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TRANSPORTATION VI: RATE-FIXING - Coggle Diagram

- - - - 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
    - - 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
  - - - D. PROVISIONAL RATES
        
        E. RATE REFUND
        
        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.
        
        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)
        
        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.
        
        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
      - 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
    - - 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)
      - 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)
        
        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)
        
        "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)
        
        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)
    - - 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.
  - - - 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)
    - - 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)
        
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        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.)