I.

Constitutional
Provisions
A. OWNERSHIP
A.1. SECTION 11, ARTICLE XII, 1987
CONSTITUTION
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
A.2. FOUR LIMITS ON OWNERSHIP
OF PUBLIC UTILITIES

(1) The franchise, certificate, or other

form of authorization for the
operation of a public utility shall be
granted only to citizens of the
Philippines or corporations or
associations organized under
the laws of the Philippines.
(2) 60% of the capital of such
corporations must be owned by
Filipinos
(3) The
participation
of
foreign
investors in the governing body of
any public utility enterprise shall be
limited to their proportionate share
in its capital
(4) Executive and managing officers of
such corporation or association
must be citizens of the Philippines.

A.4. FIRST LIMIT

(1) Ownership v. Operation.
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.
[Tatad v. Garcia]
(2) Implications of distinction.

(a) Foreign
ownership
of
a
corporation operating a public
utility is limited to 40%
(b) A
foreigner
or
foreign
corporation
may
own
the
equipment and facilities of the
corporation operating the public
utility

A.5. SECOND LIMIT

(1) Capital
the
60-40
ownership
requirement in favor of Filipino
citizens must apply separately to
each class of shares whether
common,
preferred
non-voting,
preferred voting or any other class
of shares. [Gamboa v. Teves (2012)]
RATIONALE: Applying uniformly
the
60-40
ownership
requirement in favor of Filipino
citizens to each class of shares,
regardless of differences in
voting rights, privileges and
restrictions, guarantees effective
Filipino control of public utilities,
as
mandated
by
the
Constitution.
(2) Voting Control Test 60% of its
outstanding capital stock entitled to
vote is owned by a Philippine
national. [Inapplicable]
(3) Grandfather Rule Full beneficial
ownership of 60 percent of the
outstanding capital stock, coupled
with 60 percent of the voting rights,
is required. [Inapplicable]

B. EXCLUSIVITY
B.1 SECTION 11, ARTICLE XII, 1987
CONSTITUTION
Nor shall such franchise,
certificate, or authorization be
exclusive in character
o

A law requiring the consent of a

corporation operating a public utility
before another corporation may
acquire a certificate of public
convenience
goes
against
this
constitutional prohibition. [MCWC v.
Adala, SCRA, (2007)]

C. SUBJECT TO AMENDMENT
C.1 SECTION 11, ARTICLE XII, 1987
CONSTITUTION
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.
D. FIXED TERM
D.1 SECTION 11, ARTICLE XII, 1987
CONSTITUTION
Nor shall such be for a longer period
than fifty years.
o

What is prohibited is the handling of

the
same
franchise
for
an
accumulated period of more than
50 years. [Francisco v. TRB, SCRA,
(2010)]

D. EMERGENCY POWERS
D.1 SECTION 23(2), ARTICLE XII,
1987 CONSTITUTION
In times of war or other national
emergency, the Congress may, by law,
authorize the President, for a limited
period and subject to such restrictions
as it may prescribe, to exercise powers
necessary and proper to carry out a
declared national policy. Unless sooner
withdrawn
by
resolution
of the
Congress, such powers shall cease
upon the next adjournment thereof.
(1) The following are the requisites for
the exercise of emergency powers
There must be a war or other
emergency.

 The delegation must be for a

limited period only.
The delegation must be subject
to such restrictions as the
Congress may prescribe.
The emergency powers must be
exercised to carry out a national
policy declared by Congress.
(2) Power to declare v. Power to
exercise.
The President may validly declare a
state of national emergency even in
the
absence
of
Congressional
enactment. However, as to the
latter, it requires a delegation from
the Congress. [David v. MacapagalArroyo, SCRA, (2006)]

II.
Regulation
public utilities

of

A. AUTHORITY TO OPERATE
A.1. TYPES
There are various authorities to
operate a public utility. The
following are examples:
(1) Management contracts
(2) JVA
(3) TOA/STOA
(4) Provisional authority
(5) CPC
(6) CPCN
(7) Legislative franchise
(8) Administrative franchise

D. TAKE-OVER POWER
D.1 SECTION 17, ARTICLE XII, 1987
CONSTITUTION
In times of national emergency,
when the public interest so requires,
the
state
may,
during
the
emergency and under reasonable
terms prescribed by it, temporarily
take over or direct the operation of
any privately-owned public utility or
business affected with public interest
(1) The take-over power is just an
aspect of the emergency power
clause.
(2) Thus, when Section 17 refers to
State, it refers to the Congress,
not the President. (David v.
Macapagal-Arroyo, SCRA, (2006)]

Answer worksheets

A.2. GENERAL QUALIFICATIONS FOR

THE GRANT OF AN AUTHORITY TO
OPERATE
(1) The applicant must be a citizen of
the Philippines, or a corporation or
partnership, association or joint
stock company constituted and
organized under the laws of the
Philippines, 60 per centum at least
of the stock or paid-up capital of
which belong entirely to citizens of
the Philippines;
(2) The applicant must be financially
capable
of
undertaking
the
proposed service and meeting the
responsibilities
incident
to
its
operations; and
(3) The applicant must prove that the
operation of the public service
proposed and the authorization to
do business will promote the public
interest in a proper and suitable

manner. [Vda. De Lat v. PSC, SCRA,

(1988)]

B. RATE-FIXING
B.1 DUE PROCESS REQUIREMENTS
Due process must be observed for
the rate-fixing of public utilities. The
requirements depend on whether
the rates apply only to an entity or
to all enterprises of a given kind
throughout the Philippines. In other
words, it depends on whether the
rate-fixing power of administrative
bodies is quasi-judicial or legislative
in character.
(1) LegislativeWhen the rate applies
to all the enterprises of a given kind
throughout
the
Philippines,
publication and hearing is required.
(2) Quasi-judicialWhen
the
rate
applies exclusively to an entity,
then notice to such entity and
hearing is required. [PHILCOMSAT v.
Alcuaz, SCRA, (1988)]

C. AREA OF OPERATION

D.
APPROVAL OF SALE AND
MORTGAGES OF PUBLIC UTILITIES
D.1 PROCESS
The sale, lease, mortgage, or any
form of alienation of the property or
franchise of a public utility must be
approved by the PSC. The PSC must
hold a public hearing with notice to
all interested parties.
D.2. EFFECT OF LACK OF APPROVAL
(1) The contract between the parties
shall be binding between them.
(2) The original grantee of the franchise
shall be liable in case of any
accident
notwithstanding
the
existed of any agreement. [Montoya
v. Ignacio, SCRA, (1953)]
(3) The transferees merely hold the
public utilities as agents of the
registered owner [(Y Transit v. NLRC,
SCRA, (1994))].
(4) The original grantee may seek
reimbursement from the transferee.

Answer worksheets