PUBLIC UTILITIES:

General Provisions
GROUP 1 REPORT
Transportation Law
Atty. Daniel Gutierrez
 What is public utility?
• It is only necessary that it must in some way be
impressed with a public interest; and whether the
operation of a given business is a public utility
depends upon whether or not the service
rendered by it is a public as a class.
• It is only necessary that it must in some way be
impressed with a public interest; and whether the
operation of a given business is a public utility
depends upon whether or not the service
rendered by it is of a public character and of
public consequence and concern.
 What is public utility?
• It is a business may be affected with public
interest and regulated for public good although
not under any duty to serve the public.
• When the owner of a property devotes it to a use
in which the public has interest, he is in effect
grants to the public an interest in such use, and
must, to the extent of that interest, submit it to
be controlled by the public, for the common
good, as long as he maintains the use.
 Munn v. Illinois
• Legislature of Illinois set maximum rates upon
private companies in charging for the storage
and transport of agricultural products. Munn
and Scott was found guilty for violating said
law. They argued that the law imposing rates
upon them was an unconstitutional
deprivation of property without due process
of law.
 Munn v. Illinois
• The Supreme Court ruled that a government may
regulate the conduct of its citizens toward each
other, and when necessary for the public good,
the manner in which each shall use his own
property.
• When the owner of a property devotes it to a use
in which the public has interest, he is in effect
grants to the public an interest in such use, and
must, to the extent of that interest, submit it to
be controlled by the public, for the common
good, as long as he maintains the use.
 Luzon Stevedoring v. PSC
• Luzon Stevedoring is engaged in hauling
business serving limited portion of the public.
Philippine Service Commission restrained
Luzon Stevedoring from further operating in
interisland transport of good until proposed
rates to charge their service is approved by
the Commission. Luzon Stevedoring argued
that they are not engaged in public service
since their services are not open to public.
These were private transactions.
 Luzon Stevedoring v. PSC
• Supreme Court affirmed the decision of PSC and emphasized that Luzon
Stevedoring was involved in 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, occasional or
accidental, and done for general business purpose any common carrier,
railroad, street railway, traction railway, subway, motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries, and small water
craft, engaged in the transportation of passengers and freight, shipyard,
marine railway, marine repair shop, warehouse, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, sewerage, gas, electric
light, hear and power, water supply and power, petroleum, sewerage
system, telephone, wire or wireless telegraph system and broadcasting
radio stations.
 What is Public Service?
• (Sec. 13(b) of C.A. No. 146 or the Public Service Act, as amended)
• 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.
 What is Public Service?
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 third party or
third parties shall not be considered as operating a public
service for the purposes of this Act.
 ELEMENTS
1. The person must own, operate, manage, or control in the Philippines
public services which may include distribution of goods or rendering of
service to the public (such as 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);
2. The ownership, operation, management or control must be for hire or
compensation; and
3. The ownership, operation, management, or control must be done for
general business purposes.
CHARACTERISTICS OF PUBLIC SERVICE
1. May be permanent, occasional, or accidental.
2. The business may be with general or limited
clientele.
3. With respect to carriers,
a. They transport either freight or passenger or both;
b. Their service is with or without fixed route; and
c. Their classification may be freight (cargo) or carrier
service of any class, express service, steamboat or
steamship line, pontines, ferries, and water craft
 PUBLIC UTILITY vs. PUBLIC SERVICE
• “Public utility has been interpreted broadly to include all public
services, thereby applying the stringent nationality requirements
under the Constitution to all who fit the all-encompassing
definition, no doubt discouraging, if not scaring away, potential
foreign investors.”

