Sec. 10.

Rationalization of System Losses by Phasing Out

Pilferage Losses as a Component Thereof. There is hereby
established a cap on the recoverable rate of system losses as
follows:

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION
SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC.
(SURNECO),
Petitioner,

xxxx
G.R. No. 183626
Present:
VELASCO, JR., J., *
NACHURA,**
Acting Chairperson,
PERALTA,
MENDOZA, and
SERENO,*** JJ.

- versus -

ENERGY REGULATORY COMMISSION,

Respondent.

(b) For rural electric cooperatives:

(i)

Twenty-two percent (22%) at the end of the

first year following the effectivity of this Act;
Twenty percent (20%) at the end of the
second year following the effectivity of this Act;
Eighteen percent (18%) at the end of the
third year following the effectivity of this Act;
Sixteen percent (16%) at the end of the
fourth year following the effectivity of this Act;
and
Fourteen percent (14%) at the end of the
fifth year following the effectivity of this Act.

(ii)
(iii)
(iv)
(v)

Promulgated:
October 4, 2010

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Provided, that the ERB is hereby authorized to determine

at the end of the fifth year following the effectivity of this Act, and
as often as is necessary, taking into account the viability of rural
electric cooperatives and the interest of consumers, whether the
caps herein or theretofore established shall be reduced further
which shall, in no case, be lower than nine percent (9%) and
accordingly fix the date of the effectivity of the new caps.
xxxx

Assailed in this petition for review on certiorari[1] under Rule 45 of the Rules of
Court are the Decision dated April 17, 2008 [2] and the Resolution dated June 25,
2008[3] of the Court of Appeals (CA) in CA-G.R. SP No. 99781.
The antecedent facts and proceedings follow
Petitioner Surigao Del Norte Electric Cooperative, Inc. (SURNECO) is a rural
electric cooperative organized and existing by virtue of Presidential Decree No. 269.
On February 8, 1996, the Association of Mindanao Rural Electric Cooperatives,
as representative of SURNECO and of the other 33 rural electric cooperatives in
Mindanao, filed a petition before the then Energy Regulatory Board (ERB) for the
approval of the formula for automatic cost adjustment and adoption of the National
Power Corporation (NPC) restructured rate adjustment to comply with Republic Act
(R.A.) No. 7832.[4] The case was docketed as ERB Case No. 96-49, and later
consolidated with identical petitions of other associations of electric cooperatives in
the Philippines.
The relevant provisions of R.A. No. 7832 for compliance are Sections 10 and
14, which provide

Sec. 14. Rules and Regulations. The ERB shall, within

thirty (30) working days after the conduct of hearings which must
commence within thirty (30) working days upon the effectivity of
this Act, issue the rules and regulation as may be necessary to
ensure the efficient and effective implementation of the provisions
of this Act, to include but not limited to, the development of
methodologies for computing the amount of electricity illegally
used and the amount of payment or deposit contemplated in
Section 7 hereof as a result of the presence of the prima
facie evidence discovered.
Corollary thereto, Sections 4 and 5 of Rule IX of the Implementing Rules
and Regulations (IRR) of R.A. No. 7832 provide
Section 4. Caps on System Loss allowed to Rural Electric
Cooperatives. The maximum rate of system loss that the
cooperative can pass on to its customers shall be as follows:
a.
b.

Twenty-two percent (22%) effective on February

1996 billing.
Twenty percent (20%) effective on February 1997
billing.

c.
d.
e.

Eighteen percent (18%) effective on February 1998

billing.
Sixteen percent (16%) effective on February 1999
billing.
Fourteen percent (14%) effective on February 2000
billing.

Section 5. Automatic Cost Adjustment Formula. Each

and every cooperative shall file with the ERB, on or before
September 30, 1995, an application for approval of an amended
Purchased Power Adjustment Clause that would reflect the new
system loss cap to be included in its schedule of rates.
The automatic cost adjustment of every
cooperative shall be guided by the following formula:

electric

In the Order dated June 17, 2003, the ERC clarified ERBs earlier policy
regarding the PPA formula to be used by the electric cooperatives, viz.
After a careful evaluation of the records, the Commission
noted that the PPA formula which was approved by the ERB was
silent on whether the calculation of the cost of electricity
purchased and generated in the formula should be gross or net
of the discounts.
Let it be noted that the power cost is said to be at gross
if the discounts are not passed-on to the end-users whereas it is
said to be at net if the said discounts are passed-on to the endusers.

Purchased Power Adjustment Clause

To attain uniformity in the implementation of the PPA

formula, the Commission has resolved that:

A
(PPA) = ____________________ E
B (C + D)

1. In the confirmation of past PPAs, the power cost shall

still be based on gross, and
2. In the confirmation of future PPAs, the power cost shall
be based on net.

Where:
A = Cost of electricity purchased and generated for the
previous month
B = Total Kwh purchased and generated for the previous
month
C = The actual system loss but not to exceed the
maximum recoverable rate of system loss in Kwh plus actual
company use in kwhrs but not to exceed 1% of total kwhrs
purchased and generated

The electric cooperatives filed their respective motions for clarification

and/or reconsideration. Hence, the ERC issued an Order [7] dated January 14, 2005,
stating that the PPA was a cost-recovery mechanism, not a revenue-generating
scheme, so that the distribution utilities or the electric cooperatives must recover
from their customers only the actual cost of purchased power. The ERC thus
adopted a new PPA policy, to wit
A.

The computation and confirmation of the PPA prior to

the Commissions Order dated June 17, 2003 shall be based
on the approved PPA Formula;

B.

The computation and confirmation of the PPA after the

Commissions Order dated June 17, 2003 shall be based on
the power cost net of discount; and

C.

If the approved PPA Formula is silent on the terms of

discount, the computation and confirmation of the PPA shall
be based on the power cost at gross, subject to the
submission of proofs that said discounts are being extended
to the end-users.[8]

D = kwh consumed by subsidized consumers

E = Applicable base cost of power equal to the amount
incorporated into their basic rate per kwh.
In an Order[5] dated February 19, 1997, the ERB granted SURNECO and other
rural electric cooperatives provisional authority to use and implement the Purchased
Power Adjustment (PPA) formula pursuant to the mandatory provisions of R.A. No.
7832 and its IRR, with a directive to submit relevant and pertinent documents for
the Boards review, verification, and confirmation.
In the meantime, the passage of R.A. No. 9136 [6] led to the creation of the
Energy Regulatory Commission (ERC), replacing and succeeding the ERB. All
pending cases before the ERB were transferred to the ERC. ERB Case No. 96-49 was
re-docketed as ERC Case No. 2001-343.

Thereafter, the ERC continued its review, verification, and confirmation of

the electric cooperatives implementation of the PPA formula based on the available
data and information submitted by the latter.

On March 19, 2007, the ERC issued its assailed Order,[9] mandating that the
discounts earned by SURNECO from its power supplier should be deducted from the
computation of the power cost, disposing in this wise
WHEREFORE, the foregoing premises considered, the
Commission hereby confirms the Purchased Power Adjustment
(PPA) of Surigao del Norte Electric Cooperative, Inc. (SURNECO)
for the period February 1996 to July 2004 which resulted to an
over-recovery
amounting
to EIGHTEEN
MILLION
ONE
HUNDRED EIGHTY EIGHT THOUSAND SEVEN HUNDRED
NINETY FOUR PESOS (PhP18,188,794.00) equivalent to
PhP0.0500/kwh. In this connection, SURNECO is hereby directed
to
refund
the
amount
of
PhP0.0500/kwh
to
its Main Island consumers starting the next billing cycle from
receipt of this Order until such time that the full amount shall have
been refunded.
The Commission likewise confirms the PPA of SURNECO
for its Hikdop Island consumers for the period February 1996 to
July 2004 which resulted to an under-recovery amounting to TWO
MILLION FOUR HUNDRED SEVENTY EIGHT THOUSAND
FORTY FIVE PESOS (PhP2,478,045.00). SURNECO is hereby
authorized to collect from its Hikdop Island consumers the amount
of PhP0.0100/kwh starting the next billing cycle from receipt of
this Order until such time that the full amount shall have been
collected.
Accordingly, SURNECO is directed to:
a) Reflect the PPA refund/collection as a separate
item in the bill using the phrase Previous Years
Adjustment on Power Cost;
b) Submit, within ten (10) days from its initial
implementation of the refund/collection, a sworn
statement indicating its compliance with the aforecited
directive; and
c) Accomplish and submit a report in accordance
with the attached prescribed format, on or before the
30th day of January of the succeeding year and every year
thereafter until the amount shall have been fully
refunded/collected.
SO ORDERED.[10]
SURNECO filed a motion for reconsideration, but it was denied by the ERC
in its Order[11] dated May 29, 2007 on the ground that the motion did not raise any
new matter which was not already passed upon by the ERC.
Aggrieved, SURNECO went to the CA via a petition for review,[12] with prayer
for the issuance of a temporary restraining order and preliminary injunction, seeking
the annulment of the ERC Orders dated March 19, 2007 and May 29, 2007.

In its Decision dated April 17, 2008, the CA denied SURNECOs petition and
affirmed the assailed Orders of the ERC.
On June 25, 2008, upon motion for reconsideration [13] of SURNECO, the CA
issued its Resolution denying the same.
Hence, this petition, with SURNECO ascribing error to the CA and the ERC
in: (1) disallowing its use of the multiplier scheme to compute its systems loss; (2)
ordering it to deduct from the power cost or refund to its consumers the discounts
extended to it by its power supplier, NPC; and (3) ordering it to refund alleged overrecoveries arrived at by the ERC without giving SURNECO the opportunity to be
heard.
The petition should be denied.
First. SURNECO points out that the National Electrification Administration
(NEA), which used to be the government authority charged by law with the power to
fix rates of rural electric cooperatives, entered into a loan agreement with the Asian
Development Bank (ADB). The proceeds of the loan were intended for use by
qualified rural electric cooperatives, SURNECO included, in their rehabilitation and
expansion projects. The loan agreement imposed a 15% system loss cap, but
provided a Power Cost Adjustment Clause authorizing cooperatives to charge and
show system losses in excess of 15% as a separate item in their consumers
bill. Thus, the cooperatives charged their consumer-members System Loss Levy
for system losses in excess of the 15% cap.
SURNECO states that, in January 1984, it was authorized by the NEA that
all increases in the NPC power cost (in case of NPC-connected cooperatives) shall be
uniformly passed on to the member-consumers using the 1.4 multiplier, which is
divided into 1.3 as allowance for 23% system loss and 0.1 as provision for the
corresponding increase in operating expenses to partly offset the effects of inflation.
[14]
Subsequently, the NEA, through NEA Memorandum No. 1-A dated March 30,
1992, revised the aforesaid issuance as follows
Pursuant to NEA Board Resolution No. 98, Series of 1991,
x x x, the revised cooperatives multiplier will be as follows:
1.2 Rural Electric Cooperatives (RECs) with system loss
of 15% and below;
1.3 RECs with system loss ranging from 16% to 22%;
1.4 RECs with system loss of 23% and above.
SURNECO posits that, per NEA Memorandum No. 1-A, the NEA had
authorized it to adopt a multiplier scheme as the method to recover system loss. It
claims that this cannot be abrogated, revoked, or superseded by any order,
resolution, or issuance by the ERC prescribing a certain formula to implement the
caps of recoverable rate of system loss under R.A. No. 7832 without violating the
non-impairment clause[15] of the Constitution.
We disagree. SURNECO cannot insist on using the multiplier scheme even
after the imposition of the system loss caps under Section 10 of R.A. No. 7832. The
law took effect on January 17, 1995. Perusing Section 10, and also Section 11,
[16]
providing for the application of the caps as of the date of the effectivity of R.A.
No. 7832, readily shows that the imposition of the caps was self-executory and did

not require the issuance of any enabling set of rules or any action by the then ERB,
now ERC. Thus, the caps should have been applied as of January 17, 1995 when
R.A. No. 7832 took effect.
Indeed, under NEA Memorandum No. 1-A, the use of the multiplier scheme
allows the recovery of system losses even beyond the caps mandated in R.A. No.
7832, which is intended to gradually phase out pilferage losses as a component of
the recoverable system losses by the distributing utilities such as
SURNECO. However, it is totally repugnant to and incompatible with the system loss
caps established in R.A. No. 7832, and is repealed by Section 16 [17] of the law. As
between NEA Memorandum No. 1-A, a mere administrative issuance, and R.A. No.
7832, a legislative enactment, the latter must prevail.[18]
Second. The ERC was merely implementing the system loss caps in R.A.
No. 7832 when it reviewed and confirmed SURNECOS PPA charges, and ordered the
refund of the amount collected in excess of the allowable system loss caps through
its continued use of the multiplier scheme. As the ERC held in its March 19, 2007
Order

either be at net or gross;

and
b.

III.

If the PPA formula is silent in

terms of discounts, the
allowable power cost will be
computed
at
net
of
discounts availed from the
power supplier/s, if there be
any.

Calculation
of
DUs
actual
revenues/actual amount billed to endusers.
a.

On actual PPA computed

at net of
discounts availed
from power supplier/s:

On January 14, 2005, the Commission issued an Order

adopting a new PPA policy as follows: (a) the computation and
confirmation of the PPA prior to the Commissions Order dated
June 17, 2003 shall be based on the approved PPA Formula; (b)
the computation and confirmation of the PPA after the
Commissions Order dated June 17, 2003 shall be based on the
power cost net of discount; and (c) if the approved PPA Formula
is silent in terms of discount, the computation and confirmation of
the PPA shall be based on the power cost at gross reduced by the
amount of discounts extended to customers, subject to the
submission of proofs that said discounts are indeed being extended
to customers.

a.1. If a DU bills at net of

discounts availed from
the power supplier/s
(i.e., gross power cost
minus discounts from
power supplier/s) and
the
DU
is
not
extending discounts to
end-users, the actual
revenue should be
equal to the allowable
power cost; and

However, the Commission deemed it appropriate to clarify

its PPA confirmation process particularly on the treatment of the
Prompt Payment Discount (PPD) granted to distribution utilities
(DUs) by their power suppliers, to wit:

a.2. If a DU bills at net of

discounts availed from
the power supplier/s
(i.e., gross power cost
minus discounts from
power supplier/s) and
the DU is extending
discounts
to
endusers, the discount
extended to end-users
shall be added back to
the actual revenue.

I.

The over-or-under recovery will be

determined by comparing the allowable
power cost with the actual revenue
billed to end-users.

II.

Calculation of the DUs allowable

power cost as prescribed in the PPA
formula:
a.

If the PPA formula explicitly

provides the manner by
which discounts availed from
the power supplier/s shall be
treated, the allowable power
cost will be computed based
on the specific provision of
the formula, which may

b.

On actual PPA computed at gross:

b.1. If a DU bills at gross
(i.e., gross power cost
not
reduced
by
discounts from power
supplier/s) and the DU
is extending discounts

to
end-users,
the
actual revenue shall
be
calculated
as:
gross power revenue
less
discounts
extended
to
endusers. The result shall
then be compared to
the allowable power
cost; and
b.2. If a DU bills at gross
(i.e., gross power cost
not
reduced
by
discounts from power
supplier/s) and the DU
is
not
extending
discounts
to
endusers,
the
actual
revenue shall be taken
as is which shall be
compared
to
the
allowable power cost.
IV.

January 1999 to
July 2004

(2,548,280)

TOTAL

18,188,794

In the meantime, SURNECO submitted reports on its

monthly implementation of the PPA covering the period January
1998 to July 2004 and attended the conferences conducted by the
Commission on December 11, 2003 and May 4, 2005 relative
thereto.

February 1996 to
December 1998
PPA Plus Basic
Cha[r]ge
January 1999 to
July 2004
TOTAL

Period Covered

February 1996 to
December 1998

Over
(Under)
Recoveries
(In PhP)
20,737,074

Over
(Under)
Recoveries
(In kWh)
0.2077

70,235

0.3190

(2,548,280)

(0.0097)

(2,478,045)

(0.0100)

The over-recoveries were due to the following:

1.

For the period February 1996 to December 1998,

SURNECOs PPA computation included the power cost
and the corresponding kWh purchased from Hikdop
end-users. The Commission excluded those months
which SURNECO did not impose variable charges to
Hikdop end-user which resulted to a total net overrecovery of PhP21,245,034.00; and

2.

SURNECOs basic charge for Hikdop end-users were

beyond the approved basic charge for the period
February 1996 to September 1998 resulting to a net
over-recovery of PhP128,489.00.

SURNECOs under recoveries for the period January 1999

to June 2004 were due to the following:
1.

For the period August 2001 to June 2004,

SURNECO erroneously deducted the Power Act
Reduction Adjustments (PARA) in the total purchased
power cost of its PPA computation resulting to an
under-recovery of PhP1,377,763.00;

2.

SURNECOs power cost and kWh computation

includes Dummy Load resulting to an under recovery
amounting to PhP226,196.00; and

3.

The new grossed-up factor scheme adopted by the

Commission which provided a true-up mechanism to
allow the DUs to recover the actual costs of
purchased power.[19]

The Commission evaluated SURNECOs monthly PPA

implementation covering the period February 1996 to July 2004,
which disclosed the following:
Schedule 1, Main Island

0.0500

Schedule 2, Municipality of Hikdop

In the calculation of the DUs actual

revenues, the amount of discounts
extended to end-users shall, in no case,
be higher than the discounts availed by
the DU from its power supplier/s.

The foregoing clarification was intended to ensure that

only the actual costs of purchased power are recovered by the
DUs.

(0.0097)

In directing SURNECO to refund its over-recoveries based on PPA policies,

which only ensured that the PPA mechanism remains a purely cost-recovery

mechanism and not a revenue-generating scheme for the electric cooperatives, the
ERC merely exercised its authority to regulate and approve the rates imposed by the
electric cooperatives on their consumers. The ERC simply performed its mandate to
protect the public interest imbued in those rates.
It is beyond cavil that the State, in the exercise of police power, can
regulate the rates imposed by a public utility such as SURNECO. As we held
inRepublic of the Philippines v. Manila Electric Company [20]
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. Submission to
regulation may be withdrawn by the owner by discontinuing use;
but as long as use of the property is continued, the same is subject
to public regulation.
Likewise, SURNECO cannot validly assert that the caps set by R.A. No. 7832
are arbitrary, or that they violate the non-impairment clause of the Constitution for
allegedly traversing the loan agreement between NEA and ADB. Striking down a
legislative enactment, or any of its provisions, can be done only by way of a direct
action, not through a collateral attack, and more so, not for the first time on appeal
in order to avoid compliance. The challenge to the laws constitutionality should also
be raised at the earliest opportunity.[21]
Even assuming, merely for arguments sake, that the ERC issuances
violated the NEA and ADB covenant, the contract had to yield to the greater
authority of the States exercise of police power. It has long been settled that police
power legislation, adopted by the State to promote the health, morals, peace,
education, good order, safety, and general welfare of the people prevail not only over
future contracts but even over those already in existence, for all private contracts
must yield to the superior and legitimate measures taken by the State to promote
public welfare.[22]
SURNECO also avers that the Electric Power Industry Reform Act of 2001
(EPIRA) removed the alleged arbitrary caps in R.A. No. 7832. We differ. The EPIRA
allows the caps to remain until replaced by the caps to be determined by the ERC,
pursuant to its delegated authority under Section 43 [23] of R.A. No. 9136 to prescribe
new system loss caps, based on technical parameters such as load density, sales
mix, cost of service, delivery voltage, and other technical considerations it may
promulgate.
Third. We also disagree with SURNECO in its insistence that the PPA
confirmation policies constituted an amendment to the IRR of R.A. No. 7832 and
must, therefore, comply with the publication requirement for the effectivity of
administrative issuances.
.
The PPA formula provided in the IRR of R.A. No. 7832 was only a model to
be used as a guide by the electric cooperatives in proposing their own PPA formula
for approval by the then ERB. Sections 4 and 5, Rule IX of the IRR directed the
electric cooperatives to apply for approval of such formula with the ERB so that the
system loss caps under the law would be incorporated in their computation of power

cost adjustments. The IRR did not provide for a specific formula; therefore, there
was nothing in the IRR that was amended or could have been amended relative to
the PPA formula. The IRR left to the ERB, now the ERC, the authority to approve
and oversee the implementation of the electric cooperatives PPA formula in the
exercise of its rate-making power over them.
We likewise differ from SURNECOs stance that it was denied due process
when the ERC issued its questioned Orders. Administrative due process simply
requires an opportunity to explain ones side or to seek reconsideration of the action
or ruling complained of.[24] It means being given the opportunity to be heard before
judgment, and for this purpose, a formal trial-type hearing is not even essential. It
is enough that the parties are given a fair and reasonable chance to demonstrate
their respective positions and to present evidence in support thereof.[25]
Verily, the PPA confirmation necessitated a review of the electric
cooperatives monthly documentary submissions to substantiate their PPA
charges. The cooperatives were duly informed of the need for other required
supporting documents and were allowed to submit them accordingly. In fact,
hearings were conducted. Moreover, the ERC conducted exit conferences with the
electric cooperatives representatives, SURNECO included, to discuss preliminary
figures and to double-check these figures for inaccuracies, if there were any. In
addition, after the issuance of the ERC Orders, the electric cooperatives were
allowed to file their respective motions for reconsideration. It cannot be gainsaid,
therefore, that SURNECO was not denied due process.
Finally, the core of the issues raised is factual in character. It needs only to
be reiterated that factual findings of administrative bodies on technical matters
within their area of expertise should be accorded not only respect but even finality if
they are supported by substantial evidence even if not overwhelming or
preponderant,[26] more so if affirmed by the CA. Absent any grave abuse of
discretion on the part of ERC, we must sustain its findings. Hence, its assailed
Orders, following the rule of non-interference on matters addressed to the sound
discretion of government agencies entrusted with the regulation of activities coming
their special technical knowledge and training, must be upheld. [27]
WHEREFORE, the petition is DENIED. The Decision dated April 17, 2008
and the Resolution dated June 25, 2008 of the Court of Appeals in CA-G.R. SP No.
99781 are AFFIRMED. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 192088

October 9, 2012

INITIATIVES FOR DIALOGUE AND EMPOWERMENT THROUGH ALTERNATIVE

LEGAL SERVICES, INC. (IDEALS, INC.), represented by its Executive
Director, Mr. Edgardo Ligon, and FREEDOM FROM DEBT COALITION (FDC),
represented by its Vice President Rebecca L. Malay, AKBAYAN CITIZEN'S
ACTION PARTY, represented by its Chair Emeritus Loretta Anne P. Rosales,
ALLIANCE OF PROGRESSIVE LABOR, represented by its Chairperson, Daniel
L. Edralin, REP. WALDEN BELLO, in his capacity as duly-elected Member of
the House of Representatives, Petitioners,
vs.
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION
(PSALM), represented by its Acting President and Chief Executive Officer
Atty. Ma. Luz L. Caminero, METROPOLITAN WATERWORKS AND SEWERAGE
SYSTEM (MWSS), represented by its Administrator Atty. Diosdado M. Allado,
NATIONAL IRRIGATION ADMINISTRATION (NIA), represented by its
Administrator Carlos S. Salazar, KOREA WATER RESOURCES CORPORATION,
represented by its Chief Executive Officer, Kim Kuen-Ho and/or Attorneysin-fact, Atty. Anna Bianca L. Torres and Atty. Luther D. Ramos, FIRST GEN
NORTHERN ENERGY CORP., represented by its President, Mr. Federico R.
Lopez, SAN MIGUEL CORP., represented by its President, Mr. Ramon S. Ang,
SNABOITIZ POWER-PANGASINAN INC., represented by its President, Mr.
Antonio R. Moraza, TRANS-ASIA OIL AND ENERGY DEVELOPMENT
CORPORATION, represented by its President and CEO, Mr. Francisco L.
Viray, and DMCI POWER CORP., represented by its President, Mr. Nestor
Dadivas,Respondents.
DECISION
VILLARAMA, J.:
Before us is a petition for certiorari and prohibition seeking to permanently enjoin
the sale of the Angat Hydro-Electric Power Plant (AHEPP) to Korea Water Resources
Corporation (K-Water) which won the public bidding conducted by the Power Sector
Assets and Liabilities Management Corporation (PSALM).
The Facts
Respondent PSALM is a government-owned and controlled corporation created by
virtue of Republic Act No. 9136,1otherwise known as the "Electric Power Industry
Reform Act of 2001" (EPIRA). The EPIRAprovided a framework for the restructuring
of the electric power industry, including the privatization of the assets of the National
Power Corporation (NPC), the transition to the desired competitive structure, and the
definition of the responsibilities of the various government agencies and private

entities. Said law mandated PSALM to manage the orderly sale, disposition, and
privatization of NPC generation assets, real estate and other disposable assets, and
Independent Power Producer (IPP) contracts with the objective of liquidating all NPC
financial obligations and stranded contract costs in an optimal manner, which
liquidation is to be completed within PSALMs 25-year term of existence. 2
Sometime in August 2005, PSALM commenced the privatization of the 246megawatt (MW) AHEPP located in San Lorenzo, Norzagaray, Bulacan. AHEPPs main
units built in 1967 and 1968, and 5 auxiliary units, form part of the Angat Complex
which includes the Angat Dam, Angat Reservoir and the outlying watershed area. A
portion of the AHEPP - the 10 MW Auxiliary Unit No. 4 completed on June 16, 1986
and the 18 MW Auxiliary Unit No. 5 completed on January 14, 1993 - is owned by
respondent Metropolitan Waterworks and Sewerage System (MWSS). 3 The main
units produce a total of 200 MW of power while the auxiliary units yield the
remaining 46 MW of power. The Angat Dam and AHEPP are utilized for power
generation, irrigation, water supply and flood control purposes. Because of its multifunctional design, the operation of the Angat Complex involves various government
agencies, namely: (1) NPC; (2) National Water Resources Board (NWRB); (3)
MWSS; (4) respondent National Irrigation Administration (NIA); and (5) Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA).
On December 15, 2009, PSALMs Board of Directors approved the Bidding
Procedures for the privatization of the AHEPP. An Invitation to Bid was published on
January 11, 12 and 13, 2010 in three major national newspapers. Subject of the bid
was the AHEPP consisting of 4 main units and 3 auxiliary units with an aggregate
installed capacity of 218 MW. The two auxiliary units owned by MWSS were excluded
from the bid.
The following terms and conditions for the purchase of AHEPP were set forth in the
Bidding Package:
IB-05 CONDITION OF THE SALE
The Asset shall be sold on an "AS IS, WHERE IS" basis.
The Angat Dam (which is part of the Non-Power Components) is a multi-purpose
hydro facility which currently supplies water for domestic use, irrigation and power
generation. The four main units of the Angat Plant release water to an underground
trailrace that flows towards the Bustos Dam which is owned and operated by the
National Irrigation Administration ("NIA") and provides irrigation requirements to
certain areas in Bulacan. The water from the auxiliary units 1, 2 and 3 flows to the
Ipo Dam which is owned and operated by MWSS and supplies domestic water to
Metro Manila and other surrounding cities.
The priority of water usage under Philippine Law would have to be observed by the
Buyer/Operator.
The Winning Bidder/Buyer shall be requested to enter into an operations and
maintenance agreement with PSALM for the Non-Power Components in accordance
with the terms and conditions of the O & M Agreement to be issued as part of the

Final Transaction Documents. The Buyer, as Operator, shall be required to operate

and maintain the Non-Power Components at its own cost and expense. PSALM is
currently negotiating a water protocol agreement with various parties which are
currently the MWSS, NIA, the National Water Resources Board and NPC. If required
by PSALM, the Buyer will be required to enter into the said water protocol agreement
as a condition to the award of the Asset.
The Buyer shall be responsible for securing the necessary rights to occupy the land
underlying the Asset.4 (Emphasis supplied.)
All participating bidders were required to comply with the following:
(a) submission of a Letter of Interest; (b) execution of Confidentiality Agreement
and Undertaking; and (c) payment of a non-refundable fee of US$ 2,500 as
Participation Fee.5 After holding pre-bid conferences and forum discussions with
various stakeholders, PSALM received the following bids from six competing firms:
K-Water
US$ 440,880,000.00
First Gen Northern Energy
365,000,678.00
Corporation
San Miguel Corporation
312,500,000.00
SNAboitiz Power-Pangasinan, Inc.
256,000,000.00
Trans-Asia Oil & Energy
237,000,000.00
Development Corporation
DMCI Power Corporation
188,890,000.00
On May 5, 2010, and after a post-bid evaluation, PSALMs Board of Directors
approved and confirmed the issuance of a Notice of Award to the highest bidder, KWater.6
On May 19, 2010, the present petition with prayer for a temporary restraining order
(TRO) and/or writ of preliminary injunction was filed by the Initiatives for Dialogue
and Empowerment Through Alternative Legal Services, Inc. (IDEALS), Freedom from
Debt Coalition (FDC), AKBAYAN Citizens Action Party (AKBAYAN) and Alliance of
Progressive Labor.
On May 24, 2010, this Court issued a Status QuoAnte Order directing the
respondents to maintain the status quo prevailing before the filing of the petition
and to file their respective Comments on the petition.7
Arguments of the Parties
Petitioners contend that PSALM gravely abused its discretion when, in the conduct of
the bidding it disregarded and violated the peoples right to information guaranteed
under the Constitution, as follows: (1) the bidding process was commenced by
PSALM without having previously released to the public critical information such as
the terms and conditions of the sale, the parties qualified to bid and the minimum
bid price, as laid down in the case of Chavez v. Public Estates Authority8; (2) PSALM
refused to divulge significant information requested by petitioners, matters which
are of public concern; and (3) the bidding was not conducted in an open and
transparent manner, participation was indiscriminately restricted to the private
sectors in violation of the EPIRA which provides that its provisions shall be

