Keeping up with the times

Is the term public utility synonymous with public service? If they are not the same, is the distinction even important?

The 1987 Constitution provides for a number of limitations on those engaged in the operation of public utilities. For instance, “no franchise, certificate or any authorization for the operation of a public utility shall be granted except to Philippine citizens or corporations organized under Philippine laws at least 60 percent of whose capital is owned by such citizens.”

The Supreme Court, in the case of Heirs of Gamboa vs Teves, interpreted the word “capital” to refer only to shares with voting rights, full beneficial ownership of which is in the hands of Filipinos. This means that preferred shares, for instance, which are denied voting rights, even if owned by Filipinos, are not included in the computation of the 60 percent minimum Filipino equity ownership imposed on public utilities.

The Constitution, likewise, requires that “all the executive and managing officers of such corporation or association (referring to public utilities) must be citizens of the Philippines.” Thus, if any public utility company appoints a foreigner as an officer, its officers may be held criminally liable under the Anti-Dummy Act, which applies to anyone who having a right, franchise,  and privilege, the exercise of which is expressly reserved by the Constitution or laws to Philippine nationals, allows the use of such right by one who does not possess the requisites prescribed by law.

Public utilities, as provided by the Constitution, are also subject to temporary or permanent takeover by the government, as well as the limitation that “the participation of foreign investors in the governing body of public utility enterprises shall be limited to their proportionate share in its capital.”

But how do we know what are public utilities and what are not?

We have the Public Service Act under the archaic Commonwealth Act 146, which governs those engaged in public service.

Under CA 146, the term “public service” includes common carriers, those that own, operate or manage ice plants, irrigation systems, gas, electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations, and other public services.

The same law provides that no public service shall operate in the Philippines without possessing a valid and subsisting certificate from the Public Service Commission (PSC), known as certificate of public convenience (CPC) or certificate of public convenience or necessity (CPCN), as the case may be. Only those corporations, partnerships, associations 60 percent of the stock or paid-up capital of which belongs entirely to citizens of the Philippines may be issued CPCs or CPCNs.

The functions of the defunct PSC, including the power to fix the rates of those engaged in public service, have been distributed to a number of government agencies such as the National Telecommunications Commission in the case of broadcasting and telecommunications companies, the Toll Regulatory Board for toll roads, the LTFRB in the case of public utility vehicles, among others.

The PSA does not make any mention of the word “public utility.” However, it is the PSA that has been made by default the law governing the operation of public utilities in the country.

Is it even legal to apply the constitutional provisions on public utilities to those enumerated in the PSA as being engaged in public service?

It is the Supreme Court, in a number of cases, that has given as a definition of what a public utility is. In the case of Metropolitan Cebu Water District vs Adala, a public utility is defined as “a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.”

Meanwhile, in KMU vs Garcia, the SC held that “public utilities are privately owned and operated businesses whose services are essential to the general public. When 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.”

RA 9136 of the EPIRA Law has declared power generators, such as independent power producers as not being public utilities. And in IDEALS vs PSALM, the SC explained that “power generation shall not be considered a public utility operation and hence no franchise is necessary, Foreign investors are also allowed entry into the electric power industry.”

The ambiguous definition of public utilities, some have observed, and the term’s confusion with public service, has subjected many sectors to the foreign ownership restrictions under the Constitution.

Congress is currently deliberating on proposals to amend the PSA that will define the term “public utilities” and differentiate it from public service. A Senate bill limits the scope of public utilities to electricity distribution, petroleum pipeline distribution systems, and water pipeline and sewerage pipeline systems, in effect removing crucial sectors like telecommunications and transportation from the coverage of the term and thereby lifting foreign ownership restrictions as mandated by the Constitution on public utilities.

Those engaged in public service, but are not classified as public utilities will continue to be governed by their respective government agencies and subject to requirements such as the grant of CPC for which no franchise from Congress is required and approval of rates imposed on the public.

This means that businesses engaged in telecommunications and broadcasting, for example, will no longer be required to obtain a franchise from Congress since they will no longer be classified as public utilities, nor will they be subject to the 40 percent maximum foreign equity ownership required under the Constitution. They will, however, still be considered as engaged in public service, and therefore, the NTC may continue to regulate and supervise such businesses, including prior issuance of a CPC (no longer a CPCN) for which no prior franchise from Congress is required), regulation of rates, and the determination as to whether or not their operation continues to serve the public interest in a proper manner.

There are critics of the proposed amendment to the PSA claiming that the proposed amendments are an attempt to indirectly amend the constitutional provisions regarding public utilities in a bid to open up more sectors to foreign ownership. While the latter might be the intent, there is nothing illegal nor unconstitutional about it because again, it is the PSA – which does not even define what public utilities are – that is made to govern public utilities, and Congress has the power to amend the PSA.

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