Transportation and Public Utility Law | Africa, B2021
I. GENERAL DISCUSSION
a. What is a public utility?
• Public utility is a business or service engaged in
regularly supplying the public with some
commodity or service of public consequence.
- This implies public use and service.
- Examples: electricity, gas, water,
transportation, telephone
• Public utilities are privately owned and operated
businesses whose services 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 (KMU Labor Center
v. Garcia)
• public for the common good, to the extent of the
MUNN v. ILLINOIS
Facts:
1. Munn & Scott were the managers and
proprietors of “The Northwestern Elevator.” a
grain warehouse in Chicago, in which they
stored grain in bulk, and mixed the grain of
different owners together in said warehouse.
2. An information was filed the criminal court
against Munn & Scott as they allegedly engage
in a business without procuring a license from
the Circuit Court, permitting them to transact
as public warehousemen. This is in violation of
Sec. 3 of the act to regulate public warehouses
and the warehousing and inspection of grain. It
was also alleged that they charged rates higher
than those prescribed by Sec. 15.
3. They were found to be guilty. M&S then
appealed the conviction on the ground that the
regulation constitutes unconstitutional
deprivation of private property without due
process.
Issue & Ruling: The general assembly of Illinois
can, under the limitations upon the legislative
power imposed by the Constitution, fix by law the
maximum of charges for the storage of grain in
warehouses.
When one becomes a member of the society, he
necessarily parts with some rights or privileges.
One authorises the establishment of laws requiring
each citizen to so conduct himself, and so use his
own property, as not unnecessarily to injure
another (sic utere tuo ut alienum non laedas.) From
this arises the police power which allows the
government to regulate the conduct of its citizens
towards another.
In line with this power, when a private property is
affected with a public interest, it ceases to be juris
privati only. Property becomes clothed with a
public interest when used in a manner to make it of
public consequence and affect the community at
large. It must then submit to be controlled by the
interest he has thus created
In the present case, a large traffic of grain from
different States passes through the elevators of
Chicago. Every bushel of grain, which is a
common charge for its passage pays a toll.
Therefore, it becomes a thing of public interest and
use.
LUZON STEVEDORING v. PSC
Facts:
1. Luzon Stevedoring and Visayan Stevedore
Transportation Inc. are corporations mainly
engaged in the stevedoring or lighterage and
harbor towage business.
2. Upon the complaint of Philippine Shipowners’
Association alleging that respondents were
engaged in the transportation of cargo without
authority or approval, the Commission issued
an order restraining them from further
operating their watercraft to transport goods
for hire or compensation between points in the
Philippines until the rates they propose to
charge are approved by this Commission.
3. Petitioners argued that they were not public
utilities, as they only offered services to a
limited clientele and not to the public at large,
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through private lease agreements and not
ordinary transportation contracts.
Issue & Ruling: The appealed order of the Public
Service Commission is affirmed. In order to be a
public service, an organization need not be
dedicated to public use, i.e., ready and willing to
serve the public as a class. It is not determined by
the number of people actually served. It is only
necessary that it must in some way be impressed
with a public interest, that is service rendered by it
is of a public character and of public consequence
and concern.
In the present case, it was immaterial that Luzon
Brokerage was rendering transportation service for
compensation to a limited clientele, not to the
public at large.
The Court also held that they are bar were ordinary
contracts of transportation and not of lease because
the watercraft was manned entirely by crews in
their employ and payroll, and the operation of the
said craft was under their direction and control, the
customers assuming no responsibility for the goods
handled on the barges.
b. What is a public service?
Sec. 13(b), CA No, 146 (Public Service Law).
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,
Transportation and Public Utility Law | Africa, B2021
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 third party or third
parties shall not be considered as operating a public
service for the purposes of this Act.
• The term public service is included in the broad
concept of public utilities.
• Elements of public service:
1. Person must own, operate, manage, or
control in the Philippines public services,
which may include distribution of goods or
rendering of services;
2. It must be for hire or compensation; and
3. It must be done for general business
purposes.
- Business: the means by which a party
habitually or regularly earns a
livelihood of some gain.
• It is not required that the business is permanent
because it may be “permanent, occasional, or
accidental.”
• The business may be with general or limited
clientele.
c. Legal Basis and Rationale for regulation
Legal basis: Sec. 6, Art. XII, which states that,
“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,
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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.”
Rationale: Police power
REPUBLIC OF THE PHILIPPINES v.
MERALCO
Facts:
1. MERALCO filed with ERB an application to
increase its distribution charge. An order was
granted allowing the increase to 0.184 on the
condition that if it will be found after hearing
that they were entitled to a lesser increase, all
the excess amount collected shall be refunded
or credited to future consumption.
