Professional Documents
Culture Documents
I. GENERAL CONSIDERATIONS
A. PUBLIC UTILITIES
1. ART XII, CONSTITUTION
1987 Constitution, Art. XII, Sec. 11. 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 sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer period than fifty
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 the
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must
be citizens of the Philippines.
1987 Constitution, Art. XII, Sec. 17. In times of national emergency, when
the public interest so requires, the State may, during the emergency and
under reasonable terms prescribed by it, temporarily take over or direct the
operation of any privately-owned public utility or business affected with
public interest.
Issue:
w/n the income tax paid by MERALCO should be treated as part of its operating
expenses for the purposes of rate determination
1987 Constituion, Art. XII, Sec. 18. The State may, in the interest of
national welfare or defense, establish and operate vital industries and, upon
payment of just compensation, transfer to public ownership utilities and
other private enterprises to be operated by the Government.
w/n the net average investment method should be used for computation of
base rate
1987 Constitution, Art. XII, Sec. 19. The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.
1. No, operating expenses are those expense items which contribute or are
attributable to the production of income or revenue; a recurring requisite for
operation which redounds to the benefit of customers. Income tax is imposed
on a person as a tax on the privilege of earning income in exchange for State
REPUBLIC V. MERALCO
Held:
2. Yes, the net average investment method, as recommended by COA and used
by the ERB, accurately reflects the real status of the property. This is consistent
with the rule in rate regulation that the determination of the base rate of a
public utility entitled to a return must be based on properties and equipment
actually being used or are useful to the operations of the public utility.
Furthermore, MERALCOs claim that immediate recordings of the property and
equipment put into service are not possible is refuted by the COA report.
net average investment method: properties and equipment used in
the operation of a public utility are entitled to a return only on the
actual number of months they are in service during the period;
average investment method: computes the proportionate value of the
property by adding the value of the property at the beginning and at
the end of the test year with the resulting sum divided by two
Another, the second method can be easily manipulated since MERALCO may
simply include a highly capitalized asset even though it was used for a very
short period. This inexactitude is subject to abuse by the public utility.
2. CA 146
C.A .146, Sec. 13 (b). The term "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, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway,
sub-way motor vehicle, either for freight or passenger, or both with or
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 the transportation of passengers or
freight or both, shipyard, marine railways, marine repair shop, [warehouse]
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 communications system, wire or
wireless broadcasting stations and other similar public services: Provided,
however, That a person engaged in agriculture, not otherwise a 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 a third party or third parties engaged in agriculture, not
itself or themselves a public service, for operation by the latter for a limited
time and for a specific purpose directly connected with the cultivation of his
or their farm, the transportation, processing, and marketing of agricultural
products of such
ICTSI won the bids on July 1987. but before the contract could be signed,
two cases were filed to restrain it, one by a "concerned taxpayer" and the
other by a member of another failed bid, which were subsequently lifted by
the Court. On May 1988, President Cory signed the MICT contract, and the
next day the PPA and ICTSI perfected it incorporating "clarificatory
guidelines". Cong. Albano then filed this petition as a citizen and member of
the House alleging that since MICT is a public utility, it needs a legislative
franchise before it can legally operate, pursuant to Art. 12 11 of the 1987
Constitution.
ISSUE
WON the development, management and operation of the MICT needs a
franchise specially granted by Congress.
HELD
No.
1.
The PPA, created by PD 857 (Revised Charter of the PPA) and given
the authority to take over the management of the MICT via EO 30 is
already expressly empowered by its charter in 6(v) "to provide
services (whether on its own, by contract, or otherwise)" to
undertake the providing of cargo handling and port related services.
Therefore under the terms of these laws it may contract with ICTSI.
2.
3.
1.
2.
Quiason, J.
FACTS
This case challenges (Rule 65) the validity of the Build-Lease-Transfer
contract signed by the government and ESDA LRT Consortium (a foreign
company) to build the EDSA LRT III. The primary law in effect was RA 6957
which detailed the manner in which the private sector could participate in
public infrastructure projects through Build-Operate-Transfer (BOT) and
Build-Transfer (BT) contracts.
Sequence of events in negotiation and perfection of the Build Lease
Contract
1. July 1990 RA 6957 passed
2. Jan 1991 DOTC establishes Prequalification Bids and Awards
Committee (PBAC) which then solicited prequalification bidders
through public notice.
3. Mar-Apr 1991 5 groups expressed interest and submitted prequalification documents (one of which was EDSA LRT Consortium)
4. May 1991 Only EDSA LRT Consortium passed the prequalification
stage and all other bids were declared ineligible.
5. DOTC negotiated and presented for presidential approval
Agreement to Build, Lease, and Transfer LRT System for EDSA.
6. The contract was initially rejected by then executive secretary
Drilon because (a) no actual bidding took place (b) law authorizes
bidding as the exclusive mode of awarding contracts (c) IRR of BOT
Law was unconstitutional (d) congressional approval had not been
given for LRT projects.
7. The contract was amended and eventually submitted by
respondent DOTC Secretary Garcia for approval which was
approved by President Ramos.
Terms of the contract
ISSUES
1. WON EDSA LRT Consortium, a foreign company, can own EDSA
LRT III a public utility. (YES)
2. WON the Build-Lease-Transfer is allowed under the BOT Law.
(YES)
3. WON Congressional approval is required prior to awarding rail
infrastructure contracts (YES, but lack of approval does not
invalidate contract).