"construed in favor of the establishment, promotion, preservation of competition and

people empowerment so that the widest participation of the people, whether directly
or indirectly, is ensured."9
Petitioners also assail the PSALM in not offering the sale of the AHEPP to MWSS
which co-owned the Angat Complex together with NPC and NIA. Being a mere coowner, PSALM cannot sell the AHEPP without the consent of co-owners MWSS and
NIA, and being an indivisible thing, PSALM has a positive obligation to offer its
undivided interest to the other co-owners before selling the same to an outsider.
Hence, PSALMs unilateral disposition of the said hydro complex facility violates the
Civil Code rules on co-ownership (Art. 498) and Sec. 47 (e) of the EPIRA which
granted PSALM the legal option of transferring possession, control and operation of
NPC generating assets like the AHEPP to another entity in order "to protect potable
water, irrigation and all other requirements imbued with public interest."
As to the participation in the bidding of and award of contract to K-Water which is a
foreign corporation, petitioners contend that PSALM clearly violated the
constitutional provisions on the appropriation and utilization of water as a natural
resource, as implemented by the Water Code of the Philippines limiting water rights
to Filipino citizens and corporations which are at least 60% Filipino-owned. Further
considering the importance of the Angat Dam which is the source of 97% of Metro
Manilas water supply, as well as irrigation for farmlands in 20 municipalities and
towns in Pampanga and Bulacan, petitioners assert that PSALM should prioritize such
domestic and community use of water over that of power generation.
They maintain that the Philippine Government, along with its agencies and
subdivisions, have an obligation under international law, to recognize and protect the
legally enforceable human right to water of petitioners and the public in general.
Petitioners cite the Advisory on the "Right to Water in Light of the Privatization of the
Angat Hydro-Electric Power Plant"10 dated November 9, 2009 issued by the
Commission on Human Rights (CHR) urging the Government to revisit and reassess
its policy on water resources vis--vis its concurrent obligations under international
law to provide, and ensure and sustain, among others, "safe, sufficient, affordable
and convenient access to drinking water." Since investment in hydropower business
is primarily driven by generation of revenues both for the government and private
sector, the CHR warns that once the AHEPP is privatized, there will be less accessible
water supply, particularly for those living in Metro Manila and the Province of Bulacan
and nearby areas which are currently benefited by the AHEPP. The CHR believes that
the management of AHEPP is better left to MWSS being a government body and
considering the public interest involved. However, should the decision to privatize the
AHEPP become inevitable, the CHR strongly calls for specific and concrete safeguards
to ensure the right to water of all, as the domestic use of water is more fundamental
than the need for electric power.
Petitioners thus argue that the protection of their right to water and of public
interest requires that the bidding process initiated by PSALM be declared null and
void for violating such right, as defined by international law and by domestic law
establishing the States obligation to ensure water security for its people.
In its Comment With Urgent Motion to Lift Status Quo Ante Order, respondent PSALM
prayed for the dismissal of the petition on the following procedural grounds: (a) a
petition for certiorari is not the proper remedy because PSALM was not acting as a

tribunal or board exercising judicial or quasi-judicial functions when it commenced

the privatization of AHEPP; (b) the present petition is rendered moot by the issuance
of a Notice of Award in favor of K-Water; (c) assuming the petition is not mooted by
such contract award, this Court has no jurisdiction over the subject matter of the
controversy involving a political question, and also because if it were the intent of
Congress to exclude the AHEPP in the privatization of NPC assets, it should have
clearly expressed such intent as it did with the Agus and Pulangui power plants
under Sec. 47 of the EPIRA; (d) petitioners lack of standing to question the bidding
process for failure to show any injury as a result thereof, while Rep. Walden Bello
likewise does not have such legal standing in his capacity as a duly elected member
of the House of Representatives as can be gleaned from the rulings in David v.
Arroyo11 and Philippine Constitutional Association v. Enriquez.12
On the alleged violation of petitioners right to information, PSALM avers that it
conducted the bidding in an open and transparent manner, through a series of
events in accordance with the governing rules on public bidding. The non-disclosure
of certain information in the invitation to bid was understandable, such as the
minimum or reserve price which are still subject to negotiation and approval of
PSALMs Board of Directors. The ruling in Chavez v. Public Estates Authority13 is
inapplicable since it involved government property which has become unserviceable
or was no longer needed and thus fell under Sec. 79 of the Government Auditing
Code whereas the instant case concerns a hydroelectric power plant adjacent to a
dam which still provides water supply to Metro Manila. In the bidding for the AHEPP,
PSALM claims that it relied on the Rules and Regulations Implementing the EPIRA, as
well as COA Circular No. 89-296 on the general procedures for bidding by
government agencies and instrumentalities of assets that will be divested or
government property that will be disposed of. PSALM likewise avers that it was
constrained to deny petitioner IDEALS letter dated April 20, 2010 requesting
documents relative to the privatization of Angat Dam due to non-submission of a
Letter of Interest, Confidentiality and Undertaking and non-payment of the
Participation Fee. With regard to IDEALS request for information about the winning
bidder, as contained in its letter dated May 14, 2010, the same was already referred
to respondent K-Waters counsel for appropriate action.
In any case, PSALM maintains that not all details relative to the privatization of the
AHEPP can be readily disclosed; the confidentiality of certain matters was necessary
to ensure the optimum bid price for the property.
PSALM further refutes the assertion of petitioners that the Angat Complex is an
indivisible system and co-owned with MWSS and NIA. It contends that MWSSs
contribution in the funds used for the construction of the AHEPP did not give rise to a
regime of co-ownership as the said funds were merely in exchange for the supply of
water that MWSS would get from the Angat Dam, while the Umiray-AngatTransbasin
Rehabilitation Project the improvement and repair of which were funded by MWSS,
did not imply a co-ownership as these facilities are located in remote places.
Moreover, PSALM points out that PSALM, MWSS and NIA each was issued a water
permit, and are thus holders of separate water rights.
On the alleged violation of petitioners and the peoples right to water, PSALM
contends that such is baseless and proceeds from the mistaken assumption that the
Angat Dam was sold and as a result thereof, the continuity and availability of
domestic water supply will be interrupted. PSALM stresses that only the hydroelectric
facility is being sold and not the Angat Dam which remains to be owned by PSALM,
and that the NWRB still governs the water allocation therein while the NPC-FFWSDO

still retains exclusive control over the opening of spillway gates during rainy season.
The foregoing evinces the continued collective control by government agencies over
the Angat Dam, which in the meantime, is in dire need of repairs, the cost of which
cannot be borne by the Government.
PSALM further debunks the nationality issue raised by petitioners, citing previous
opinions rendered by the Department of Justice (DOJ) consistently holding that the
utilization of water by a hydroelectric power plant does not constitute appropriation
of water from its natural source considering that the source of water (dam) that
enters the intake gate of the power plant is an artificial structure. Moreover, PSALM
is mindful of the States duty to protect the publics right to water when it sold the
AHEPP. In fact, such concern as taken into consideration by PSALM in devising a
privatization scheme for the AHEPP whereby the water allocation is continuously
regulated by the NWRB and the dam and its spillway gates remain under the
ownership and control of NPC.
In its Comment,14 respondent MWSS asserts that by virtue of its various statutory
powers since its creation in 1971, which includes the construction, maintenance and
operation of dams, reservoir and other waterworks within its territorial jurisdiction, it
has supervision and control over the Angat Dam given that the Angat Reservoir
supplies approximately 97% of the water requirements of Metro Manila. Over the
course of its authority over the Angat Dam, Dykes and Reservoir, MWSS has incurred
expenses to maintain their upkeep, improve and upgrade their facilities. Thus, in
1962, MWSS contributed about 20% for the construction cost of the Angat Dam and
Dykes (then equivalent to about P 21 million); in 1992, MWSS contributed
about P 218 million for the construction of Auxiliary Unit No. 5; in 1998, MWSS
contributed P 73.5 million for the construction cost of the low level outlet; and
subsequently, MWSS invested P 3.3 billion to build the Umiray-AngatTransbasin
Tunnel to supplement the water supply available from the Angat Dam, which tunnel
contributes a minimum of about 9 cubic meters per second to the Angat Reservoir,
thus increasing power generation. MWSS argues that its powers over waterworks are
vested upon it by a special law (MWSS Charter) which prevails over the EPIRA which
is a general law, as well as other special laws, issuances and presidential edicts. And
as contained in Sec. 1 of the MWSS Charter, which remains valid and effective, it is
expressly provided that the establishment, operation and maintenance of
waterworks systems must always be supervised by the State.
MWSS further alleges that after the enactment of EPIRA, it had expressed the desire
to acquire ownership and control of the AHEPP so as not to leave the operation of
the Angat Reservoir to private discretion that may prejudice the water allocation to
MWSS as dictated by NWRB rules.
Representations were thereafter made with the Office of the President (OP) for the
turn over of the management of these facilities to MWSS, and joint consultation was
also held with PSALM officials for the possibility of a Management Committee to
manage and control the Angat Dam Complex under the chairmanship of the water
sector, which position was supported by former Secretary HermogenesEbdane of the
Department of Public Works and Highways (DPWH). In March 2008, PSALM proposed
the creation of an inter-agency technical working group (TWG) to draft the
Operations and Maintenance (O & M) Agreement for the AHEPP that will be in effect
after its privatization. PSALM likewise sought the view of the Office of the
Government Corporate Counsel (OGCC) which opined that PSALM may turn over the
facility to a qualified entity such as MWSS without need of public bidding. In 2009,
various local governments supported the transfer of the control and management of

the AHEPP to MWSS, while the League of Cities and Municipalities interposed its
opposition to the privatization of the AHEPP fearing that it might increase the cost of
water in Metro Manila, and also because it will be disadvantageous to the national
government since the AHEPP only contributes 246 MW of electricity to the Luzon
Grid. Even the CHR has advised the Government to reassess its privatization policy
and to always consider paramount the most basic resources necessary and
indispensable for human survival, which includes water.
MWSS further avers that upon the facilitation of the OGCC and participated in by
various stakeholders, including its two concessionaires, Manila Water Company, Inc.
and Maynilad Water Services, Inc., various meetings and conferences were held
relative to the drafting of the
Memorandum of Agreement on the Angat Water Protocol. On April 20, 2010, the
final draft of the Angat Water Protocol was finally complete. However, as of June 18,
2010, only MWSS and NIA signed the said final draft. MWSS thus contends that
PSALM failed to institute any safeguards as prescribed in Sec. 47 of the EPIRA when
it proceeded with the privatization of the AHEPP.
As to the issue of nationality requirement in the appropriation of water resources
under the Constitution, MWSS cites the case of Manila Prince Hotel v. Government
Service Insurance System15 which interpreted paragraph 2, Sec. 10, Art. XII of the
1987 Constitution providing that "in the grant of rights, privileges, and concessions
covering the national economy and patrimony, the State shall give preference to
qualified Filipinos" to imply "a mandatory, positive command which is complete in
itself and which needs no further guidelines or implementing laws or rules for its
enforcement x xx and is per se judicially enforceable." In this case, the AHEPP is in
dire danger of being wholly-owned by a Korean corporation which probably merely
considers it as just another business opportunity, and as such cannot be expected to
observe and ensure the smooth facilitation of the more critical purposes of water
supply and irrigation.
Respondent First Gen Northern Energy Corporation (FGNEC) also filed a
Comment16 disagreeing with the contentions of petitioners and respondent MWSS on
account of the following: (1) the NPC charter vested upon it complete jurisdiction
and control over watersheds like the Angat Watershed surrounding the reservoir of
the power plants, and hence Art. 498 of the Civil Code is inapplicable; (2) NPC,
MWSS and NIA are not co-owners of the various rights over the Angat Dam as in
fact each of them holds its own water rights; (3) the State through the EPIRA
expressly mandates PSALM to privatize all NPC assets, which necessarily includes the
AHEPP; (4) the privatization of the AHEPP will not affect the priority of water for
domestic and municipal uses as there are sufficient safeguards to ensure the same,
and also because the Water Code specifically mandates that such use shall take
precedence over other uses, and even the EPIRA itself gives priority to use of water
for domestic and municipal purposes over power generation; (5) the Water Protocol
also safeguards priority of use of water for domestic purposes; (6) the bidding
procedure for the AHEPP was valid, and the bidding was conducted by PSALM in an
open and transparent manner; and (7) the right to information of petitioners and the
public in general was fully satisfied, and PSALM adopted reasonable rules and
regulations for the orderly conduct of its functions pursuant to its mandate under the
EPIRA.

FGNEC nevertheless prays of this Court to declare the nationality requirements for
the ownership, operation and maintenance of the AHEPP as prescribed by the
Constitution and pertinent laws. Considering the allegation of petitioners that KWater is owned by the Republic of South Korea, FGNEC asserts that PSALM should
not have allowed said entity to participate in the bidding because under our
Constitution, the exploration, development and utilization of natural resources are
reserved to Filipino citizens or to corporations with 60% of their capital being owned
by Filipinos.
Respondent NIA filed its Comment17 stating that its interest in this case is limited
only to the protection of its water allocation drawn from the Angat Dam as
determined by the NWRB. Acknowledging that it has to share the meager water
resources with other government agencies in fulfilment of their respective mandate,
NIA submits that it is willing to sit down and discuss issues relating to water
allocation, as evidenced by the draft Memorandum of Agreement on the Angat Water
Protocol. Since the reliefs prayed for in the instant petition will not be applicable to
NIA which was not involved in the bidding conducted by PSALM, it will thus not be
affected by the outcome of the case.
Respondents San Miguel Corporation (SMC), DMCI Power Corporation, Trans-Asia Oil
and Energy Development Corporation and SNAboitiz Power-Pangasinan, Inc. filed
their respective Comments18 with common submission that they are not real partiesin-interest and should be excluded from the case. They assert that PSALM acted
pursuant to its mandate to privatize the AHEPP when it conducted the bidding, and
there exists no reason for them to take any action to invalidate the said bidding
wherein they lost to the highest bidder K-Water.
On its part, respondent K-Water filed a Manifestation In Lieu of Comment 19 stating
that it is not in a position to respond to petitioners allegations, having justifiably
relied on the mandate and expertise of PSALM in the conduct of public bidding for
the privatization of the AHEPP and had no reason to question the legality or
constitutionality of the privatization process, including the bidding. K-Water submits
that its participation in the bidding for the AHEPP was guided at all times by an
abiding respect for the Constitution and the laws of the Philippines, and hopes for a
prompt resolution of the present petition to further strengthen and enhance the
investment environment considering the level of investment entailed, not only in
financial terms by providing a definitive resolution and reliable guidance for
investors, whether Filipino or foreign, as basis for effective investment and business
decisions.
In their Consolidated Reply,20 petitioners contend that the instant petition is not
mooted with the issuance of a Notice of Award to K-Water because the privatization
of AHEPP is not finished until and unless the deed of absolute sale has been
executed. They cite the ruling in David v. Arroyo,21 that courts will decide cases,
otherwise moot and academic, if:
first, there is a grave violation of the Constitution; second, the exceptional character
of the situation and the paramount public interest is involved; third, when
constitutional issue raised requires formulation of controlling principles to guide the
bench, the bar and the public; and fourth, the case is capable of repetition yet
evading review.

Petitioners reiterate their legal standing to file the present suit in their capacity as
taxpayers, or as Filipino citizens asserting the promotion and protection of a public
right, aside from being directly injured by the proceedings of PSALM. As to the
absence of Certification and Verification of Non-Forum Shopping from petitioner Bello
in the file copy of PSALM, the same was a mere inadvertence in photocopying the
same.
On the matter of compliance with an open and transparent bidding, petitioners also
reiterate as held in Chavez v. Public Estates Authority,22 that the Courts
interpretation of public bidding applies to any law which requires public bidding,
especially since Sec. 79 of the Government Auditing Code does not enumerate the
data that must be disclosed to the public. PSALM should have followed the minimum
requirements laid down in said case instead of adopting the "format generally used
by government entities in their procurement of goods, infrastructure and
consultancy services," considering that what was involved in Chavez is an amended
Joint Venture Agreement which seeks to transfer title and ownership over
government property. Petitioners point out that the requirement under COA Circular
89-296 as regards confidentiality covers only sealed proposals and not all
information relating to the AHEPP privatization. PSALMs simple referral of IDEALS
request letter to the counsel of K-Water is very telling, indicating PSALMs limited
knowledge about a company it allowed to participate in the bidding and which even
won the bidding.
On the transfer of water rights to K-Water, petitioners reiterate that this violates the
Water Code, and contrary to PSALMs statements, once NPC transfers its water
permit to K-Water, in accordance with the terms of the Asset Purchase Agreement,
NPC gives up its authority to extract or utilize water from the Angat River. Petitioners
further assert that the terms of the sale of AHEPP allowing the buyer the operation
and management of the Non-Power Components, constitutes a relinquishment of
government control over the Angat Dam, in violation of Art. XII, Sec. 2 of the
Constitution. PSALM likewise has not stated that all stakeholders have signed the
Water Protocol. Such absence of a signed Water Protocol is alarming in the light of
PSALMs pronouncement that the terms of the sale to K-Water would still subject to
negotiation. Is PSALMs refusal to sign the Water Protocol part of its strategy to
negotiate the terms of the sale with the bidders? If so, then PSALM is blithely and
cavalierly bargaining away the Filipinos right to water.
Responding to the claims of MWSS in its Comment, PSALM contends that MWSSs
allegations regarding the bidding process is belied by MWSSs own admission that it
held discussions with PSALM to highlight the important points and issues
surrounding the AHEPP privatization that needed to be threshed out. Moreover,
MWSS also admits having participated, along with other agencies and stakeholders,
various meetings and conferences relative to the drafting of a Memorandum of
Agreement on the Angat Water Protocol.
As regards the Angat Dam, PSALM emphasizes that MWSS never exercised
jurisdiction and control over the said facility. PSALM points out that the Angat Dam
was constructed in 1967, or four years before the enactment of Republic Act No.
6234, upon the commissioning thereof by the NPC and the consequent construction
by Grogun, Inc., a private corporation. MWSS attempt to base its claim of
jurisdiction over the Angat Dam upon its characterization of EPIRA as a general law
must likewise fail. PSALM explains that EPIRA cannot be classified as a general law
as it applies to a particular portion of the State, i.e., the energy sector. The EPIRA

must be deemed an exception to the provision in the Revised MWSS Charter on

MWSSs general jurisdiction over waterworks systems.
PSALM stresses that pursuant to the EPIRA, PSALM took ownership of all existing
NPC generation assets, liabilities, IPP contracts, real estate and other disposable
assets, which necessarily includes the AHEPP Complex, of which the Angat Dam is
part. As to the OGCC opinion cited by MWSS to support its position that control and
management of the Angat Dam Complex should be turned over to MWSS, the OGCC
had already issued a second opinion dated August 20, 2008 which clarified the tenor
of its earlier Opinion No. 107, s. 2008, stating that "the disposal of the Angat HEPP
by sale through public bidding the principal mode of disposition under EPIRA
remains PSALMs primary option." Moreover, as pointed out by the National Economic
Development Authority (NEDA) in its letter dated September 16, 2009, the
ownership and operation of a hydropower plant goes beyond the mandate of MWSS.
This view is consistent with the provisions of EPIRA mandating the transfer of
ownership and control of NPC generation assets, IPP Contracts, real estate and other
disposable assets to a private person or entity. Consequently, a transfer to another
government entity of the said NPC assets would be a clear violation of the EPIRA.
Even assuming such is allowed by EPIRA, it would not serve the objective of the
EPIRA, i.e., that of liquidating all NPCs financial obligations and would merely
transfer NPCs debts from the hands of one government entity to another, the funds
that would be utilized by MWSS in the acquisition of the AHEPP would doubtless
come from the pockets of the Filipino people.
As regards the opposition of various local government units to the sale of the AHEPP,
PSALM said that a forum was held specifically to address their concerns. After the
said forum, these LGUs did not anymore raise the same concerns; such inaction on
their part could be taken as an acquiescence to, and acceptance of, the explanations
made by PSALM during the forum.
PSALM had made it clear that it is only the AHEPP and not the Angat Dam which was
being privatized. The same wrong premise underpinned the position of the CHR with
its erroneous allegation that MWSS is allowed, under its Revised Charter, to operate
and maintain a power plant.
PSALM further contends that the sale of AHEPP to K-Water did not violate the
Constitutions provision on the States natural resources and neither is the ruling in
Manila Prince Hotel applicable as said case was decided under different factual
circumstances. It reiterates that the AHEPP, being a generation asset, can be sold to
a foreign entity, under the EPIRA, in accordance with the policy reforms said law
introduced in the power sector; the EPIRA aims to enable open access in the
electricity market and then enable the government to concentrate more fully on the
supply of basic needs to the Filipino people. Owing to the competitive and open
nature of the generation sector, foreign corporation may own generation assets.
Issues
The present controversy raised the following issues:
1) Legal standing of petitioners;
2) Mootness of the petition;

3) Violation of the right to information;

4) Ownership of the AHEPP;
5) Violation of Sec. 2, Art. XII of the Constitution;

Moreover, we have held that if the petition is anchored on the peoples right to
information on matters of public concern, any citizen can be the real party in
interest. The requirement of personal interest is satisfied by the mere fact that the
petitioner is a citizen, and therefore, part of the general public which possesses the
right. There is no need to show any special interest in the result. It is sufficient that
petitioners are citizens and, as such, are interested in the faithful execution of the
laws.27

6) Violation of the Water Code provisions on the grant of water rights; and
Violation of Right to Information
7) Failure of PSALM to comply with Sec. 47 (e) of EPIRA.
Mootness and Locus Standi
PSALMs contention that the present petition had already been mooted by the
issuance of the Notice of Award to K-Water is misplaced. Though petitioners had
sought the immediate issuance of injunction against the bidding commenced by
PSALM -- specifically enjoining it from proceeding to the next step of issuing a notice
of award to any of the bidders -- they further prayed that PSALM be permanently
enjoined from disposing of the AHEPP through privatization. The petition was thus
filed not only as a means of enforcing the States obligation to protect the citizens
"right to water" that is recognized under international law and legally enforceable
under our Constitution, but also to bar a foreign corporation from exploiting our
water resources in violation of Sec. 2, Art. XII of the 1987 Constitution. If the
impending sale of the AHEPP to K-Water indeed violates the Constitution, it is the
duty of the Court to annul the contract award as well as its implementation. As this
Court held in Chavez v. Philippine Estates Authority,23 "supervening events, whether
intended or accidental, cannot prevent the Court from rendering a decision if there is
a grave violation of the Constitution."
We also rule that petitioners possess the requisite legal standing in filing this suit as
citizens and taxpayers.
"Legal standing" or locus standi has been defined as a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury as
a result of the governmental act that is being challenged, alleging more than a
generalized grievance. The gist of the question of standing is whether a party alleges
"such personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court
depends for illumination of difficult constitutional questions." 24 This Court, however,
has adopted a liberal attitude on the locus standi of a petitioner where the petitioner
is able to craft an issue of transcendental significance to the people, as when the
issues raised are of paramount importance to the public. 25Thus, when the proceeding
involves the assertion of a public right, the mere fact that the petitioner is a citizen
satisfies the requirement of personal interest.26
There can be no doubt that the matter of ensuring adequate water supply for
domestic use is one of paramount importance to the public. That the continued
availability of potable water in Metro Manila might be compromised if PSALM
proceeds with the privatization of the hydroelectric power plant in the Angat Dam
Complex confers upon petitioners such personal stake in the resolution of legal
issues in a petition to stop its implementation.

The peoples right to information is provided in Section 7, Article III of the

Constitution, which reads:
Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to government research data used
as basis for policy development, shall be afforded the citizen, subject to such
limitations as may be provided by law. (Emphasis supplied.)
The peoples constitutional right to information is intertwined with the governments
constitutional duty of full public disclosure of all transactions involving public
interest.28 Section 28, Article II of the Constitution declares the State policy of full
transparency in all transactions involving public interest, to wit:
Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest. (Italics supplied.)
The foregoing constitutional provisions seek to promote transparency in policymaking and in the operations of the government, as well as provide the people
sufficient information to exercise effectively other constitutional rights. They are also
essential to hold public officials "at all times x xx accountable to the people," for
unless citizens have the proper information, they cannot hold public officials
accountable for anything. Armed with the right information, citizens can participate
in public discussions leading to the formulation of government policies and their
effective implementation. An informed citizenry is essential to the existence and
proper functioning of any democracy.29
Consistent with this policy, the EPIRA was enacted to provide for "an orderly and
transparent privatization" of NPCs assets and liabilities. 30 Specifically, said law
mandated that "all assets of NPC shall be sold in an open and transparent manner
through public bidding."31
In Chavez v. Public Estates Authority32 involving the execution of an Amended Joint
Venture Agreement on the disposition of reclaimed lands without public bidding, the
Court held:
x x xBefore the consummation of the contract, PEA must, on its own and without
demand from anyone, disclose to the public matters relating to the disposition of its
property. These include the size, location, technical description and nature of the
property being disposed of, the terms and conditions of the disposition, the parties

qualified to bid, the minimum price and similar information. PEA must prepare all
these data and disclose them to the public at the start of the disposition process,
long before the consummation of the contract, because the Government
Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen
can demand from PEA this information at any time during the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being
undertaken by the bidding or review committee is not immediately accessible under
the right to information. While the evaluation or review is still on-going, there are no
"official acts, transactions, or decisions" on the bids or proposals. However, once the
committee makes its official recommendation, there arises a "definite proposition"
on the part of the government. From this moment, the publics right to information
attaches, and any citizen can access all the non-proprietary information leading to
such definite proposition. In Chavez v. PCGG, the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we believe that it is
incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed settlement
they have decided to take up with the ostensible owners and holders of ill-gotten
wealth. Such information, though, must pertain to definite propositions of the
government not necessarily to intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in the process of
being formulated or are in the "exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of information in general, as discussed
earlier such as on matters involving national security, diplomatic or foreign
relations, intelligence and other classified information." (Emphasis supplied.)

transactions. Hopefully, the desired enabling law will finally see the light of day if and
when Congress decides to approve the proposed "Freedom of Access to Information
Act." In the meantime, it would suffice that government agencies post on their
bulletin boards the documents incorporating the information on the steps and
negotiations that produced the agreements and the agreements themselves, and if
finances permit, to upload said information on their respective websites for easy
access by interested parties. Without any law or regulation governing the right to
disclose information, the NHA or any of the respondents cannot be faulted if they
were not able to disclose information relative to the SMDRP to the public in
general.36 (Emphasis supplied.)
The Court, however, distinguished the duty to disclose information from the duty to
permit access to information on matters of public concern under Sec. 7, Art. III of
the Constitution. Unlike the disclosure of information which is mandatory under the
Constitution, the other aspect of the peoples right to know requires a demand or
request for one to gain access to documents and paper of the particular agency.
Moreover, the duty to disclose covers only transactions involving public interest,
while the duty to allow access has a broader scope of information which embraces
not only transactions involving public interest, but any matter contained in official
communications and public documents of the government agency.37 Such relief must
be granted to the party requesting access to official records, documents and papers
relating to official acts, transactions, and decisions that are relevant to a government
contract.

Chavez v. Public Estates Authority thus laid down the rule that the constitutional
right to information includes official information on on-going negotiations before a
final contract. The information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged information,
military and diplomatic secrets and similar matters affecting national security and
public order. In addition, Congress has prescribed other limitations on the right to
information in several legislations. 33

Here, petitioners second letter dated May 14, 2010 specifically requested for
detailed information regarding the winning bidder, such as company profile, contact
person or responsible officer, office address and Philippine registration. But before
PSALM could respond to the said letter, petitioners filed the present suit on May 19,
2010. PSALMs letter-reply dated May 21, 2010 advised petitioners that their letterre quest was referred to the counsel of K-Water. We find such action insufficient
compliance with the constitutional requirement and inconsistent with the policy
under EPIRA to implement the privatization of NPC assets in an "open and
transparent" manner. PSALMs evasive response to the request for information was
unjustified because all bidders were required to deliver documents such as company
profile, names of authorized officers/representatives, financial and technical
experience.

In this case, petitioners first letter dated April 20, 2010 requested for documents
such as Terms of Reference and proposed bids submitted by the bidders. At that
time, the bids were yet to be submitted at the bidding scheduled on April 28, 2010.
It is also to be noted that PSALMs website carried news and updates on the sale of
AHEPP, providing important information on bidding activities and clarifications
regarding the terms and conditions of the Asset Purchase Agreement (APA) to be
signed by PSALM and the winning bidder (Buyer). 34

Consequently, this relief must be granted to petitioners by directing PSALM to allow

petitioners access to the papers and documents relating to the company profile and
legal capacity of the winning bidder. Based on PSALMs own press releases, K-Water
is described as a Korean firm with extensive experience in implementing and
managing water resources development projects in South Korea, and also
contributed significantly to the development of that countrys heavy and chemical
industries and the modernization of its national industrial structure.

In Chavez v. National Housing Authority,35 the Court held that pending the
enactment of an enabling law, the release of information through postings in public
bulletin boards and government websites satisfies the constitutional requirement,
thus:
It is unfortunate, however, that after almost twenty (20) years from birth of the
1987 Constitution, there is still no enabling law that provides the mechanics for the
compulsory duty of government agencies to disclose information on government

AngatHEPP is Under the Jurisdiction of

the Department of Energy Through NPC
It must be clarified that though petitioners had alleged a co-ownership by virtue of
the joint supervision in the operation of the Angat Complex by MWSS, NPC and NIA,
MWSS actually recognized the ownership and jurisdiction of NPC over the
hydroelectric power plant itself. While MWSS had initially sought to acquire
ownership of the AHEPP without public bidding, it now prays that PSALM be ordered

to turn over the possession and control of the said facility to MWSS. MWSS invokes
its own authority or "special powers" by virtue of its general jurisdiction over
waterworks systems, and in consideration of its substantial investments in the
construction of two auxiliary units in the AHEPP, as well as the construction of the
Umiray-AngatTransbasin Tunnel to supplement the water intake at the Angat
Reservoir which resulted in increased power generation.
Records disclosed that as early as December 2005, following the decision of PSALMs
Board of Directors to commence the sale process of the AHEPP along with Magat and
AmlanHEPPs in August 2005, MWSS was actively cooperating and working with
PSALM regarding the proposed Protocol for the Privatization of the AHEPP, specifically
on the terms and conditions for the management, control and operation of the Angat
Dam Complex taking into consideration the concerns of its concessionaires. A
Technical Working Group (TWG) similar to that formed for the Operation and
Management Agreement of Pantabangan and Magat dams was created, consisting of
representatives from PSALM, MWSS and other concerned agencies, to formulate
strategies for the effective implementation of the privatization of AHEPP and
appropriate structure for the operation and management of the Angat Dam
Complex.38
In March 2008, PSALM sought legal advice from the OGCC on available alternatives
to a sale structure for the AHEPP. On May 27, 2008, then Government Corporate
Counsel Alberto C. Agra issued Opinion No. 107, s. 200839stating that PSALM is not
limited to "selling" as a means of fulfilling its mandate under the EPIRA, and that in
dealing with the AHEPP, PSALM has the following options:
1. Transfer the ownership, possession, control, and operation of the Angat Facility to
another entity, which may or may not be a private enterprise, as specifically
provided under Section 47 (e) of RA 9136;
2. Transfer the Angat Facility, through whatever form, to another entity for the
purpose of protecting the public interest.40
The OGCC cited COA Circular No. 89-296 which provides that government property
or assets that are no longer serviceable or needed "may be transferred to other
government entities/agencies without cost or at an appraised value upon authority
of the head or governing body of the agency or corporation, and upon due
accomplishment of an Invoice and Receipt of Property." Pointing out the absence of
any prohibition under R.A. No. 9136 and its IRR for PSALM to transfer the AHEPP to
another government instrumentality, and considering that MWSS is allowed under its
charter to acquire the said facility, the OGCC expressed the view that PSALM may,
"in the interest of stemming a potential water crisis, turn over the ownership,
operations and management of the Angat Facility to a qualified entity, such as the
MWSS, without need of public bidding as the latter is also a government entity." 41
Consequently, MWSS requested the Office of the President (OP) to exclude the
AHEPP from the list of NPC assets to be privatized under the EPIRA. Said request
was endorsed to the Department of Finance (DOF) which requested the National
Economic Development Authority (NEDA) to give its comments. Meanwhile, on
August 20, 2008, the OGCC issued a Clarification42 on its Opinion No. 107, s. 2008
stating that the tenor of the latter issuance was "permissive" and "necessarily, the
disposal of the AHEPP by sale through public bidding the principal mode of

disposition under x xx R.A. 9136 remains PSALMs primary option." The OGCC
further explained its position, thus:
If, in the exercise of PSALMs discretion, it determines that privatization by sale
through public bidding is the best mode to fulfill its mandate under R.A. 9136, and
that this mode will not contravene the States declared policy on water resources,
then the same is legally permissible.
Finally, in OGCC Opinion No. 107 s. 2008, this Office underscored "the overriding
policy of the State x xx recognizing that water is vital to national development x xx
and the crucial role which the Angat Facility plays in the uninterrupted and adequate
supply and distribution of potable water to residents of Metro Manila." This Office
reiterates "the primacy of the States interest in mitigating the possible deleterious
effects of an impending "water crisis" encompassing areas even beyond Metro
Manila." Any transfer of the AHEPP to be undertaken by PSALM whether to a
private or public entity must not contravene the States declared policy of ensuring
the flow of clean, potable water under RA 6395 and 9136, and Presidential Decree
1067. Hence, said transfer and/or privatization scheme must ensure the
preservation of the AHEPP as a vital source of water for Metro Manila and the
surrounding provinces.43 (Emphasis supplied.)
On September 16, 2009, NEDA Deputy Director General Rolando G. Tungpalan, by
way of comment to MWSSs position, wrote the DOF stating that MWSSs concern on
ensuring an uninterrupted and adequate supply of water for domestic use is amply
protected and consistently addressed in the EPIRA. Hence, NEDA concluded that
there appears to be no basis to exclude AHEPP from the list of NPC generation assets
to be privatized and no compelling reason to transfer its management, operations
and control to MWSS.44 NEDA further pointed out that:
Ownership and operation of a hydropower plant, however, goes beyond the
mandate of MWSS.To operate a power generation plant, given the sectors
legislative setup would require certification and permits that has to be secured by
the operator. MWSS does not have the technical capability to undertake the
operation and maintenance of the AHEPP nor manage the contract of a contracted
private party to undertake the task for MWSS. While MWSS may tap NPC to operate
and maintain the AHEPP, this, similar to contracting out a private party, may entail
additional transaction costs, and ultimately result to higher generation
rates.45 (Emphasis supplied.)
Thereafter, MWSS sought the support of the DPWH in a letter dated September 24,
2009 addressed to then Secretary Hermogenes E. Ebdane, Jr., for the exclusion of
the AHEPP from the list of NPC assets to be privatized and instead transfer the
ownership, possession and control thereof to MWSS with reasonable compensation.
Acting on the said request, Secretary Ebdane, Jr. wrote a memorandum for the
President recommending that "the Angat Dam be excluded from the list of NPC
assets to be privatized, and that the ownership, management and control of the
Dam be transferred from NPC to MWSS, with reasonable compensation." 46
Based on the foregoing factual backdrop, there seems to be no dispute as to the
complete jurisdiction of NPC over the government-owned Angat Dam and AHEPP.

