TATAD v. SECRETARY OF DEPARTMENT OF ENERGY
Controls on the price of oil and the foreign exchange
FACTS:
Petitioners assail the constitutionality of R.A. 8180 also known as
An Act Deregulating the Downstream Oil Industry and For Other
Purposes. It ends 26 years of government regulation of the
downstream oil industry.
History:
a. Prior to 1971, no government agency regulates the oil industry
other than those dealing with ordinary commodities. Oil
companies are free to enter and exit the market without
government interference.
b. In 1971, the country experienced an oil crisis. The government
enacted the Oil Industry Commission Act (OIC Act) to regulate
the petroleum product industry.
i. Marcos created the Philippine National Oil Corporation
(PNOC) to break the control by foreigners of our oil
industry. Filipino presence was felt in the Philippine oil
market for the first time.
c. In 1984, Marcos created the Oil Price Stabilization Fund (OPSF)
to cushion effects of frequent price changes of oil.
d. In 1985, only three companies were operating in the country
Caltex, Shell, and PNOC (government-owned).
e. In 1987, Aquino created the Energy Regulatory Board.
f. In 1992, RA 7638 created Department of Energy.
i. Main thrust of the program was toward
privatization of energy-related government
agencies, deregulation of power and energy
industry and reduction of dependency on oil-fired
plants.
ii. To encourage free and active participation and
investment by the private sector.
In 1996, the Congress enacted RA 8180, Downstream Oil Industry
Deregulation Act of 1996. The deregulation process has two phases:
a. Transition phase
i. Controls of the non-pricing aspects of the industry
were to be lifted.
ii. Liberalization of oil importation, exportation,
manufacturing, marketing, distribution
iii. Automatic pricing mechanism
iv. Automatic formula for margins and rates
b. Full deregulation phase
i.
cover were to be lifted and the OPSF was to be
abolished.
The president implemented the deregulation act through EO 372.
Petitioners assail the constitutionality of various provisions of RA
8180 and EO 372.
a. Section 5 of RA 8180: imposition of tariff rates violates the
equal protection clause.
b. Section 15 of RA 8180 violates the undue delegation of
legislative power.
i. Section 15 does not provide a determinate standard
to guide the executive branch in determining when
to implement the full deregulation of downstream
oil industry.
ii. It does not provide standard to determine when
prices of crude oil in the world market are
considered to be declining
c. EO 392 is arbitrary and unreasonable because it was enacted
due to the alleged depletion of the OPSF fund.
Petitioners contend that section 15 of RA 8180 and EO 391 allow for
the formation of a de facto cartel among three existing oil companies
Petron, Caltex, and Shell in violation of the constitutional
prohibition against monopolies.
Respondents contention:
a. Issues raised are not justiciable
b. Petitioners have no locus standi
Court ordered private respondent oil companies to maintain status
quo, to cease and desist from increasing the prices for 30 days.
ISSUES
PROCEDURAL
1. WON the petitions raised a justiciable controversy YES
a. RATIO: grave of abuse of discretion and issues of
constitutionality
2. WON petitioners have local standi YES
a. RATIO: issue of constitutionality is of transcendental
importance
b.
SUBSTANTIVE
WON RA 8180 and EO 392 violates:
a. One-title-one subject requirement of the Constitution
b. Equal protection clause
c. Prohibition on undue delegation of power
d. Prohibition against monopolies and unfair competition
HELD and RATIO
RA AND EO DECLARED UNCONSTITUTIONAL
One-title-one subject requirement of the Constitution
1. NO. It does not violate.
2. Section 5(b) providing for tariff differential is germane to the subject
of RA 8180 which is the deregulation of the downstream oil
industry.
3. The section is supposed to encourage prospective investors to put
up refineries in our country and make them rely less on imported
petroleum. (supposed will be further discussed in the fourth
substantive issue, (does it really encourage? Actually, it blocks new
entrants )
Equal protection clause
the assailed tariff differential is likewise not violative of the equal protection
clause of the Constitution. It is germane to the declared policy of Republic
Act No. 8180 which is to achieve (1) fair prices; and (2) adequate and
continuous supply of environmentally-clean and high-quality petroleum
products.
Prohibition on undue delegation of power (RA and EO do not violate)
Petitioners assail section 15 because it does not provide a determinate
standard to guide the executive branch in determining when to implement
the full deregulation of downstream oil industry.
1. The phrases as far as practicable, decline of crude oil process
and stability of peso exchange rate are unclear.
SUPREME COURTS DISCUSSION
1. Congress has the power to delegate execution of laws.
a. The true distinction is between the delegation of power to
make law, which necessarily involve a discretion as to what
it shall be, and conferring authority or discretion as to its
execution, to be exercised under and in pursuance of the
law. The first cannot be done, to the latter no valid objection
can be made. (Justice Moreland, 1916)
2. Two tests to determine valid delegation of legislative power
(Eastern Shipping Lines v. POEA)
a. Completeness test (CT) complete in all terms and
conditions that when it reaches the delegate, the only thing
he will do is to enforce it.
b. Sufficient standard test (SST) there must be adequate
guidelines or limitations to map out the delegates authority
3. Applying the test, :
a. CT - The law is complete on the question of the final date of
full deregulation
b. SST -The Executive Department in issuing EO 392 failed to
follow the standards set by RA 8180 when it considered the
extraneous factor of depletion of the OPSF fund. It rewrote
RA 8180 in considering another factor to hasten full
deregulation.
