TRANSPORTATION VI: RATE-FIXING
A. STATUTORY BASIS
THE COMMISSION SHALL HAVE THE POWER
Section 16. Proceedings of the Commission, upon notice and hearing. - The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary :
x x x
APPROVAL OF COMMISSION IS REQUIRED TO:
- ADOPT
- ESTABLISH
- FIX
- IMPOSE
- COLLECT
- CARRY INTO EFFECT
ANY INDIVIDUAL OR JOINT RATES OR OTHER SPECIAL RATE.
Section 20. Acts requiring the approval of the Commission. - Subject to established limitations and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had -
(a) To adopt, establish, fix, impose, maintain, collect or carry into effect any individual or joint rates, commutation, mileage or other special rate, toll, fare, charge, classification or itinerary.
- FIX AND DETERMINE RATES AND OTHER SPECIAL RATES OBSERVED AND FOLLOWED BY ANY PUBLIC SERVICE
(c) To fix and determine
individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage, kilometrage, and other special rates which shall be imposed observed and followed thereafter by any public service:
- APPROVE RATES PROPOSED BY PUBLIC SERVICES PROVISIONALLY AND WITHOUT NECESSITY OF ANY HEARING
Provided, That the Commission may, in its discretion, approve rates proposed by public services PROVISIONALLY and without necessity of any hearing;
BUT HEARING IS REQUIRED WITHIN 30 DAYS AFTER
- PUBLICATION; AND
- NOTICE TO CONCERNS OPERATING IN THE TERRITORY AFFECTED.
but it shall call a hearing thereon within thirty days, thereafter, upon publication and notice to the concerns operating in the territory affected:
WHEN THE PUBLIC SERVICE EQUIPMENT IS USED FOR PROMOTING A PRIVATE BUSINESS...*
THE NET PROFITS OF THE PRIVATE BUSINESS SHALL BE CONSIDERED IN RELATION WITH THE PUBLIC SERVICE
Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates.
Public Service Act, Section 16
REQUIREMENTS FOR APPROVAL
- JUST AND REASONABLE
- NOT UNJUSTLY DISCRIMINATORY OR UNDULY PREFERENTIAL
- REASONABLE NOTICE TO PUBLIC SERVICES AND PARTIES CONCERNED
- REASONABLE OPPORTUNITY TO BE HEARD
- BURDEN OF PROOF IS ON THE PUBLIC SERVICE
The Commission shall approve only those that are just and reasonable and not any that are unjustly discriminatory or unduly preferential, only upon reasonable notice to the public services and other parties concerned, giving them a reasonable opportunity to be heard and the burden of the proof to show that the proposed rates or regulations are just and reasonable shall be upon the public service proposing the same.
PSA, Sec. 20
B. BASIS OF RATES
C. PROCEDURE
D. PROVISIONAL RATES
E. RATE REFUND
DELEGATION OF RATE-FIXING POWER ONLY REQUIRES JUST AND REASONABLE RATE
: In case of a delegation of rate-fixing power, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just.
(Philippine Communications Satellite Corporation v. Alcuaz)
REASONABLENESS IS AN IMPLIED REQUIREMENT
However, even in the absence of an express requirement as to reasonableness, this standard may be implied.
(Philippine Communications Satellite Corporation v. Alcuaz)
RATES MUST NOT BE SO LOW AS TO BE CONFISCATORY OR TOO HIGH AS TO BE OPPRESSIVE
The inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive.
(Philippine Communications Satellite Corporation v. Alcuaz)
FACTORS OF REASONABLENESS:
- OPPORTUNITIES OF UTILITY
- FAIR RETURN UPON THE VALUE OF THE PUBLIC UTILITY
- COMPETITION
What is a just and reasonable rate is not a question of formula but of sound business judgment based upon the evidence. It is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility. A method often employed in determining reasonableness is the fair return upon the value of the property to the public utility. Competition is also a very important factor in determining the reasonableness of rates since a carrier is allowed to make such rates as are necessary to meet competition.
(Philippine Communications Satellite Corporation v. Alcuaz)
ADMINISTRATIVE, EXECUTIVE, OR LEGISLATIVE ACTS REQUIRE NO NOTICE AND HEARING
Central Bank o the Philippines v. Cloribel, et al.
Notice and hearing are not essential to the validity of administrative action where the administrative body acts in the exercise of executive, administrative, or legislative functions
(Philippine Communications Satellite Corporation v. Alcuaz)
QUASI-JUDICIAL ACTS REQUIRE
NOTICE AND HEARING
However, where a public administrative body acts in a judicial or quasi-judicial matter, and its acts are particular and immediate rather than general and prospective, the person whose rights or property may be affected by the action is entitled to notice and hearing.