The Angat Reservoir and Dam were constructed from 1964 to 1967 and have
become operational since 1968. They have multiple functions:
1) To provide irrigation to about 31,000 hectares of land in 20 municipalities and
towns in Pampanga and Bulacan;
2) To supply the domestic and industrial water requirements of residents in Metro
Manila;
3) To generate hydroelectric power to feed the Luzon Grid; and

xxxx
(o) To assist in the establishment, operation and maintenance of waterworks and
sewerage systems within its jurisdiction under cooperative basis;
(p) To approve and regulate the establishment and construction of waterworks and
sewerage systems in privately owned subdivisions within its jurisdiction; x xx.
(Emphasis supplied.)
On December 9, 1992, by virtue of R.A. No. 7638,51 NPC was placed under the
Department of Energy (DOE) as one of its attached agencies.

4) To reduce flooding to downstream towns and villages.47

The Angat Dam is a rockfill dam with a spillway equipped with three gates at a
spilling level of 219 meters and has storage capacity of about 850 million cubic
meters. Water supply to the MWSS is released through five auxiliary turbines where
it is diverted to the two tunnels going to the Ipo Dam.48 The Angat Dam is one of the
dams under the management of NPC while the La Mesa and Ipo dams are being
managed by MWSS. MWSS is a government corporation existing by virtue of R.A.
No. 6234.49 NAPOCOR or NPC is also a government-owned corporation created under
Commonwealth Act (C.A.) No. 120,50 which, among others, was vested with the
following powers under Sec. 2, paragraph (g):
(g) To construct, operate and maintain power plants, auxiliary plants, dams,
reservoirs, pipes, mains, transmission lines, power stations and substations, and
other works for the purpose of developing hydraulic power from any river, creek,
lake, spring and waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate and improve
gas, oil, or steam engines, and/or other prime movers, generators and other
machinery in plants and/or auxiliary plants for the production of electric power; to
establish, develop, operate, maintain and administer power and lighting system for
the use of the Government and the general public; to sell electric power and to fix
the rates and provide for the collection of the charges for any service rendered:
Provided, That the rates of charges shall not be subject to revision by the Public
Service Commission;
x x x x (Emphasis supplied.)
On September 10, 1971, R.A. No. 6395 was enacted which revised the charter of
NPC, extending its corporate life to the year 2036. NPC thereafter continued to
exercise complete jurisdiction over dams and power plants including the Angat Dam,
Angat Reservoir and AHEPP. While the NPC was expressly granted authority to
construct, operate and maintain power plants, MWSS was not vested with similar
function. Section 3 (f), (o) and (p) of R.A. No. 6234 provides that MWSSs powers
and attributes include the following
(f) To construct, maintain, and operate dams, reservoirs, conduits, aqueducts,
tunnels, purification plants, water mains, pipes, fire hydrants, pumping stations,
machineries and other waterworks for the purpose of supplying water to the
inhabitants of its territory, for domestic and other purposes; and to purify, regulate
and control the use, as well as prevent the wastage of water;

Aside from its ownership and control of the Angat Dam and AHEPP, NPC was likewise
mandated to exercise complete jurisdiction and control over its watershed, pursuant
to Sec. 2 (n) and (o) of R.A. No. 6395 for development and conservation purposes:
(n) To exercise complete jurisdiction and control over watersheds surrounding the
reservoirs of plants and/or projects constructed or proposed to be constructed by
the Corporation. Upon determination by the Corporation of the areas required for
watersheds for a specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice by the
Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced
within the watersheds, subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt
measures to prevent environmental pollution and promote the conservation,
development and maximum utilization of natural resources; and
x x x x (Emphasis supplied.)
On December 4, 1965, Presidential Proclamation No. 505 was issued amending
Proclamation No. 71 by transferring the administration of the watersheds established
in Montalban, San Juan del Monte, Norzagaray, Angat, San Rafael, Pearanda and
Infanta, Provinces of Rizal, Bulacan, Nueva Ecija and Quezon, to NPC. Subsequent
executive issuances Presidential Decree (P.D.) No. 1515 which was signed in June
1978 and amended by P.D. No. 1749 in December 1980 led to the creation of the
NPC Watershed Management Division which presently has 11 watershed areas under
its management.52
Privatization of AHEPP Mandatory Under EPIRA
With the advent of EPIRA in 2001, PSALM came into existence for the principal
purpose of managing the orderly sale, privatization and disposition of generation
assets, real estate and other disposable assets of the NPC including IPP Contracts.
Accordingly, PSALM was authorized to take title to and possession of, those assets
transferred to it. EPIRA mandated that all such assets shall be sold through public
bidding with the exception of Agus and Pulangui complexes in Mindanao, the
privatization of which was left to the discretion of PSALM in consultation with
Congress,53 thus:

Sec. 47. NPC Privatization. Except for the assets of SPUG, the generation assets,
real estate, and other disposable assets as well as IPP contracts of NPC shall be
privatized in accordance with this Act. Within six (6) months from the effectivity of
this Act, the PSALM Corp. shall submit a plan for the endorsement by the Joint
Congressional Power Commission and the approval of the President of the
Philippines, on the total privatization of the generation assets, x xx of NPC and
thereafter, implement the same, in accordance with the following guidelines, except
as provided for in paragraph (f) herein:

not have made specified enumeration in a statute had the intention been not to
restrict its meaning and confine its terms to those expressly mentioned. 56
The Court therefore cannot sustain the position of petitioners, adopted by
respondent MWSS, that PSALM should have exercised the discretion not to proceed
with the privatization of AHEPP, or at least the availability of the option to transfer
the said facility to another government entity such as MWSS. Having no such
discretion in the first place, PSALM committed no grave abuse of discretion when it
commenced the sale process of AHEPP pursuant to the EPIRA.

x xxx
(d) All assets of NPC shall be sold in an open and transparent manner through
public bidding, x xx;
x xxx
(f) The Agus and the Pulangui complexes in Mindanao shall be excluded from among
the generation companies that will be initially privatized. Their ownership shall be
transferred to the PSALM Corp. and both shall continue to be operated by the NPC.
Said complexes may be privatized not earlier than ten (10) years from the effectivity
of this Act, x xx.The privatization of Agus and Pulangui complexes shall be left to the
discretion of PSALM Corp. in consultation with Congress;
x xxx (Emphasis supplied.)
The intent of Congress not to exclude the AHEPP from the privatization of NPC
generation assets is evident from the express provision exempting only the aforesaid
two power plants in Mindanao. Had the legislature intended that PSALM should
likewise be allowed discretion in case of NPC generation assets other than those
mentioned in Sec. 47, it could have explicitly provided for the same. But the EPIRA
exempted from privatization only those two plants in Mindanao and the Small Power
Utilities Group (SPUG).54 Expressiouniusestexclusioalterius, the express inclusion of
one implies the exclusion of all others.55
It is a settled rule of statutory construction that the express mention of one person,
thing, or consequence implies the exclusion of all others. The rule is expressed in the
familiar maxim, expressiouniusestexclusioalterius.
The rule of expressiouniusestexclusioalterius is formulated in a number of ways. One
variation of the rule is principle that what is expressed puts an end to that which is
implied. Expressiumfacitcessaretacitum. Thus, where a statute, by its terms, is
expressly limited to certain matters, it may not, by interpretation or construction, be
extended to other matters.
x xxx
The rule of expressiouniusestexclusioalterius and its variations are canons of
restrictive interpretation. They are based on the rules of logic and the natural
workings of the human mind. They are predicated upon ones own voluntary act and
not upon that of others. They proceed from the premise that the legislature would

In any case, the Court finds that the operation and maintenance of a hydroelectric
power plant is not among the statutorily granted powers of MWSS. Although MWSS
was granted authority to construct and operate dams and reservoirs, such was for
the specific purpose of supplying water for domestic and other uses, and the
treatment, regulation and control of water usage, and not power
generation.57 Moreover, since the sale of AHEPP by PSALM merely implements the
legislated reforms for the electric power industry through schemes that aim "to
enhance the inflow of private capital and broaden the ownership base of the power
generation, transmission and distribution sectors," 58 the proposed transfer to MWSS
which is another government entity contravenes that State policy. COA Circular No.
89-296 likewise has no application to NPC generating assets which are still
serviceable and definitely needed by the Government for the purpose of liquidating
NPCs accumulated debts amounting to billions in US Dollars. Said administrative
circular cannot prevail over the EPIRA, a special law governing the disposition of
government properties under the jurisdiction of the DOE through NPC.
Sale of Government-Owned AHEPP
to a Foreign Corporation Not Prohibited
But Only Filipino Citizens and Corporations
60% of whose capital is owned by Filipinos
May be Granted Water Rights
The core issue concerns the legal implications of the acquisition by K-Water of the
AHEPP in relation to the constitutional policy on our natural resources.
Sec. 2, Art. XII of the 1987 Constitution provides in part:
SEC.2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. With the exception
of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may be provided by law. In case of
water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the
grant.

x xxx (Emphasis supplied.)

(d) Power generation

The States policy on the management of water resources is implemented through

the regulation of water rights. Presidential Decree No. 1067, otherwise known as
"The Water Code of the Philippines" is the basic law governing the ownership,
appropriation utilization, exploitation, development, conservation and protection of
water resources and rights to land related thereto. The National Water Resources
Council (NWRC) was created in 1974 under P.D. No. 424 and was subsequently
renamed as National Water Resources Board (NWRB) pursuant to Executive Order
No. 124-A.59 The NWRB is the chief coordinating and regulating agency for all water
resources management development activities which is tasked with the formulation
and development of policies on water utilization and appropriation, the control and
supervision of water utilities and franchises, and the regulation and rationalization of
water rates.60

x xxx

The pertinent provisions of Art. 3, P.D. No. 1067 provide:

Art. 13. Except as otherwise herein provided, no person including government

instrumentalities or government-owned or controlled corporations, shall appropriate
water without a water right, which shall be evidenced by a document known as a
water permit.
Water right is the privilege granted by the government to appropriate and use water.
x xxx
Art. 15. Only citizens of the Philippines, of legal age, as well as juridical persons,
who are duly qualified by law to exploit and develop water resources, may apply for
water permits. (Emphasis supplied.)

Art. 3. The underlying principles of this code are:

a. All waters belong to the State.
b. All waters that belong to the State can not be the subject to
acquisitive prescription.
c. The State may allow the use or development of waters by
administrative concession.
d. The utilization, exploitation, development, conservation and
protection of water resources shall be subject to the control and
regulation of the government through the National Water
Resources Council x xx
e. Preference in the use and development of waters shall consider
current usages and be responsive to the changing needs of the
country.
x xxx
Art. 9. Waters may be appropriated and used in accordance with the provisions of
this Code.
Appropriation of water, as used in this Code, is the acquisition of rights over the use
of waters or the taking or diverting of waters from a natural source in the manner
and for any purpose allowed by law.
Art. 10. Water may be appropriated for the following purposes:
x xxx

It is clear that the law limits the grant of water rights only to Filipino citizens and
juridical entities duly qualified by law to exploit and develop water resources,
including private corporations with sixty percent of their capital owned by Filipinos.
In the case of Angat River, the NWRB has issued separate water permits to MWSS,
NPC and NIA.61
Under the EPIRA, the generation of electric power, a business affected with public
interest, was opened to private sector and any new generation company is required
to secure a certificate of compliance from the Energy Regulatory Commission (ERC),
as well as health, safety and environmental clearances from the concerned
government agencies. Power generation shall not be considered a public utility
operation,62 and hence no franchise is necessary. Foreign investors are likewise
allowed entry into the electric power industry. However, there is no mention of water
rights in the privatization of multi-purpose hydropower facilities. Section 47 (e)
addressed the issue of water security, as follows:
(e) In cases of transfer of possession, control, operation or privatization of multipurpose hydro facilities, safeguards shall be prescribed to ensure that the national
government may direct water usage in cases of shortage to protect potable water,
irrigation, and all other requirements imbued with public interest;
x xxx (Emphasis supplied.)
This provision is consistent with the priority accorded to domestic and municipal uses
of water63 under the Water Code, thus:
Art. 22. Between two or more appropriators of water from the same sources of
supply, priority in time of appropriation shall give the better right, except that in
times of emergency the use of water for domestic and municipal purposes shall have
a better right over all other uses; Provided, That, where water shortage is recurrent
and the appropriator for municipal use has a lower priority in time of appropriation,
then it shall be his duty to find an alternative source of supply in accordance with
conditions prescribed by the Board. (Emphasis supplied.)

Rule 23, Section 6 of the Implementing Rules and Regulations (IRR) of the EPIRA
provided for the structure of appropriation of water resources in multi-purpose
hydropower plants which will undergo privatization, as follows:
Section 6. Privatization of Hydroelectric Generation Plants.
(a) Consistent with Section 47(e) of the Act and Section 4(f) of this Rule, the
Privatization of hydro facilities of NPC shall cover the power component including
assignable long-term water rights agreements for the use of water, which shall be
passed onto and respected by the buyers of the hydroelectric power plants.
(b) The National Water Resources Board (NWRB) shall ensure that the allocation for
irrigation, as indicated by the NIA and requirements for domestic water supply as
provided for by the appropriate Local Water District(s) are recognized and provided
for in the water rights agreements. NPC or PSALM may also impose additional
conditions in the shareholding agreement with the winning bidders to ensure
national security, including, but not limited to, the use of water during drought or
calamity.
(c) Consistent with Section 34(d) of the Act, the NPC shall continue to be responsible
for watershed rehabilitation and management and shall be entitled to the
environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
sales (P0.0025/kWh), which shall form part of the Universal Charge. This
environmental fund shall be used solely for watershed rehabilitation and
management and shall bemanaged by NPC under existing arrangements. NPC shall
submit an annual report to the DOE detailing the progress of the water shed
rehabilitation program.
(d) The NPC and PSALM or NIA, as the case may be, shall continue to be responsible
for the dam structure and all other appurtenant structures necessary for the safe
and reliable operation of the hydropower plants. The NPC and PSALM or NIA, as the
case may be, shall enter into an operations and maintenance agreement with the
private operator of the power plant to cover the dam structure and all other
appurtenant facilities. (Emphasis supplied.)
In accordance with the foregoing implementing regulations, and in furtherance of the
Asset Purchase Agreement64(APA), PSALM, NPC and K-Water executed on April 28,
2010 an Operations and Maintenance Agreement65 (O & M Agreement) for the
administration, rehabilitation, operation, preservation and maintenance, by K-Water
as the eventual owner of the AHEPP, of the Non-Power Components meaning the
Angat Dam, non-power equipment, facilities, installations, and appurtenant devices
and structures, including the water sourced from the Angat Reservoir.
It is the position of PSALM that as the new owner only of the hydroelectric power
plant, K-Water will be a mere operator of the Angat Dam. In the power generation
activity, K-Water will have to utilize the waters already extracted from the river and
impounded on the dam. This process of generating electric power from the dam
water entering the power plant thus does not constitute appropriation within the
meaning of natural resource utilization in the Constitution and the Water Code.

Hydroelectric energy is produced by the force of falling water. The capacity to

produce this energy is dependent on both the available flow and the height from
which it falls. Building up behind a high dam, water accumulates potential energy.
This is transformed into mechanical energy when the water rushes down the sluice
and strikes the rotary blades of turbine. The turbine's rotation spins electromagnets
which generate current in stationary coils of wire. Finally, the current is put through
a transformer where the voltage is increased for long distance transmission over
power lines.66
Foreign ownership of a hydropower facility is not prohibited under existing laws. The
construction, rehabilitation and development of hydropower plants are among those
infrastructure projects which even wholly-owned foreign corporations are allowed to
undertake under the Amended Build-Operate-Transfer (Amended BOT) Law (R.A. No.
7718).67
Beginning 1987, the policy has been openness to foreign investments as evident in
the fiscal incentives provided for the restructuring and privatization of the power
industry in the Philippines, under the Power Sector Restructuring Program (PSRP) of
the Asian Development Bank.
The establishment of institutional and legal framework for the entry of private sector
in the power industry began with the issuance by President Corazon C. Aquino of
Executive Order No. 215 in 1987. Said order allowed the entry of private sector
the IPPs to participate in the power generation activities in the country. The entry
of IPPs was facilitated and made attractive through the first BOT Law in 1990 (R.A.
No. 6957) which aimed to "minimize the burden of infrastructure projects on the
national government budget, minimize external borrowing for infrastructure projects,
and use the efficiency of the private sector in delivering a public good." In 1993, the
Electric Power Crisis Act was passed giving the President emergency powers to
urgently address the power crisis in the country.68 The full implementation of the
restructuring and privatization of the power industry was achieved when Congress
passed the EPIRA in 2001.
With respect to foreign investors, the nationality issue had been framed in terms of
the character or nature of the power generation process itself, i.e., whether the
activity amounts to utilization of natural resources within the meaning of Sec. 2, Art.
XII of the Constitution. If so, then foreign companies cannot engage in hydropower
generation business; but if not, then government may legally allow even foreignowned companies to operate hydropower facilities.
The DOJ has consistently regarded hydropower generation by foreign entities as not
constitutionally proscribed based on the definition of water appropriation under the
Water Code, thus:
Opinion No. 173, 1984
This refers to your request for opinion on the possibility of granting water permits to
foreign corporations authorized to do business in the Philippines x xx
x xxx

The operation of a typical hydroelectric power plant has been described as follows:

x xx while the Water Code imposes a nationality requirement for the grant of water
permits, the same refers to the privilege "to appropriate and use water." This should
be interpreted to mean the extraction of water from its natural source (Art. 9, P.D.
No. 1067). Once removed therefrom, they cease to be a part of the natural
resources of the country and are the subject of ordinary commerce and may be
acquired by foreigners (Op. No. 55, series of 1939). x xx in case of a contract of
lease, the water permit shall be secured by the lessor and included in the lease as
an improvement. The water so removed from the natural source may be
appropriated/used by the foreign corporation leasing the property.
Opinion No. 14, S. 1995
The nationality requirement imposed by the Water Code refers to the privilege "to
appropriate and use water." This, we have consistently interpreted to mean the
extraction of water directly from its natural source. Once removed from its natural
source the water ceases to be a part of the natural resources of the country and may
be subject of ordinary commerce and may even be acquired by foreigners.
(Secretary of Justice Op. No. 173, s. 1984; No. 24, s. 1989; No. 100 s. 1994)
In fine, we reiterate our earlier view that a foreign entity may legally process or
treat water after its removal from a natural source by a qualified person, natural or
juridical.
Opinion No. 122, s. 1998
The crucial issue at hand is the determination of whether the utilization of water by
the power plant to be owned and operated by a foreign-owned corporation (SRPC)
will violate the provisions of the Water Code.
As proposed, the participation of SRPC to the arrangement commences upon
construction of the power station, consisting of a dam and a power plant. After the
completion of the said station, its ownership and control shall be turned over to NPC.
However, SRPC shall remain the owner of the power plant and shall operate it for a
period of twenty-five (25) years.
It appears that the dam, which will be owned and controlled by NPC, will block the
natural flow of the river. The power plant, which is situated next to it, will entirely
depend upon the dam for its water supply which will pass through an intake gate
situated one hundred (100) meters above the riverbed. Due to the distance from the
riverbed, water could not enter the power plant absent the dam that traps the flow
of the river. It appears further that no water shall enter the power tunnel without
specific dispatch instructions from NPC, and such supplied water shall be used only
by SRPC for power generation and not for any other purpose. When electricity is
generated therein, the same shall be supplied to NPC for distribution to the public.
These facts x xx viewed in relation to the Water Code, specifically Article 9 thereof, x
xx clearly show that there is no circumvention of the law.
This Department has declared that the nationality requirement imposed by the Water
Code refers to the privilege "to appropriate and use water" and has interpreted this
phrase to mean the extraction of water directly from its natural source (Secretary of
Justice Opinion No. 14, s. 1995). "Natural" is defined as that which is produced
without aid of stop, valves, slides, or other supplementary means (see Websters

New International Dictionary, Second Edition, p. 1630). The water that is used by
the power plant could not enter the intake gate without the dam, which is a manmade structure. Such being the case, the source of the water that enters the power
plant is of artificial character rather than natural. This Department is consistent in
ruling, that once water is removed from its natural source, it ceases to be a part of
the natural resources of the country and may be the subject of ordinary commerce
and may even be acquired by foreigners. (Ibid., No. 173, s. 1984; No. 24, s. 1989;
No. 100, s. 1994).
It is also significant to note that NPC, a government-owned and controlled
corporation, has the effective control over all elements of the extraction process,
including the amount and timing thereof considering that x xx the water will flow out
of the power tunnel and through the power plant, to be used for the generation of
electricity, only when the Downstream Gates are opened, which occur only upon the
specific water release instructions given by NPC to SRPC. This specific feature of the
agreement, taken together with the above-stated analysis of the source of water
that enters the plant, support the view that the nationality requirement embodied in
Article XII, Section 2 of the present Constitution and in Article 15 of the Water Code,
is not violated.69
(Emphasis supplied.)
The latest executive interpretation is stated in DOJ Opinion No. 52, s. 2005 which
was rendered upon the request of PSALM in connection with the proposed sale
structure for the privatization of hydroelectric and geothermal generation assets
(Gencos) of NPC. PSALM sought a ruling on the legality of its proposed privatization
scheme whereby the non-power components (dam, reservoir and appurtenant
structures and watershed area) shall be owned by the State through government
entities like NPC or NIA which shall exercise control over the release of water, while
the ownership of the power components (power plant and related facilities) is open
to both Filipino citizens/corporations and 100% foreign-owned corporations.
Sustaining the position of PSALM, then Secretary Raul M. Gonzalez opined:
Premised on the condition that only the power components shall be transferred to
the foreign bidders while the non-power components/structures shall be retained by
state agencies concerned, we find that both PSALMs proposal and position are
tenable.
x xxx
x xx as ruled in one case by a U.S. court:
Where the State of New York took its natural resources consisting of Saratoga Spring
and, through a bottling process, put those resources into preserved condition where
they could be sold to the public in competition with private waters, the state
agencies were not immune from federal taxes imposed upon bottled waters on the
theory that state was engaged in the sale of "natural resources."
Applied to the instant case, and construed in relation to the earlier-mentioned
constitutional inhibition, it would appear clear that while both waters and geothermal

steam are, undoubtedly "natural resources", within the meaning of Section 2 Article
XII of the present Constitution, hence, their exploitation, development and utilization
should be limited to Filipino citizens or corporations or associations at least sixty per
centum of the capital of which is owned by Filipino citizens, the utilization thereof
can be opened even to foreign nationals, after the same have been extracted from
the source by qualified persons or entities. The rationale is because, since they no
longer form part of the natural resources of the country, they become subject to
ordinary commerce.
A contrary interpretation, i.e., that the removed or extracted natural resources would
remain inalienable especially to foreign nationals, can lead to absurd consequences,
e.g. that said waters and geothermal steam, and any other extracted natural
resources, cannot be acquired by foreign nationals for sale within or outside the
country, which could not have been intended by the framers of the Constitution.
The fact that under the proposal, the non-power components and structures shall be
retained and maintained by the government entities concerned is, to us, not only a
sufficient compliance of constitutional requirement of "full control and supervision of
the State" in the exploitation, development and utilization of natural resources. It is
also an enough safeguard against the evil sought to be avoided by the constitutional
reservation x xx.70 (Italics in the original, emphasis supplied.)
Appropriation of water, as used in the Water Code refers to the "acquisition of rights
over the use of waters or the taking or diverting of waters from a natural source in
the manner and for any purpose allowed by law."71 This definition is not as broad as
the concept of appropriation of water in American jurisprudence:
An appropriation of water flowing on the public domain consists in the capture,
impounding, or diversion of it from its natural course or channel and its actual
application to some beneficial use private or personal to the appropriator, to the
entire exclusion (or exclusion to the extent of the water appropriated) of all other
persons. x xx72

infrastructure projects and/or own and operate the facility constructed. However, in
case the facility requires a public utility franchise, the facility operator must be a
Filipino corporation or at least 60% owned by Filipino.75
With the advent of privatization of the electric power industry which resulted in its
segregation into four sectors -- generation, transmission, distribution and supply
NPCs generation and transmission functions were unbundled. Power generation and
transmission were treated as separate sectors governed by distinct rules under the
new regulatory framework introduced by EPIRA. The National Transmission
Corporation (TRANSCO) was created to own and operate the transmission assets and
perform the transmission functions previously under NPC. While the NPC continues
to undertake missionary electrification programs through the SPUG, PSALM was also
created to liquidate the assets and liabilities of NPC.
Under the EPIRA, NPCs generation function was restricted as it was allowed to
"generate and sell electricity only from the undisposed generating assets and IPP
contracts of PSALM" and was prohibited from incurring "any new obligations to
purchase power through bilateral contracts with generation companies or other
suppliers."76 PSALM, on the other hand, was tasked "to structure the sale,
privatization or disposition of NPC assets and IPP contracts and/or their energy
output based on such terms and conditions which shall optimize the value and sale
prices of said assets."77 In the case of multi-purpose hydropower plants, the IRR of
R.A. No. 9136 provided that their privatization would extend to water rights which
shall be transferred or assigned to the buyers thereof, subject to safeguards
mandated by Sec. 47(e) to enable the national government to direct water usage in
cases of shortage to protect water requirements imbued with public interest.
Accordingly, the Asset Purchase Agreement executed between PSALM and K-Water
stipulated:
2.04 Matters Relating to the Non-Power Component
x xxx

On the other hand, "water right" is defined in the Water Code as the privilege
granted by the government to appropriate and use water.73 Blacks Law Dictionary
defined "water rights" as "a legal right, in the nature of a corporeal hereditament, to
use the water of a natural stream or water furnished through a ditch or canal, for
general or specific purposes, such as irrigation, mining, power, or domestic use,
either to its full capacity or to a measured extent or during a defined portion of the
time," or "the right to have the water flow so that some portion of it may be reduced
to possession and be made private property of individual, and it is therefore the right
to divert water from natural stream by artificial means and apply the same to
beneficial use."74
Under the Water Code concept of appropriation, a foreign company may not be said
to be "appropriating" our natural resources if it utilizes the waters collected in the
dam and converts the same into electricity through artificial devices. Since the NPC
remains in control of the operation of the dam by virtue of water rights granted to it,
as determined under DOJ Opinion No. 122, s. 1998, there is no legal impediment to
foreign-owned companies undertaking the generation of electric power using waters
already appropriated by NPC, the holder of water permit. Such was the situation of
hydropower projects under the BOT contractual arrangements whereby foreign
investors are allowed to finance or undertake construction and rehabilitation of

Matters relating to Water Rights

NPC has issued a certification (the "Water Certification") wherein NPC consents,
subject to Philippine Law, to the (i) transfer of the Water Permit to the BUYER or its
Affiliate, and (ii) use by the BUYER or its Affiliate of the water covered by the Water
Permit from Closing Date up to a maximum period of one (1) year thereafter to
enable the BUYER to appropriate and use water sourced from Angat reservoir for
purposes of power generation; provided, that should the consent or approval of any
Governmental Body be required for either (i) or (ii), the BUYER must secure such
consent or approval. The BUYER agrees and shall fully comply with the Water Permit
and the Water Certification. x xx
x xxx
Multi-Purpose Facility

The BUYER is fully aware that the Non-Power Components is a multi-purpose hydrofacility and the water is currently being appropriated for domestic use, municipal
use, irrigation and power generation. Anything in this Agreement notwithstanding,
the BUYER shall, at all times even after the Payment Date, fully and faithfully comply
with Philippine Law, including the Instructions, the Rule Curve and Operating
Guidelines and the Water Protocol.78 (Emphasis supplied.)
Lease or transfer of water rights is allowed under the Water Code, subject to the
approval of NWRB after due notice and hearing.79 However, lessees or transferees of
such water rights must comply with the citizenship requirement imposed by the
Water Code and its IRR. But regardless of such qualification of water permit
holders/transferees, it is to be noted that there is no provision in the EPIRA itself
authorizing the NPC to assign or transfer its water rights in case of transfer of
operation and possession of multi-purpose hydropower facilities. Since only the
power plant is to be sold and privatized, the operation of the non-power components
such as the dam and reservoir, including the maintenance of the surrounding
watershed, should remain under the jurisdiction and control of NPC which continue
to be a government corporation. There is therefore no necessity for NPC to transfer
its permit over the water rights to K-Water. Pursuant to its purchase and
operation/management contracts with K-Water, NPC may authorize the latter to use
water in the dam to generate electricity.
NPCs water rights remain an integral aspect of its jurisdiction and control over the
dam and reservoir. That the EPIRAitselfdid not ordain any transfer of water rights
leads us to infer that Congress intended NPC to continue exercising full supervision
over the dam, reservoir and, more importantly, to remain in complete control of the
extraction or diversion of water from the Angat River. Indeed, there can be no
debate that the best means of ensuring that PSALM/NPC can fulfill the duty to
prescribe "safeguards to enable the national government to direct water usage to
protect potable water, irrigation, and all other requirements imbued with public
interest" is for it to retain the water rights over those water resources from where
the dam waters are extracted. In this way, the States full supervision and control
over the countrys water resources is also assured notwithstanding the privatized
power generation business.
Section 6 (a) of the IRR of R.A. No. 9136 insofar as it directs the transfer of water
rights in the privatization of multi-purpose hydropower facilities, is thus merely
directory.
It is worth mentioning that the Water Code explicitly provides that Filipino citizens
and juridical persons who may apply for water permits should be "duly qualified by
law to exploit and develop water resources."
Thus, aside from the grant of authority to construct and operate dams and power
plants, NPCs Revised Charter specifically authorized it
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of
waters from lands of riparian owners and from persons owning or interested in
waters which are or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase the flow of water in
streams or water channels intersecting or connecting therewith or contiguous to its
works or any part thereof: Provided, That just compensation shall be paid to any

person or persons whose property is, directly or indirectly, adversely affected or

damaged thereby.80
The MWSS is likewise vested with the power to construct, maintain and operate
dams and reservoirs for the purpose of supplying water for domestic and other
purposes, as well to construct, develop, maintain and operate such artesian wells
and springs as may be needed in its operation within its territory.81 On the other
hand, NIA, also a water permit holder in Angat River, is vested with similar authority
to utilize water resources, as follows:
(b) To investigate all available and possible water resources in the country for the
purpose of utilizing the same for irrigation, and to plan, design and construct the
necessary projects to make the ten to twenty-year period following the approval of
this Act as the Irrigation Age of the Republic of the Philippines; 82
(c) To construct multiple-purpose water resources projects designed primarily for
irrigation, and secondarily for hydraulic power development and/or other uses such
as flood control, drainage, land reclamation, domestic water supply, roads and
highway construction and reforestation, among others, provided, that the plans,
designs and the construction thereof, shall be undertaken in coordination with the
agencies concerned;83
To reiterate, there is nothing in the EPIRAwhich declares that it is mandatory for
PSALM or NPC to transfer or assign NPCs water rights to buyers of its multi-purpose
hydropower facilities as part of the privatization process. While PSALM was
mandated to transfer the ownership of all hydropower plants except those
mentioned in Sec. 47 (f), any transfer of possession, operation and control of the
multi-purpose hydropower facilities, the intent to preserve water resources under
the full supervision and control of the State is evident when PSALM was obligated to
prescribe safeguards to enable the national government to direct water usage to
domestic and other requirements "imbued with public interest." There is no express
requirement for the transfer of water rights in all cases where the operation of
hydropower facilities in a multi-purpose dam complex is turned over to the private
sector.
As the new owner of the AHEPP, K-Water will have to utilize the waters in the Angat
Dam for hydropower generation. Consistent with the goals of the EPIRA, private
entities are allowed to undertake power generation activities and acquire NPCs
generation assets. But since only the hydroelectric power plants and appurtenances
are being sold, the privatization scheme should enable the buyer of a hydroelectric
power plant in NPCs multi-purpose dam complex to have beneficialuse of the waters
diverted or collected in the Angat Dam for its hydropower generation activities, and
at the same time ensure that the NPC retains full supervision and control over the
extraction and diversion of waters from the Angat River.
In fine, the Court rules that while the sale of AHEPP to a foreign corporation
pursuant to the privatization mandated by the EPIRA did not violate Sec. 2, Art. XII
of the 1987 Constitution which limits the exploration, development and utilization of
natural resources under the full supervision and control of the State or the States
undertaking the same through joint venture, co-production or production sharing
agreements with Filipino corporations 60% of the capital of which is owned by
Filipino citizens, the stipulation in the Asset Purchase Agreement and Operations and
Maintenance Agreement whereby NPC consents to the transfer of water rights to the

foreign buyer, K-Water, contravenes the aforesaid constitutional provision and the
Water Code.1wphi1

SO ORDERED.
DISSENTING OPINION

Section 6, Rule 23 of the IRR of EPIRA, insofar as it ordered NPCs water rights in
multi-purpose hydropower facilities to be included in the sale thereof, is declared as
merely directoryand not an absolute condition in the privatization scheme. In this
case, we hold that NPC shall continue to be the holder of the water permit even as
the operational control and day-to-day management of the AHEPP is turned over to
K-Water under the terms and conditions of their APA and O & M Agreement, whereby
NPC grants authority to K-Water to utilize the waters diverted or collected in the
Angat Dam for hydropower generation. Further, NPC and K-Water shall faithfully
comply with the terms and conditions of the Memorandum of Agreement on Water
Protocol, as well as with such other regulations and issuances of the NWRB
governing water rights and water usage.
WHEREFORE, the present petition for certiorari and prohibition with prayer for
injunctive relief/s is PARTLY GRANTED.
The following DISPOSITIONS are in ORDER:
1) The bidding conducted and the Notice of Award issued by PSALM in favor
of the winning bidder, KOREA WATER RESOURCES CORPORATION (KWATER), are declared VALID and LEGAL;
2) PSALM is directed to FURNISH the petitioners with copies of all
documents and records in its files pertaining to K-Water;
3) Section 6 (a), Rule 23, IRR of the EPIRA, is hereby declared as
merely DIRECTORY, and not an absolute condition in all cases where NPCowned hydropower generation facilities are privatized;
4) NPC shall CONTINUE to be the HOLDER of Water Permit No. 6512
issued by the National Water Resources Board. NPC shall authorize K-Water
to utilize the waters in the Angat Dam for hydropower generation, subject
to the NWRBs rules and regulations governing water right and usage. The
Asset Purchase Agreement and Operation & Management Agreement
between NPC/PSALM and K- Water are thus amended accordingly.
Except for the requirement of securing a water permit, K-Water remains
BOUND by its undertakings and warranties under the APA and O & M
Agreement;
5) NPC shall be a CO-PARTY with K-Water in the Water Protocol Agreement
with MWSS and NIA, and not merely as a conforming authority or agency;
and
6) The Status Quo Ante Order issued by this Court on May 24, 2010 is
hereby LIFTED and SET ASIDE.
No pronouncement as to costs.