• There is no fixed definition of what constitutes public service or

public utility; it is also held that it is not always necessary that it
must in some way be impressed with a public interest; and whether
the operation of a given business is a public utility depends upon
whether or not the service rendered by it is of a public character
and of public consequence and concern. Thus, a business may be
affected with public interest and regulated for public good although
not under any duty to serve the public. (Luzon Stevedoring Co., Inc.
v. The Public Service Commission)
 LEGAL BASIS AND RATIONALE FOR REGULATION:

“The use of property bears a social function, and all economic

agents shall contribute to the common good. Individuals and
private groups, including corporations, cooperatives, and similar
collective organizations, shall have the right to own, establish,
and operate economic enterprises, subject to the duty of the
State to promote distributive justice and to intervene when the
common good so demands.”

(Section 6, Article XII of the 1987 Constitution)

 “The business and operations of a public utility are imbued with public
interest. In a very real sense, a public utility is engaged in public service--
providing basic commodities and services indispensable to the interest of
the general public. For this reason, a public utility submits to the
regulation of government authorities and surrenders certain business
prerogatives, including the amount of rates that may be charged by it. It
is the imperative duty of the State to interpose its protective power
whenever too much profits become the priority of public utilities.”

REPUBLIC v. MERALCO
(GR No. 141314, November 15, 2002)
Where does the Power to Regulate
Public Utilities Reside?
• Department of Transportation

• Land Transportation Franchising

Regulatory Board (LTFRB)

• Land transportation Office (LTO)

• Maritime Industry Authority (MARINA)

• Philippine Coast Guard

• National Telecommunications
Commission

• Energy Regulatory Commission

• National Water Resources Council
• Civil Aeronautics Board
• Civil Aviation Authority Of the
Philippines
• Philippine Ports Authority
• Local Water utilities Administration
• Toll Regulatory Board
 “Even if the MICP be considered a public utility, or a
public service on the theory that it is a "wharf” or a
"dock" as contemplated under the Public Service
Act, its operation would not necessarily call for a
franchise from the Legislative Branch. Franchises
issued by Congress are not required before each and
every public utility may operate. Thus, the law has
granted certain administrative agencies the power
to grant licenses for or to authorize the operation of
certain public utilities.”

ALBANO V. REYES
(175 SCRA 264, July 11, 1989)
 “Public utilities are privately owned and operated businesses
whose service are essential to the general public. They are
enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public utility
services are impressed with public interest and concern. The
same is true with respect to the business of common carrier
which holds such a peculiar relation to the public interest that
there is super induced upon it the right of public regulation when
private properties are affected with public interest, hence, they
cease to be juris privati only. When, therefore, one devotes his
property to a use in which the public has an interest, he, in effect
grants to the public an interest in that use, and must submit to
the control by the public for the common good, to the extent of
the interest he has thus created.”
KMU Labor Center v Garcia
(239 SCRA 286, December 23, 1994)
 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.
 WHAT HAPPENED TO THE
PUBLIC SERVICE COMMISSION?
 20th century
• Coastwise Rate Commission under Act No.
520
• Board of Rate Regulation under Act No. 1779
• Board of Public Utility Commission under Act
No. 2307
• Public Utility Commission under Act No. 3108
 Commonwealth period
• Commonwealth Act No. 146, as amended or
the Public Service Act, as amended
– created a regulatory and franchising body known
as the Public Service Commission (PSC).
– existed for thirty-six (36) years from 1936 up to
1972
 Presidential Decree No. 1
• Under Article III, Part X
– Public Service Commission (PSC) was abolished
and replaced by three (3) specialized regulatory
boards
1. Board of Transportation
2. Board of Communications
3. Board of Power and Waterworks.
 Executive Order No. 1011
• abolished the Board of Transportation and the
Bureau of Land Transportation.
• Their powers and functions were merged into
the Land Transportation Commission (LTC).
 Executive Order Nos. 125 and 125-A
• LTC was abolished
• reorganized the Department of
Transportation and Communications
 Executive Order No. 202
• Land Transportation Franchising and
Regulatory Board (LTFRB) was created
• The LTFRB, successor of LTC, is the existing
franchising and regulatory body for overland
transportation today.
Not A Public Utility
 Tatad v. Garcia, Jr.
FACTS:
In 1989, DOTC planned to construct a light railway transit line along
EDSA, a major thoroughfare in Metropolitan Manila. The plan,
referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended
to provide a mass transit system along EDSA and alleviate the
congestion and growing transportation problem in the metropolis.
RA 6957 was enacted allowing for the financing, construction and
operation of government projects through private initiative and
investment. Accordingly, prequalification and bidding was made and
EDSA LRT Corporation (organized under Hongkong laws) was
recommended to be awarded with the contract. The President
approved the awarding of the contract. Petitioners are senators
praying for the prohibition of respondents from further
implementing and enforcing the contract.
 Tatad v. Garcia, Jr.
ISSUE:

Whether respondent EDSA LRT Corporation,

LTD., a foreign corporation, may own EDSA LRT
III, a public utility.
 Tatad v. Garcia, Jr.
RULING:

What private respondent owns are the rail tracks,

rolling stocks like the coaches, rail stations,
terminals and the power plant, not a public
utility. While a franchise is needed to operate
these facilities to serve the public, they do not by
themselves constitute a public utility. What
constitutes a public utility is not their ownership
but their use to serve the public (Iloilo Ice & Cold
Storage Co. v. Public Service Board, 44 Phil. 551,
557 558 [1923]).
 Tatad v. Garcia, Jr.
RULING:

The Constitution, in no uncertain terms,

requires a franchise for the operation of a
public utility. However, it does not require a
franchise before one can own the facilities
needed to operate a public utility so long as it
does not operate them to serve the public.
 Tatad v. Garcia, Jr.
RULING:

The right to operate a public utility may exist

independently and separately from the
ownership of the facilities thereof. One can own
said facilities without operating them as a public
utility, or conversely, one may operate a public
utility without owning the facilities used to serve
the public. The devotion of property to serve the
public may be done by the owner or by the
person in control thereof who may not
necessarily be the owner thereof.
 J.G. Summit Holdings vs CA
FACTS:

National Investment and Development Corporation (NIDC) and

Kawasaki Heavy Industries entered into a Joint Venture Agreement
in a shipyard business named PHILSECO, with a shareholding of 60-
40 respectively. NIDC’s interest was later transferred to the National
Government.

Pursuant to President Aquino’s Proclamation No.5, which

established the Committee on Privatization (COP) and Asset
Privatization Trust (APT), and allowed for the disposition of the
government’s non-performing assets, the latter allowed Kawasaki
Heavy Industries to choose a company to which it has
stockholdings, to top the winning bid of JG Summit Holdings over
PHILSECO. JG Summit protested alleging that such act would
effectively increase Kawasaki’s interest in PHILSECO—a shipyard is a
public utility–and thus violative of the Constitution.
 J.G. Summit Holdings vs CA
ISSUE:

Whether PHILSECO is a public utility.

 J.G. Summit Holdings vs CA
RULING:
As its name indicates, the term public utility implies public
use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to
serve, an indefinite public or portion of the public as such which has
a legal right to demand and receive its services or commodities.
Stated otherwise, the owner or person in control of a public utility
must have devoted it to such use that the public generally or that
part of the public which has been served and has accepted the
service, has the right to demand that use or service so long as it is
continued, with reasonable efficiency and under proper charges.
Unlike a private enterprise which independently determines whom
it will serve, a public utility holds out generally and may not refuse
legitimate demand for service.
 J.G. Summit Holdings vs CA
RULING:
Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,this Court
defined public use, viz:
Public use means the same as use by the public. The essential feature of
the public use is that it is not confined to privileged individuals, but is
open to the indefinite public. It is this indefinite or unrestricted quality
that gives it its public character. In determining whether a use is public, we
must look not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional with the
owners, or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of jurisdiction of the public utility commission.
There must be, in general, a right which the law compels the owner to give
to the general public. It is not enough that the general prosperity of the
public is promoted. Public use is 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. (emphasis supplied)
 J.G. Summit Holdings vs CA
RULING:
Applying the criterion laid down in Iloilo to the case at
bar, it is crystal clear that a shipyard cannot be
considered a public utility.
A shipyard is a place or enclosure where ships are built
or repaired. Its nature dictates that it serves but a
limited clientele whom it may choose to serve at
its discretion. While it offers its facilities to whoever
may wish to avail of its services, a shipyard is not
legally obliged to render its services indiscriminately
to the public. It has no legal obligation to render the
services sought by each and every client. The fact that
it publicly offers its services does not give the public a
legal right to demand that such services be rendered.
 J.G. Summit Holdings vs CA
RULING:
Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,this Court
defined public use, viz:
Public use means the same as use by the public. The essential feature of
the public use is that it is not confined to privileged individuals, but is
open to the indefinite public. It is this indefinite or unrestricted quality
that gives it its public character. In determining whether a use is public, we
must look not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional with the
owners, or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of jurisdiction of the public utility commission.
There must be, in general, a right which the law compels the owner to give
to the general public. It is not enough that the general prosperity of the
public is promoted. Public use is 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. (emphasis supplied)
 Public Service Act
Section 14. The following are exempted from the provisions of the preceding
section:

(a) Warehouses;

(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and
lighters;

(c) Airships within the Philippines except as regards the fixing of their maximum
rates on freight and passengers;

(d) Radio companies except with respect to the fixing of rates;

(e) Public services owned or operated by any instrumentality of the National

Government or by any government-owned or controlled corporation, except with
respect to the fixing of rates. (As amended by Com. Act 454, RA No. 2031, and RA
No. 2677 )
PUBLIC UTILITIES:
Constitutional Provisions
GROUP 1 REPORT
Transportation Law
Atty. Daniel Gutierrez
Constitutional Provisions
Ownership
 Heirs of Wilson Gamboa v. Finance Secretary Margarito
Teves et.al.,
Facts:
• In 1969, General Telephone and Electronics Corporation (GTE), sold 26
percent of the outstanding common shares of PLDT to Philippine
Telecommunications Investment Corporation (PTIC). In 1977, Prime
Holdings, Inc. (PHI) became the owner of 111,415 shares of stock of PTIC.
In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered
by the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to be
owned by the Republic of the Philippines.

In 1999, First Pacific, a Bermuda-registered acquired the remaining 54

percent of the outstanding capital stock of PTIC. On 20 November 2006,
the Inter-Agency Privatization Council (IPC) of the Philippine Government
through a public bidding sold the same shares to Parallax Venture who
won with a bid of P25.6 billion or US$510 million.
• Thereafter, First Pacific announced that it would exercise its right of first refusal as
a PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of
Parallax. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered
into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of P25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of
46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or
about 6.3 percent of the outstanding common shares of PLDT. With the sale, First
Pacific common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about 81.47
percent. This, according to petitioner, violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public
utility to not more than 40 percent.
On 28 February 2007, petitioner filed the instant petition for prohibition,
injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC
shares
 Issue:
• Whether or not the Court made an erroneous
interpretation of the term ‘capital’ in its 2011
decision.
 2011 decision:
xxxxx term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in
the election of directors.
This interpretation is consistent with the intent of the
framers of the Constitution to place in the hands of
Filipino citizens the control and management of public
utilities. Thus, 60 percent of the "capital" assumes, or
should result in, "controlling interest" in the corporation
and thus in the present case, only to common shares, and
not to the total outstanding capital stock (common and
non-voting preferred shares).
 Ruling:
• No, the last sentence of Section 11, Article XII of the 1987 Constitution reads:
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.
• The Court said that the Constitution is clear in expressing its State policy of
developing of an economy "effectively controlled" by Filipinos. Consistent with
such State policy, the Constitution explicitly reserves the ownership and operation
of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least
60 percent of whose capital with voting rights belongs to Filipinos. The FIA’s
implementing rules explain that "[f]or stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet
the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term "capital" in Section 11, Article XII of the
1987 Constitution refers to shares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the election of directors,
coupled with full beneficial ownership of stocks, translates to effective control of a
corporation.
• Any other construction of the term "capital" in Section 11, Article XII of
the Constitution contravenes the letter and intent of the Constitution.
Any other meaning of the term "capital" openly invites alien domination
of economic activities reserved exclusively to Philippine nationals.
Therefore, respondents’ interpretation will ultimately result in handing
over effective control of our national economy to foreigners in patent
violation of the Constitution, making Filipinos second-class citizens in
their own country.
• The 1935, 1973 and 1987 Constitutions have the same 60 percent
Filipino ownership and control requirement for public utilities like PLDT.
Any deviation from this requirement necessitates an amendment to the
Constitution as exemplified by the Parity Amendment. This Court has no
power to amend the Constitution for its power and duty is only to
faithfully apply and interpret the Constitution.
• WHEREFORE, the Court DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
Exclusivity
 1935 Constitution
(Section 8 of Article XIV)

