Chapter 19Public Utilities

Public Utility has 2 aspects: Public- it touches the patrons and employees. Private- touches all other member of the community in which it operates. Public use- use by the public. The essential feature is that it is not confined to privilege individuals, but open to indefinite public. It is unrestricted quality that gives it its public character. If the use is merely optional with the owners, or public benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility commission. Public use not synonymous with public interest. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or only by permission. The business and operation of a public utility are imbued with public interest. In a very real sense, a public utility is engaged in public serviceproviding basic commodities and service indispensable to the interest of the general public. For this reason, a public utility submits to regulation of government authorities and surrenders certain business prerogatives, including the amount of rates that may be charged by it. It is an imperative duty of the State to interpose its protective power whenever too much profits become the priority of public utilities. Public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transporatation, telephone or telegraph service. The term implies public use and public service. Public Service includes:Every person that now or hereafter may OWN, OPERATE, MANAGE, or CONTROL in the Philippines, for HIRE or COMPENSATION , with GENERAL or LIMITED CLIENTELE , whether PERMANENT, OCCASSIONAL or ACCIDENTAL and done for GENERAL BUSINESS PURPOSES;Any COMMON CARRIER, RAIL ROAD, Street railway, traction railway, subway motor vehicle , either for freight or passenger, or both without fixed route and whether may be its classification , freight or carrier service of any class , express service , steamboat or steamship line, pontines, ferries, and water craft engaged in transportation of passenger or freight or both, shipyard, marine railways, marine repair shop , wharf, or dock , ice plant , ice refrigeration plant, canal, irrigation system, gas, electric light, heat and power water supply and power , petroleum, sewerage system, wire or wireless communication system, wire or wireless broadcasting stations and other similar public services. Person engaged in agriculture , not otherwise public service, who owns a motor vehicle and uses it personally and or enters into a special contract whereby said motor vehicle is offered for hire or compensation to 3rd party engaged in agriculture not itself or themselves a public service. Water Districts fall under the term public utility because its primary function is to construct, maintain, and operate water reservoir and waterworks for the purpose of supplying water to the inhabitants , as well as to consolidate and centralize all water supplies and drainage system in the Philippines. Law may expressly acknowledge that a particular activity is not a public utility. E.g. RA 9136 or Electric Power Reform Act of 2001 provides that INDEPENDENT POWER PRODUCERS are NOT considered public utilities. CONSTITUTIONAL PROVISIONS: Article XII, Sec 11, Constitution: No franchise , certificate or any other form of authorization for the operation of a public utility shall be granted except : to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60 percentum of whose capital is owned by such citizens; nor shall such FCA be exclusive in character or for a longer period than 50 years; Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment , alteration, or repeal by Congress when common good so requires. Sec. 17: In times of emergency, when public interest so requires , the State may, during the emergency and under reasonable terms, temporarily TAKE OVER or DIRECT the operation of any PRIVATELY OWNED PUBLIC UTILITY or Business affected with public interest. Sec. 18: Interest of national welfare or defense, establish and OPERATES VITAL INDUSTRIES and upon payment of JUST COMPENSATION, TRANSFER to PUBLIC OWNERSHIP UTILITIES and other private enterprise owned by the government. NO MONOPOLIES when PUBLIC INTEREST so requires.

APPLICABLE LAWS: Public Service Act, Commonwealth Act #146 as amended. REGULATORY AGENCIES: The powers of Public Service Commission have been distributed among different agencies.WHAT ARE THE GOVERNMENT AGENCIES THAT REPLACED the Public Service Commission:1. Department of Transportation and Communications other agencies are under this department and it is the agency that issues certificates of public convenience for operation of national railroad carriers.2. Land Transportation Franchising Regulatory Board ( LTFRB)- land transportation3. LTO- registration of drivers and vehicles4. MARINA (Maritime Industry Authority) water transportation.5. Phil. Coast Guard- concerned with the safety in water transportation.6. National Telecommunications Commission- communication utilities and services, radio communications, systems, wire or wireless telephone and telegraph systems, radio and TV broadcasting systems and other similar public utilities7. Energy Regulatory Board- electric or power companies.8. National Water Resources Council- water resources9. Civil Aeronautics Board- air transportation ( its economic aspects).10. CAAP-undertakes the maintenance and operation of airports and other similar facilities : registers aircrafts and other incidents concerning the same and provides safety regulations in air transportation.11. Phil. Ports Authority ( PPA)- wharves and ports.