VELASCO, JR., J.:

Subject of this petition for certiorari and prohibition are two Agreement entered into
by and between Power Sector Assets and Liabilities Management Corporation
(PSALM) and Korean Water Resources Corporation (K-Water), involving the Angat
Hydro-Electric Power Plant (AHEPP) and the Angat Dam Complex. The first
agreement, denominated as Asset Purchase Agreement (APA), covers AHEPP, while
the second, the Operation and Maintenance Agreement (O & M), covers the nonpower components of AHEPP, including Angat Dam. PSALM entered into the said
agreements pursuant to its mandate under Republic Act No. (RA) 9136 or the
Electric Power Industry Reform Act of 2001 (EPIRA) to privatize the assets of
National Power Corporation (NPC).
Petitioners question the validity of the said agreements for being repugnant to the
1987 Constitution, specifically Sec. 2, Art. XII thereof, Presidential Decree No. (PD)
1067 or the Water Code of the Philippines (Water Code), and the EPIRA. They allege
that PSALM acted with grave abuse of discretion when it allowed K-Water, a
corporate entity wholly owned by the Republic of Korea, to participate in the bidding
process, and thereafter declaring it the winning bidder.1
I submit that the two Agreements themselves are, in their entirety, null and void for
infringing the ownership and nationality limitations in Sec. 2, Art. XII of the 1987
Constitution, which provides:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife,
flora and fauna, and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may be provided by law. In cases of
water rights for irrigation, water supply fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the
grant." (Emphasis supplied.)
The Agreements fall squarely within the ambit of the aforequoted constitutional
provision, and are, thus, properly subject to the nationality restriction provided
therein. K-Water, being a wholly foreign-owned corporation, is disqualified from
engaging in activities involving the exploration, development, and utilization of water
and natural resources belonging to the state. Necessarily, it is barred from operating
Angat Dam, a structure indispensable in ensuring water security in Metro Manila.
PSALM, therefore, committed grave abuse of discretion amounting to lack or excess
of jurisdiction when it allowed K-Water to participate in the bidding out of properties
that will directly extract and utilize natural resources of the Philippines.

The Facts
On June 8, 2001, RA 9136 or the EPIRA was passed into law. Among the policies
declared therein is the "orderly and transparent privatization of the assets and
liabilities of the National Power Corporation (NPC)."2 To carry out this policy, the
EPIRA created PSALM, a government-owned and controlled corporation with the
mandate to "manage the orderly sale, disposition, and privatization of NPC
generation assets, real estate and other disposable assets, and IPP [independent
power producers] contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optimal manner." 3 To enable PSALM to
effectively discharge its functions under the law, it was allowed to "take ownership of
all existing NPC generation assets, liabilities, IPP contracts, real estate, and all other
disposable assets."4 On the manner of privatization of NPC assets, the EPIRA
provides:
Section 47. NPC Privatization. - Except for the assets of SPUG, the generating
assets, real estate, and other disposable assets as well as generation contracts of
NPC shall be privatized in accordance with this Act. Within six (6) months from the
effectivity of this Act, the PSALM Corp. shall submit a plan for the endorsement by
the Joint Congressional Power Commission and the approval of the President of the
Philippines, on the total privatization of the generation assets, real estate, other
disposable assets as well as existing generation contracts of NPC and thereafter,
implement the same, in accordance with the following guidelines, except as provided
for in paragraph (e) herein:
(a) The privatization value to the national government of the NPC
generation assets, real estate, other disposable assets as well as
IPP contracts shall be optimized;
(b) The participation by Filipino citizens and corporations in the
purchase of NPC assets shall be encouraged;
In the case of foreign buyers at least seventy-five percent (75%)
of the funds used to acquire NPC-generating assets and generating
contracts shall be inwardly remitted and registered with the
Bangko Sentral ng Pilipinas.
xxxx
(d) All generation assets and IPP contracts shall be sold in an open
and transparent manner through public bidding;

(i) NPC may generate and sell electricity only from the undisposed
generating assets and IPP contracts of PSALM Corp.: Provided,
That any unsold capacity shall be privatized not later than eight (8)
years from the effectivity of this Act.
Pursuant to the EPIRA, PSALM is currently the owner of the subject Angat Dam
complex, including AHEPP.
On January 11, 2010, PSALM officially opened the process of privatization of AHEPP,
through the publication of an Invitation to Bid in local broadsheets on January 11,
12, and 13, 2010.5 This notice was also posted on its website. 6In the Invitation to
Bid, interested parties were required to submit a Letter of Interest (LOI) which
expresses the interested partys intention to participate in the bidding, a
Confidentiality Agreement and Undertaking with PSALM, and a non-refundable
participation fee of two thousand five hundred US dollars (USD 2,500).
The bidding package indicated that the prospective bid shall cover the sale and
purchase of the asset, and operations and maintenance by the buyer of the nonpower components, to wit:
The four main units each have a rated capacity of 50 MW. Main units 1 and 2 were
commissioned in 1967 and main units 3 and 4 in 1968. Three auxiliary units each
have a rated capacity of 6 MW and were commissioned as follows: auxiliary units 1
and 2 in 1967 and auxiliary unit 3 in 1978. It is the foregoing 4 main units and 3
auxiliary units with an aggregate installed capacity of 218 MW that is the subject of
the Bid.
xxxx
The Asset includes all the items listed in Schedule A (List of Assets). All other assets
which may be found on the site or with the Asset but are not listed in Schedule A do
not form part of the Asset. The Non-Power Components are more particularly
described in Schedule B (Non-Power Components). The Information Memorandum
contained in the Bidding Package also contains relevant information on the Asset and
Non-Power Component. The final list of the Asset and the description of the NonPower Components shall be contained in the Final Transaction
Documents.7 (Emphasis in the original.)
The bidding package also contains the following conditions with respect to the
proposed sale of AHEPP:
The Asset shall be sold on an "AS IS, WHERE IS" basis.

xxxx
(h) Not later than three (3) years from the effectivity of this Act,
and in no case later than the initial implementation of open access,
at least seventy percent (70%) of the total capacity of generating
assets of NPC and of the total capacity of the power plants under
contract with NPC located in Luzon and Visayas shall have been
privatized; and

The Angat Dam (which is part of the Non-Power Components) is a multi-purpose

hydro facility which currently supplies water for domestic use, irrigation and power
generation. The four main units of the Angat Plant release water to an underground
tailrace that flows towards the Bustos Dam which is owned and operated by the
National Irrigation Administration ("NIA") and provides irrigation requirements to
certain areas in Bulacan. The water from the auxiliary units 1,2, and 3 flows to the
Ipo Dam which is owned and operated by MWSS and supplied domestic water to
Metro Manila and other surrounding cities.

The priority of water usage under Philippine Law would have to be observed by the
Buyer/Operator.
The Winning Bidder/Buyer shall be required to enter into an operations and
maintenance agreement with PSALM for the Non-Power Components in accordance
with the terms and conditions of the O&M Agreement to be issued as part of the
Final Transaction Documents. The Buyer, as Operator, shall be required to operate
and maintain the Non-Power Components at its own cost and expense.
PSALM is currently negotiating a water protocol agreement with various parties
which are currently the MWSS, NIA, National Water Resources Board and NPC. If
required by PSALM, the Buyer will be required to enter into the said water protocol
agreement as a condition to the award of the Asset.
The Buyer shall be responsible for securing the necessary rights to occupy the
underlying Asset.8
On February 17, 2010, a pre-bid conference was conducted between PSALM,
prospective bidders, and government agencies affected by the privatization. 9
On April 5, 2010, PSALM declared the bids of the following as complying with the
bidding procedures: (1) DMCI Power Corporation (DMCI); (2) First Gen Northern
Energy Corporation (First Gen); (3) Korean Water Resources Corporation (K-Water);
(4) San Miguel Corporation (SMC); (5) SN Aboitiz Power-Pangasinan, Inc. (SN
Aboitiz); and (6) Trans-Asia Oil & Energy Development Corporation (Trans-Asia). Five
other bidders were, however, disqualified for failure to comply with the prequalification requirements.10
On April 16, 2010, PSALM approved the Asset Purchase Agreement (for AHEPP) and
the Operations & Maintenance Agreement (for the Non-Power Components) for the
public bidding.11 Following the opening and evaluation of the bid envelopes of the six
qualifying firms on April 28, 2010, the PSALM Bids and Awards Committee opened
the bid envelopes of the six qualifying firms, and found their respective bids as
follows:
Korean Water Resources Corporation

USD 440,880,000

First Gen Northern Energy Corporation

365,000,678

San Miguel Corporation

312,500,000

SN Aboitiz Power-Pangasinan, Inc.

256,000,000

Trans-Asia Oil & Energy Development Corporation

237,000,000

DMCI Power Corporation

188,890,000

On May 5, 2010, after the post-bid evaluation, the Board of Directors of PSALM
approved and confirmed the issuance of a Notice of Award in favor of K-Water.12 In
its Manifestation in lieu of Comment,13 K-Water opted not make any statement as to
its being a Korean state-owned corporation. PSALM, however, in its
Comment14 admitted that K-Water is a Korean state-owned corporation.
In the instant petition, petitioners assert that the sale of AHEPP is imbued with
public interest, 97% of the water supply of Metro Manila sourced as it were directly

from Angat Dam. They argue that the physical control and management of Angat
Dam, as well as the security of the water supply, are matters of transcendental
interest to them as residents of Metro Manila. In spite of this, petitioners claim,
PSALM kept the bidding process largely confidential, and information over such
process withheld from the public. Further, they maintain that the bidding process for
AHEPP undermined the elements of the right to water.15 Lastly, they argue that
PSALM, in grave abuse of its discretion, overstepped the Constitution and the Water
Code in allowing foreign-owned corporation, K-Water, to participate in the bidding,
and later favoring it with a Notice of Award.16
They, thus, urge the nullification of the same, and the enjoinment of the
privatization of AHEPP.
On May 24, 2010, this Court issued a Status Quo Ante Order,17 directing the parties
and all concerned to maintain the status quo prevailing before the filing of the
petition, until further orders from the Court.
Respondents Trans-Asia, DMCI, SN Aboitiz, and SMC forthwith filed their respective
Comments,18 all averring that they are merely nominal parties to the petition, and
thus are not real parties-in-interest.
In its Comment19 dated June 17, 2010, respondent NIA disclaimed involvement in
the bidding conducted by PSALM concerning AHEPP, adding that its interest is "only
limited to the protection of its water allocation drawn from the Angat Dam as
determined by the National Water Resources Board (NWRB)."
In its Comment20 dated June 22, 2010, respondent PSALM stressed its compliance
with the relevant laws and the Constitution in conducting the bidding process for
AHEPP, describing the process as open and transparent manner, and with full respect
to the limitations set forth in the Constitution. It further alleged that contrary to the
petitioners posture, the agreements will have no effect on the right to water, as they
do not involve the sale of Angat Dam itself.
On the procedural aspect, PSALM claimed that the petitioners have no standing to
file the petition, and that a petition for certiorari is not the proper remedy, PSALM
not exercising discretionary powers. Further, they take the view that the controversy
has been rendered moot and academic by the issuance of a Notice of Award. In any
case, they added, the petition poses a political question over which the Court has no
jurisdiction.
Vis--vis the AHEPP and Angat Dam, PSALM argued that it is the sole owner of the
two facilities, by virtue of the transfer of ownership from NPC under Sec. 49 of the
EPIRA. Neither MWSS nor NIA, it said, was a co-owner of the said structures.
Further, transfer of ownership of AHEPP to MWSS or NIA would not be in accordance
with the law, since the respective charters of MWSS and NIA do not have provisions
for their operating a hydro-power facility like AHEPP.
Finally, PSALM, citing DOJ Opinions to the effect that there is no constitutional
barrier to the operation of a power plant by a foreign entity, would assert that the
award of the AHEPP to K-Water is in accordance with the law, since AHEPP, as a
generation asset, may be sold to a foreign entity.

Respondent First Gen, in its Comment21 dated June 23, 2010, supported the position
of PSALM with respect to the AHEPP being subject to privatization under the terms of
the EPIRA. AHEPP, it concurred, is merely one facility in the Angat Complex,
exclusively owned and operated by NPC. Further, it claimed that the watershed is
under the exclusive jurisdiction and control of NPC, pursuant to Executive Order No.
(EO) 258,22 which provides:
Section 2. NPCs jurisdiction and control over the Angat Watershed Reservation is
hereby restored. Accordingly, NPC shall be responsible for its management,
protection, development and rehabilitation in accordance with the provisions of Sec.
3(n) of Republic Act No. 6359, as amended, Sec. 2 of Executive Order No. 224 and
the preceding Section.
For its part, respondent MWSS, in its Comment23 of July 19, 2010, stated that AHEPP
is not like any other hydro-electric power plant, because while its power contribution
to the Luzon grid is negligible, its water supply to the commercial and domestic
needs of the clientele of MWSS is incontestable and indispensable. Pushing this
point, MWSS would argue that the case is really about the virtual surrender of the
control and operation of the Angat Dam and Reservoir to a foreign country, thereby
impinging on the water supply of twelve million Filipinos.
Respondent MWSS further asserted that, by statutory mandate, part of the
waterworks that are within its jurisdiction and under its control and supervision ipso
jure are the Angat Dam, Dykes and Reservoir. This is by virtue of Sections 1 and 3 of
the MWSS Charter24 which vests MWSS with the powers of control, supervision, and
regulation of the use of all waterworks systems, including dams, reservoirs, and
other waterworks for the purpose of supplying water to inhabitants of its territory. It
claimed that in the exercise of its jurisdiction over Angat Dam, it even incurred
expenses for its upkeep and maintenance.
MWSS related that upon the passage of EPIRA, it wrote PSALM informing the latter
of its desire to acquire ownership or control, upon payment of just compensation,
over AHEPP. In this regard, MWSS draws attention to the support it got for its desire
from the Department of Public Works and Highways (DPWH) and various local
government units.
In 2006, PSALM also acknowledged the need to come up with effective strategies for
the implementation of the privatization of AHEPP. MWSS and PSALM thereafter
engaged in several discussions over AHEPP and the control and management of
AHEPP and Angat Dam. A draft of the Angat Water Protocol was made between
MWSS, PSALM, NIA, NPC, and NWRB. However, only MWSS and NIA signed the draft
protocol.
MWSS then went on to argue that due to the non-signing of the Water Protocol,
respondent PSALM failed to provide safeguards to protect potable water, irrigation,
and all other requirements imbued with public interest, in violation of the EPIRA. It
then went on to say that the sale of AHEPP to a foreign corporation violates the
Constitution. It said that the waters of the Angat River that propel the AHEPP to
supply water and irrigation and generate power form part of the National Patrimony.
It added that K-Water would probably simply consider AHEPP as another business
opportunity, contrary to the role that the Angat Dam Complex plays in the life of the
Filipino people. Thus, MWSS prayed for the granting of the petition, and in the

alternative, to order PSALM to turn over control and management of AHEPP to

MWSS.
Meanwhile, respondent K-Water filed a Manifestation in lieu of Comment, wherein it
averred that it merely relied on the mandate and expertise of PSALM in conducting
the bidding process for the privatization of AHEPP. It stated that in participating with
the bidding process, it was guided at all times by the Constitution and the laws of
the Philippines.
Petitioners, in their Consolidated Reply25 dated October 29, 2010, traversed in some
detail respondent PSALMs allegations and supportive arguments on the issues of
legal standing, mootness of the petition, and on whether a political question is posed
in the controversy. On the matter of mootness, they claimed that the issuance of a
Notice of Award does not ipso facto render the case moot, as it is not the final step
for the privatization of AHEPP. On the claim that the controversy constitutes a
political question, they replied that they have amply argued that PSALMs exercise of
power is limited by the Constitution, the EPIRA, other laws, as well as binding norms
of international law. Thus, its acts in conducting the bidding process fall within the
expanded jurisdiction of this Court. On the matter of standing, they claimed to have
sufficient personality as the issue involves a public right. Moreover, they invoked the
transcendental importance doctrine and the rule on liberality when it comes to public
rights.
And on the matter of how PSALM conducted the bidding, the petitioners reiterated
their contention that PSALM ran roughshod over the publics right to be informed of
the bidding process, the terms and conditions of the privatization, the bidding
procedures, minimum price, and other similar information. They related that
Initiatives for Dialogue and Empowerment through Alternative Legal Services, Inc.s
(IDEALs) request for information on the winning bidder was unheeded, with PSALM
merely referring the matter to the counsel of K-Water for appropriate action.
On the matter of water rights, they related that the provisions of the APA itself
negate PSALMs contention that it is erroneous to conclude that water rights will be
necessarily transferred to respondent K-Water as a result of the AHEPP. They claimed
that this is a wanton disregard of the provisions of the Water Code.
While conceding that Angat Dam is not being sold, petitioners nonetheless maintain
that, by the terms of the Agreements in question, the control over Angat Dam,
among other non-power components will also be given to the buyer. This, taken with
the fact that the Water Protocol continues to be unsigned, the petitioners argue,
leads to no other conclusion except PSALMs failure to provide safeguards to ensure
adequate water supply coming from Angat Dam. This, they claimed, would result in
the winning K-Water having complete control over the entire Angat Dam Complex.
As a counterpoint, particularly to the allegations of MWSS in its Comment,
respondent PSALM, in its Comment,26stated that the non-signing of the Water
Protocol was merely due to its observance of this Courts Status Quo Ante Order. It
claimed that MWSS admitted participating, along with various stakeholders, in the
discussions over AHEPP, through the various meetings and correspondences held
relative to the drafting of the Memorandum of Agreement on the Angat Water
Protocol.

On the issue of jurisdiction over Angat Dam, PSALM replied that MWSS never
exercised control and jurisdiction over Angat Dam. The arguments of MWSS, so
PSALM claims, are based on the faulty characterization of EPIRA as a general law
and the MWSS Charter as a special law.
Further, PSALM stressed that its mandate under the EPIRA is to privatize the assets
of NPC, i.e., to transfer ownership and control thereof to a private person or entity,
not to another government entity.
PSALM also reiterated that AHEPP may be sold to a foreign entity, in accordance with
the policy reforms espoused by EPIRA, i.e., to enable open access in the electricity
market and then enable the government to concentrate more fully on the supply of
basic needs of the people. Even assuming that the transfer of AHEPP to MWSS is
allowed under EPIRA, the same would not serve the objective of EPIRA of liquidating
all of the financial obligations of NPC.
The Issues
1.
WHETHER THE PETITIONERS AVAILED OF THE PROPER REMEDY BY FILING THIS
PETITION FOR CERTIORARI AND PROHIBITION.
2.
WHETHER THE PETITION HAS BEEN RENDERED MOOT AND ACADEMIC BY THE
ISSUANCE OF A NOTICE OF AWARD IN FAVOR OF RESPONDENT K-WATER ON MAY 5,
2010
3.
WHETHER THE PETITION INVOLVES A POLITICAL QUESTION
4.
WHETHER THE PETITIONERS HAVE LEGAL STANDING TO FILE THE INSTANT
PETITION
5.
WHETHER THE PETITIONERS RIGHT TO INFORMATION HAS BEEN VIOLATED BY THE
PUBLIC RESPONDENT PSALM
6.
WHETHER PETITIONER ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT UNDERTOOK THE PRIVATIZATION OF
AHEPP

7.
WHETHER THE PUBLIC RESPONDENT PSALM ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
ALLOWED K-WATER TO PARTICIPATE IN THE BIDDING FOR AHEPP, AND LATER
AWARDED K-WATER AS THE HIGHEST BIDDER
Discussion
First Issue:
Petition for Certiorari and Prohibition as the Proper Remedy
The Courts jurisdiction over questions of grave abuse of discretion finds expression
in Art. VIII, Sec. 1 of the Constitution vesting the Court the power to "determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
government." This expanded power of judicial review allows the Court to review acts
of other branches of the government, to determine whether such acts are committed
with grave abuse of discretion amounting to lack or excess of jurisdiction.
Grave abuse of discretion generally refers to:
capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction.
The abuse of discretion must be patent and gross as to amount to an evasion of a
positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law, as where the power is exercised in an arbitrary and despotic
manner by reason of passion and hostility.27 (Citations omitted.)
However, not all errors in exercise of judgment amount to grave abuse of discretion.
The transgression, jurisprudence teaches, must be "so patent and gross as to
amount to an evasion of positive duty or a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law." 28
In the case before Us, the petitioners allege that respondent PSALM exceeded its
jurisdiction when it allowed K-Water to participate in the bidding for the privatization
of AHEPP, and later awarded the contract to it. In its exercise of its mandate under
the EPIRA, PSALM exercises not only ministerial, but also discretionary powers. The
EPIRA merely provides that the privatization be done "in an open and transparent
manner through public bidding,"29suggesting that it is up to PSALM to decide the
specific manner and method in conducting the bidding process.
In determining the terms of reference of the public bidding to be conducted, as well
as in determining the qualifications of the respective bidders, respondent PSALM
exercises discretionary, not ministerial, powers. Corollarily, when it allowed K-Water
to participate in the bidding, and when it eventually awarded the contract to K-Water
as the highest bidder, PSALM was engaged not in ministerial functions, but was
actually exercising its discretionary powers.
Hence, as a government agency discharging official functions, its actions are subject
to judicial review by this Court, as expressly provided under Art. VIII, Sec. 1, par. 2
of the Constitution.

This Courts jurisdiction over petitions for certiorari under Rule 65 is concurrent with
Regional Trial Courts. This jurisdiction arrangement calls for the application of the
doctrine of hierarchy of courts, such that this Court generally will not entertain
petitions filed directly before it. However, direct recourse to this Court may be
allowed in certain situations. As We said in Chavez v. National Housing Authority
(NHA):30
Such resort may be allowed in certain situations, wherein this Court ruled that
petitions for certiorari, prohibition, mandamus, though cognizable by other courts,
may directly be filed with us if the redress desired cannot be obtained in the
appropriate courts or where exceptions compelling circumstances justify availment of
a remedy within and calling for the exercise of this Courts primary jurisdiction.
(citation omitted)
As in Chavez, herein petitioners have made serious constitutional challenges not only
with respect to the constitutional provision on exploitation, development, and
utilization of natural resources, but also the primordial right of the people to access
to clean water. The matter concerning Angat Dam and its impact on the water supply
to the entire Metro Manila area and neighboring cities and provinces, involving a
huge number of people has, to be sure, far-reaching consequences. These
imperatives merit direct consideration by this Court, and compel us, as now, to turn
a blind eye to the judicial structure, like that envisioned in the hierarchy of courts
rule, "meant to provide an orderly dispensation of justice and consider the instant
petition as a justified deviation from an established precept." 31

Third Issue:
Application of the Political Question Doctrine
Political questions, as defined in Taada v. Cuenco,33 refer to:
those questions which, under the Constitution, are to be decided by the people in
their sovereign capacity, or in regard to which full discretionary authority has been
delegated to the legislature or the executive branch of the Government.
Simply put, the political question doctrine applies when the question calls for a ruling
on the wisdom, and not the legality, of a particular governmental act or issuance.
The political question doctrine has no application in the case here. In the
privatization of AHEPP, PSALMs discretion is circumscribed not only by the provisions
of EPIRA and its Implementing Rules and Regulations (IRR), but also by pertinent
laws that are consequential and relevant to its mandate of privatizing the power
generation assets of NPC. Needless to stress, PSALM is duty bound to abide by the
parameters set by the Constitution. In case it violates any existing law or the
Constitution, it cannot hide behind the mantle of the political question doctrine,
because such violation inevitably calls for the exercise of judicial review by this
Court.

Second Issue:
Mootness of the Petition

This is the very question the petitioners pose. They allege that in the process of
pursuing its mandate under EPIRA, PSALM transgressed the Constitution, particularly
when it failed to observe the petitioners right to information, and when it allowed a
foreign corporation to utilize the natural resources of the Philippines.

PSALM maintains that the petition no longer presents an actual justiciable

controversy due to the mootness of the issues presented in the petition, for, as
claimed, the petitioners are seeking to enjoin the performance of an act that it has
already performed, i.e., that of the issuance of a Notice of Award to the highest
winning bidder in the public bidding for AHEPP.32

Respondent PSALMs contention that the petition partakes of the nature of a

collateral attack on EPIRA34 is misplaced. Petitioners challenge is not directed, as it
were, against the wisdom of or the inherent infirmity of the EPIRA, but the legality of
PSALMs acts, which, to the petitioners, violate their paramount constitutional rights.
This falls squarely within the expanded jurisdiction of this Court.

PSALMs contention on mootness cannot be sustained. What the petitioners seek in

this recourse is to enjoin the privatization of AHEPP altogether, arguing that it runs
counter to the nationality limitation in the Constitution. Moreover, they claim that the
issues raised would have consequences to their primordial right to access to clean
water. And, as the petitioners aptly argued, the Notice of Award itself is not the final
act in the privatization of AHEPP. Also telling is the fact that the water protocol has
yet to be finalized. In short, all the acts that, for all intents and purposes, would
bring about the privatization of AHEPP have yet to ensue.

At any rate, political questions, without more, are now cognizable by the Court under
its expanded judicial review power. The Court said so in Osmea v. COMELEC:35

Even assuming that the Notice of Award finalizes the privatization of AHEPP, this
Court will not shirk from its duty to prevent the execution of a contract award
violative of the Constitution. This Court can still enjoin, if it must, the transfer of
ownership of AHEPP if such transfer is repugnant to the spirit and the letter of the
Constitution. As We said in Chavez: "it becomes more compelling for the Court to
resolve the issue to ensure the government itself does not violate a provision of the
Constitution intended to safeguard the national patrimony. Supervening events,
whether intended or accidental, cannot prevent the Court from rendering a decision
if there is a grave violation of the Constitution."

