be governed by the Cooperative Code of the Philippines or the Corporation Code, as the case may be. The NEA, within six (6) months from the effectivity of these Rules, shall promulgate the guidelines in accordance with Section 5 of Presidential Decree No. 1645.

This is the referendum requirement that the Court of Appeals found had not been complied with.

Article 127 of the Philippine Cooperative Code of 2008 provides:

Article 127. Registration of Electric Cooperatives. The registration of an electric cooperative with the Authority under this Code shall be submitted for approval to the members through a referendum, called for the purpose as provided for under Articles 183 and 129 of this Code.

This shows that the new law continued, rather than removed, the referendum requirement.

Article 128 of the Philippine Cooperative Code of 2008 provides:

Article 128. Voting Requirement for Registration. In compliance with the referendum as a voting procedure, the required number of votes for registration with the Authority shall be twenty percent of all members in good standing.

This supplies the voting threshold that the petitioners never met.

Ruling

On the first issue, the Court held that the NEA's regulatory power over electric cooperatives does not depend on the existence of any creditor-debtor relationship. The creation of the Power Sector Assets and Liabilities Management Corporation and its assumption of the cooperatives' outstanding obligations did not remove the NEA's power over administrative cases involving boards of directors, officers, and employees. The Court quoted the last paragraph of Section 58, Chapter VII of the Electric Power Industry Reform Act of 2001:

the NEA shall continue to be under the supervision of the Department of Energy and shall exercise its functions under Presidential Decree No. 269, as amended by Presidential Decree No. 1645 insofar as they are consistent with this Act.

The Court added that the Energy Regulatory Commission's jurisdiction is highly technical, while the NEA's is largely administrative, so the two are not inconsistent.

On the second issue, the Court held that the Cooperative Code and the law creating the Cooperative Development Authority did not automatically divest the NEA of control. The transfer of registration functions did not amount to renunciation of regulatory jurisdiction, and the Cooperative Code itself cautioned that nothing in it shall be interpreted to mean the amendment or repeal of any provision of Presidential Decree Number 269. Registration within three years from April 1, 1990 was essential to place a cooperative outside NEA coverage, and ZAMECO II registered only on December 4, 2007, seventeen years after the period began.

On the third issue, the Court held that the December 2007 registration did not oust the NEA of jurisdiction, because the petitioners failed to comply with the statutory requirement of conversion. The Court relied on the admission of the petitioners' own counsel that there was no referendum and no simple majority vote. A successful conversion, the Court explained, would place the cooperative outside the NEA's disciplinary jurisdiction and within the coverage of the Cooperative Development Authority or the Securities and Exchange Commission, but no such conversion took place.

On the fourth issue, the Court held that there was no implied repeal. A law must be construed as a whole, and the supposed inconsistency between the Electric Power Industry Reform Act of 2001 and the Philippine Cooperative Code of 2008 is more apparent than real. Far from dispensing with conversion, the new Code expressly required a referendum and a voting threshold of twenty percent of all members in good standing, and even required a board resolution certifying the result of that vote as a document for registration. The continued recognition of the referendum requirement spoke loudly against the claimed repeal.

Doctrine

First, the NEA's power of supervision and control over electric cooperatives, including the power to suspend or remove members of the board of directors, officers, and employees, is not dependent on any creditor-debtor relationship and is not withdrawn by the transfer of the cooperatives' financial obligations to another entity.

Second, the transfer of registration functions to the Cooperative Development Authority does not divest the NEA of regulatory and disciplinary jurisdiction; an electric cooperative organized under Presidential Decree Number 269 must qualify and register within three years from the effectivity of the Cooperative Code and the law creating the Authority to leave the NEA's coverage.

Third, a successful conversion under Section 57 of the Electric Power Industry Reform Act of 2001 requires approval of a simple majority of the required number of turnout of voters in a referendum conducted for the purpose; absent that referendum and vote, a certificate of registration issued by the Cooperative Development Authority does not operate to oust the NEA of jurisdiction.

Fourth, implied repeal is not favored. A statute must be construed as a whole, and the Philippine Cooperative Code of 2008, by retaining the referendum requirement in