SEC. 8. 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 other entities organized under the laws of
the Philippines sixty per centum of the capital of which is
owned by citizens of the Philippines, nor shall such
franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm,
or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the
Congress when the public interest so requires.
 1973 Constitution
(Section 5 of Article XIV)

SECTION 5. 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 the capital of which 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 Batasang Pambansa
when the public interest 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 the capital thereof.
 1987 Constitution
(Section 11 of Article XII)
SECTION 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.
 PRESIDENTIAL DECREE NO. 198
(As amended by Presidential Decree Nos. 768
and 1479, R.A. 9286)

DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION

AND CONTROL OF WATER SYSTEMS; AUTHORIZING THE
FORMATION OF LOCAL WATER DISTRICTS AND PROVIDING
FOR THE GOVERNMENT AND ADMINISTRATION OF SUCH
DISTRICTS; CHARTERING A NATIONAL ADMINISTRATION TO
FACILITATE IMPROVEMENT OF LOCAL WATER UTILITIES;
GRANTING SAID ADMINISTRATION SUCH POWERS AS ARE
NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER
UTILITY OPERATIONS, AND FOR OTHER PURPOSES:
 PD 198
(As amended by Presidential Decree Nos. 768
and 1479, R.A. 9286)

Section 47. Exclusive Franchise. - No franchise

shall be granted to any other person or agency
for domestic water service within the district or
any portion thereof unless and except to the
extent that the board of directors of said district
consents thereto by resolution duly adopted.
 METROPOLITAN CEBU WATER DISTRICT
(MCWD) v. M. ADALA 526 SCRA 465 (2007)

FACTS:
The Metropolitan Cebu Water District (MCWD), a
public corporation, appealed the decision rendered in
favor of Margarita A. Adala (Adala) by the National Water
Resources Board (NWRB), granting her a
franchise permit to supply water to three sitios in
Bulacao. MCWD was the exclusive distributor of water in
the district. MCWD contended that
the proposed waterworks would interfere with their
water supply which it has the right to protect, and the
water needs of the residents in the subject area was
already being well served by petitioner.
 They also contend that they were granted by
Section 47 of Presidential Decree 198, granting
exclusive franchise only to public utilities. Engineer
Paredes, the general manager of MCWD, filed
Certificate of Public Convenience by the National
Water Resources Board (NWRB), which permitted
the company to operate and maintain waterworks
supply services. MCWD alleged that the Board of
Directors of MCWD did not give consent to the
issuance of the franchise applied for.
ISSUES:

Whether or not Section 47 of Presidential

Decree 19, which grants exclusive franchise to
public utilities is constitutional.
HELD:

NO. MWCD‘s position that an overly strict construction of

the term ―franchise as used in Section 47 of P.D. 198
would lead to an absurd result impresses. If franchises, in
this context, were strictly understood to mean an
authorization issuing directly from the legislature, it
would follow that, while Congress cannot issue franchises
for operating waterworks systems without the water
district‘s consent, the NWRB may keep on issuing CPCs
authorizing the very same act even without such consent.
In effect, not only would the NWRB be subject to less
constraints than Congress in issuing franchises. The
exclusive character of the franchise provided for by
Section 47 would be illusory.
While the prohibition in Section 47 of P.D. 198 applies to
the issuance of CPCs for the reasons discussed above, the
same provision must be deemed void ab initio for being
irreconcilable with Article XIV Section 5 of the 1973
Constitution which was ratified on January 17, 1973 – the
constitution in force when P.D. 198 was issued on May 25,
1973. That the legislative authority – in this instance,
then President Marcos – intended to delegate its power
to issue franchises in the case of water districts is clear
from the fact that, pursuant to the procedure outlined in
P.D. 198, it no longer plays a direct role in authorizing
the formation and maintenance of water districts, it
having vested the same to local legislative bodies and the
Local Water Utilities Administration (LWUA).
Subject to Amendment
 ARTICLE XII of the 1987 CONSTITUTION
National Economy and Patrimony

Section 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.
 RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. v NATIONAL
TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO
NETWORK INCORPORATED
G.R. No. L-68729 May 29, 1987
Gutierrez, Jr, J.:

It was well within the powers of the public respondent to authorize the
installation by the private respondent network of radio communications
systems in Catarman, Samar and San Jose, Mindoro. Under the circumstances
of this case, the mere fact that the petitioner possesses a franchise to put
up and operate a radio communications system in certain areas is not an
insuperable obstacle to the public respondent's issuing the proper
certificate to an applicant desiring to extend the same services to those
areas. The Constitution mandates that a franchise cannot be exclusive in
nature nor can a franchise be granted except that it must be subject to
amendment, alteration, or even repeal by the legislature when the common
good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an
express provision in the petitioner's franchise which provides compliance with
the above mandate R.A. 2036, sec. 15).
 ARTICLE XII of the 1987 CONSTITUTION
National Economy and Patrimony
Section 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.
Fixed Term
FRANCISCO vs. TOLL REGULATORY BOARD
GR No. 166910, October 19,2010
Facts:
– President Marcos issued PD 1112 authorizing the establishment f toll
facilities on public improvement. It also allowed the collection of toll fees
for the use of certain public improvements that would allow a reasonable
rate of return on investments.
– The same decree created the Toll Regulatory Board, vesting it with power to
enter into contracts for the construction, maintenance, and operation of
tollways, grant authority to operate a toll facility, issue the necessary Toll
Operation Certificate and fix initial toll rates, and adjust it from time to time
after due notice and hearing.
– PD 1113 was also issued granting the Philippine National Construction
Corporation for a period of 30 years, a franchise to operate toll facilities in
the NLEX and SLEX.
– Then came the 1987 Constitution with its franchise provision. Several
Supplemental Toll Operation Agreements were entered for the South Metro
Manila Skyway, NLEX Expansion, and South Luzon Expressway Projects.
– Petitioners seek to nullify the various STOAs and assail the constitutionality
of Section 3 of PD 1112 in relation to section 8 of PD 1894. Insofar as they
vested the Toll Regulatory Board the power to issue, modify, and
promulgate toll rate changes while given the ability to collect tolls.
Issue:
Whether the TRB is vested with the power and authority to grant what amounts to a
franchise over tollway facilities

Held:
• It is clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894
have invested the TRB with sufficient power to grant a qualified person or entity with
authority to construct, maintain, and operate a toll facility and to issue the
corresponding toll operating permit or TOC.
• The limiting thrust of the foregoing constitutional provision on the grant of franchise
or other forms of authorization to operate public utilities may, in context, be stated as
follows: (a) the grant shall be made only in favor of qualified Filipino citizens or
corporations; (b) Congress can impair the obligation of franchises, as contracts; and
(c) no such authorization shall be exclusive or exceed fifty years.
• A franchise is basically a legislative grant of a special privilege to a person. Particularly,
the term, franchise, "includes not only authorizations issuing directly from Congress in
the form of statute, but also those granted by administrative agencies to which the
power to grant franchise has been delegated by Congress.“ The power to authorize
and control a public utility is admittedly a prerogative that stems from the Legislature.
Any suggestion, however, that only Congress has the authority to grant a public utility
franchise is less than accurate.
• A special franchise directly emanating from Congress is not necessary if the
law already specifically authorizes an administrative body to grant a franchise
or to award a contract. That the administrative agencies may be vested with
the authority to grant administrative franchises or concessions over the
operation of public utilities under their respective jurisdiction and regulation,
without need of the grant of a separate legislative franchise.