(Philippine Communications Satellite Corporations v. Alcuaz)
TEMPORARY REDUCED RATES CAN BE UNREASONABLE OR CONFISCATORY
An order of NTC prescribing reduced rates, even for a temporary period, could be unjust, unreasonable or even confiscatory, especially if the rates are unreasonably low
o The utility permanently loses its just revenue during the prescribed period.
o In fact, such order is in effect final insofar as the revenue during the period covered by the order is concerned
(Philippine Communications Satellite Corporation v. Alcuaz)
"RATE" IS A CHARGE, PAYMENT, PRICE FIXED ACCORDING TO A RATION/SCALE/STANDARD
i. Rate is defined as “a charge, payment, or price fixed according to a ratio, scale, or standard 7 ;” or “an amt paid or charged for a good or service 8”
(NPC v. PEPOA)
RATE IS FIXED ON THE BASIS OF INVESTMENT OR PROPERTY VALUE THAT THE PUBLIC UTILITY IS ALLOWED TO EARN
THIS IS THE "RATE BASE"
Fixed on the basis of the investment amt or property value that the public utility is allowed to earn -- an amt value called “rate base”
(NPC v. PEPOA)
FACTORS IN ASCERTAINING RATE BASE
a. Factors considered in ascertaining this value:
- ORIGINAL COST OF CONSTRUCTION
i. Original cost of construction - AMOUNT SPENT ON PERMANENT IMPROVEMENTS
ii. Amt expended in permanent improvements - AMOUNT & MARKET VALUE OF BONDS & STOCK OF PUBLIC UTILITY
iii. Amt and market value of the bonds and stock of the public utility - PRESENT COST OF CONSTRUCTION vs ORIGINAL COST THEREOF
iv. Present cost compared w/ the original cost of construction - PROBABLE EARNING CAPACITY OF PROPERTY UNDER PARTICULAR RATES PRESCRIBED
v. Probable earning capacity of the property under the particular rates prescribed - SUM REQUIRED TO MEET OPERATING EXPENSES
vi. Sum required to meet operating expenses
(NPC v. PEPOA)
PROPERTY VALUATION DEPENDS ON FACTS & CIRCUMSTANCES AFFECTING EACH UTILITY
Property valuation is dependent on the particular circumstances and relevant facts affecting each utility
(NPC v. PEPOA)
("RATE-FIXING" IS QUASI JUDICIAL IN NATURE)
Rate-fixing calls for a technical examination and a specialized review of specific details primarily entrusted to the admin or regulating authority -- in this case, the ERB
(NPC v. PEPOA)
NO PARTICUULAR METHOD OR FORMULA FOR DETERMINING RATES
Gov’t is not bound to apply any particular method or formula for determining rates
(NPC v. PEPOA)
JUST RATE IS FOUNDED ON FAIR AND REASONABLE CONDITIONS TO BOTH
PUBLIC UTILITY AND THE PUBLIC
ii. A just rate is founded on conditions that are fair and reasonable to both the public utility and the public.
- This means that the public utility must have a fair return on the reasonable value of the property as profit a. The imposition of the max charges the public utility charges cannot be confiscatory
- As to the public, reasonableness requires entitlement to the service at an affordable cost
(NPC v. PEPOA)
PSC IS A DELEGATE THAT MAY NOT DELEGATE ITS POWER FURTHER
The Legislature has delegated to the PSC the power of fixing the rates of public services, but it has not authorized the PSC to delegate that power to a common carrier or other public service.
Potestas delegata non delegari potest. What has been delegated cannot be delegated.
(Panay Autobus Co. vs PH Railway Co.)
12% RATE FOR PUBLIC UTILITIES
In the Philippines, decisions have consistently adopted the 12% rate for public utilities and the PSC has done no more than adhere to the established Jurisprudence thereon
(Republic v. Medina)
PROVISIONAL RATES NEED NO HEARING
(Republic v. Medina)
PRESENT/MARKET VALUE OF PROPERTY DETERMINES VALUE OF PROPERTY
For rate base determination, the PSC & SC have consistently ruled that the controlling standard in determining the value of the property, which should be included in its rate base, is the present or market value.
(Republic v. Medina)
JUST RATE DEPENDS ON CIRCUMSTANCES, NOT FORMULA
However, the weight of authority shows that property valuation is not to be solved by formula.
Instead, it depends on certain circumstances & facts affecting each utility as to what constitutes a just rate base and what would be the fair return.
It should be just to both the utility and the public.