2. Later on, ERB rendered a decision adjusting
the rate increase to 0.017. It was held that
income tax should not be treated as operating
expense. This was reversed by the CA.
3. Petitioner seeks reversal on the grounds that
income tax should be considered as operating
expenses and that the net average investment
method used by COA should be adopted
instead of the average investment method used
by MERALCO.
Issue & Ruling: CA decision is reversed. 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. When private property is used for a public
purpose and is affected with public interest, it
ceases to be juris privati only and becomes subject
to regulation. The regulation is to promote the
common good, specifically to protect the public
from arbitrary and excessive rates while
maintaining efficiency and quality of services
rendered. However, such regulation involves
balancing of interests of the investor and
consumer, such that it must guarantee a yield of fair
return to the former and reasonable price for the
former.
Transportation and Public Utility Law | Africa, B2021
In the present case, the issue hinges on the
determination of the kind and the amount of
operating expenses that should be allowed to a
public utility to generate a fair return and the
proper valuation of the rate base or the value of the
property entitled to a return. Income tax payments
are not expenses which contribute to or are
incurred in connection with the production of
profit, but are made in exchange for benefits
received by the taxpayer from the State. The use of
net average investment method, where properties
and equipment used are entitled to a return only on
the actual number of months they are in service, is
proper.
NOTE: In determining the just and reasonable rates
to be charged by a public utility, three major factors
are considered by the regulating agency: a) rate of
return; b) rate base and c) the return itself or the
computed revenue to be earned by the public utility
based on the rate of return and rate base.
d. Where does the power to regulate public
utilities reside?
ALBANO v. REYES
Facts:
1. PPA conducted a public bidding of the
development, management, and operation of
the Manila International Container Terminal
(MICT), where in ICTSI consortium was
announced as the winning bidder. The mICT
contract was then approved by the President.
2. Later on, petitioner (member of HOR) filed a
petition assailing the award of the contract,
claiming that since MICT is a public utility, it
needs a legislative franchise before it can
legally operate as public utility pursuant to
Sec. 11, Art. 12.
Issue & Ruling: A franchise specially granted by
Congress is not necessary for the operation of the
Manila International Container Port (MICP) by a
private entity. 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
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for or to authorize the operation of certain public
utilities. Sec. 6 of PD No. 857 (Revised Charter of
the PPA) expressly empowers PPA to undertake by
itself the operation and management of the MICP
or to authorize its operation and management by
another by contract or other means, at its option.
The contract between the PPA and ICTSI, coupled
with the President's written approval, constitute the
necessary authorization for ICTSI's operation and
management of the MICP. Moreover, the
determination of whether or not the winning bidder
is qualified to undertake the contracted service
should be left to the sound judgment of the PPA.
Neither the Court, nor Congress, has the time and
the technical expertise to look into this matter.
KMU LABOR CENTER v. GARCIA
Facts:
1. Petition at hand questions the constitutionality
of the a) memo issued by DOTC Sec. Orbos
allowing provincial bus operators to charge
passengers rates within a range of 15% above
and 15% below the LTFRB official rate for a
period of 1 year, in line with the plan to
liberalize the regulations in the transport
sector. This rate was later widened to 20% and
-25%; and b) the DO 92-587, which provides
that in determining public need, the
presumption of need for service shall be
deemed in favour of the applicant and the
burden of proof that there is no need shall be
with the oppositor.
2. Later on, Provincial Bus Operators
Association availed of the deregulation policy
without first having filed a petition for the
purpose and without the benefit of a public
hearing, announced a fare increase of twenty
(20%) percent of the existing fares.
3. KMU then filed a petition before the LTFRB
opposing the increase of bus fares, but was
dismissed for lack of merits, hence the current
petition. KMU argues that the authority given
by LFTRB to provincial bus operators to set a
fare range is unconstitutional and the
Transportation and Public Utility Law | Africa, B2021
establishment of presumption of need in favor
of applicants violates CA 146 and ROC.
Issue & Ruling: Under CA No. 146, the defunct
Public Service Commission was given the power
of fixing the rates of public services. Respondent
LTFRB, the existing regulatory body today, is
likewise vested with the same under EO No. 202.
However, nowhere under the said provisions are
the regulatory bodies authorized to delegate that
power to a common carrier, a transport operator, or
other public service. In the case at bench, the
authority given by the LTFRB to the provincial bus
operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it
is tantamount to an undue delegation of legislative
authority. Potestas delegata non delegari potest.
What has been delegated cannot be delegated.
e. What happened to Public Service
Commission?