• Under the 1987 Constitution, Congress has an explicit authority to grant a

public utility franchise. However, it may validly delegate its legislative
authority, under the power of subordinate legislation, to issue franchises of
certain public utilities to some administrative agencies.
Take-Over Power
DAVID vs. MACAPAGAL-ARROYO
GR No. 171396, May 3, 2006
Facts:
• On February 24, 2006, as the nation celebrated the 20th Anniversary of the EDSA
People Power I, President Arroyo issued PP 1017 declaring a state of national
emergency and call upon the Armed Forces of the Philippines (AFP) and the Philippine
National Police (PNP), to prevent and suppress acts of terrorism and lawless violence
in the country.
• The Office of the President announced the cancellation of all programs and activities
related to the 20th anniversary celebration of EDSA People Power I; and revoked the
permits to hold rallies issued earlier by the local governments and dispersal of the
rallyists along EDSA. The police arrested (without warrant) petitioner Randolf S. David,
a professor at the University of the Philippines and newspaper columnist. Also
arrested was his companion, Ronald Llamas, president of party-list Akbayan.
• In the early morning of February 25, 2006, operatives of the Criminal Investigation
and Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, raided
the Daily Tribune offices in Manila and attempt to arrest was made against
representatives of ANAKPAWIS, GABRIELA and BAYAN MUNA whom suspected of
inciting to sedition and rebellion.
• On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of
national emergency has ceased to exist. Petitioners filed seven (7) certiorari with the
Supreme Court and three (3) of those petitions impleaded President Arroyo as
respondent questioning the legality of the proclamation, alleging that it encroaches
the emergency powers of Congress and it violates the constitutional guarantees of
freedom of the press, of speech and assembly.
Issue:
Whether or not Presidential Proclamation No. 1017 is unconstitutional
Held:
• The Court finds and so holds that PP 1017 is partly constitutional and partly
unconstitutional. It is constitutional insofar as it constitutes a call by the President for the
AFP to prevent or suppress lawless violence whenever becomes necessary as prescribe
under Section 18, Article VII of the Constitution.
• However, the Court also ruled that under Section 17, Article XII of the Constitution, the
President, in the absence of legislative legislation, cannot take over privately-owned public
utility and private business affected with public interest.
• The president cannot validly order the taking over of private corporations or institutions
such as the Daily Tribune without any authority from Congress. On the other hand, the
word emergency contemplated in the constitution is not limited to natural calamities but
rather it also includes rebellion.
• The SC made a distinction; the president can declare the state of national emergency but
her exercise of emergency powers does not come automatically after it for such exercise
needs authority from Congress. The authority from Congress must be based on the
following:
(1) There must be a war or other emergency.
(2) The delegation must be for a limited period only.
(3) The delegation must be subject to such restrictions as the Congress may prescribe.
(4) The emergency powers must be exercised to carry out a national policy declared by
Congress.
 The History of Public Utility Rate
Regulation in the United State
Supreme Court: Of Reasonable and
Nondiscriminatory Rate
Richard Epstein
History of Public Utility Rate Regulation

• Set of principles that properly balanced

competing interests in the perennial quest to
avoid both monopoly profits and confiscation
of rights and property
History of Public Utility Rate Regulation

• The Simple Economics of Ratemaking

• Rise of Common Carrier Regulation: England
• Common Carrier Regulation: US
• Nondiscriminatory Rates
PUBLIC UTILITIES:
Thank you!
GROUP 1 REPORT
Transportation Law
Atty. Daniel Gutierrez