(Republic v. Medina)
RATE OF RETURN OF PUBLIC UTILITY IS NOT PRESCRIBED BY STATUTE BUT BY JUDICIAL PRONOUNCEMENTS
A rate of return of a public utility is prescribed not by statute, but by administrative and judicial pronouncements. In this case, the SC has consistently adopted a 12% rate of return for public utilities.
(Republic of the Philippines v. Meralco)
POWER TO:
- FIX! RATES IS A LEGISLATIVE FUNCTION
- DETERMINE REASONABLENESS! OF RATES IS A PURELY JUDICIAL QUESTION
The power to fix rates is a legislative function. However, the power to determine whether the rates are reasonable is a purely judicial question, subject to the review of the courts.
(Republic of the Philippines v. Meralco)
"LEAST COST MANNER" TO SUPPLY ELECTRICITY (SEC. 23, RA 9146)
- It was not “in the least cost manner” because the ERC’s used of the ODRC valuation method in computing the rate base had the effect of wealth transfers from electricity consumers to the utilities’s shareholders. Hence, electricity consumers end up paying more for the infrastructure than it costs the shareholders to provide it and shareholders earn a return higher than prescribed by their regulatory cost of capital
(NAECR v. ERC)
DEPRECIATION IS AN EXPENSE
RATIO: CAPITAL MAY BE ACCUMULATED FOR FURTHER EXPANSION AND GROWTH
The theory behind including depreciation as an expense is that capital may be accumulated for further expansion and growth.
(Republic v. Meralco)
POLICE POWER IS THE BASIS OF REGULATING RATES
The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof.
STATE PROTECTS PUBLIC AGAINST EXCESSIVE RATES WHILE MAINTAINING EFFICIENCY AND QUALITY OF SERVICE
a. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered.
BALANCING OF
INVESTOR & CONSUMER INTERESTS
b. The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.
POWER TO:
- FIX! RATES IS A LEGISLATIVE FUNCTION
- DETERMINE REASONABLENESS! OF RATES IS A PURELY JUDICIAL QUESTION
c. While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegated through an administrative agency, such as the ERC, a determination of whether the rates so fixed are reasonable and just is a purely judicial question and is subject to the review of the courts.
FACTORS DETERMINING JUST AND REASONABLE RATES CHARGED BY
PUBLIC UTILITY
RULE - 3 Factors considered in determining just and reasonable rates charged by a public utility:
- 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;
RATE BASE
Evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return;
RETURN ITSELF
Computed revenue to be earned by the public utility based on the rate of return and rate base.
ELECTRICITY SHALL BE SUPPLIED IN THE LEAST COST MANNER
Sec. 23 RA 9146 Electric Power Industry Reform Act of 2001 (EPIRA) "[a] distribution utility shall have the obligation to supply electricity in the least cost manner to its captive market, subject to the collection of retail rate duly approved by the ERC."
RESULT-BASED, NOT METHOD-BASED
Under the statutory standard of "just and reasonable" it is the result reached not the method employed which is controlling.
It is not theory but the impact of the rate order which counts.
(NAECR v. ERC)
IF THE RESULT IS NOT UNJUST AND UNREASONABLE, JUDICIAL INQUIRY ENDS
If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end.
(NAECR v. ERC)
- APPROVE RATES PROPOSED BY PUBLIC SERVICES PROVISIONALLY AND WITHOUT NECESSITY OF ANY HEARING
Provided, That the Commission may, in its discretion, approve rates proposed by public services PROVISIONALLY and without necessity of any hearing;
BUT HEARING IS REQUIRED WITHIN 30 DAYS AFTER
- PUBLICATION; AND
- NOTICE TO CONCERNS OPERATING IN THE TERRITORY AFFECTED.
but it shall call a hearing thereon within thirty days, thereafter, upon publication and notice to the concerns operating in the territory affected:
WHEN THE PUBLIC SERVICE EQUIPMENT IS USED FOR PROMOTING A PRIVATE BUSINESS...*
THE NET PROFITS OF THE PRIVATE BUSINESS SHALL BE CONSIDERED IN RELATION WITH THE PUBLIC SERVICE
Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates.
Public Service Act, Section 16
REQUIREMENTS OF GRANTING PROVISIONAL RATES [Sec. 4(e), Rule 3 of EPIRA's IRR]
The requirements from Sec. 4(e), Rule 3 of the EPIRA’s IRR may be summarized as follows: -
- PUBLICATION OF:
a. APPLICATION,
b. NOTICE,; AND
c. HEARING
First, the publication of the application itself is required, not merely the notice of hearing issued by the ERC - ERC MUST CONSIDER:
a. EVIDENCE
b. COMMENTS OF CONSUMERS & LGUs
Second, in granting a provisional authority, the ERC must consider not only the evidence submitted by the applicant in support thereof, but also the comments of the consumers and the Local Government Units (LGUs) concerned.