We would still not be precluded from resolving it under the expanded jurisdiction
conferred upon us that now covers in proper cases even political questions (Daza v.
Singson, 180 SCRA 496), provided naturally, that the question is not solely and
exclusively political (as when the Executive extends recognition to a foreign
government) but one which really necessitates a forthright determination of
constitutionality, involving as it does a question of national importance.
Fourth Issue:
Legal Standing of Petitioners
The petitioners have sufficient locus standi to file the instant petition.
The petitioners raise questions relating to two different provisions of the
Constitution, to wit: (1) the right to information on matters of public concern 36 and
(2) the limitation on the exploration, development, and utilization of natural

resources to Filipino citizens and corporations and associations at least sixty per
centum of whose capital is owned by such citizens.37
On the first constitutional question, the petition urges the Court to compel PSALM to
disclose publicly the details and records of the Agreements with K-Water. On the
second issue, the petition seeks to declare the Agreements as unconstitutional, for
violating the constitutional limitation that only Filipino citizens and Filipino
corporations may engage in the exploration, development, and utilization of natural
resources.
Where the issue revolves around the peoples right to information, the requisite legal
standing is met by the mere fact that the petitioner is a citizen. The Court said as
much in Akbayan Citizens Action Party v. Aquino:38
In a petition anchored upon the right of the people to information on matters of
public concern, which is a public right by its very nature, petitioners need not show
that they have any legal or special interest in the result, it being sufficient to show
that they are citizens and, therefore, part of the general public which possesses the
right. (Emphasis supplied.)
Of the same tenor is the Courts pronouncement in Guingona, Jr. v. Commission on
Elections:39 "If the petition is anchored on the peoples right to information on
matters of public concern, any citizen can be a real party in interest."
Here, the members of the petitioner-organizations are Filipino citizens. In view of the
relevant jurisprudence on the matter, that fact alone is sufficient to confer upon
them legal personality to file this case to assert their right to information on matters
of public concern.
On the second constitutional question, on the constitutional limitation on the
exploration, development, and utilization of natural resources, the rule on locus
standi is not sufficiently overcome by the mere fact that the petitioners are citizens.
The general rule applies and the petition must show that the party filing has a
"personal stake in the outcome of the controversy."40 As stated in
Telecommunications and Broadcast Attorneys of the Philippines, Inc., v.
COMELEC,41 "there must be a showing that the citizen personally suffered some
actual or threatened injury arising from the alleged illegal official act." Thus,
petitioners here technically lack the requisite legal standing to file the petition as
taxpayers, as they have no direct and personal interest in the controversy.
The above notwithstanding, the petitioners have sufficiently crafted an issue
involving matters of transcendental importance to the public. Thus, the technical
procedural rules on locus standi may be set aside to allow this Court to make a
pronouncement on the issue. We have held before that the Court:
has discretion to take cognizance of a suit which does not satisfy the requirement of
legal standing when paramount interest is involved. In not a few cases, the Court
has adopted a liberal attitude on the locus standi of a petitioner where the petitioner
is able to craft an issue of transcendental significance to the people. 42

Here, the interest of the petitioners is inchoate in that neither they as organizations
nor their respective members will suffer any direct injury in the allowing of a foreign
corporation to utilize Philippine water resources. As residents of Metro Manila, the
consequences of the privatization of AHEPP will have an impact on the petitioners,
albeit not the direct injury contemplated by law.
The issues they have raised, including the effect of the Agreements on water
security in Metro Manila, and the significance of Angat Dam as part of the Angat-IpoLa Mesa system, is, however, a matter of transcendental importance. Hence, the
technical rules on standing may be brushed aside, and enable this Court to exercise
judicial review.
Fifth Issue:
Alleged Violation of Petitioners Right to Information
Petitioners fault PSALM for failing to provide them with information on the details of
the transaction that PSALM was entering into, in breach of their constitutional right
to information regarding matters of public concern. In particular, petitioners rue that
the Invitation to Bid published by PSALM did not specify crucial information related
to the sale of the water facility, including the terms and conditions of the disposition,
the qualification of bidders, the minimum price, and other basic details. 43 They allege
that PSALM should have publicly disclosed such crucial information on the
privatization of AHEPP, pursuant to its legal obligation to conduct the bidding in an
open and transparent manner.
As a counter-argument, PSALM states that it had discharged its duty of disclosure
when it publicly disseminated information regarding the privatization of AHEPP,
effected not only through the publication of the Invitation to Bid, but right "from the
very start of the disposition process."44
First, PSALM points out, it wrote the Regional Director of the National Commission on
Indigenous Peoples (NCIP), informing him of the planned disposition of AHEPP, and
inviting him to a meeting to discuss matters related to the concerns of indigenous
peoples in the area. Then, it conducted a forum in a hotel, with various stakeholders
in attendance, "to provide them an opportunity to share relevant information and to
thoroughly discuss the structure and pertinent provisions of the sale." 45 Third, it also
published the relevant information on its website, in the form of press releases.
On April 20, 2010, the petitioners sent a letter to respondent PSALM requesting
certain documents and information relating to the privatization of AHEPP. This
request was denied, however, allegedly due to a violation of the bidding procedures.
In its letter dated April 30, 2010, PSALM stated that it can only release such
documents to persons and entities which submitted a Letter of Interest, paid the
participation fee, and executed a Confidentiality Agreement and Undertaking.
On May 14, 2010, the petitioners sent a second letter specifically requesting for
detailed information on the winning bidder, including its company profile, contact
person or responsible officer, office address and Philippine registration. PSALM
replied, in a letter dated May 19, 2010, that the petitioners request has been
referred to the counsel of K-Water.

The peoples right to information is based on Art. III, Sec. 7 of the Constitution,
which states:
Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to government research data used
as basis for policy development, shall be afforded the citizen, subject to such
limitations as may be provided by law.

Information, however, on on-going evaluation or review of bids or proposals being

undertaken by the bidding or review committee is not immediately accessible under
the right to information. While the evaluation or review is still on-going, there are no
"official acts, transactions, or decisions" on the bids or proposals. However, once the
committee makes its official recommendation, there arises a "definite proposition"
on the part of the government. From this moment, the publics right to information
attaches, and any citizen can access all the non-proprietary information leading to
such definite proposition. In Chavez v. PCGG, the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we
believe that it is incumbent upon the PCGG and its officers, as well
as other government representatives, to disclose sufficient public
information on any proposed settlement they have decided to take
up with the ostensible owners and holders of ill-gotten wealth.
Such information, though, must pertain to definite propositions of
the government, not necessarily to intra-agency or inter-agency
recommendations or communications during the stage when
common assertions are still in the process of being formulated or
are in the "exploratory" stage. There is need, of course, to observe
the same restrictions on disclosure of information in general, as
discussed earlier such as on matters involving national security,
diplomatic or foreign relations, intelligence and other classified
information." (Emphasis supplied.)

The policy of public disclosure and transparency of governmental transactions

involving public interest enunciated in Art. II, Sec. 28 of the Constitution
complements the right of the people to information:
Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest.
The purpose of these two constitutional provisions, as we observed in Chavez v.
Public Estates Authority, is:
to promote transparency in policy-making and in the operations of the government,
as well as provide the people sufficient information to exercise effectively other
constitutional rights. These twin provisions are essential to the exercise of freedom
of expression. x x x Armed with the right information, citizens can participate in
public discussions leading to the formulation of government policies and their
effective implementation. An informed citizenry is essential to the existence and
proper functioning of any democracy.46
This right to information, however, is not without limitation. Fr. Joaquin Bernas S.J.
notes that the two sentences of Section 7 guarantee only one general right, the right
to information on matters of public concern. The right to access official records
merely implements the right to information.
Thus, regulatory discretion must include both authority to determine what matters
are of public concern and authority to determine the manner of access to them. 47
We have sufficiently elucidated the matter of right to information in Chavez, where
We said:
We must first distinguish between information the law on public bidding requires PEA
to disclose publicly, and information the constitutional right to information requires
PEA to release to the public. Before the consummation of the contract, PEA must, on
its own and without demand from anyone, disclose to the public matters relating to
the disposition of its property. These include the size, location, technical description
and nature of the property being disposed of, the terms and conditions of the
disposition, the parties qualified to bid, the minimum price and similar information.
PEA must prepare all these data and disclose them to the public at the start of the
disposition process, long before the consummation of the contract, because the
Government Auditing Code requires public bidding. If PEA fails to make this
disclosure, any citizen can demand from PEA this information at any time during the
bidding process.

The right covers three categories of information which are "matters of public
concern," namely: (1) official records; (2) documents and papers pertaining to
official acts, transactions and decisions; and (3) government research data used in
formulating policies. The first category refers to any document that is part of the
public records in the custody of government agencies or officials. The second
category refers to documents and papers recording, evidencing, establishing,
confirming, supporting, justifying or explaining official acts, transactions or decisions
of government agencies or officials. The third category refers to research data,
whether raw, collated or processed, owned by the government and used in
formulating government policies.
xxxx
We rule, therefore, that the constitutional right to information includes official
information on on-going negotiations before a final contract. The information,
however, must constitute definite propositions by the government and should not
cover recognized exceptions like privileged information, military and diplomatic
secrets and similar matters affecting national security and public order. Congress has
also prescribed other limitations on the right to information in several legislations.
(Emphasis supplied, citations omitted.)
We further explored the matter of right to information in Chavez v. NHA, where We
ruled that:
x x x Government agencies, without need of demand from anyone, must bring into
public view all the steps and negotiations leading to the consummation of the
transaction and the contents of the perfected contract. Such information must
pertain to "definite propositions of the government," meaning official
recommendations or final positions reached on the different matters subject of

negotiation. The government agency, however, need not disclose "intra-agency or

inter-agency recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in the exploratory
stage." The limitation also covers privileged communication like information on
military and diplomatic secrets; information affecting national security; information
on investigations of crimes by law enforcement agencies before the prosecution of
the accused; information on foreign relations, intelligence, and other classified
information.48
Even without any demand from anyone then, it behooved PSALM to publicly disclose,
information regarding the disposition of AHEPP. Here, PSALM routinely published
news and updates on the sale of AHEPP on its website.49It also organized several
forums where various stakeholders were apprised of the procedure to be
implemented in the privatization of AHEPP. As there is yet no sufficient enabling law
to provide the specific requirements in the discharge of its duty under the
Constitution, these unilateral actions from PSALM must be construed to be a
sufficient compliance of its duty under the Constitution. As We observed in Chavez v.
NHA:
It is unfortunate, however, that after almost twenty (20) years from birth of the
1987 Constitution, there is still no enabling law that provides the mechanics for the
compulsory duty of government agencies to disclose information on government
transactions. Hopefully, the desired enabling law will finally see the light of day if and
when Congress decides to approve the proposed "Freedom of Access to Information
Act." In the meantime, it would suffice that government agencies post on their
bulletin boards the documents incorporating the information on the steps and
negotiations that produced the agreements and the agreements themselves, and if
finances permit, to upload said information on their respective websites for easy
access by interested parties. Without any law or regulation governing the right to
disclose information, the NHA or any of the respondents cannot be faulted if they
were not able to disclose information relative to the SMDRP to the public in
general.50
It must be noted however, that aside from its duty to disclose material information
regarding the sale of AHEPP, which, We hold, it had sufficiently discharged when it
regularly published updates on its website, PSALM further has the duty to allow
access to information on matters of public concern. This burden requires a demand
or request from a member of the public, to which the right properly belongs. "The
gateway to information opens to the public the following: (1) official records; (2)
documents and papers pertaining to official acts, transactions, or decisions; and (3)
government research data used as a basis for policy development." 51
When petitioners wrote PSALM a letter of April 20, 2010 requesting certain
documents and information relating to the privatization of AHEPP but was denied,
PSALM veritably violated the petitioners right to information. It should have
permitted access to the specific documents containing the desired information, in
light of the disclosure of the same information thus made in its website. The
documents referred to are neither confidential nor privileged in nature, as the gist
thereof had already been published in the news bulletins in the website of PSALM,
and as such, access thereto must be granted to the petitioner. On the contrary, the
documents requested partake of the nature of official information.

The Court also takes stock of the fact that on May 14, 2010, petitioners requested
via another letter specifically requesting detailed information on the winning bidder,
including its company profile, contact person or responsible officer, office address
and Philippine registration. By way of reply, PSALM informed the petitioners that
their request has been referred to the counsel of K-Water.
PSALMs reply to the petitioners adverted second letter is insufficient to discharge its
duty under the Constitution. The reply is evasive, at best. At that stage of the
bidding process, PSALM already had possession of and can provide, if so minded, the
information requested. As such, there was hardly any need to refer the request to KWater.
Given the above perspective, the petitioners must be granted relief by granting them
access to such documents and papers relating to the disposition of AHEPP, provided
the accommodation is limited to official documents and official acts and transactions.
Sixth Issue:
The Legality of the Privatization of AHEPP
The mandate of PSALM under EPIRA is clear-privatization sale of NPC generation
assets, real estate, and other disposable assets. Toward the accomplishment of this
mandate, EPIRA has vested the PSALM with the following powers:
(a) To formulate and implement a program for the sale and privatization of the NPC
assets and IPP contracts and the liquidation of NPC debts and stranded contract
costs, such liquidation to be completed within the Corporations term of existence;
(b) To take title to and possession of, administer and conserve the assets and IPP
contracts transferred to it; to sell or dispose of the same at such price and under
such terms and conditions as it may deem necessary or proper, subject to applicable
laws, rules and regulations;
xxxx
(i) To own, hold, acquire, or lease real and personal properties as may be necessary
or required in the discharge of its functions. 52
PSALM, as may be noted, was not empowered under the EPIRA to determine which
NPC assets are to be privatized. The law merely authorized PSALM to decide upon
the specific program to utilize in the disposition of NPC assets, and not the power to
determine the coverage of the privatization. The EPIRA itself had laid down which
particular assets are to be privatized, and which are not. Sec. 47 thereof provides:
Section 47. NPC Privatization. - Except for the assets of SPUG, the generating
assets, real estate, and other disposable assets as well as generation contracts of
NPC shall be privatized in accordance with this Act. Within six (6) months from the
effectivity of this Act, the PSALM Corp. shall submit a plan for the endorsement by
the Joint Congressional Power Commission and the approval of the President of the
Philippines, on the total privatization of the generation assets, real estate, other
disposable assets as well as existing generation contracts of NPC and thereafter,

implement the same, in accordance with the following guidelines, except as provided
for in paragraph (e) herein:
xxxx
(f) The Agus and the Pulangui complexes in Mindanao shall be
excluded from among the generating companies that will be
initially privatized. Their ownership shall be transferred to the
PSALM Corp. and both shall continue to be operated by NPC. In
case of privatization, said complexes may be privatized not earlier
than ten (10) years from the effectivity of this Act, and, until
privatized, shall not be subject to Build-Operate-Transfer (B-O-T),
Build-Rehabilitate-Operate-Transfer (B-R-O-T) and other variations
pursuant to Republic Act No. 6957, as amended by Republic Act
No. 7718. The privatization of Agus and Pulangui complexes shall
be left to the discretion of PSALM Corp. in consultation with
Congress;

This brings Us to the substantive issue of the case. But first, a brief background on
the subject Angat Dam Complex is in order, the assailed Agreements revolving as it
were on that enormous infrastructure, its features and operations.
The Angat Dam Complex
The Angat Dam Complex is part of the Anga-Ipo-La Mesa Dam system. Originating
from the western flank of the Sierra Madre Mountains, the waters cut through
mountainous terrain in a westerly direction and flow to Angat River in San Lorenzo,
Norzagaray, Bulacan, where the Angat Dam and Reservoir is located.53
Angat Dam and Reservoir is a multipurpose rockfill dam constructed in 1964-1967,
and provides multiple functions:
(1) to provide irrigation to about 31,000 hectares of land in 20
municipalities and towns in Pampanga and Bulacan;

xxxx

(2) to supply the domestic and industrial water requirements of the

residents in Metro Manila;

(g) The ownership of the Caliraya-Botokan-Kalayaan (CBK) pump

storage complex shall be transferred to the PSALM Corporation and
shall continue to be operated by NPC.

(3) to generate hydroelectric power to feed the Luzon Grid; and

(4) to reduce flooding to downstream towns and villages.54

It is clear from the aforequoted provision that the intention of EPIRA is to include in
the privatization program all generating assets, real estate, and other disposable
assets of NPC, save those specifically excluded under the same Act. By express
provision, only three facilities are excepted from privatization, viz.: Agus and
Pulangui Complexes, and the Caliraya-Botokan-Kalayaan pump storage complex, and
the assets of the Small Power Utilities Group (SPUG). Nowhere in EPIRA is the
AHEPP mentioned as part of the excluded properties. It can, thus, be inferred that
the legislative intent is to include AHEPP in the privatization scheme that PSALM will
implement.Expresio unius est exclusio alterius.
PSALM is correct in arguing, therefore, that in privatizing AHEPP, it did no more than
to perform its mandate under EPIRA. PSALM is also correct in its position that the
respective charters of MWSS and NIA do not grant either of them the power to
operate a power plant. It is clear that under the EPIRA, the fate of AHEPP is that of
being privatizedPSALM neither has discretion to exclude the property from
privatization, nor choose to abandon its duty to dispose of them through public
bidding. Thus, PSALM committed no grave abuse of discretion in its decision to
privatize AHEPP, and in its subsequent acts toward that end.
Petitioners prayer to enjoin the privatization sale of AHEPP must therefore, fail. The
provisions of EPIRA are determinative of the matter, and where the EPIRA provides
that the assets of NPC must be privatized, then the command of the law must reign
supreme. This Court must uphold the letter and the spirit of EPIRA, even in light of
petitioners argument on the possible repercussions of the privatization of AHEPP.
Seventh Issue:
The Validity of the APA and O&M agreements

The reservoir is 35 km. long when the water surface of 2,300 hectares is at normal
maximum pool, and 3 km. wide at its widest point.55 From the reservoir, the water
enters the intake tower and is conveyed by the power tunnel to the penstocks and
valve chambers, and finally to the turbine runners of the AHEPP.56
AHEPP, meanwhile, is a 246 Megawatts (MW) rated hydroelectric power plant also
located in San Lorenzo, Norzagaray, Bulacan. It is part of the Angat Dam Complex
and is situated near the Angat Dam, as it relies on the waters coming from the dam
to generate power. AHEPP consists of four (4) main units, producing 200 MW of
power, and five (5) auxiliary units, producing 46MW of power.57
AHEPP utilizes the waters of Angat Dam for hydropower generation by taking in
water from its intake tower. The waters are then conveyed by the power tunnel to
the penstocks and valve chambers, and finally to the turbine runners in the AHEPP.
Discharge is conveyed to the outlet by the tailrace tunnel. 58
From the Angat Dam Complex, the waters may flow in either of two directions. The
waters may be directed to Ipo Dam, near its confluence with Ipo River.59 From there,
the waters downstream are diverted to the Novaliches Portal and the La Mesa Dam
in Quezon City.60 From there, the waters are treated to supply water to end
consumers in Metro Manila. The waters may also continue to go through the Balara
Treatment Plant, and also finally to end consumers in Metro Manila. The waters
coming from Angat Dam may also flow through Bustos Dam in Bustos, Bulacan,
where the waters are eventually used for irrigation purposes by the National
Irrigation Administration (NIA).61

Nature, Ownership, and Appropriation of Waters

Though of Spanish origin, the doctrine of Jura Regalia was first explicitly enshrined in
the 1935 Philippine Constitution which proclaimed, as one of its dominating
objectives, the nationalization and conservation of the natural resources of the
country.62 Thus, the 1935 Constitution provides in its Sec. 1 of Art. XIII that:
Sec. 1. All agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and
other natural resources of the Philippines belong to the State x x x (emphasis
supplied)
That this doctrine was enshrined in the Constitution was merely a means to an end,
as "state ownership of natural resources was seen as a necessary starting point to
secure recognition of the states power to control their disposition, exploitation,
development, or utilization."63 In Miners Association of the Philippines, Inc. v.
Factoran,64this Court found the importance of this limitation in the Constitution, thus:
The exploration, development and utilization of the country's natural resources are
matters vital to the public interest and the general welfare of the people. The
recognition of the importance of the country's natural resources was expressed as
early as the 1984 Constitutional Convention. In connection therewith, the 1986 U.P.
Constitution Project observed: "The 1984 Constitutional Convention recognized the
importance of our natural resources not only for its security and national defense.
Our natural resources which constitute the exclusive heritage of the Filipino nation,
should be preserved for those under the sovereign authority of that nation and for
their prosperity. This will ensure the country's survival as a viable and sovereign
republic." (Emphasis supplied)
The 1973 Constitution also incorporated the jura regalia doctrine in its Sec. 2, Art.
XII:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, flora and
fauna, and other natural resources are owned by the State. x x x (emphasis
supplied)
It was then transposed to the 1987 Constitution, with Sec. 2, Art. XII thereof
providing:

subject to certain restrictions. In the 1935 Constitution, this rule was enunciated,
thus:
x x x their disposition, exploitation, development, or utilization shall be limited to
citizens of the Philippines, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any existing
right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution.66
The 1973 Constitution carried a similar provision, to wit:
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any
of the natural resources of the Philippines shall be limited to citizens of the
Philippines, or to corporations or associations at least sixty per centum of the capital
which is owned by such citizens x x x67
The 1987 Constitution couched the limitations a bit differently:
x x x The exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may directly undertake
such activities, or it may enter into co-production, joint venture, or productionsharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may
be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be provided by law.
x x x68 (emphasis supplied)
In La Bugal Blaan v. Ramos,69 We reconstructed and stratified the foregoing
Constitutional provision, thus:
1. All natural resources are owned by the State. Except for agricultural lands, natural
resources cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be
under the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely

Sec. 2 All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. x x x (emphasis
supplied)
The 1935, 1973, and 1987 Constitutions uniformly provide that all waters belong to
the State. Statutorily, the Water Code reaffirms that "all waters belong to the
state."65
Corollary to the principle of state ownership of all waters is the provision limiting the
exploration, development, and utilization of such resources to certain individuals and

(b) By (i) co-production; (ii) joint venture; or (iii) production

sharing agreements with Filipino citizens or corporations, at least
60 percent of the capital of which is owned by such citizens.
The constitutional policy and bias concerning water resources is implemented
primarily by the Water Code. It provides that the state may "allow the use or
development of waters by administrative concession" 70 given in the form of a water
permit.71 Article 13 of the Code grants the permit holder the right to appropriate
water, "appropriation" being defined under the law as "the acquisition of rights over
the use of waters or the taking or diverting of waters from a natural source in the

manner and for any purpose allowed by law."72 Finally, the Code limits the granting
of water permits only to "citizens of the Philippines, of legal age, as well as juridical
persons, who are duly qualified by law to exploit and develop water resources." 73
Created to control and regulate the utilization, exploitation, development,
conservation and protection of water resources is the National Water Resources
Council,74 later renamed National Water Resources Board (NWRB).75The NWRB is the
government agency responsible for the granting of water permits, as well as the
regulation of water permits already issued.
In fine, the Constitution and the Water Code provide that all waters belong to the
State. The State may nevertheless allow the exploration, development, and
utilization of such water resources, through the granting of water permits, but only
to qualified persons and entities. And when the Constitution and the Water Code
speak of qualified persons, the reference is explicit: Filipino citizens and associations
or corporations sixty percent of the capital of which is owned by Filipinos. Such is the
protection afforded to Philippine water resources.
The Operations and Maintenance Agreement
By the O & M Agreement, PSALM cedes to K-Water, as operator, the administration,
management, operation, maintenance, preservation, repair, and rehabilitation of
what the contract considers as the Non-Power Components,76 defined thereunder as
"the Angat Dam, non-power equipment, facilities and installations, and appurtenant
devices and structures which are particularly described in Annex 1." 77 The O & M
Agreement is for a period of twenty-five (25) years, renewable for another twentyfive (25) years, maximum, upon mutual and written agreement of the parties. 78
As couched, the agreement does not include the operation of watershed area, which
shall continue to be under the NPCs control and administration. However, in case of
emergencies and the NPC does not act to alleviate the emergency in connection with
its performance of its obligations in the watershed, the operator shall have the
option to prevent the emergency, to mitigate its adverse effects on the purchased
assets and non-power components, and to undertake remedial measures to address
the emergency.79
Article 9 of the O & M Agreement also provides that the buyer/operator, if not
organized under Philippine law, warrants that "it shall preserve and maintain in full
force and effect its existence as a corporation duly organized under such laws and its
qualifications to do business in the
Republic of the Philippines."80 The following is also expressly stipulated: the O & M
Agreement is merely "being executed in furtherance of and ancillary to the APA
and"81 "shall not survive the termination of the APA."82
The Asset Purchase Agreement
The APA includes the sale of the 218 MW AHEPP on an "as is where is" basis 83 to
buyer, K-Water. Excluded from the sale are Auxiliary Units 4 and 5, with a rated
capacity of 10 MW and 18 MW, respectively. The non-power components of the
Angat Dam Complex, including Angat Dam, while not subject to sale under the APA,
are covered by the O & M Agreement.

On the matter of water rights, the APA, in its Art. 2.05, provides that the "NPC
consents, subject to Philippine Law, to the (i) transfer of the Water Permit to the
BUYER or its Affiliate, and (ii) use by the BUYER or its Affiliate of the water covered
by the Water Permit."84 The buyer shall then provide NPC with electricity and water
free of charge.85This bolsters the claim that control over the waters of Angat Dam is,
under the APA, handed over to K-Water.
As in the O & M Agreement, the APA also contains a provision on warranties on the
buyers qualification to engage in business in the country and to comply "at all times
fully comply with Philippine Law." 86
Clearly then, the purchase agreement grants the buyer not only ownership of the
physical structure of AHEPP, but also the corresponding right to operate the
hydropower facility for its intended purpose, which in turn requires the utilization of
the water resources in Angat Dam. The use and exploitation of water resources
critical for power generation is doubtless the underlying purpose of the contract
involving the sale of the physical structure of AHEPP.
The waters of Angat Dam and
Reservoir form part of the natural
resources of the Philippines
Based on the foregoing factual backdrop, I submit that the APA and O & M
Agreements, individually or as a package, are themselves infringing on the
constitutional imperative limiting the exploration, development, and utilization of the
natural resources of the Philippines to Filipino citizens and associations or
corporations sixty percent of the capital of which is owned by Filipinos. I also take
the view that K-Water was, from the start, disqualified from participating in the
bidding for the two projects in question.
Consider:
The waters flowing through Angat River, and eventually to the Angat Dam and
Reservoir, form part of the countrys natural resources. There cannot be a substantial
distinction between the waters in Angat River, on one hand, and those settling in the
Angat Dam and Reservoir, on the other. There is no rhyme or reason to claim that
the waters in the dam cease to be part of the protected natural resources envisaged
in the Constitution.
First, the fact that an artificial structure was constructed to provide a temporary
catchment for the naturally-flowing waters does not necessarily remove the waters
from being part of the natural resources of the Philippines. The waters themselves
are natural in that it is "brought about by nature, as opposed to artificial means." 87
From the spillway gates of the Angat Dam, some of the waters are diverted to Ipo
Dam, and others still flow to Bustos Dam. Eventually, the waters passing through Ipo
Dam end up in Tullahan River in Metro Manila. If there is any detention of the
waters, it is merely temporary, as Angat Dam is not meant to permanently impound
the waters. An examination of the flow of waters from Angat River readily shows
that the waters go through a contiguous series of dams and rivers, and the waters
are not actually extracted from it, when they pass through structures such as the
AHEPP.

To say that the waters in the Angat Dam and Reservoir have already been extracted
or appropriated by the mere fact that there is a catchment system in Angat Dam
would be to make a distinction between the nature of the waters in different parts of
this contiguous series. On the contrary, the waters have not been extracted from its
natural source, the river and the dam forming a unitary system. The waters naturally
flowing through Angat River are the very same waters that are stored in Angat Dam.
Their characteristics, quality, and purity cannot be distinguished from each other. It
is the mechanisms in AHEPP that permanently extract water from its natural source.
Angat Dam merely serves to temporarily impound the waters, which are later
allowed to flow downstream.
Were We to hold that the waters in Angat Dam cease to become a natural resource,
the same logic would lead to the conclusion that the waters downstream in Ipo Dam
are sourced partly from natural resources (i.e. those directly flowing from Ipo River)
and partly from artificial sources, since part of the waters passing through Ipo Dam
already passed through Angat Dam. By extension, Tullahan River would not be
considered a natural resource, as the waters there are sourced from La Mesa Dam.
The law could not have intended such absurd distinctions. Lex simper intendit quod
convenitrationi. The law always intends that which is agreeable to reason.
Appropriation of water implies beneficial use of the water, for any of the particular
purposes enumerated in the Water Code. In the case of Angat Dam, the waters in
the dam, so long as they remain in the dam or in the reservoir, carry with them no
economic valuethey cannot be directly used for any beneficial purpose. They
cannot be directly used for any of the purposes specified in the Water Code,
including power generation, the intended use of the waters in AHEPP.88
Second, the definition of water in the Water Code is broad enough to cover the
waters of Angat Dam. Waters are defined simply as "water under the grounds, water
above the ground, water in the atmosphere and the waters of the sea within the
territorial jurisdiction of the Philippines."89 The requirement of water permits is also
broad enough to cover those coming from Angat Dam, because the only exceptions
provided in the Code are waters appropriated by means of hand carried receptacles,
and those used for bathing, washing, watering or dipping of domestic or farm
animals, and navigation of watercrafts or transportation of logs and other objects by
floatation.90
Pursuant to this water permit requirement, the waters of Angat Dam are presently
covered by three separate water permits granted to three different entities, all for
specific purposes: (1) Water Permit No. 650491 to NIA, for irrigation purposes; (2)
Water Permit No. 651292 to NPC, for power purposes; and (3) Water Permit No.
1146293 to MWSS for municipal/industrial purposes. Needless to state, all the entities
currently holding water permits over Angat Dam are qualified to hold such permits,
both under the Constitution and the Water Code.
The grant by NWRB of permits covering the waters not only within the Angat River
but also those already impounded in the dam reveals an intention on the part of the
agency to treat the waters of Angat River, including the waters in Angat Dam, as
part of the water resources of the Philippines. There is an intention to treat the
waters flowing from the river to the dam system as one contiguous system, all
falling within the ambit of protection afforded by the Constitution and the Water
Code to such water resources. Had NWRB through these years viewed the waters in
Angat River as not part of the natural resources of the Philippines when they end up

in the dam, how explain the water permits extended covering the waters in the dam
itself; it would have suffice to grant a single water permit for the sole purpose of
building and operating a dam.
Third, the DOJ Opinions cited by PSALM are not authoritative statements of the rule
on the matter. Indeed, the DOJ Opinion94 saying that the agreement between PSALM
and K-Water does not violate the constitution is not binding on this Court. Its
probative value is limited to just that, an opinion.
The opinion of the DOJ that the waters to be used in the operation of AHEPP have
already been extracted is based on a misapplication of a US Supreme Court ruling.
The cited U.S. v. State of New York,95 concerning the Saratoga Springs Reservation,
is not in point with the facts here. In that case, the issue revolves around the
taxability of the bottling for sale and selling of mineral and table water from
Saratoga Springs by the State of New York, Saratoga Springs Commission, and
Saratoga Springs Authority. The US Supreme Court there ruled that they are subject
to taxation, because the activity was a business enterprise and not merely a sale of
natural resources.
The US Supreme Court noted that the State: "took its natural resources and,
through a bottling process, put those resources into a preserved condition where
they could be sold to the public in competition with private waters." 96
The process of bottling water involves the permanent extraction of water from its
natural source. There lies the difference. Here, there is no actual extraction of
waters, as the waters remain in the river-dam system. What we have here is the
operation of a power plant using resources that originate from Angat River and held
in the Angat Dam and Reservoir.
The DOJ further opined that:
The fact that under the proposal, the non-power components and structures shall be
retained and maintained by the government entities concerned is, to us, not only a
sufficient compliance of constitutional requirement of "full control and supervision of
the State" in the exploration, development, and utilization of natural resources. It is
also an enough safeguard against the evil sought to be avoided by the constitutional
reservation x x x97
This opinion is based on a clear misapprehension of facts. A cursory reading of the
express terms of the O & M Agreement reveals that the operation and management
of Angat Dam is being handed over the operator, K-Water. There is no such
safeguard anywhere in the APA and O & M Agreement.
K-Water is disqualified from
participating in the bidding
PSALM argues that NPCs obligation to transfer its water permit is subject to a
suspensive condition, i.e., K-Water has to become a Filipino corporation, to become
the transferee of NPC of its water permit.98 This is an implied admission that PSALM
knew of K-Waters disqualification to participate in the bidding. PSALM knew that the
use of waters is indispensable in the operation of the power plant, and it goes
against the spirit of EPIRA to sell the power plant to an entity which is legally barred
from operating it. PSALM, therefore, should have disqualified K-Water at the outset.