4. WON the rules on public bidding were violated (NO)
5. WON terms are gross disadvantageous to the government (NO)
Can a foreign company own a public utility?
1. Sec 11, Article XII of 1987 Constitution restricts the operation of
public utility not necessarily the ownership of such to domestic
companies with minimum 60% Filipino ownership.
2. Ownership is separate from the right to operate. A franchise to
operate a rail system is awarded to an entity to transport
passengers from one point to another point. It is a service to the
public.
3. In this case, DOTC is the operator and franchise owner of the public
utility, not EDSA LRT Corp.
a. EDSA LRT Corp. will not run the light rail vehicles and
collect fees from the riding public. It will have no dealings
with the public and the public will have no right to demand
any services from it.
4. Even the mere formation of a public utility corporation does not
ipso facto characterize the corporation as one operating a public
utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise,
certificate, or any other form for authorization for that
purpose.
2.
3.
B. TRANSPORTATION
PUBLIC SERVICE ACT
Section 13. (a) The Commission shall have jurisdiction, supervision, and
control over all public services and their franchises, equipment, and other
properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of the public force: Provided, That public services
owned or operated by government entities or government-owned or
controlled corporations shall be regulated by the Commission in the same
way as privately-owned public services, but certificates of public
convenience or certificates of public convenience and necessity shall not be
required of such entities or corporations: And provided, further, That it
shall have no authority to require steamboats, motor ships and steamship
lines, whether privately-owned, or owned or operated by any Government
controlled corporation or instrumentality to obtain certificate of public
convenience or to prescribe their definite routes or lines of service.
(b) The term "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,
occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor
vehicle, either for freight or passenger, or both with or without fixed route
and whether may be its classification, freight or carrier service of any class,
other line of said road or track, or with any other line of any other railroad,
street railway or traction to promote, such just and reasonable connection
as shall be necessary to promote the convenience of shippers of property,
or of passengers, and in like manner direct any railroad, street railway, or
traction company engaged in carrying merchandise, to construct, maintain
and operate, upon reasonable terms, a switch connection with any private
sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of
the Commission, such connection is reasonable and practicable and can be
out in with safety and will furnish sufficient business to justify the
construction and maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or traction
company to lay its tracks across the tracks of any other railroad, street
railway or traction company or across any public highway.
(k) To direct any railroad or street railway company to install such safety
devices or about such other reasonable measures as may in the judgment of
the Commission be necessary for the protection of the public are passing
grade crossing of (1) public highways and railroads, (2) public highways
and streets railway, or (3) railways and street railways.
(l) To fix and determine proper and adequate rates of depreciation of the
property of any public service which will be observed in a proper and
adequate depreciation account to be carried for the protection of
stockholders, bondholders or creditors in accordance with such rules,
regulations, and form of account as the Commission may prescribe. Said
rates shall be sufficient to provide the amounts required over and above the
expense of maintenance to keep such property in a state of efficiency
corresponding to the progress of the industry. Each public service shall
conform its depreciation accounts to the rates so determined and fixed, and
shall set aside the moneys so provided for out of its earnings and carry the
same in a depreciation fund. The income from investments of money in
such fund shall likewise be carried in such fund. This fund shall not be
expended otherwise than for depreciation, improvements, new
III
ISSUES/HELD
Were the transfer of the buses, without BOT approval, valid insofar as the
respondents are concerned? NO.
RATIONALE
FACTS
1.
On 24 October 1978, Yujuico Transit Co., Inc. (Yujuico) transferred
ownership of ten buses to Jesus Yujuico (Jesus) as a consequence of the
latters transfer of property to DBP to satisfy the formers obligations.
o
Since a franchise is personal in nature, any transfer or lease thereof
should be notified to the PSC so that the latter may take proper safeguards
to protect the interest of the public.
2.
Sometime in June and July 1979, respondent Yujuico Transit
Employees Union (Union) filed two consolidated complaints against Yujuico
for unfair labor practice and for non-payment of living allowances.
o
In fact, the law requires that, before the approval is granted, there
should be a public hearing with notice to all interested parties in order that
the commission may determine if there are good and reasonable ground
justifying the transfer or lease of the property covered by the franchise, or
is the sale or lease is detrimental to public interest.
3.
Meanwhile, on 21 May 1980, Jesus sold the buses to petitioner Y
Transit Co., Inc. .
4.
On 21 July 1981, the LA dismissed the complaint for unfair labor
practice but held Yujuico liable for non-payment of living allowances and
the buses were levied upon to satisfy the writ of execution.
5.
Y filed Affidavits of Third Party Claim, which Union opposed on the
grounds that: (1) the transactions leading to the transfer of the buses to Y
were void because they lacked the approval of the BOT as required by the
Public Service Act; and (2) the buses were still registered in the name of
Yujuico which means it is still the lawful owner.
6.
The LA found that Y had valid title to the buses and that the BOT, by
its subsequent acts, had approved the transfer; he further ruled that
registration is not the operative act that transfers ownership and that, in
addition, Y had already constructively registered the vehicles.
7.
On appeal the NLRC reversed the decision on the ground that the
transfer of the buses lacked the BOT approval.
The last part of Section 16 (h) (which states that nothing herein
contained shall be construed to prevent the sale, alienation, or lease by any
public utility of any of its property in the ordinary course of business) does
not mean that the approval of the PSC is a mere formality and that the
transfer or lease is still binding; said provision only means that, even if the
approval has not been obtained, the transfer or lease is valid and binding
between the parties although not effective against the public and the PSC as
the approval is only necessary to protect public interest.