The 20th century ushered in the birth and growth
of public utility regulation in the country. During
the Commonwealth period, Public Service Act was
enacted, thereby creating a regulatory and
franchising body known as the PSC.
On 24 Sept 1972, PD No.1 was issued. This
abolished and replaced PSC by 3 specialised
regulatory boards: Board of Transportation, the
Board of Communications, and the Board of Power
and Waterworks.
The Board of Transportation (BOT) lasted for
thirteen (13) years. On March 20, 1985, Executive
Order No. 1011 was issued abolishing the Board of
Transportation and the Bureau of Land
Transportation. Their powers and functions were
merged into the Land Transportation Commission
(LTC).
Two (2) years later, LTC was abolished by
Executive Order Nos. 125 dated January 30, 1987
and 125-A dated April 13, 1987 which reorganized
the Department of Transportation and
Communications. On June 19, 1987, the Land
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Transportation Franchising and Regulatory Board
(LTFRB) was created by Executive Order No. 202.
The LTFRB, successor of LTC, is the existing
franchising and regulatory body for overland
transportation today.
f. Not a public utility
TATAD v. GARCIA
Facts:
1. DOTC planned to construct EDSA LRT III.
During the evaluation of the prequalification
bids, the Committee declared that only the
EDSA LRT Consortium met criteria set by the
technical committee.
2. It was agreed that the target completion date is
3 years after the implementation date of the
contract, that DOTC shall pay the private
respondent on a monthly basis, and that after
25 years ownership shall be transferred for the
consideration of only $1.00, provided that
payment of rental has been completed.
3. Petition at hand was filed to prohibit the
respondents from implementing the Revised
and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA
on the ground that EDSA LRT III is a public
utility, and the ownership and operation
thereof is limited by the Constitution to
Filipino citizens and domestic corporations,
not foreign corporations like private
respondent.
Issue & Ruling: There is a clear distinction
between the "operation" of a public utility and the
ownership of the facilities and equipment used to
serve the public—the former needs a franchise,
while the latter doesn’t. In the present case, the
respondent does not operate but merely own the
facilities and equipment needed by the public
utility. For the 25 years during which period DOTC
shall operate as a common carrier, private
respondent only provides technical maintenance,
repair services, and personnel training to DOTC.
The latter shall also assume all the obligations and
liabilities of a common carrier. In sum, private
respondent will not run the light rail vehicles and
Transportation and Public Utility Law | Africa, B2021
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. Even the
mere formation of a public utility corporation does
not ipso facto characterize the corporation as one
operating a public utility.
JG SUMMIT HOLDINGS v. CA
Facts:
1. The National Investment and Development
Corporation (NIDC) entered into a JVA with
Kawasakin for the construction, operation and
management of the Subic National Shipyard
Inc., (SNS) which subsequently became the
Philippine Shipyard and Engineering
Corporation (PHILSECO).
2. NIDC transferred all its rights, title and interest
in PHILSECO to PNB, which were
subsequently transferred to the National
Government. As the trustee of the National
Government, APT deemed it best to sell the
National Government’s share in PHILSECO to
private entities in the interest of the national
economy and the government.
3. After a series of negotiations between the APT
and KAWASAKI , they agreed that the latter’s
right of first refusal under the JVA be
“exchanged” for the right to top by 5%, the
highest bid for the said shares. They further
agreed that KAWASAKI woul.d be entitled to
name a company in which it was a stockholder,
which could exercise the right to
top. KAWASAKI then informed APT that
Philyards Holdings, Inc. would exercise its
right to top.
4. At the public bidding, petitioner J.G. Summit
Holdings Inc. submitted a bid of 2.03B with an
acknowledgement of
KAWASAKI/PHILYARDS right to top. As
petitioner was declared the highest bidder, the
COP approved the sale subject to the right of
Kawasaki/ PHILYARDS. to top JG’s bid by
5% as specified in the bidding rules, which was
timely exercised by the latter.
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 Transportation and Public Utility Law | Africa, B2021
5. Petitioner then filed petition for mandamus,
which was granted by this Court on the ground
that shipyard like PHILSECO is a public utility
whose capitalization must be sixty percent
(60%) Filipino-owned.13 Consequently, the
right to top granted to KAWASAKI.
Issue & Ruling: PHILSECO is not a public utility.
By nature, a shipyard is not a public utility. A
public utility is a business or service engaged in
regularly supplying the public with some
commodity or service of public consequence. 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. 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.

In the present case, a shipyard cannot be

considered as public utility. Its nature dictates that
it serves 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.

Secondly, there is no law that declared it a public

utility.