It is unfortunate that instead of disqualifying K-Water, PSALM allowed the former to

bid and eventually inked an Agreement with it on the operation of Angat Dam. That
PSALM allowed this course of events to transpire constitutes a grave abuse of
discretion.
The Agreements Violate the Constitution
The APA transfers ownership of the Angat Hydro-electric Power Plant to the buyer, KWater. To operate this power plant, K-Water, as the new owner, will have to utilize
the waters coming from Angat Dam, as it is the energy generated by the
downstream of water that will be used to generate electricity. The use of natural
resources in the operation of a power plant by a foreign corporation is contrary to
the words and spirit of the Constitution.
The O & M is more straightforward, in that it expressly authorizes the operator, KWater, to administer and manage non-power components, which it defines as "the
Angat Dam, non-power equipment, facilities and installations, and appurtenant
devices and structures which are particularly described in Annex 1." 99 While it is true,
as PSALM argues, that Angat Dam itself is not being sold, the operation and
management of the same is being handed to a wholly foreign corporation. This is
cannot be countenanced under the express limitations in Constitution and the Water
Code.
In fine, the Agreements between PSALM and K-Water necessarily grant to
corporation wholly owned by a foreign state not just access to but direct control over
the water resources of Angat Dam, and consequently some portions of the Angat
River as well. On this ground, both agreements are constitutionally and statutorily
infirm. They must be nullified.
The ponencia would rule toward the validity of the Agreements, but would disallow
the transfer or assignment of NPC of its Water Rights under its Water Permit to KWater. NPC retains control over the flow of waters (presumably by maintaining
control over the spillway gates of Angat Dam), while K-Water is given the right to
use the waters coming from the dam to generate electricity.
The Water Permit of NPC itself however, states that the right given to NPC is limited
to power generation, and precisely for the purpose of operating the AHEPP.100 It is
not given complete control over the waters of Angat River and Angat Dam, because
the waters there are covered by separate water permits for different purposes. What
NPC is actually giving up to K-Water is its right to utilize the waters of Angat River
for power generation, the very right granted to it under its Water Permit. This, it
cannot do, because of an express prohibition under the Water Code and the
Constitution.
It would be splitting hairs to differentiate between the control of waters by the NPC
and the K-Waters right to use the water for power generation. Water Permit No.
6512 granted to NPC will be rendered inutile if NPC assigns its right to use the water
for power generation. That ensuing arrangement has the same effect as an
assignment or transfer. To allow K-Water to utilize the waters without a
corresponding water permit indirectly circumvents the regulatory measures imposed
by the Water Code in appropriating water resources.

Thus, the Agreement concerning water rights is in direct contravention of the Water
Code and Sec. 2, Art. XII of the Constitution. K-Water, being a wholly foreign-owned
corporation, is disqualified from obtaining water permits and from being the
transferee or assignee of an existing Water Permit. It is further barred from entering
into any agreement that has the effect of transferring any of the water rights
covered by existing water permits.
PSALM argues on this point that it will not be K-Water, as the operator of Angat Dam,
which will extract or utilize the water from its natural source. They allege that it will
be NPC, MWSS, and NIA that will continue to utilize and extract water, store them in
the reservoir, then pass through Angat Dam where the operator, K-Water, will be
subjected to rules on water releases. 101
PSALM would have Us believe that the operator of Angat Dam will merely play a
passive role in the control of the waters in Angat Dam, yielding instead to MWSS,
NIA and NPC, the last being the very entity which grants the operator its rights
under its water permit. This argument is hardly convincing, if not altogether
implausible. It is foolhardy to believe that NPC, the assignor of the water permit,
would get to retain some control over the water, much less retain the right to extract
the waters. This goes contrary to the very nature of an assignment. Once it assigns
its water permit to the operator, it necessarily relinquishes any right it may have
under the water permit. In fact, if it does further engage in water-related activities in
Angat River and Angat Dam, it will be violating the Water Code for engaging in
appropriation of water without the requisite permit.
Moreover, PSALM made an express admission that it is not NPC alone that engages
in water-related activities in Angat Dam, as MWSS and NIA, pursuant to their
respective water permits, engage in appropriation of water in Angat Dam. Even
PAGASA engages in activities within the dam complex. Yet the O&M Agreement
readily grants the operator the power to administer the entire Dam, without consent
from the other agencies operating in Angat Dam, as the Water Protocol between the
concerned agencies and entities has yet to be finalized.
Power generation may not covered
by the nationality restrictions, but
use of natural resources for power
generation is subject to the
limitation in the Constitution
While it is established that power generation is not considered a public utility
operation,102 thus not subject to the nationality requirement for public utilities, the
operator of a power plant is nevertheless bound to comply with the pertinent
constitutional provision when using natural resources of the Philippines, including
water resources. As already discussed, the operation of AHEPP necessarily requires
the utilization and extraction of water resources. Thus, its operation should be
limited to Filipino citizens and corporations or associations at least sixty per centum
of whose capital is owned by such citizens, following the clear mandate of the
Constitution.
PSALM has no power to cede control over Angat Dam
The O&M Agreement, in no uncertain terms, confers the operation of Angat Dam,
among other non-power components, to the operator; that is, the buyer of AHEPP.
But by express admission103 of respondent PSALM, the following governmental
agencies jointly operate within the Angat Dam Complex:

First, NWRB controls the exploitation, development, and conservation of the waters.
It regulates the water from Angat River and allocates them to the three water permit
holders, NPC, MWSS, and NIA.
Second, NIA appropriates the water coming from the outflow of the main units of
AHEPP to Bustos Dam, for use in its irrigation systems.
Third, MWSS appropriates water coming from the outflow of the auxiliary units of
AHEPP, for domestic and other purposes through its two concessionaires, Manila
Water Company, Inc. and Maynilad Water Services, Inc.
Fourth, PAGASA uses its facilities located within the Angat Complex to forecast
weather in the area, forecasts which are vital to the operation of the complex itself.
Fifth, the Flood Forecasting and Warning System for Dam Operations (NPC-FFWSDO)
is responsible for the opening of the spillway gates during the rainy season. It has
sole authority to disseminate flood warning and notifies the public, particularly those
residing along the riverbanks, during spilling operation.
Sixth, the NPC-Watershed is responsible for preserving and conserving the forest of
Angat Watershed, vital to the maintenance of water storage in the Dam.
The O&M Agreement hands over to the operator, lock, stock, and barrel, the
operation of the entire Angat Dam, among other non-power components within the
Angat Dam Complex, to K-Water. This agreement undermines the capacity and
power of the various governmental agencies to operate within the dam, as the
operation thereof is being handed over to a private entity.
The distinction that PSALM intends to create is more illusory than real. The O&M
Agreement is explicit in handing over the operation of the dam to the operator/buyer
of AHEPP. There is an utter lack of supposed protocols in the management of water
between the operator and the various government agencies, as there is yet no
finalized Water Protocol. The provisions of the O&M Agreement by themselves
unreasonably limit the powers and responsibilities of the different government
agencies involved insofar as control of the waters of Angat Dam is concerned. Their
participation in the finalization of the Water Protocol is already unjustly limited in
that the provisions they may propose to include in the Protocol must respect the
powers already given to the operator in the O&M Agreement.
This may result in dangerous consequences, as the operator can effectively inhibit
the responsible governmental agencies from conducting activities within Angat
Damactivities that are vital not only to those entities with operation within Angat
Dam, but also to the general public who will suffer the consequences of improper
management of the waters in Angat Dam. In the event of unnatural swelling of the
waters in the dam, for purposes of public accountability, the proper government
agencies should be the ones to manage the outflow of water from the dam, and not
a private operator.
To require the buyer to operate Angat Dam and the non-power components is null
and void. The operation must always be in the hands of the government. The buyer

can only be obliged to maintain the non-power components, but still under the
control and supervision of the government.
The flow of waters to and from Angat Dam must at all times be within the control of
the government, lest it lose control over vital functions including ensuring water
security and flood control. Water security of the consuming public must take
precedence over proprietary interests such as the operation of a power plant. Flood
control, an increasingly important government function in light of the changing
times, should never be left to a private entity, especially one with proprietary
interests.
The operation of Angat Dam not only involves the utilization and extraction of
waters, but also important government functions, including flood control, weather
forecasting, and providing adequate water supply to the populace. Had it only been
the former, the government under the Constitution is permitted to enter into joint
venture agreements with those entities qualified under Sec. 2, Art. XII of the
Constitution. However, the latter are necessary government functions which the
government cannot devolve to private entities, including Filipino citizens and
corporations.
It leads Us then to conclude that the pivotal provisions of the O&M Agreement
entered into with K-Water, specifically those referring to the operation of Angat Dam,
are repugnant to the letter and spirit of the 1987 Constitution. 104 The control and
supervision of such areas must at all times be under the direct control and
supervision of the government.
The maintenance of the dam, however, is a different matter. It is a proprietary
function that the government may assign or impose to private entities. In the case
here, We find it just to impose such duty to maintain the facility to the buyer of
AHEPP, as it is in the best interest of the operations of AHEPP to ensure the optimal
conditions of the structures of the dam. The performance of this duty, however, must
still be under the supervision of the government.
In view of the urgency and time constraints in the privatization of AHEPP, PSALM has
the option to award the sale of AHEPP to any of the losing qualified bidders, provided
that the Angat Water Protocol is executed and signed by all the concerned
government agencies and that the
Operations & Maintenance Agreement shall contain the provision that the operation
of the Angat Dam, and the non-power components shall remain with the
government while the maintenance and repair of the Dam and other non-power
components shall be shouldered by the winning bidder, under the supervision and
control of the government.
For the foregoing reasons, I vote to GRANT the Petition. The following dispositions
are in order:
(1) PSALM should FURNISH the petitioners with copies of official
documents, acts, and records relating to the bidding process for AHEPP;

(2) The award by PSALM of the AHEPP to K-Water is NULL AND

VOID and UNCONSTITUTIONAL, as K-Water is DISQUALIFIED from
participating in the bidding to privatize AHEPP. Accordingly, the APA and
O&M Agreement entered into between PSALM and K-Water should be
declared NULL AND VOID for being repugnant to Sec. 2, Art. XII of the
Constitution; PSALM should be PERMANENTLY ENJOINED from further
pursuing the sale of AHEPP in favor of K-Water; and from further pursuing
the sale of AHEPP in favor of K-Water; and
(3) ONLY Filipino citizens and corporations at least sixty per centum (60%)
of whose capital is owned by Filipinio citizens are QUALIFIED to participate
in the bidding for the sale of AHEPP.

G.R. No. 170656

August 15, 2007
THE METROPOLITAN MANILA DEVELOPMENT AUTHORITY and BAYANI
FERNANDO as Chairman of the Metropolitan Manila Development
Authority, petitioners,
vs.
VIRON TRANSPORTATION CO., INC., respondent.

President Gloria Macapagal Arroyo issued the E.O. on February 10, 2003, "Providing
for the Establishment of Greater Manila Mass Transport System," the pertinent
portions of which read:
WHEREAS, Metro Manila continues to be the center of
employment opportunities, trade and commerce of the Greater
Metro Manila area;

x --------------------------------------------- x
G.R. No. 170657
August 15, 2007
HON. ALBERTO G. ROMULO, Executive Secretary, the METROPOLITAN
MANILA DEVELOPMENT AUTHORITY and BAYANI FERNANDO as Chairman of
the Metropolitan Manila Development Authority,petitioners,
vs.
MENCORP TRANSPORTATION SYSTEM, INC., respondent.
DECISION
CARPIO MORALES, J.:
The following conditions in 1969, as observed by this Court:
Vehicles have increased in number. Traffic congestion has moved from bad
to worse, from tolerable to critical. The number of people who use the
thoroughfares has multiplied x x x,1
have remained unchecked and have reverberated to this day. Traffic jams continue
to clog the streets of Metro Manila, bringing vehicles to a standstill at main road
arteries during rush hour traffic and sapping peoples energies and patience in the
process.
The present petition for review on certiorari, rooted in the traffic congestion
problem, questions the authority of the Metropolitan Manila Development Authority
(MMDA) to order the closure of provincial bus terminals along Epifanio de los Santos
Avenue (EDSA) and major thoroughfares of Metro Manila.
Specifically challenged are two Orders issued by Judge Silvino T. Pampilo, Jr. of the
Regional Trial Court (RTC) of Manila, Branch 26 in Civil Case Nos. 03-105850 and 03106224.
The first assailed Order of September 8, 2005,2 which resolved a motion for
reconsideration filed by herein respondents, declared Executive Order (E.O.) No.
179, hereafter referred to as the E.O., "unconstitutional as it constitutes an
unreasonable exercise of police power." The second assailed Order of November 23,
20053 denied petitioners motion for reconsideration.
The following facts are not disputed:

WHEREAS, the traffic situation in Metro Manila has affected the

adjacent provinces of Bulacan, Cavite, Laguna, and Rizal, owing to
the continued movement of residents and industries to more
affordable and economically viable locations in these provinces;
WHEREAS, the Metropolitan Manila Development Authority
(MMDA) is tasked to undertake measures to ease traffic congestion
in Metro Manila and ensure the convenient and efficient travel of
commuters within its jurisdiction;
WHEREAS, a primary cause of traffic congestion in Metro Manila
has been the numerous buses plying the streets that impedes [sic]
the flow of vehicles and commuters due to the inefficient
connectivity of the different transport modes;
WHEREAS, the MMDA has recommended a plan to decongest
traffic by eliminating the bus terminals now located along major
Metro Manila thoroughfares and providing more convenient access
to the mass transport system to the commuting public through the
provision of mass transport terminal facilities that would integrate
the existing transport modes, namely the buses, the rail-based
systems of the LRT, MRT and PNR and to facilitate and ensure
efficient travel through the improved connectivity of the different
transport modes;
WHEREAS, the national government must provide the necessary
funding requirements to immediately implement and render
operational these projects; and extent to MMDA such other
assistance as may be warranted to ensure their expeditious
prosecution.
NOW, THEREFORE, I, GLORIA MACAPAGALARROYO, President of the Philippines, by virtue of the powers
vested in me by law, do hereby order:
Section 1. THE PROJECT. The project shall be identified as
GREATER MANILA TRANSPORT SYSTEM Project.
Section 2. PROJECT OBJECTIVES. In accordance with the plan
proposed by MMDA, the project aims to develop four (4) interim
intermodal mass transport terminals to integrate the different
transport modes, as well as those that shall hereafter be

developed, to serve the commuting public in the northwest, north,

east, south, and southwest of Metro Manila. Initially, the project
shall concentrate on immediately establishing the mass transport
terminals for the north and south Metro Manila commuters as
hereinafter described.
Section 3. PROJECT IMPLEMENTING AGENCY.
The Metropolitan Manila Development Authority (MMDA), is
hereby designated as the implementing Agency for the project. For
this purpose, MMDA is directed to undertake such infrastructure
development work as may be necessary and, thereafter, manage
the project until it may be turned-over to more appropriate
agencies, if found suitable and convenient. Specifically, MMDA shall
have the following functions and responsibilities:
a) Cause the preparation of the Master Plan for
the projects, including the designs and costing;
b) Coordinate the use of the land and/or
properties needed for the project with the
respective agencies and/or entities owning them;

Order.4 (Emphasis in the original; underscoring

supplied)
As the above-quoted portions of the E.O. noted, the primary cause of traffic
congestion in Metro Manila has been the numerous buses plying the streets and the
inefficient connectivity of the different transport modes;5 and the MMDA had
"recommended a plan to decongest traffic by eliminating the bus terminals now
located along major Metro Manila thoroughfares and providing more and convenient
access to the mass transport system to the commuting public through the provision
of mass transport terminal facilities"6 which plan is referred to under the E.O. as
the Greater Manila Mass Transport System Project (the Project).
The E.O. thus designated the MMDA as the implementing agency for the Project.
Pursuant to the E.O., the Metro Manila Council (MMC), the governing board and
policymaking body of the MMDA, issued Resolution No. 03-07 series of
20037 expressing full support of the Project. Recognizing the imperative to integrate
the different transport modes via the establishment of common bus parking terminal
areas, the MMC cited the need to remove the bus terminals located along major
thoroughfares of Metro Manila.8

c) Supervise and manage the construction of the

necessary structures and facilities;

On February 24, 2003, Viron Transport Co., Inc. (Viron), a domestic corporation
engaged in the business of public transportation with a provincial bus
operation,9 filed a petition for declaratory relief10 before the RTC11 of Manila.

d) Execute such contracts or agreements as may

be necessary, with the appropriate government
agencies, entities, and/or private persons, in
accordance with existing laws and pertinent
regulations, to facilitate the implementation of
the project;

In its petition which was docketed as Civil Case No. 03-105850, Viron alleged that
the MMDA, through Chairman Fernando, was "poised to issue a Circular,
Memorandum or Order closing, or tantamount to closing, all provincial bus terminals
along EDSA and in the whole of the Metropolis under the pretext of traffic
regulation."12 This impending move, it stressed, would mean the closure of its bus
terminal in Sampaloc, Manila and two others in Quezon City.

e) Accept, manage and disburse such funds as

may be necessary for the construction and/or
implementation of the projects, in accordance
with prevailing accounting and audit polices and
practice in government.

Alleging that the MMDAs authority does not include the power to direct provincial
bus operators to abandon their existing bus terminals to thus deprive them of the
use of their property, Viron asked the court to construe the scope, extent and
limitation of the power of the MMDA to regulate traffic under R.A. No. 7924, "An Act
Creating the Metropolitan Manila Development Authority, Defining its Powers and
Functions, Providing Funds Therefor and For Other Purposes."

f) Enlist the assistance of any national

government agency, office or department,
including local government units, governmentowned or controlled corporations, as may be
necessary;
g) Assign or hire the necessary personnel for the
above purposes; and
h) Perform such other related functions as may
be necessary to enable it to accomplish the
objectives and purposes of this Executive

Viron also asked for a ruling on whether the planned closure of provincial bus
terminals would contravene the Public Service Act and related laws which mandate
public utilities to provide and maintain their own terminals as a requisite for the
privilege of operating as common carriers.13
Mencorp Transportation System, Inc. (Mencorp), another provincial bus operator,
later filed a similar petition for declaratory relief 14 against Executive Secretary
Alberto G. Romulo and MMDA Chairman Fernando.
Mencorp asked the court to declare the E.O. unconstitutional and illegal for
transgressing the possessory rights of owners and operators of public land
transportation units over their respective terminals.

Averring that MMDA Chairman Fernando had begun to implement a plan to close and
eliminate all provincial bus terminals along EDSA and in the whole of the metropolis
and to transfer their operations to common bus terminals, 15 Mencorp prayed for the
issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction
to restrain the impending closure of its bus terminals which it was leasing at the
corner of EDSA and New York Street in Cubao and at the intersection of Blumentritt,
Laon Laan and Halcon Streets in Quezon City. The petition was docketed as Civil
Case No. 03-106224 and was raffled to Branch 47 of the RTC of Manila.
Mencorps petition was consolidated on June 19, 2003 with Virons petition which
was raffled to Branch 26 of the RTC, Manila.
Mencorps prayer for a TRO and/or writ of injunction was denied as was its
application for the issuance of a preliminary injunction.16
In the Pre-Trial Order17 issued by the trial court, the issues were narrowed down to
whether 1) the MMDAs power to regulate traffic in Metro Manila included the power
to direct provincial bus operators to abandon and close their duly established and
existing bus terminals in order to conduct business in a common terminal; (2) the
E.O. is consistent with the Public Service Act and the Constitution; and (3) provincial
bus operators would be deprived of their real properties without due process of law
should they be required to use the common bus terminals.
Upon the agreement of the parties, they filed their respective position papers in lieu
of hearings.
By Decision18 of January 24, 2005, the trial court sustained the constitutionality and
legality of the E.O. pursuant to R.A. No. 7924, which empowered the MMDA to
administer Metro Manilas basic services including those of transport and traffic
management.
The trial court held that the E.O. was a valid exercise of the police power of the
State as it satisfied the two tests of lawful subject matter and lawful means, hence,
Virons and Mencorps property rights must yield to police power.
On the separate motions for reconsideration of Viron and Mencorp, the trial court, by
Order of September 8, 2005, reversed its Decision, this time holding that the E.O.
was "an unreasonable exercise of police power"; that the authority of the MMDA
under Section (5)(e) of R.A. No. 7924 does not include the power to order the
closure of Virons and Mencorps existing bus terminals; and that the E.O. is
inconsistent with the provisions of the Public Service Act.
Petitioners motion for reconsideration was denied by Resolution of November 23,
2005.
Hence, this petition, which faults the trial court for failing to rule that: (1) the
requisites of declaratory relief are not present, there being no justiciable controversy
in Civil Case Nos. 03-105850 and 03-106224; and (2) the President has the
authority to undertake or cause the implementation of the Project.19

Petitioners contend that there is no justiciable controversy in the cases for

declaratory relief as nothing in the body of the E.O. mentions or orders the closure
and elimination of bus terminals along the major thoroughfares of Metro Manila.
Viron and Mencorp, they argue, failed to produce any letter or communication from
the Executive Department apprising them of an immediate plan to close down their
bus terminals.
And petitioners maintain that the E.O. is only an administrative directive to
government agencies to coordinate with the MMDA and to make available for use
government property along EDSA and South Expressway corridors. They add that
the only relation created by the E.O. is that between the Chief Executive and the
implementing officials, but not between third persons.
The petition fails.
It is true, as respondents have pointed out, that the alleged deficiency of the
consolidated petitions to meet the requirement of justiciability was not among the
issues defined for resolution in the Pre-Trial Order of January 12, 2004. It is equally
true, however, that the question was repeatedly raised by petitioners in their Answer
to Virons petition,20 their Comment of April 29, 2003 opposing Mencorps prayer for
the issuance of a TRO,21 and their Position Paper of August 23, 2004.22
In bringing their petitions before the trial court, both respondents pleaded the
existence of the essential requisites for their respective petitions for declaratory
relief,23 and refuted petitioners contention that a justiciable controversy was
lacking.24 There can be no denying, therefore, that the issue was raised and
discussed by the parties before the trial court.
The following are the essential requisites for a declaratory relief petition: (a) there
must be a justiciable controversy; (b) the controversy must be between persons
whose interests are adverse; (c) the party seeking declaratory relief must have a
legal interest in the controversy; and (d) the issue invoked must be ripe for judicial
determination.25
The requirement of the presence of a justiciable controversy is satisfied when an
actual controversy or the ripening seeds thereof exist between the parties, all of
whom are sui juris and before the court, and the declaration sought will help in
ending the controversy.26 A question becomes justiciable when it is translated into a
claim of right which is actually contested.27
In the present cases, respondents resort to court was prompted by the issuance of
the E.O. The 4th Whereas clause of the E.O. sets out in clear strokes the MMDAs
plan to "decongest traffic by eliminating the bus terminals now located along major
Metro Manila thoroughfares and providing more convenient access to the mass
transport system to the commuting public through the provision of mass transport
terminal facilities x x x." (Emphasis supplied)
Section 2 of the E.O. thereafter lays down the immediate establishment of common
bus terminals for north- and south-bound commuters. For this purpose, Section 8
directs the Department of Budget and Management to allocate funds of not more
than one hundred million pesos (P100,000,000) to cover the cost of the construction
of the north and south terminals. And the E.O. was made effective immediately.

The MMDAs resolve to immediately implement the Project, its denials to the contrary
notwithstanding, is also evident from telltale circumstances, foremost of which was
the passage by the MMC of Resolution No. 03-07, Series of 2003 expressing its full
support of the immediate implementation of the Project.
Notable from the 5th Whereas clause of the MMC Resolution is the plan to "remove
the bus terminals located along major thoroughfares of Metro Manila and an urgent
need to integrate the different transport modes." The 7th Whereas clause proceeds
to mention the establishment of the North and South terminals.
As alleged in Virons petition, a diagram of the GMA-MTS North Bus/Rail Terminal had
been drawn up, and construction of the terminal is already in progress. The MMDA,
in its Answer28 and Position Paper,29 in fact affirmed that the government had begun
to implement the Project.
It thus appears that the issue has already transcended the boundaries of what is
merely conjectural or anticipatory.lawphil
Under the circumstances, for respondents to wait for the actual issuance by the
MMDA of an order for the closure of respondents bus terminals would be foolhardy
for, by then, the proper action to bring would no longer be for declaratory relief
which, under Section 1, Rule 6330 of the Rules of Court, must be
brought before there is a breach or violation of rights.

Petitioners submit, however, that the real issue concerns the Presidents authority to
undertake or to cause the implementation of the Project. They assert that the
authority of the President is derived from E.O. No. 125, "Reorganizing the Ministry of
Transportation and Communications Defining its Powers and Functions and for Other
Purposes," her residual power and/or E.O. No. 292, otherwise known as the
Administrative Code of 1987. They add that the E.O. is also a valid exercise of the
police power.
E.O. No. 125,32 which former President Corazon Aquino issued in the exercise of
legislative powers, reorganized the then Ministry (now Department) of
Transportation and Communications. Sections 4, 5, 6 and 22 of E.O. 125, as
amended by E.O. 125-A,33 read:
SECTION 4. Mandate. The Ministry shall be the primary policy,
planning, programming, coordinating, implementing, regulating
and administrative entity of the Executive Branch of the
government in the promotion, development and regulation of
dependable and coordinated networks of transportationand
communication systems as well as in the fast, safe, efficient and reliable
postal, transportation and communications services.
To accomplish such mandate, the Ministry shall have the following
objectives:
(a) Promote the development of dependable and
coordinated networks of transportation and
communications systems;

As for petitioners contention that the E.O. is a mere administrative issuance which
creates no relation with third persons, it does not persuade. Suffice it to stress that
to ensure the success of the Project for which the concerned government agencies
are directed to coordinate their activities and resources, the existing bus terminals
owned, operated or leased by third persons like respondents would have to be
eliminated; and respondents would be forced to operate from the common bus
terminals.
It cannot be gainsaid that the E.O. would have an adverse effect on respondents.
The closure of their bus terminals would mean, among other things, the loss of
income from the operation and/or rentals of stalls thereat. Precisely, respondents
claim a deprivation of their constitutional right to property without due process of
law.
Respondents have thus amply demonstrated a "personal and substantial interest in
the case such that [they have] sustained, or will sustain, direct injury as a result of
[the E.O.s] enforcement."31 Consequently, the established rule that the
constitutionality of a law or administrative issuance can be challenged by one who
will sustain a direct injury as a result of its enforcement has been satisfied by
respondents.
On to the merits of the case.
Respondents posit that the MMDA is devoid of authority to order the elimination of
their bus terminals under the E.O. which, they argue, is unconstitutional because it
violates both the Constitution and the Public Service Act; and that neither is the
MMDA clothed with such authority under R.A. No. 7924.

(b) Guide government and private investment in

the development of the countrys intermodal
transportation and communications systems in a
most practical, expeditious, and orderly fashion for
maximum safety, service, and cost effectiveness;
(Emphasis and underscoring supplied)
xxxx
SECTION 5. Powers and Functions. To accomplish its mandate, the
Ministry shall have the following powers and functions:
(a) Formulate and recommend national policies and
guidelines for the preparation and implementation of
integrated and comprehensive transportation and
communications systems at the national, regional and
local levels;
(b) Establish and administer comprehensive and
integrated programs for transportation and
communications, and for this purpose, may call on any
agency, corporation, or organization, whether public or
private, whose development programs include

transportation and communications as an integral part

thereof, to participate and assist in the preparation and
implementation of such program;
(c) Assess, review and provide direction to transportation
and communications research and development programs
of the government in coordination with other institutions
concerned;
(d) Administer all laws, rules and regulations in the
field of transportation and communications;
(Emphasis and underscoring supplied)
xxxx
SECTION 6. Authority and Responsibility. The authority and
responsibility for the exercise of the mandate of the Ministry and for
the discharge of its powers and functions shall be vested in the
Minister of Transportation and Communications, hereinafter referred
to as the Minister, who shall have supervision and control over the Ministry
and shall be appointed by the President. (Emphasis and underscoring
supplied)
SECTION 22. Implementing Authority of Minister. The Minister shall
issue such orders, rules, regulations and other issuances as may be
necessary to ensure the effective implementation of the provisions
of this Executive Order. (Emphasis and underscoring supplied)
It is readily apparent from the abovequoted provisions of E.O. No. 125, as amended,
that the President, then possessed of and exercising legislative powers,
mandated the DOTC to be the primary policy, planning, programming, coordinating,
implementing, regulating and administrative entity to promote, develop and regulate
networks of transportation and communications. The grant of authority to the DOTC
includes the power to establishand administer comprehensive and integrated
programs for transportation and communications.
As may be seen further, the Minister (now Secretary) of the DOTC is vested with the
authority and responsibility to exercise the mandate given to the
department. Accordingly, the DOTC Secretary is authorized to issue such orders,
rules, regulations and other issuances as may be necessary to ensure the effective
implementation of the law.
Since, under the law, the DOTC is authorized to establish and administer programs
and projects for transportation, it follows that the President may exercise the same
power and authority to order the implementation of the Project, which admittedly is
one for transportation.
Such authority springs from the Presidents power of control over all executive
departments as well as the obligation for the faithful execution of the laws under
Article VII, Section 17 of the Constitution which provides:

SECTION 17. The President shall have control of all the executive
departments, bureaus and offices. He shall ensure that the laws be
faithfully executed.
This constitutional provision is echoed in Section 1, Book III of the Administrative
Code of 1987. Notably, Section 38, Chapter 37, Book IV of the same Code defines
the Presidents power of supervision and control over the executive departments,
viz:
SECTION 38. Definition of Administrative Relationships. Unless otherwise
expressly stated in the Code or in other laws defining the special
relationships of particular agencies, administrative relationships shall be
categorized and defined as follows:
(1) Supervision and Control. Supervision and control shall include
authority to act directly whenever a specific function is entrusted by
law or regulation to a subordinate; direct the performance of duty;
restrain the commission of acts; review, approve, reverse or modify acts
and decisions of subordinate officials or units; determine priorities in the
execution of plans and programs. Unless a different meaning is explicitly
provided in the specific law governing the relationship of particular agencies
the word "control" shall encompass supervision and control as defined in
this paragraph. x x x (Emphasis and underscoring supplied)
Thus, whenever a specific function is entrusted by law or regulation to a
subordinate, the President may act directly or merely direct the performance of a
duty.34
Respecting the Presidents authority to order the implementation of the Project in the
exercise of the police power of the State, suffice it to stress that the powers vested
in the DOTC Secretary to establish and administer comprehensive and integrated
programs for transportation and communications and to issue orders, rules and
regulations to implement such mandate (which, as previously discussed, may also
be exercised by the President) have been so delegated for the good and welfare of
the people. Hence, these powers partake of the nature of police power.
Police power is the plenary power vested in the legislature to make, ordain, and
establish wholesome and reasonable laws, statutes and ordinances, not repugnant to
the Constitution, for the good and welfare of the people.35 This power to prescribe
regulations to promote the health, morals, education, good order or safety, and
general welfare of the people flows from the recognition that salus populi est
suprema lex the welfare of the people is the supreme law.
While police power rests primarily with the legislature, such power may be
delegated, as it is in fact increasingly being delegated. 36 By virtue of a valid
delegation, the power may be exercised by the President and administrative
boards37 as well as by the lawmaking bodies of municipal corporations or local
governments under an express delegation by the Local Government Code of 1991. 38
The authority of the President to order the implementation of the Project
notwithstanding, the designation of the MMDA as the implementing agency for the
Project may not be sustained. It is ultra vires, there being no legal basis therefor.

