In ILECO v. Executive Secretary (G.R. No. 264260, July 30, 2024), the Court En Banc ruled that Section 11, Article XII of the Constitution expressly prohibits exclusive franchises.
A franchise, the Court held, is a privilege granted by the State —not the private property of the franchisee — and it must yield to the common good.
Congress can expand a competitor’s franchise into an existing utility’s territory, as it did when it extended MORE Electric’s coverage into ILECO’s areas in Iloilo, precisely because competition serves consumers better than monopoly does.
This ruling has implications that go well beyond the Iloilo dispute.
Non-wires are the next franchise challenger
When a microgrid, battery storage system, or distributed solar installation meets a customer's electricity needs without using a distribution utility's lines and poles, it is functionally doing what a competing franchise holder would do: taking load away from the incumbent utility.
The industry calls this a Non-Wires Alternative (NWA): a 21st-century approach where microgrids, demand-side management, and distributed energy resources substitute for conventional wired infrastructure.
They are, by design, economically superior to traditional infrastructure investments in a growing number of situations—faster to deploy, more flexible, and often less expensive.
Under the logic of the ILECO ruling, a distribution utility has no constitutional right to prevent this from happening. Its franchise is not a guarantee of market share but a conditional privilege to serve—one that, as the Court noted, Congress established to promote competition and consumer welfare under the Electric Power Industry Reform Act (EPIRA).
So who should bear the stranded cost?
Here is where the current policy consensus falls short. The prevailing approach, embodied in DOE Department Circular No. DC2015-06-0010, requires displaced contract capacity to remain "revenue neutral to the affected DU"—regulatory language that effectively shifts the cost to the customers who remain on the grid.
That means the captive customer — typically the smaller, lower-income, or less mobile consumer who cannot qualify for RCOA, cannot aggregate under RAP, and cannot afford a
microgrid — absorbs the financial consequences of everyone else’s exit.
This is neither fair nor coherent. Non-wires alternatives and market competition do not harm the public; they are precisely the outcomes electricity policy is designed to encourage. Non-wires alternatives can deliver multiple economic benefits through a single solution, often providing better value than conventional wired infrastructure, which typically delivers a single benefit at a higher capital cost.
Penalizing captive customers for a market transformation that broadly benefits consumers places the burden on the wrong party.
Distribution utilities entered the market knowing—or should have known—that their franchises were conditional, their technology finite, and their infrastructure depreciable.
The energy transition has been underway for decades. If a distribution utility signed long-term power supply agreements without adequate hedging, and if its wires infrastructure is now underutilized because customers chose better options that the Constitution and the EPIRA deliberately enabled, that is a business risk the utility assumed—not a public debt captive consumers should bear.
The principle
The Supreme Court was clear: A franchise must yield to the common good. Stranded asset policy should follow the same principle.
When market evolution benefits consumers, the remaining costs of the old model should be borne by the investors who built it—not by customers who never had a choice. —Ed: Corrie S. Narisma
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