(Freedom From Debt Coalition v. Energy Regulatory Commission)
RATIO OF PUBLICATION REQUIREMENT: DUE PROCESS TO APPRISE PUBLIC OF ECONOMIC BURDEN
Sec. 4(e), Rule 3 of the IRR of EPIRA could not be any clearer as it refers to “any application or petition for rate adjustment or for any relief affecting the consumers.”
“The basic postulate of due process ordains that the consumers be notified of any application, and be apprised of its contents, that would result in compounding their economic burden.”
The publication requirement gives them enhanced opportunity to consciously weigh the application in terms of the additional financial burden which the proposed rate increase entails and the basis for the application.
RATIO OF CONSIDERING EVID & COMMENTS: COMFORTING ASSURANCE
The imposition on the ERC to consider the comments of the customers and the LGUs concerned extends the comforting assurance that their interest will be taken into account.
(NASECORE v. ERC)
ERC MAY PROMULGATE GUIDELINES, BUT CONFORMING TO PERTINENT LAWS
The ERC is not, of course, precluded from promulgating rules, guidelines or methodology, such as the GRAM. However, these rules should conform to the requirements of pertinent laws, including Section 4(e), Rule 3 of the IRR of the EPIRA.
(NASECORE v. ERC)
PUBLICATION REQUIRED FOR RULES & REGULATIONS IF THEIR PURPOSE IS TO ENFORCE OR IMPLEMENT EXISTING LAW
In Tanada v. Tuvera, “Administrative rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant also to a valid delegation.” In this case, the effectivity clauses of GRAM and ICERA provided that they “shall take effect immediately” and made no mention of publication. It was also not filed in ONAR in contravention of the Admin Code of 1987. Thus, the GRAM Rules must be declared ineffective.
(NASECORE v. ERC)
EXCEPT IF
- INTERPRETATIVE
- INTERNAL
- LETTER OF INSTRUCTION TO BE FOLLOWED BY SUBORDINATES
There are, however, several exceptions to the requirement of publication i. Interpretative regulation 1. It "needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed." 2. It "add[s] nothing to the law" and "do[es] not affect the substantial rights of any person." ii. Regulation that is merely internal in nature 1. It seeks to regulate only the personnel of the administrative agency and not the general public. iii. A letter of instruction issued by an administrative agency concerning rules or guidelines to be followed by subordinates in the performance of their duties
ADMINISTRATIVE AGENCY MAY APPROVE PROVISIONAL RATE WITHOUT HEARING
An administrative agency may be empowered to approve provisionally, when demanded by urgent public need, rates of public utilities without a hearing.
(Padua v. Ranada)
RATIONALE: TEMPORARY & SUBJECT TO ADJUSTMENT WITH DEFINITIVE RATES AFTER FINAL HEARING
The reason is that provisional rates are by their nature temporary and subject to adjustment in conformity with the definitive rates approved after final hearing.
(Padua v. Ranada)
- APPROVE RATES PROPOSED BY PUBLIC SERVICES PROVISIONALLY AND WITHOUT NECESSITY OF ANY HEARING
Provided, That the Commission may, in its discretion, approve rates proposed by public services PROVISIONALLY and without necessity of any hearing;
BUT HEARING IS REQUIRED WITHIN 30 DAYS AFTER
- PUBLICATION; AND
- NOTICE TO CONCERNS OPERATING IN THE TERRITORY AFFECTED.
but it shall call a hearing thereon within thirty days, thereafter, upon publication and notice to the concerns operating in the territory affected:
WHEN THE PUBLIC SERVICE EQUIPMENT IS USED FOR PROMOTING A PRIVATE BUSINESS...*
THE NET PROFITS OF THE PRIVATE BUSINESS SHALL BE CONSIDERED IN RELATION WITH THE PUBLIC SERVICE
Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates.
Public Service Act, Section 16
PROCEDURAL REQUIREMENTS MUST STILL BE COMPLIED WITH, LIKE UNDER IRRs
The SC held that ERC has the power to grant provisional rate adjustments under the EPIRA.
However, the grant in this case was infirm for it did not comply with the procedural
requirements under the EPIRA’s IRR.
THE SUBJECT MATTER RATE REFUND AS REGARDS THE ELECTRIC CONSUMERS IS WITHIN THE PRIMARY JURISDICTION OF THE ERC
Careful review of the material allegations of BF Homes and PWCC in their Petition reveals that the very subject matter is the off-setting of the amount of refund they are supposed to receive from MERALCO against the electric bills they are to pay to the same company. This is squarely within the primary jurisdiction of the ERC.