It bears stressing that under the provisions of E.O. No. 125, as amended, it is the
DOTC, and not the MMDA, which is authorized to establish and implement a project
such as the one subject of the cases at bar. Thus, the President, although authorized
to establish or cause the implementation of the Project, must exercise the authority
through the instrumentality of the DOTC which, by law, is the
primary implementing and administrative entity in the promotion, development and
regulation of networks of transportation, and the one so authorized to establish and
implement a project such as the Project in question.
By designating the MMDA as the implementing agency of the Project, the President
clearly overstepped the limits of the authority conferred by law, rendering E.O. No.
179 ultra vires.
In another vein, the validity of the designation of MMDA flies in the absence of a
specific grant of authority to it under R.A. No. 7924.
To recall, R.A. No. 7924 declared the Metropolitan Manila area39 as a "special
development and administrative region" and placed the administration of "metrowide" basic services affecting the region under the MMDA.
Section 2 of R.A. No. 7924 specifically authorizes the MMDA to perform "planning,
monitoring and coordinative functions, and in the process exercise regulatory and
supervisory authority over the delivery of metro-wide services," including transport
and traffic management.40 Section 5 of the same law enumerates the powers and
functions of the MMDA as follows:
(a) Formulate, coordinate and regulate the implementation of
medium and long-term plans and programs for the delivery of
metro-wide services, land use and physical development within
Metropolitan Manila, consistent with national development
objectives and priorities;
(b) Prepare, coordinate and regulate the implementation of
medium-term investment programs for metro-wide services which
shall indicate sources and uses of funds for priority programs and
projects, and which shall include the packaging of projects and
presentation to funding institutions;
(c) Undertake and manage on its own metro-wide programs and
projects for the delivery of specific services under its jurisdiction,
subject to the approval of the Council. For this purpose, MMDA can
create appropriate project management offices;
(d) Coordinate and monitor the implementation of such plans,
programs and projects in Metro Manila; identify bottlenecks and
adopt solutions to problems of implementation;
(e) The MMDA shall set the policies concerning traffic in
Metro Manila, and shall coordinate and regulate the
implementation of all programs and projects concerning
traffic management, specifically pertaining to enforcement,

engineering and education. Upon request, it shall be extended

assistance and cooperation, including but not limited to,
assignment of personnel, by all other government agencies and
offices concerned;
(f) Install and administer a single ticketing system, fix,
impose and collect fines and penalties for all kinds of
violations of traffic rules and regulations , whether moving or
non-moving in nature, and confiscate and suspend or revoke
drivers licenses in the enforcement of such traffic laws and
regulations, the provisions of RA 4136 and PD 1605 to the contrary
notwithstanding. For this purpose, the Authority shall impose all
traffic laws and regulations in Metro Manila, through its traffic
operation center, and may deputize members of the PNP, traffic
enforcers of local government units, duly licensed security guards,
or members of non-governmental organizations to whom may be
delegated certain authority, subject to such conditions and
requirements as the Authority may impose; and
(g) Perform other related functions required to achieve the
objectives of the MMDA, including the undertaking of delivery of
basic services to the local government units, when deemed
necessary subject to prior coordination with and consent of the
local government unit concerned." (Emphasis and underscoring
supplied)
The scope of the function of MMDA as an administrative, coordinating and policysetting body has been settled inMetropolitan Manila Development Authority (MMDA)
v. Bel-Air Village Association, Inc.41 In that case, the Court stressed:
Clearly, the scope of the MMDAs function is limited to the delivery of the
seven (7) basic services. One of these is transport and traffic
management which includes the formulation and monitoring of policies,
standards and projects to rationalize the existing transport operations,
infrastructure requirements, the use of thoroughfares and promotion of the
safe movement of persons and goods. It also covers the mass transport
system and the institution of a system of road regulation, the
administration of all traffic enforcement operations, traffic engineering
services and traffic education programs, including the institution of a single
ticketing system in Metro Manila for traffic violations. Under this service, the
MMDA is expressly authorized to "to set the policies concerning traffic" and
"coordinate and regulate the implementation of all traffic management
programs." In addition, the MMDA may install and administer a single
ticketing system," fix, impose and collect fines and penalties for all traffic
violations.
It will be noted that the powers of the MMDA are limited to the following
acts: formulation, coordination, regulation, implementation, preparation,
management, monitoring, setting of policies, installation of a system and
administration. There is no syllable in R.A. No. 7924 that grants the MMDA
police power, let alone legislative power. Even the Metro Manila Council has
not been delegated any legislative power. Unlike the legislative bodies of
the local government units, there is no provision in R.A. No. 7924

that empowers the MMDA or its Council to enact ordinances,

approve resolutions and appropriate funds for the general welfare
of the inhabitants of Metro Manila. The MMDA is, as termed in the
charter itself, a development authority. It is an agency created for
the purpose of laying down policies andcoordinating with the
various national government agencies, peoples organizations, nongovernmental organizations and the private sector for the efficient
and expeditious delivery of basic services in the vast metropolitan
area. All its functions are administrative in nature and these are
actually summed up in the charter itself, viz:
SECTION 2. Creation of the Metropolitan Manila Development Authority.
...
The MMDA shall perform planning, monitoring and
coordinative functions, and in the processexercise
regulatory and supervisory authority over the delivery of
metro-wide services within Metro Manila, without diminution
of the autonomy of the local government units concerning purely
local matters.42 (Emphasis and underscoring supplied)
In light of the administrative nature of its powers and functions, the MMDA is devoid
of authority to implement the Project as envisioned by the E.O; hence, it could not
have been validly designated by the President to undertake the Project. It follows
that the MMDA cannot validly order the elimination of respondents terminals.
Even the MMDAs claimed authority under the police power must necessarily fail in
consonance with the above-quoted ruling in MMDA v. Bel-Air Village Association, Inc.
and this Courts subsequent ruling in Metropolitan Manila Development Authority v.
Garin43 that the MMDA is not vested with police power.
Even assuming arguendo that police power was delegated to the MMDA, its exercise
of such power does not satisfy the two tests of a valid police power measure, viz:
(1) the interest of the public generally, as distinguished from that of a particular
class, requires its exercise; and (2) the means employed are reasonably necessary
for the accomplishment of the purpose and not unduly oppressive upon
individuals.44 Stated differently, the police power legislation must be firmly grounded
on public interest and welfare and a reasonable relation must exist between the
purposes and the means.
As early as Calalang v. Williams,45 this Court recognized that traffic congestion is a
public, not merely a private, concern. The Court therein held that public welfare
underlies the contested statute authorizing the Director of Public Works to
promulgate rules and regulations to regulate and control traffic on national roads.
Likewise, in Luque v. Villegas,46 this Court emphasized that public welfare lies at the
bottom of any regulatory measure designed "to relieve congestion of traffic, which
is, to say the least, a menace to public safety."47 As such, measures calculated to
promote the safety and convenience of the people using the thoroughfares by the
regulation of vehicular traffic present a proper subject for the exercise of police
power.

Notably, the parties herein concede that traffic congestion is a public concern that
needs to be addressed immediately. Indeed, the E.O. was issued due to the felt need
to address the worsening traffic congestion in Metro Manila which, the MMDA so
determined, is caused by the increasing volume of buses plying the major
thoroughfares and the inefficient connectivity of existing transport systems. It is
thus beyond cavil that the motivating force behind the issuance of the E.O. is the
interest of the public in general.
Are the means employed appropriate and reasonably necessary for the
accomplishment of the purpose. Are they not duly oppressive?
With the avowed objective of decongesting traffic in Metro Manila, the E.O. seeks to
"eliminate[e] the bus terminals now located along major Metro Manila thoroughfares
and provid[e] more convenient access to the mass transport system to the
commuting public through the provision of mass transport terminal facilities x x
x."48 Common carriers with terminals along the major thoroughfares of Metro Manila
would thus be compelled to close down their existing bus terminals and use the
MMDA-designated common parking areas.
In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,49 two city ordinances were
passed by the Sangguniang Panlungsod of Lucena, directing public utility vehicles to
unload and load passengers at the Lucena Grand Central Terminal, which was given
the exclusive franchise to operate a single common terminal. Declaring that no other
terminals shall be situated, constructed, maintained or established inside or within
the city of Lucena, thesanggunian declared as inoperable all temporary terminals
therein.
The ordinances were challenged before this Court for being unconstitutional on the
ground that, inter alia, the measures constituted an invalid exercise of police power,
an undue taking of private property, and a violation of the constitutional prohibition
against monopolies.
Citing De la Cruz v. Paras50 and Lupangco v. Court of Appeals,51 this Court held that
the assailed ordinances were characterized by overbreadth, as they went beyond
what was reasonably necessary to solve the traffic problem in the city. And it found
that the compulsory use of the Lucena Grand Terminal was unduly oppressive
because it would subject its users to fees, rentals and charges.
The true role of Constitutional Law is to effect an equilibrium between
authority and liberty so that rights are exercised within the framework of
the law and the laws are enacted with due deference to rights.
A due deference to the rights of the individual thus requires a more careful
formulation of solutions to societal problems.
From the memorandum filed before this Court by petitioner, it is gathered
that the Sangguniang Panlungsod had identified the cause of traffic
congestion to be the indiscriminate loading and unloading of passengers by
buses on the streets of the city proper, hence, the conclusion that the
terminals contributed to the proliferation of buses obstructing traffic on the
city streets.

Bus terminals per se do not, however, impede or help impede the flow of
traffic. How the outright proscription against the existence of all
terminals, apart from that franchised to petitioner, can be
considered as reasonably necessary to solve the traffic
problem, this Court has not been enlightened. If terminals lack
adequate space such that bus drivers are compelled to load and unload
passengers on the streets instead of inside the terminals, then reasonable
specifications for the size of terminals could be instituted, with permits to
operate the same denied those which are unable to meet the specifications.
In the subject ordinances, however, the scope of the proscription
against the maintenance of terminals is so broad that even entities
which might be able to provide facilities better than the franchised
terminal are barred from operating at all. (Emphasis and underscoring
supplied)
As in Lucena, this Court fails to see how the prohibition against the existence of
respondents terminals can be considered a reasonable necessity to ease traffic
congestion in the metropolis. On the contrary, the elimination of respondents bus
terminals brings forth the distinct possibility and the equally harrowing reality of
traffic congestion in the common parking areas, a case of transference from one site
to another.
Less intrusive measures such as curbing the proliferation of "colorum" buses, vans
and taxis entering Metro Manila and using the streets for parking and passenger
pick-up points, as respondents suggest, might even be more effective in easing the
traffic situation. So would the strict enforcement of traffic rules and the removal of
obstructions from major thoroughfares.
As to the alleged confiscatory character of the E.O., it need only to be stated that
respondents certificates of public convenience confer no property right, and are
mere licenses or privileges.52 As such, these must yield to legislation safeguarding
the interest of the people.
Even then, for reasons which bear reiteration, the MMDA cannot order the closure of
respondents terminals not only because no authority to implement the Project has
been granted nor legislative or police power been delegated to it, but also because
the elimination of the terminals does not satisfy the standards of a valid police power
measure.
Finally, an order for the closure of respondents terminals is not in line with the
provisions of the Public Service Act.
Paragraph (a), Section 13 of Chapter II of the Public Service Act (now Section 5 of
Executive Order No. 202, creating the Land Transportation Franchising and
Regulatory Board or LFTRB) vested the Public Service Commission (PSC, now the
LTFRB) with "x x x jurisdiction, supervision and control over all public services and
their franchises, equipment and other properties x x x."
Consonant with such grant of authority, the PSC was empowered to "impose such
conditions as to construction, equipment, maintenance, service, or operation

as the public interests and convenience may reasonably require" 53 in approving any
franchise or privilege.
Further, Section 16 (g) and (h) of the Public Service Act 54 provided that the
Commission shall have the 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:
(g) To compel any public service to furnish safe, adequate, and proper
service as regards the manner of furnishing the same as well as the
maintenance of the necessary material and equipment.
(h) To require any public service to establish, construct, maintain, and
operate any reasonable extension of its existing facilities, where in
the judgment of said Commission, such extension is reasonable and
practicable and will furnish sufficient business to justify the construction
and maintenance of the same and when the financial condition of the said
public service reasonably warrants the original expenditure required in
making and operating such extension.(Emphasis and underscoring supplied)
The establishment, as well as the maintenance of vehicle parking areas or passenger
terminals, is generally considered a necessary service to be provided by provincial
bus operators like respondents, hence, the investments they have poured into the
acquisition or lease of suitable terminal sites. Eliminating the terminals would thus
run counter to the provisions of the Public Service Act.
This Court commiserates with the MMDA for the roadblocks thrown in the way of its
efforts at solving the pestering problem of traffic congestion in Metro Manila. These
efforts are commendable, to say the least, in the face of the abominable traffic
situation of our roads day in and day out. This Court can only interpret, not change,
the law, however. It needs only to be reiterated that it is the DOTC as the primary
policy, planning, programming, coordinating, implementing, regulating and
administrative entity to promote, develop and regulate networks of transportation
and communications which has the power to establish and administer a
transportation project like the Project subject of the case at bar.
No matter how noble the intentions of the MMDA may be then, any plan, strategy or
project which it is not authorized to implement cannot pass muster.
WHEREFORE, the Petition is, in light of the foregoing disquisition, DENIED. E.O.
No. 179 is declared NULL and VOID for being ultra vires.
SO ORDERED.

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING
AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS
ASSOCIATION OF THE PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private
respondent.
Jose F. Miravite for movants.

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service 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. The same is true with
respect to the business of common carrier which holds such a peculiar relation to the
public interest that there is superinduced upon it the right of public regulation when
private properties are affected with public interest, hence, they cease to be juris
privati only. When, therefore, 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, to the extent of the
interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions
as the instant petition seeks to show, is indeed lamentable. Not only is it an unsound
administrative policy but it is inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain
memoranda, circulars and/or orders of the Department of Transportation and
Communications (DOTC) and the Land Transportation Franchising and Regulatory
Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without
application therefor with the LTFRB and without hearing and approval thereof by said
agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended,
otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix
and determine just and reasonable fares by delegating that function to bus
operators, and (b) establish a presumption of public need in favor of applicants for
certificates of public convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in patent violation not only of
Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating

that fares should be "just and reasonable." It is, likewise, violative of the Rules of
Court which places upon each party the burden to prove his own affirmative
allegations. 3 The offending provisions contained in the questioned issuances pointed
out by petitioner, have resulted in the introduction into our highways and
thoroughfares thousands of old and smoke-belching buses, many of which are righthand driven, and have exposed our consumers to the burden of spiraling costs of
public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the
instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990
relative to the implementation of a fare range scheme for provincial bus services in
the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of
transport services; (c) DOTC Memorandum dated October 8, 1992, laying down rules
and procedures to implement Department Order No. 92-587; (d) LTFRB
Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC
Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case
No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum
Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando 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 one (1) year. The text of the
memorandum order reads in full:
One of the policy reforms and measures that is in line with the
thrusts and the priorities set out in the Medium-Term Philippine
Development Plan (MTPDP) 1987 1992) is the liberalization of
regulations in the transport sector. Along this line, the Government
intends to move away gradually from regulatory policies and make
progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are
already charging passenger rates above and below the official fare
declared by LTFRB on many provincial routes. It is in this context
that some form of liberalization on public transport fares is to be
tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately
publicize a fare range scheme for all provincial bus routes in
country (except those operating within Metro Manila). Transport
Operators shall be allowed to charge passengers within a range of
fifteen percent (15%) above and fifteen percent (15%) below the
LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared
by LTFRB in coordination with the DOTC Planning Service.

The implementation of the said fare range scheme shall start on 6

August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible,"
Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on
July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26
June 1990 which the LTFRB received on 19 July 1990, directing the
Board "to immediately publicize a fare range scheme for all
provincial bus routes in the country (except those operating within
Metro Manila)" that will allow operators "to charge passengers
within a range of fifteen percent (15%) above and fifteen percent
(15%) below the LTFRB official rate for a period of one year" the
undersigned is respectfully adverting the Secretary's attention to
the following for his consideration:
1. Section 16(c) of the Public Service Act
prescribes the following for the fixing and
determination of rates (a) the rates to be
approved should be proposed by public service
operators; (b) there should be a publication and
notice to concerned or affected parties in the
territory affected; (c) a public hearing should be
held for the fixing of the rates; hence,
implementation of the proposed fare range
scheme on August 6 without complying with the
requirements of the Public Service Act may not
be legally feasible.
2. To allow bus operators in the country to
charge fares fifteen (15%) above the present
LTFRB fares in the wake of the devastation,
death and suffering caused by the July 16
earthquake will not be socially warranted and will
be politically unsound; most likely public criticism
against the DOTC and the LTFRB will be triggered
by the untimely motu propioimplementation of
the proposal by the mere expedient of publicizing
the fare range scheme without calling a public
hearing, which scheme many as early as during
the Secretary's predecessor know through
newspaper reports and columnists' comments to
be Asian Development Bank and World Bank
inspired.

3. More than inducing a reduction in bus fares by

fifteen percent (15%) the implementation of the
proposal will instead trigger an upward
adjustment in bus fares by fifteen percent (15%)
at a time when hundreds of thousands of people
in Central and Northern Luzon, particularly in
Central Pangasinan, La Union, Baguio City, Nueva
Ecija, and the Cagayan Valley are suffering from
the devastation and havoc caused by the recent
earthquake.
4. In lieu of the said proposal, the DOTC with its
agencies involved in public transportation can
consider measures and reforms in the industry
that will be socially uplifting, especially for the
people in the areas devastated by the recent
earthquake.
In view of the foregoing considerations, the undersigned
respectfully suggests that the implementation of the proposed fare
range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of
the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An acrossthe-board increase of eight and a half centavos (P0.085) per kilometer for all types
of provincial buses with a minimum-maximum fare range of fifteen (15%) percent
over and below the proposed basic per kilometer fare rate, with the said minimummaximum fare range applying only to ordinary, first class and premium class buses
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was
sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare
to an across-the-board increase of six and a half (P0.065) centavos per kilometer for
ordinary buses. The decrease was due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla
C. Bautista alleging that the proposed rates were exorbitant and unreasonable and
that the application contained no allegation on the rate of return of the proposed
increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the
fare rate increase in accordance with the following schedule of fares on a straight
computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37

STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405

The requirements to grant a certificate to operate, or certificate of

public convenience, shall be: proof of Filipino citizenship, financial
capability, public need, and sufficient insurance cover to protect
the riding public.
In determining public need, the presumption of need for a service
shall be deemed in favor of the applicant. The burden of proving
that there is no need for a proposed service shall be with the
oppositor(s).
In the interest of providing efficient public transport services, the
use of the "prior operator" and the "priority of filing" rules shall be
discontinued. The route measured capacity test or other similar
tests of demand for vehicle/vessel fleet on any route shall be used
only as a guide in weighing the merits of each franchise application
and not as a limit to the services offered.

AIRCON (PER KM.) P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and
Communications Pete Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full
text of the said order is reproduced below in view of the importance of the provisions
contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the
Department of Transportation and Communications (DOTC) as the
primary policy, planning, regulating and implementing agency on
transportation;
WHEREAS, to achieve the objective of a viable, efficient, and
dependable transportation system, the transportation regulatory
agencies under or attached to the DOTC have to harmonize their
decisions and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful
liberalization measures pursued over the last five years and bring
the transport sector nearer to a balanced longer term regulatory
framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the
DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are
hereby adopted:
1. Entry into and exit out of the industry. Following the
Constitutional dictum against monopoly, no franchise holder shall
be permitted to maintain a monopoly on any route. A minimum of
two franchise holders shall be permitted to operate on any route.

Where there are limitations in facilities, such as congested road

space in urban areas, or at airports and ports, the use of demand
management measures in conformity with market principles may
be considered.
The right of an operator to leave the industry is recognized as a
business decision, subject only to the filing of appropriate notice
and following a phase-out period, to inform the public and to
minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually
from government controls. Passenger fares shall also be
deregulated, except for the lowest class of passenger service
(normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on
specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be set
temporarily by the government pending actions to increase the
level of competition.
For unserved or single operator routes, the government shall
contract such services in the most advantageous terms to the
public and the government, following public bids for the services.
The advisability of bidding out the services or using other kinds of
incentives on such routes shall be studied by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a
matter of policy, the government shall not engage in special

financing and incentive programs, including direct subsidies for

fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be
considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the
Civil Aeronautics Board, the Maritime Industry Authority are
hereby directed to submit to the Office of the Secretary, within
forty-five (45) days of this Order, the detailed rules and procedures
for the Implementation of the policies herein set forth. In the
formulation of such rules, the concerned agencies shall be guided
by the most recent studies on the subjects, such as the Provincial
Road Passenger Transport Study, the Civil Aviation Master Plan, the
Presidential Task Force on the Inter-island Shipping Industry, and
the Inter-island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of
Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to
the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules
and procedures to implement above-quoted Department Order No. 92-587 that laid
down deregulation and other liberalization policies for the transport sector. Attached
to the said memorandum was a revised draft of the required rules and procedures
covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting,
with comments and suggestions from the World Bank incorporated therein. Likewise,
resplendent from the said memorandum is the statement of the DOTC Secretary that
the adoption of the rules and procedures is a pre-requisite to the approval of the
Economic Integration Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department
Order No. 92-587. The Circular provides, among others, the following challenged
portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public
Convenience.
The issuance of a Certificate of Public Convenience is determined
by public need. The presumption of public need for a service shall
be deemed in favor of the applicant, while burden of proving that
there is no need for the proposed service shall be the
oppositor'(s).
xxx xxx xxx

V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price
competition complementary with the quality of service, subject to
prior notice and public hearing. Fares shall not be provisionally
authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15
per cent for provincial buses and jeepneys shall be widened to
20% and -25% limit in 1994 with the authorized fare to be
replaced by an indicative or reference rate as the basis for the
expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class
and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the
deregulation policy of the DOTC allowing provincial bus operators to collect plus 20%
and minus 25% of the prescribed fare 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. Said increased fares were to be made
effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the
upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the
petition for lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the
arguments of the parties, hereby DISMISSES FOR LACK OF MERIT
the petition filed in the above-entitled case. This petition in this
case was resolved with dispatch at the request of petitioner to
enable it to immediately avail of the legal remedies or options it is
entitled under existing laws.
SO ORDERED. 6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a
temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining,
prohibiting and preventing respondents from implementing the bus fare rate
increase as well as the questioned orders and memorandum circulars. This meant
that provincial bus fares were rolled back to the levels duly authorized by the LTFRB
prior to March 16, 1994. A moratorium was likewise enforced on the issuance of
franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by
respondent LTFRB to provincial bus operators to set a fare range of plus or minus
fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five
(-25%) percent, over and above the existing authorized fare without having to file a
petition for the purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an applicant for a proposed
transport service without having to prove public necessity, is illegal for being
violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the
issues raised by the petitioner, questions the wisdom and the manner by which the
instant petition was filed. It asserts that the petitioner has no legal standing to sue
or has no real interest in the case at bench and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents
DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner
does not have the standing to maintain the instant suit. They further claim that it is
within DOTC and LTFRB's authority to set a fare range scheme and establish a
presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has
the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section
1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been
a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the
Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide
causes pending between parties who have the right to sue in the courts of law and
equity. Corollary to this provision is the principle of locus standi of a party litigant.
One who is directly affected by and whose interest is immediate and substantial in

the controversy has the standing to sue. The rule therefore requires that a party
must show a personal stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision so as to warrant an invocation of the
court's jurisdiction and to justify the exercise of the court's remedial powers in his
behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer
grave and irreparable injury and damage from the implementation of the questioned
memoranda, circulars and/or orders, has shown that it has a clear legal right that
was violated and continues to be violated with the enforcement of the challenged
memoranda, circulars and/or orders. KMU members, who avail of the use of buses,
trains and jeepneys everyday, are directly affected by the burdensome cost of
arbitrary increase in passenger fares. They are part of the millions of commuters
who comprise the riding public. Certainly, their rights must be protected, not
neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court
is ready to brush aside this barren procedural infirmity and recognize the legal
standing of the petitioner in view of the transcendental importance of the issues
raised. And this act of liberality is not without judicial precedent. As early as
the Emergency Powers Cases, this Court had exercised its discretion and waived the
requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto
Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases
where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality
which it may, in the exercise of its discretion, set aside in view of
the importance of the issues raised. In the landmark Emergency
Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No.
L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas);
G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R.
No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368
(1949)], this Court brushed aside this technicality because "the
transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L2621)." Insofar as taxpayers' suits are concerned, this Court had
declared that it "is not devoid of discretion as to whether or not it
should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680
[1972]) or that it "enjoys an open discretion to entertain the same
or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary
taxpayers, members of Congress, and even association of planters,
and
non-profit civic organizations were allowed to initiate and
prosecute actions before this court to question the constitutionality

or validity of laws, acts, decisions, rulings, or orders of various

government agencies or instrumentalities. Among such cases were
those assailing the constitutionality of (a) R.A. No. 3836 insofar as
it allows retirement gratuity and commutation of vacation and sick
leave to Senators and Representatives and to elective officials of
both Houses of Congress (Philippine Constitution Association, Inc.
v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284,
issued by President Corazon C. Aquino on 25 July 1987, which
allowed members of the cabinet, their undersecretaries, and
assistant secretaries to hold other government offices or positions
(Civil Liberties Union v. Executive Secretary, 194 SCRA 317
[1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221
[1991]; (d) R.A. No. 7056 on the holding of desynchronized
elections (Osmea v. Commission on Elections, 199 SCRA 750
[1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine
Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A.
No. 6975, establishing the Philippine National Police. (Carpio v.
Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy
regarding locus standi include those attacking the validity or
legality of (a) an order allowing the importation of rice in the light
of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn
Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b)
P.D. Nos. 991 and 1033 insofar as they proposed amendments to
the Constitution and P.D. No. 1031 insofar as it directed the
COMELEC to supervise, control, hold, and conduct the referendumplebiscite on 16 October 1976 (Sanidad v. Commission on
Elections, supra); (c) the bidding for the sale of the 3,179 square
meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v.
Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing
by the Board of Investments of the amended application of the
Bataan Petrochemical Corporation to transfer the site of its plant
from Bataan to Batangas and the validity of such transfer and the
shift of feedstock from naphtha only to naphtha and/or liquefied
petroleum gas (Garcia v. Board of Investments, 177 SCRA 374
[1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]);
(e) the decisions, orders, rulings, and resolutions of the Executive
Secretary, Secretary of Finance, Commissioner of Internal
Revenue, Commissioner of Customs, and the Fiscal Incentives
Review Board exempting the National Power Corporation from
indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771
[1991]); (f) the orders of the Energy Regulatory Board of 5 and 6
December 1990 on the ground that the hearings conducted on the
second provisional increase in oil prices did not allow the petitioner
substantial cross-examination; (Maceda v. Energy Regulatory
Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which
levied a special duty of P0.95 per liter of imported oil products

(Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h)

resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of
Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420
[1992]); and (i) memorandum orders issued by a Mayor affecting
the Chief of Police of Pasay City (Pasay Law and Conscience Union,
Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA
275 [1975]), this Court, despite its unequivocal ruling that the
petitioners therein had no personality to file the petition, resolved
nevertheless to pass upon the issues raised because of the farreaching implications of the petition. We did no less in De Guia v.
COMELEC (Supra) where, although we declared that De Guia "does
not appear to have locus standi, a standing in law, a personal or
substantial interest," we brushed aside the procedural infirmity
"considering the importance of the issue involved, concerning as it
does the political exercise of qualified voters affected by the
apportionment, and petitioner alleging abuse of discretion and
violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 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:
xxx xxx xxx
(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: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and
without necessity of any hearing; but it shall call a hearing thereon
within thirty days thereafter, upon publication and notice to the
concerns operating in the territory affected: 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. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct
Public Service Commission the power of fixing the rates of public services.
Respondent LTFRB, the existing regulatory body today, is likewise vested
with the same under Executive Order No. 202 dated June 19, 1987. Section
5(c) of the said executive order authorizes LTFRB "to determine, prescribe,
approve and periodically review and adjust, reasonable fares, rates and
other related charges, relative to the operation of public land transportation
services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in
order to adapt to the increasing complexity of modern life. As subjects for
governmental regulation multiply, so does the difficulty of administering the laws.
Hence, specialization even in legislation has become necessary. Given the task of
determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory
body is entrusted with the power of subordinate legislation. With this authority, an
administrative body and in this case, the LTFRB, may implement broad policies laid
down in a statute by "filling in" the details which the Legislature may neither have
time or competence to provide. However, nowhere under the aforesaid provisions of
law are the regulatory bodies, the PSC and LTFRB alike, 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. This doctrine is based on the ethical principle that such a delegated
power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening
mind of another. 10 A further delegation of such power would indeed constitute a
negation of the duty in violation of the trust reposed in the delegate mandated to
discharge it directly. 11 The policy of allowing the provincial bus operators to change
and increase their fares at will would result not only to a chaotic situation but to an
anarchic state of affairs. This would leave the riding public at the mercy of transport
operators who may increase fares every hour, every day, every month or every year,
whenever it pleases them or whenever they deem it "necessary" to do so. In Panay
Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co.
was granted by the Public Service Commission the authority to change its freight
rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized
by law to delegate to the Philippine Railway Co. the power of
altering its freight rates whenever it should find it necessary to do
so in order to meet the competition of road trucks and autobuses,
or to change its freight rates at will, or to regard its present rates
as maximum rates, and to fix lower rates whenever in the opinion
of the Philippine Railway Co. it would be to its advantage to do so.