Bases of Regulation of Public Utilities- POLICE POWER. The regulation is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are considered valid exercise thereof. The exercise of police power is justified because whenever private property is used for public purpose and is affected with public interest , it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote common good. Ownership of public utilities: SUBJECT to Regulation of the State. (Article XII, Sec. 11) Corporation is NOT subject to the 60% Filipino equity requirement if it will just OWN the properties that will be used by another entity which shall operate as public utility. Regulation of Rates: In line with policy of the State to protect the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investments. Thus , the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of property performing the service and one that is reasonable to the to the public for service rendered. The fixing of JUST and REASONABLE interest rates involves a balancing of the investor and the consumer interests.

NON-DELEGATION: Power to fix rates of public utilities is a power has been delegated to regulatory admin agencies. IT CANNOT BE FURTHER DELEGATED.What is the Standard that should be used when an admin body fixes the rates of public utilities?In fixing of rates, the ONLY STANDARD which the legislature is required to prescribe for the guidance of the admin authority is that the rate be reasonable and just. It has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied. What is a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a fair , enlightened and independent judgment. The requirement of reasonableness comprehends such rates which must not be so low as to be CONFISCATORY or TOO HIGH as to be OPPRESIVE. In determining whether a rate is confiscatory , it is essential also to consider the given situation, requirements, and opportunities of the utility.

What are the factors that should be considered in determining the just and reasonable rates? ( For Electric Companies)A. RATE OF RETURN ( Judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public; Not prescribed by statute but by admin and judicial pronouncements. ; B. RATE BASE ( an evaluation of the property devoted by the utility to public service or the value of invested capital or property which the utility is entitled to a return) ; and C. RETURN ITSELF or the computed revenue to be earned by the public utility based on the rate of return and rate base.

Operating Expenses INCLUDED in determination of a JUST and REASONABLE RATE: The principle behind the inclusion is to allow public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof; whether expenses attributable to the production of services by the public utility. To change consumers for expenses incurred by a public utility which are NOT RELATED to the service or benefit derived by the customers from public utility is UNJUSTIFIED and INEQUITABLE. LTFRB adopted 2 methods in RATE determination: a. Straight Method and b. Add-on Method.a.Add on method- is adding the established minimum fare (0.75) to the fare per succeeding kilometer multiplied by the distance travelled in excess of 4km and 5 km. b. Straight Method- process by which the actual distance travelled is multiplied by the authorized fare per succeeding kilometer of 0.25 centavos. PROVISIONAL INCREASE: Admin agency may be empowered by law to approve provisionally when demanded by urgent public need, rates of public utilities WITHOUT hearing. PROVISIONAL RATES are by their nature TEMPORARY and subject to adjustment in conformity with the definitive rates approved after FINAL Hearing. Provisional Rate Increase Under EPIRa: With respect to application for provision rate adjustment, the ff are important requirements:a. Publication of the application itself, not merely a notice of hearing issue By ERC, in a news paper of general circulation of hearing issued by the ERC , in a news paper of general circulation in locality where the applicant operates and;b. The need for ERC to consider the comments or pleadings of the customer and LGU concerned to its action Certificate of Public Convenience (CPC) and Certificate of Public Convenience and Necessity ( CPCN) CPC is distinct from CPCN . The former is any authorization to operate public service issued by Public Service Commission for which NO FRANCHISE , either municipal or legislative , is required by law. The LATTER ( CPCN) requires a franchise issued by LEGISLATIVE DEPARTMENT.