Prohibition against monopolies and unfair competition
1. Petitioners contend that some provisions of the RA 8180 violate
section 19 of Article XII of the Constitution that states that The State
shall regulate or prohibit monopolies when public interest so
requires. No combinations in restraint of trade or unfair competition
be allowed. The following provisions are argued to be discouraging
new entrants for thei ndustry allowing for monopolization of
products:
a. Section 5b of RA 8180: tariff differential
b. Section 6 of RA 8180: minimum inventory
c. Section 9b: predatory pricing
2. Respondents argue that:
a. 4% tariff differential encourages new investor
b. 10% of sales minimum inventory guaranty supply
c. Predatory pricing protects prospective entrants
3. SC: The Constitution committed us to a free enterprise system.
4. The provisions inhiit fair competition, encourage monopolistic
power and interfere with free interaction of market forces.
5. Representative Buenaventura: Instead of achieeing the desired
effects of deregulation, that of free enterprise [] ,RA 8180 created
an environment conducive to cartelization, unfavorable, increased
and unrealistic process of petroleum.
OTHER ISSUES
What to be declared unconstitutional, part or the entire RA?
Though it has separability clause, the provisions declared
unconstitutional were the essence of the law. Thus, it is proper to
declare the entirety of the RA unconstitutional and the EO void.
Separation of powers issue
At a time when our economy is in dangerous downspin, the
perpetuation of RA 8180 threatens to multiply the number or our
people with bent backs and begging bowls. RA with its anti-
competition provisions cannot be allowed by Court to stand even
while the Congress is working to remedy the defects.
Reviving former laws repealed by RA 8180
It depends on Congress which can fast-track the writing of a new
law on oil deregulation in accord with the constitution
Plea of the companies to lift the TRO to enable them to adjust prices in view of the
plummeting value of peso
 Plea to be addressed by the Energy Regulatory Board
Conclusion
Striking down the RA may cost losses in quantifiable terms to the oil
oligopolist. But the loss in tolerating the tampering of our
Constitution is not quantifiable in pesos or centavos. More worthy of
protection than supra-normal profits of private corporations is the
sanctity of the fundamental principles of the Constitution.
It depends on Congress which can fast-track the writing of a new
law on oil deregulation in accord with the constitution
NOTES
Monopoly a privilege or advantage vested in one or more persons or
companies, consisting right or power to carry on a particular business or
trade, [] or control the sale or the whole supply of a particular commodity
OPINIONS
J.Kapunan Separate Opinion
Declare EO and RA unconstitutional
1. The Court has bounden duty to decide all cases involving
constitutionality of laws.
2. The objective of the deregulation law is:
To foster a truly competitive market which can better achieve the
social policy objectives of fair prices and adequate, continuous
supply of environmentally-clean and high quality petroleum
products.
a. Free competitios defined as the act of seeking to gain what
another is seeking to gain [] under fair or equitable rules
[] among individuals of relatively equal standing
b. Free market inclusive of an oil industry conducive to the
entry of new and several oil companies in the business.
c. This is for better quality products and competitive prices
3. 4% Tariff differential is an essential barrier to entry
a. New entrants would have higher production costs because
they would have to import products at 7% tariff while
existing companies at 3% tariff.
b. Respondents argument that they can still generate desired
IRR and NPV is SPECULATIVE.
4. 10% of sales, minimum inventory requirement and predatory pricing
a. Same rationale as tariff differential
b. High costs for new entrants
5. But in the midsts of worsening economic difficulties and hardships
suffered by the people, [] is it fair and decent for companies not to
bear a bit of a burden by foregoing a little of their profits?
J. Panganiban Concurring Opinion
Declare EO and RA unconstitutional
1. Everyone, rich or poor, must share in the burdens of economic
dislocation.
a. The poor, the underprivileged proportionately suffer more
than any other sector of society.
b. There is a certain threshold which the disadvantaged cannot
endure.
c. At sa mga mangangalakal na ganid at walang puso, hirap
na hirap nap o ang ating mga kababayan. Makonsensya
naman kayo!
J. Melo Dissenting Opinion
EO and RA should not be struck down
1. Petition do not raise a justiciable controversy. Issues raised pertains
to the wisdom and reasonableness of the provisions of the assailed
law. It is within the province of the political departments of the
government.
a. Petitioners do not have locus standi. The existence of a
constitutional issue does nor per se confer a legislator with
locus standi
2. Section 5b of RA 8180 is not violative of one-title-one subjectrule.
3. Section 15 of RA 8180 does not constitute undue delegation of
legislative power.
a. The assailed law satisfies the completeness test.
i. It is complete and leaves nothing more for the
Executive to do but to enforce them
b. Congress may validly provide that a statute shall take effect
or operation shall be revived or suspended or shall terminate
upon the concurrence of certain events.
i. A contingent legislation may be issued by the
Executive pursuant to a delegation of authority to
determine some fact or state of things upon which
the enforcement depends.
ii. What the delegate performs is a matter of detail
whereas the statute remains complete in all essential
matters.
c. The law satisfies the sufficient standard test.
i. The words practicable, declining, and stable,
are sufficient standards that map out the boundaries
of the delegates authority.
4. RA is not violative of the constitutional prohibition against
monopolies, combinations in restraint of trade, and unfair
competition.
 a. Not a losing proposition for new entrants
b. New entrants can still generate desired IRR and NPV
notwithstanding the imposition of a higher tariff rate.
c. Minimum inventory requirement is for security and
continuity of supply.

J. Francisco Dissenting Opinion

EO and RA should not be struck down
1. The settled rule is that the legislative department may not delegate
its power.
2. The discretion to ascertain when may the prices of crude oil in the
world market be deemed declining or when may the peso-dollar
exchange rate be considered stable relates to assessment of facts.
There is nothing legislative is ascertaining facts.