Basic Requirements for the issuance of CPC. APPLICANT MUST BE:1. a citizen of the Philippines, or a corporation or co-partnership ,association or joint stock company constituted and organized under the laws of the Phil, 60 per centum at least of the stock or paid-up capital of which belong entirely to citizens of the phil.2. financially capable of undertaking the proposed service and meeting the responsibilities incident to its operations; and3. prove that the operation of the public service proposed and authorization to do business will promote the public interest in a proper and suitable manner.

The overriding principle is a public interest , necessity, and convenience. What conditions must concur in the grant of CPC/CPCN?1. The grantee must be a citizen of the PH or a corporation or entity 60% of which is owned by such citizens;2. The grantee must have sufficient financial capacity to undertake the business;3. The service will promote public interest and convenience in a proper and suitable manner. Other Rules and Policies:a. Prior Operator Rule- First licensee or operator will be protected in his investment and will not be subjected to ruinous competition. b. Protection of Investment Rule: The law aims not only protect the public but the operators as well. Hence, it is the duty of the government to protect the investment of the operators of public utilities from unfair , unjustified and ruinous competition. c. Prior Applicant Rule: Provides priority in filing of application for a certificate of public convenience is other conditions being equal an important factor in determining the rights of public service companies. FREE COMPETITION: No public utility has a constitutional right to monopoly. NATUR OF CPC: May or may not be considered as PROPERTY depending on the perspective on viewpoint. A certificate is a mere privilege that is always subject to regulation of the State. In sofar as the State is concerned a CPC constitutes neither a franchise nor contract, confers no property right , and a mere license or privilege. Is a CPC property in the hands of the holder thereof?No. A certificate of public convenience is a mere license or a privilege and being neither a franchise nor a contract, it confers no vested or property right or interest on the holder. However, in its purely private aspect, it has value and may be considered property that can be levied upon.

Instances when Notice and hearing is required:1. Issuance of certificate of public convenience and CPCN;l2. Fixing of standards and qualifications; 3. Fixing of standards for measuring quantity ;4. Establishment of rules to secure accuracy of all meters and all measuring appliances;5. Order to compel operators to furnish poor service ; and 6. Allowing extension of facilities. Instances when notice and hearing NOT required:1. Investigation of public utility companies;2. Valuation of properties of public utilities3. Examination and test of measuring appliances ;4. Grant of special permits to make extra or special trips in territories specified in the certificate ;5. Investigation of accidents;6. Compel compliance with laws and regulations.

Instances when CPC is NOT required: Warehouses; Vehicles drawn by animals and bancas moved by oar, or sail and tugboats and lighters; Airships within Phil. Radio companies except to the fixing of rates; Public services owned or operated by any instrumentality of the National Government or by any gov.-owned or controlled corporation , except with respect to the fixing of rates.Grounds for Revocation of Certificate:a. The holder violates or contumaciously refuses to comply with any order, rule or regulation of the commission;b. The holder is a mere dummy;c. The holder ceases operation or abandons the services.

NTC has no power to cancel CPC that if issued to holders of duly-licensed legislative franchise in the broadcast industry.

Chapter 20 Powers of Admin AgenciesDOTC ( Source: EO- 125-A)1. Formulate and recommend national policies and guidelines for preparation and implementation of integrated and comprehensive transportation and communication systems at the national, regional and local levels;2. Established and administer comprehensive and integrated programs for transportation and communications. Call on any agency corporation, or organization whether public or private whose development programs include transpo and communications as an integral part thereof, to participate and assist in the preparation and implementation of such programs;3. Assess , review and provide direction to transpo and communications research and development programs;4. Administer and enforce all laws , rules and regulations in the field of transpo and communications;5.

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