The mere recital of the language of the application of the Philippine

Railway Co. is enough to show that it is untenable. The Legislature
has delegated to the Public Service Commission the power of fixing
the rates of public services, but it has not authorized the Public
Service Commission to delegate that power to a common carrier or
other public service. The rates of public services like the Philippine
Railway Co. have been approved or fixed by the Public Service
Commission, and any change in such rates must be authorized or
approved by the Public Service Commission after they have been
shown to be just and reasonable. The public service may, of
course, propose new rates, as the Philippine Railway Co. did in
case No. 31827, but it cannot lawfully make said new rates
effective without the approval of the Public Service Commission,
and the Public Service Commission itself cannot authorize a public
service to enforce new rates without the prior approval of said
rates by the commission. The commission must approve new rates
when they are submitted to it, if the evidence shows them to be
just and reasonable, otherwise it must disapprove them. Clearly,
the commission cannot determine in advance whether or not the
new rates of the Philippine Railway Co. will be just and reasonable,
because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for
permission to change its freight rates at will. It may change them
every day or every hour, whenever it deems it necessary to do so
in order to meet competition or whenever in its opinion it would be
to its advantage. Such a procedure would create a most
unsatisfactory state of affairs and largely defeat the purposes of
the public service law. 13(Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded
fare. If transport operators will be authorized to impose and collect an additional
amount equivalent to 20% over and above the authorized fare over a period of time,
this will unduly prejudice a commuter who will be made to pay a fare that has been
computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus
operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary
buses. At the same time, they were allowed to impose and collect a fare range of
plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer
authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent
to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another
five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for
computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If
bus operators will exercise their authority to impose an additional 20% over and
above the authorized fare, then the fare to be collected shall amount to P0.56 (that
is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect,
commuters will be continuously subjected, not only to a double fare adjustment but
to a compounding fare as well. On their part, transport operators shall enjoy a
bigger chunk of the pie. Aside from fare increase applied for, they can still collect an

additional amount by virtue of the authorized fare range. Mathematically, the

situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990
1994
1998
2002

P0.37
P0.42
P0.56
P0.73

15% (P0.05) P0.42

+ 0.05 = 0.47 20% (P0.09) P0.56
+ 0.05 = 0.61 20% (P0.12) P0.73
+ 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive
government function that requires dexterity of judgment and sound discretion with
the settled goal of arriving at a just and reasonable rate acceptable to both the
public utility and the public. Several factors, in fact, have to be taken into
consideration before a balance could be achieved. A rate should not be confiscatory
as would place an operator in a situation where he will continue to operate at a loss.
Hence, the rate should enable public utilities to generate revenues sufficient to cover
operational costs and provide reasonable return on the investments. On the other
hand, a rate which is too high becomes discriminatory. It is contrary to public
interest. A rate, therefore, must be reasonable and fair and must be affordable to
the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching
effects on millions of commuters, government must not relinquish this important
function in favor of those who would benefit and profit from the industry. Neither
should the requisite notice and hearing be done away with. The people, represented
by reputable oppositors, deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and
satisfactory arrangement for all parties involved. To do away with such a procedure
and allow just one party, an interested party at that, to determine what the rate
should be, will undermine the right of the other parties to due process. The purpose
of a hearing is precisely to determine what a just and reasonable rate
is. 15 Discarding such procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for
the operation of land transportation services for public use as required by law.
Pursuant to Section 16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to wit: (i) the applicant
must be a citizen of the Philippines, or a corporation or co-partnership, association
or joint-stock company constituted and organized under the laws of the Philippines,
at least 60 per centum of its stock or paid-up capital must belong entirely to citizens
of the Philippines; (ii) the applicant must be financially capable of undertaking the

proposed service and meeting the responsibilities incident to its operation; and
(iii) 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. It is understood that there must be proper notice and hearing
before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and
contradictory policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined
by public need. The presumption of public need for a service shall
be deemed in favor of the applicant, while the burden of proving
that there is no need for the proposed service shall be the
oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section
16(c)(iii) of the Public Service Act which requires that before a CPC will be issued,
the applicant must prove by proper notice and hearing that the operation of the
public service proposed will promote public interest in a proper and suitable manner.
On the contrary, the policy guideline states that the presumption of public need for a
public service shall be deemed in favor of the applicant. In case of conflict between a
statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or
suited to the public need. 16 As one of the basic requirements for the grant of a CPC,
public convenience and necessity exists when the proposed facility or service meets
a reasonable want of the public and supply a need which the existing facilities do not
adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that
must be established by evidence, real and/or testimonial; empirical data; statistics
and such other means necessary, in a public hearing conducted for that purpose.
The object and purpose of such procedure, among other things, is to look out for,
and protect, the interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that
after full-dress hearing and investigation, it shall find, as a fact, that the proposed
operation is for the convenience of the public. 17 Basic convenience is the primary
consideration for which a CPC is issued, and that fact alone must be consistently
borne in mind. Also, existing operators in subject routes must be given an
opportunity to offer proof and oppose the application. Therefore, an applicant must,
at all times, be required to prove his capacity and capability to furnish the service
which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that
purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses
well-settled and institutionalized judicial, quasi-judicial and administrative
procedures. It allows the party who initiates the proceedings to prove, by mere

application, his affirmative allegations. Moreover, the offending provisions of the

LTFRB memorandum circular in question would in effect amend the Rules of Court by
adding another disputable presumption in the enumeration of 37 presumptions
under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's
authority cannot be countenanced as only this Court is mandated by law to
promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in
our country given the present circumstances. Advocacy of liberalized franchising and
regulatory process is tantamount to an abdication by the government of its inherent
right to exercise police power, that is, the right of government to regulate public
utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative
orders to regulate the transport sector, we find that they committed grave abuse of
discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and
LTFRB Memorandum Circular No. 92-009 promulgating the implementing guidelines
on DOTC Department Order No. 92-587, the said administrative issuances being
amendatory and violative of the Public Service Act and the Rules of Court.
Consequently, we rule that the twenty (20%) per centum fare increase imposed by
respondent PBOAP on March 16, 1994 without the benefit of a petition and a public
hearing is null and void and of no force and effect. No grave abuse of discretion
however was committed in the issuance of DOTC Memorandum Order No. 90-395
and DOTC Memorandum dated October 8, 1992, the same being merely internal
communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and
the challenged administrative issuances and orders, namely: DOTC Department
Order No. 92-587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are
hereby DECLARED contrary to law and invalid insofar as they affect provisions
therein (a) delegating to provincial bus and jeepney operators the authority to
increase or decrease the duly prescribed transportation fares; and (b) creating a
presumption of public need for a service in favor of the applicant for a certificate of
public convenience and placing the burden of proving that there is no need for the
proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE
PERMANENT insofar as it enjoined the bus fare rate increase granted under the
provisions of the aforementioned administrative circulars, memoranda and/or orders
declared invalid.
No pronouncement as to costs.
SO ORDERED.

G.R. No. L-23688 April 30, 1970

MANDBUSCO, INC., MANDALUYONG BUS CO., INC., PRESCILO
CAMAGANACAN, BLAS REYES and ANASTACIO ESMAO, petitioners,
vs.
PABLO FRANSCISCO, respondent.
Clemente and Clemente for petitioners.
Baldomero S. Luque for respondent.

CASTRO, J.:
The respondent Pablo Francisco applied for a certificate of public convenience
covering the operation of five (5) PUJ jitneys from barrio Pinagbuhatan, Pasig, Rizal
to the intersection of Highway 54 and Shaw Boulevard, Mandaluyong, Rizal
(otherwise known as the "Crossing") and vice-versa. Hearing was conducted, after
due notice and publication, enabling both the respondent applicant and the
oppositors Mandbusco, Inc., et al., to adduce their respective evidence. On June 15,
1964 a decision was rendered by the Public Service Commission granting the
respondent's application, it appearing to a division of three commissioners that:
After [a] careful study of the evidence presented by the parties,
the Commission finds that the proposed service will benefit the
people of Bo. Pinagbuhatan considering that there is no direct
service from that place to the crossing of Highway 54 and Shaw
Blvd. It can be noted also that the provincial capitol, provincial
hospital and other big establishments are located past the
Poblacion of Pasig and nearer to the other proposed terminal at
Highway 54 and Shaw Blvd. and that residents from Pinagbuhatan
have to take 2 rides to reach these places.
The dispositive portion of the decision reads:
Finding further from the evidence adduced by the applicant that he
is [a] Filipino citizen, legally and financially capable [of operating
and maintaining] the same, the oppositions filed in this case are
hereby overruled and the certificate of public convenience applied
for, may be, as it is hereby GRANTED to the applicant ....
It is mainly at the findings above-quoted that the petitioners, all bus operators, have
aimed their present petition for review, following the rejection of their motion for
reconsideration by the Commission en banc.
The petitioners want to make capital of the declarations of their two witnesses,
Federico Dantayana and Arturo Clemente. Let us appraise these declarations.

Dantayana, an official inspector of the Commission, testified that he posted himself

somewhere along the route covered by the respondent's application, and conducted
a survey of the number of passenger vehicles availing themselves of the use of the
Shaw Boulevard in going to and coming from Pasig, Rizal. The inspection sheets
offered in evidence show that buses with a usual loading capacity of from 65 to 75
passengers each were barely half-filled on the whole, while "jitneys" with a usual
loading capacity of 13 passengers each actually carried an average of only 6
passengers each for every trip. These facts, the petitioners argue, illustrate an
excess of available passenger vehicles over the actual needs of the riding public.
They negate the advisability of allowing the applicant's "jitneys" to serve the route
between barrio Pinagbuhatan and the crossing of Highway 54 and Shaw Boulevard in
Mandaluyong.
Closely scrutinizing Dantayana's testimony, we cannot acquiesce in the petitioners'
conclusions. The length of the route which the respondent applied for is divided into
two parts. The first starts at barrio Pinagbuhatan and ends at the poblacion of the
town of Pasig. The second begins at the poblacion and winds up at the crossing of
Highway 54 and Shaw Boulevard in Mandaluyong. Dantayana's survey covered
passenger vehicles passing through the second part of the route applied for. It
appears, however, that the second part is actually only a converging point for
passenger vehicles coming from towns east of Pasig, not to mention other passenger
vehicles, equally numerous, destined for Manila coming from their terminals located
in the Pasig poblacion itself. In short, Dantayana's survey does not at all indicate the
volume of the traffic of passenger vehicles corning all the way from barrio
Pinagbuhatan. After all, the primary objective of the grant of the certificate of public
convenience in question was the welfare of the inhabitants of barrio Pinagbuhatan
and other inhabitants along the first part of the route applied for.
The petitioners' only other witness, Arturo Clemente, the president of both the
Mandbusco, Inc. and of the Pasig-Manila Bus Operators Association, testified that a
total of 125 buses are operating between Pasig, Rizal and Quiapo, Manila, all taking
the Shaw Boulevard, which thoroughfare is part of the route applied for by the
respondent. Likewise, a total of 51 "jitneys" serve that same portion of Shaw
Boulevard to and from the various points in Pasig. In addition, a total of 171 buses
coming from towns east of Pasig pass daily through the latter town, proceed to Shaw
Boulevard, and then to Manila. All these public conveyances, the witness pointed
out, are more than adequate to meet the transportation needs of the riding public in
the areas served. The petitioners, the witness added, have made substantial
investments in their business and, therefore, the allowance of additional public
transportation vehicles, clearly unneeded, would result in ruinous competition and
threaten the stability of their financial positions.
This argument suffers, however, from the same basic oversight afflicting the
testimony of Dantayana. All the vehicles mentioned by Clemente, except possibly for
two buses a matter which we will shortly discuss do not run the full course of
the route applied for by the respondent. The overlapping of service exists only with
regard to the second part of that route, and this is clearly unavoidable since the
stretch of road from the Pasig poblacion to the crossing serves as a common access
to Highway 54 whence passengers embark for separate destinations.

In the course of the hearing the petitioners presented a certificate of public

convenience allowing the Mandaluyong Bus Co., Inc. to utilize two of their buses,
and a third as reserve, for the line from Pinagbuhatan (Pasig, Rizal) to Plaza Miranda
(Quiapo, Manila) via Mandaluyong, Rizal. This, according to petitioners, should
completely negate the finding of the Commission that there exists no direct service
from barrio Pinagbuhatan to the crossing of Highway 54 and Shaw Boulevard. We
disagree. The certificate of public convenience adverted to merely proves that
authority has been given to the grantee to operate public utility vehicles in the
designated territory. It cannot serve as proof that the grantee has made actual use
of such authority. Lacking any positive proof that the petitioners (or any of them)
adequately serve the transportation requirements of the inhabitants of barrio
Pinagbuhatan and the adjacent places, we are not inclined to overturn the finding of
fact of the Commission, realizing as we do, after the reading of the record, that the
same is reasonably supported by evidence.1
The petitioners invoke the "old operator rule," which is to the effect that a public
utility operator should be shielded from ruinous competition by affording him the
opportunity to improve his equipment and service before allowing a new operator to
serve in the same territory he covers.2 This rule has no application in this case
because the certificate of public convenience granted to the respondent is a maiden
franchise covering the particular line connecting barrio Pinagbuhatan and the
crossing of Highway 54 and Shaw Boulevard. The certificate of public convenience
authorizing the Mandaluyong Bus Co., Inc. to operate two buses, with one reserve,
on the line extending from barrio Pinagbuhatan to Plaza Miranda in Quiapo, Manila,
while in a sense overlapping with the authority given to the respondent, was
essentially intended to cover the great distance run between barrio Pinagbuhatan
and Quiapo, Manila, via Pasig Boulevard, P. Sanchez, V. Mapa, Valenzuela, Old Sta.
Mesa, Sta. Mesa Boulevard, Legarda, Tanduay, P. Casal, Ayala Bridge, Concepcion,
Arroceros, Quezon Bridge and Quezon Boulevard. Upon the other hand, the grant in
favor of the respondent covers only a brief shuttle run of 8 kilometers linking barrio
Pinagbuhatan directly with the Pasig poblacion and the crossing of Highway 54 and
Shaw Boulevard. The Commission favored the respondent with the certificate of
public convenience in question; we are not prepared to substitute our discretion with
that of the Public Service Commission in the determination of what can best meet
the requirements of public convenience.
The ability of the respondent to finance the maintenance and operation of the
service he applied for is likewise questioned by the petitioners. This issue is now
academic for the reason that the respondent has, since his receipt of the franchise,
actually registered the five units covered by the authority. He has, moreover,
registered one reserve unit for the same line, with the approval of the Commission.
These units, plus the assets he proved he owns, are sufficient guaranty that the
respondent can sustain the service he applied for.3
The petitioners, in their brief, invoke the Public Service Commission Memorandum of
May 15, 1963 and its Supplemental Memorandum of July 22, 1963, with a view to
establishing that the certificate of public convenience in favor of respondent was
issued in violation of these memoranda. The first memorandum comes as a
suggestion to all Commissioners that action on all pending applications, for
certificates of public convenience for the operation of passenger service in Manila,

Quezon City, Pasay City, Caloocan, Mandaluyong, Paraaque, San Juan and Makati,
be suspended until further studies could be made. The supplemental memorandum
contains an order addressed to the Secretary of the Commission enjoining him from
calendaring for hearing or for continuation of hearing any application for passenger
service in Manila and suburbs; and any decision purporting to have been rendered
prior to May 15, 1963 but had not been turned over to the Secretary and recorded
prior to the date of the order, should be withheld until further orders. It is not
difficult to see that the territory applied for is not among the one enumerated in the
Memorandum of May 15, 1963. The respondent's service stretches mainly across the
town of Pasig in Rizal, and if it abuts into a tiny fraction of Mandaluyong, one of the
areas covered by the enumeration, the incursion is incidental and does not
necessarily render Mandaluyong the mainstream of the respondent's service.
Moreover, even if the memorandum in question comprehend the present application,
still public welfare and convenience, where positively found by the Commission to be
subserved, should prevail.4
ACCORDINGLY, the decision appealed from is hereby affirmed. No pronouncement as
to costs.

G.R. No. L-28865

December 19, 1928

BATANGAS TRANSPORTATION CO., petitioner-appellant,

vs.
CAYETANO ORLANES, respondent-appellee.
L. D. Lockwood and C. de G. Alvear for appellant.
Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.
STATEMENT
In his application for a permit, the appellee Orlanes alleges that he is the holder of a
certificate of public convenience issued by the Public Service Commission in case No.
7306, to operate an autobus line from Taal to Lucena, passing through Batangas,
Bolbok and Bantilan, in the Province of Batangas, and Candelaria and Sariaya, in the
Province of Tayabas, without any fixed schedule; that by reason of the requirements
of public convenience, he has applied for a fixed schedule from Bantilan to Lucena
and return; that in case No. 7306, he cannot accept passengers or cargo from Taal
to any point before Balbok, and vice versa; that the public convenience requires that
he be converted into what is known as a regular operator on a fixed schedule
between Taal and Bantilan and intermediate points, and for that purpose, he has
submitted to the Commission proposed schedule for a license to make trips between
those and intermediate points. He then alleges that by reason of increase of traffic,
the public convenience also requires that he be permitted to accept passengers and
cargo at points between Taal and Bantilan, and he asked for authority to establish
that schedule, and to accept passengers at all points between Taal and Bantilan.
To this petition the Batangas Transportation Company appeared and filed an
application for a permit, in which it alleged that it is operating a regular service of
auto trucks between the principal municipalities of the Province of Batangas and
some of those of the Province of Tayabas; that since 1918, it has been operating a
regular service between Taal and Rosario, and that in 1920, its service was extended
to the municipality of San Juan de Bolbok, with a certificate of public convenience
issued by the Public Servise Commission; that in the year 1925 Orlanes obtained
from the Commission a certificate of public convenience to operate an irregular
service of auto trucks between Taal, Province of Batangas, and Lucena, Province of
Tayabas, passing through the municipalities of Bauan, Batangas, Ibaan, Rosario, and
San Juan de Bolbok, with the express limitation that he could not accept passengers
from intermediate points between Taal and Bolbok, except those which were going to
points beyond San Juan de Bolbok or to the Province of Tayabas; that he
inaugurated this irregular in March, 1926, but maintained it on that part of the line
between Taal and Bantilan only for about three months, when he abandoned that
portion of it in the month of June and did not renew it until five days before the
hearing of case No. 10301, which was set for November 24, 1926, in which hearing
the Batangas Transportation Company asked for additional hours for its line between
Batangas and Bantilan; that in June, 1926, Orlanes sought to obtain a license as a
regular operator on that portion of the line between Bantilan and Lucena without
having asked for a permit for tat portion of the line between Bantilan and Taal; that
from June, 1926, Orlanes and the Batangas Transportation Company were jointly
operating a regular service between Bantilan and Lucena, with trips every half an
hour, and Orlanes not having asked for a regular service between Bantilan and Taal,
the Batangas Transportation Company remedied this lack of service under the

authority of the Commission, and increased its trips between Bantilan and Tayabas
to make due and timely connections in Bantilan on a half-hour service between
Bantilan and Batangas with connections there for Taal and all other points in the
Province of Batangas. It is then alleged that the service maintained by the company
is sufficient to satisafy the convenience of the public, and that the public
convenience does not require the granting of the permit for the service which
Orlanes petitions, and that to do so would result in ruinous competition and to the
grave prejudice of the company and without any benefit to the public, and it prayed
that the petition of Orlanes to operate a regular service be denied.
After the evidence was taken upon such issues, the Public Service Commission
granted the petition of Orlanes, as prayed for, and the company then filed a motion
for a rehearing, which was denied, and the case is now before this court, in which
the appellant assigns the following errors:
The Commission erred in ordering that a certificate of public convenience be
issued in favor of Cayetano Orlanes to operate the proposed service without
finding and declaring that the public interest will be prompted in a proper
and suitable by the operation of such service, or when the evidence does
not show that the public interests will be so prompted.
That the Commission erred in denying the motion for a rehearing.

JOHNS, J.:
The questions presented involve a legal construction of the powers and duties of the
Public Service Commission, and the purpose and intent for which it was created, and
the legal rights and privileges of a public utility operating under a prior license.
It must be conceded that an autobus line is a public utility, and that in all things and
respects, it is what is legally known as a common carrier, and that it is an important
factor in the business conditions of the Islands, which is daily branching out and
growing very fast.
Before such a business can be operated, it must apply for, and obtain, a license or
permit from the Public Service Commission, and comply with certain defined terms
and conditions, and when license is once, granted, the operator must conform to,
and comply with all, reasonable rules and regulations of the Public Service
Commission. The object and purpose of such a commission, among other things, is
to look out for, and protect, the interests of the public, and, in the instant case, to
provide it with safe and suitable means of travel over the highways in question, in
like manner that a railroad would be operated under like terms and conditions. To all
intents and purposes, the operation of an autobus line is very similar to that of a
railroad, and a license for its operation should be granted or refused on like terms
and conditions. For many and different reasons, it has never been the policy of a
public service commission to grant a license for the operation of a new line of
railroad which parallels and covers the same field and territory of another old

established line, for the simple reason that it would result in ruinous competition
between the two lines, and would not be of any benefit or convenience to the public.

its prior license, and in legal effect that was the order which the Commission made,
of which the Batangas Transportation Company now complains.

The Public Service Commission has ample power and authority to make any and all
reasonable rules and regulations for the operation of any public utility and to enforce
complience with them, and for failure of such utility to comply with, or conform to,
such reasonable rules and regulations, the Commission has power to revoke the
license for its operation. It also has ample power to specify and define what is a
reasonable compensation for the services rendered to the traveling public.

The appellant squarely plants its case on the proposition:

That is to say, the Public Service Commission, as such has the power to specify and
define the terms and conditions upon which the public utility shall be operated, and
to make reasonable rules and regulations for its operation and the compensation
which the utility shall receive for its services to the public, and for any failure to
comply with such rules and regulations or the violation of any of the terms and
conditions for which the license was granted the Commission has ample power to
enforce the provisions of the license or even to revoke it, for any failure or neglect to
comply with any of its terms and provisions.
Hence, and for such reasons, the fact that the Commission has previously granted a
license to any person to operate a bus line over a given highway and refuses to
grant a similar license to another person over the same highway, does not in the
least create a monopoly in the person of the licensee, for the reason that at all times
the Public Service Commission has the power to say what is a reasonable
compensation to the utility, and to make reasonable rules and regulations for the
convenience of the traveling public and to enforce them.
In the instant case, Orlanes seek to have a certificate of public convenience to
operate a line of auto trucks with fixed times of departure between Taal and
Bantilan, in the municipality of Bolbok, Province of Batangas, with the right to
receive passengers and freight from intermediate points. The evidence is conclusive
that at the time of his application, Orlanes was what is known as an irregular
operator between Bantilan and Taal, and that the Batangas operator between
Batangas and Rosario. Orlanes now seeks to have his irregular changed into a
regular one, fixed hours of departure and arrival between Bantilan and Taal, and to
set aside and nullify the prohibition against him in his certificate of public
convenience, in substance and to the effect that he shall not have or receive any
passengers or freight at any of the points served by the Batangas Transportation
Company for which that company holds a prior license from the Commission. His
petition to become such a regular operator over such conflicting routes is largely
based upon the fact that, to comply with the growing demands of the public, the
Batangas Transportation Company, in case No. 10301, applied to the Commission for
a permit to increase the number of trip hours at and between the same places from
Batangas to Rosario, and or for an order that all irregular operators be prohibited
from operating their respective licenses, unless they should observe the interval of
two hours before, or one hour after, the regular hours of the Batangas
Transportation Company.
In his petition Orlanes sought to be releived from his prohibition to become a regular
operator, and for a license to become a regular operator with a permission to make
three trips daily between Bantilan and Taal, the granting of which make him a
regular operator between those points and bring him in direct conflict and
competition over the same points with the Batangas Transportation Company under

Is a certificate of public convenience going to be issued to a second

operator to operate a public utility in a field where, and in competition with,
a first operator who is already operating, adequate and satisfactory service?
There is no claim or pretense that the Batangas Transportation Company has
violated any of the terms and conditions of its license. Neiher does the Public Service
Commission find as a fact that the grantring of a license to Orlanes as a regular
operator between the points in question is required or necessary for the convenience
of the traveling public, or that there is any complaint or criticism by the public of the
services rendered by the Batangas Transportation Company over the route in
question.
The law creating the Public service Commission of the Philippine Islands is known as
Act No. 3108, as amended by Act No. 3316, and under it the supervision and control
of public utilities is very broad and comprehensive.
Section 15 of Act No. 3108 provides that the Commission shall have power, after
hearing, upon notice, by order in writing to require every public utility:
(a) To comply with the laws of the Philippine Islands;
(b) To furnish safe, adequate, and proper service as regards the manner of
furnishing the same as well as the maintenance of the necessary material
equipment, etc;
(c) To establish, construct, maintain, and operate any reasonable extention of its
existing facilities, where such extension is reasonable and practicable and will furnish
sufficient business to justify the construction and maintenance of the same;
(d) To keep a uniform system of books, records and accounts;
(e) To make specific answer with regard to any point on which the Commission
requires information, and to furnish annual reports of finance and operations;
(f) To carry, whenever the Commission may require, a proper and adequate
depreciation account;
(g) To notify the Commission of all accidents;
(h) That when any public utility purposes to increase or reduce any existing
individual rates, it shall give the Commission written notice thirty days prior to the
proposed change; and

(i) "No public utility as herein defind shall operate in the Philippine Islands without
having first secured from the Commission a certificate, which shall be known as
Certificate of Public Convenience, to the effect that the operation of said public utility
and the authorization to do busibness wikll promote the public interest in a proper
and suitable maner."

That is to say, in legal effect, that the power of the Commission to issue a certificate
of public convenience depends on the condition precedent that, after a full hearing
and investigation, the Commission shall have found as a fact that the operation of
the proposed public service and its authority to do business must be based upon the
finding that it is for the convenience of the public.

Section 16 specially prohibits any discrimination in the handling of freight charges.

In the Philippine Islands the cetificate of public convenience is as folows:

In construing a similar law of the State of Kansas, the United States Supreme Court,
in an opinion written by Chief Justice Taft, in Wichita Railroad and Light Co. vs.
Public Utilities Commission of Kansas (260 U. S. 48; 67 Law. ed., 124), said:
The proceeding we are considering is governed by section 13. That is the
general section of the act comprehensively describing the duty of the
Commission, vesting it with power to fix and order substituted new rates for
existing rates. The power is expressly made to depend on the condition
that, after full hearing and investigation, the Commission shall find existing
rates to be unjust, unreasonable, unjustly discriminatory, or unduly
preferential. We conclude that a valid order of the Commission under the
act must contain a finding of fact after hearing and investigation, upon
which the order is founded, and that, for lack of such a finding, the order in
this case was void.
This conclusion accords with the construction put upon similar statutes in
other states. (State Public Utilities Commission ex rel. Springfield vs.
Springfield Gas and E. Co., 291 Ill., 209; P. U. R., 1920C, 640; 125 N. E.
891; State Public Utilities Co. vs. Baltimore and O. S. W. R. Co., 281 Ill;
405; P. U. R., 1918B, 655; 118 N. E., 81.) Moreover, it accords with general
principles of constitutional government. The maxim that a legislature may
not delegate legislative power has some qualifications, as in the creation of
municipalities, and also in the creation of administrative boards to apply to
the myriad details of rate schedule the regulatory police power of the state.
The latter qualification is made necessary in order that the legislative power
may be effectively exercised. In creating such an administrative agency, the
legislature, to prevent its being a pure delegation of legislative power, must
enjoin upon a certain course of procedure and certain rules of decision in
the perfomance of its function. It is a wholesome and necessary principle
that such an agency must pursue the procedure and rules enjoined, and
show a substantial compliance therewith, to give validity to its action.
When, therefore, such an administrative agency is required, as a condition
precedent to an order, to make a finding of facts, the validity of the order
rest upon the needed finding. It is lacking, the order is ineffective.
It is pressed on us that the lack of an express finding may be supplied by
implication and by reference to the averments of the petition invoking the
action of the Commission. We cannot agree to this point. It is doubtful
whether the facts averred in the petition were sufficient to justify a finding
that the contract rates were unreasonably low; but we do not find it
necessay to answer this question. We rest our decision on the principle that
an express finding of unreasonableness by the Commission was
indispensable under the statutes of the state.

CERTIFICATE OF PUBLIC CONVENIENCE

To whom it may concern:
THIS IS TO CERTIFY, That in pursuance of the power and authority
conferred upon it by subsection (i) of section 15 of Act No. 3108 of the
Philippine Legislature,
THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS, after
having duly considered the application of ................. for a certificate of
public convenience the operation of ........................ in connection with the
evidence submitted in support thereof, has rendered its decision
on................, 192...., in case No. ............, declaring that the operation by
the applicant ...................... of the business above described will promote
the public interests in a proper and suitable manner, and
granting................. to this effect the corresponding authority, subject to
the conditions prescribed in said decision.
Given at Manila Philippine Islands, this ......... day of .....................,
192 .....
PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS
By..................................
Commissioner
Attested:
.....................................
Secretary

That is to say, that the certificate of public convenince granted to Orlanes in the
instant case expressly recites that it "will promote the public interests in a proper
and suitable manner." Yet no such finding of fact was made by the Commission.
In the instant case, the evidence is conclusive that the Batangas Transportation
Company operated its line five years before Orlanes ever turned a wheel, yet the
legal effect of the decision of the Public Service Commission is to give an irregular
operator, who was the last in the field, a preferential right over a regular operator,
who was the first in the field. That is not the law, and there is no legal principle upon
which it can be sustained.

So long as the first licensee keeps and performs the terms and conditions of its
license and complies with the reasonable rules and regulations of the Commission
and meets the reasonable demands of the public, it should have more or less of a
vested and preferential right over a person who seeks to acquire another and a later
license over the same route. Otherwise, the first license would not have protection
on his investment, and would be subject to ruinous competition and thus defeat the
very purpose and intent for which the Public Service Commission was created.
It does not appear that the public has ever made any complaint the Batangas
Transportation Company, yet on its own volition and to meet the increase of its
business, it has applied to the Public Service Commission for authority to increase
the number of daily trips to nineteen, thus showing a spirit that ought to be
commended.
Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by the
Public Service Commission of Indiana (P. U. R., 1927-B, page 729), in which it was
held:
A motor vehicle operator having received a certificate with a voluntary
stipulation not to make stops (that is not to carry passengers) on a part of
a route served by other carriers, and having contracted with such carries
not to make the stops, will not subsequently are able to carry all
passengers who present theselves for transportation within the restricted
district.
And in Re Mount Baker Development Co., the Public Service Commission of
Washington (P. U. R., 1925D, 705), held:
A cerificate authorizing through motor carrier service should not authorize
local service between points served by the holders of a certificate, without
first giving the certificate holders an opportunity to render additional service
desired.
In the National Coal Company case (47 Phil., 356), this court said:
When there is no monopoly. There is no such thing as a monopoly where
a property is operated as a public utility under the rules and regulations of
the Public Utility Commission and the terms and provision of the Public
Utility Act.
Section 775 of Pond on Public Utilities, which is recognized as a standard authority,
states the rule thus:
The policy of regulation, upon which our present public utility commission
plan is based and which tends to do away with competition among public
utilities as they are natural monopolies, is at once reason and the
justification for the holding of our courts that the regulation of an existing
system of transportation, which is properly serving a given field, or may be
required to do so, is to be preferred to competition among several
independent systems. While requiring a proper service from, a single
system for a city or territory in consideration for protecting it as a monopoly

for all service required and in conserving its resources, no economic waste
results and service may be furnished at the minimum cost. The prime
object and real purpose of commission control is to secure adequate
sustained service for the public at the least possible cost, and to protect
and conserve investments already made for this purpose. Experience has
demonstrated beyond any question that competition among natural
monopolies is wasteful economically and results finally in insufficient and
unsatisfactory service and extravagant rates.
The rule has been laid down, without dissent in numerous decisions, that where an
operator is rendering good, sufficient and adequate service to the public, that the
convenince does not require and the public interests will not be promoted in a proper
and suitable manner by giving another operator a certificate of public convenience to
operate a competing line over the same ruote.
In Re Haydis (Cal.), P. U. R., 1920A, 923:
A certificate of convenience and necessity for the operation of an auto truck
line in occupied territory will not be granted, where there is no complaint as
to existing rates and the present company is rendering adequate service.
In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:
A Commission should not approve an additional charter and grant an
additional certificate to a second bus company to operate in territory
covered by a certificate granted to another bus company as a subsidiary of
a railway company for operation in conjunction with the trolley system
where one bus service would be ample for all requirements.
In Re Branham (Ariz.), P. U. R., 1924C, 500:
A showing must be clear and affirmative that an existing is unable or has
refused to maintain adequate and satisfactory service, before a certificate
of convenience and necessity will be granted for the operation of an
additional service.
In Re Lambert (N. H.), P. U. R., 1923D, 572:
Authority to operate a jitney bus should be refused when permision has
been given to other parties to operate and, from the evidence, they are
equipped adequately to accommodate the public in this respect, no
complaints having been received in regard to service rendered.
In Re White (Md.), P. U. R., 1924E, 316:
A motor vehicle operator who has built up a business between specified
points after years of effort should not be deprived of the fruits of his labor
and of the capital he has invested in his operation by a larger concern
desiring to operate between the same points.

In Re Kocin (Mont.), P. U. R., 1924C, 214:

A certificate authorizing the operation of passenger motor service should be
denied where the record shows that the admission of another operator into
the territory served by present licensees is not necessary and would render
their licensee oppressive and confiscatory because of further division and
depletion of revenues and would defeat the purpose of the statue and
disorganize the public service.
In Re Nevada California Stage Co., P. U. R., 1924A, 460:
The Nevada Commission denied an application for a certificate of
convenience and necessity for the operation of an automobile passenger
service in view of the fact that the service within the territory proposed to
be served appeared to be adequate and it was the policy of the Commission
to protect the established line in the enjoyment of business which it had
built, and in view of the further fact that it was very uncertain whether the
applicant could secure sufficient business to enable him to operate
profitably.
In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:
Unless it is shown that the utility desiring to enter a competitive field can
give such service as will be a positive advantage to the public, a certificate
of convenience will be denied by the Idaho Commission, provided that the
existing utility furnishing adequate service at reasonable rates at the time
of the threatened competition.
In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:
Competition between bus lines should be prohibited the same as
competition between common carriers.
In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:
Certificates permitting the operation of motor vehicles for carrying
passengers for hire over regular routes between points served by steam
and electric railways should not be granted when the existing service is
reasonable, safe, and adequate as required by statue.
In Re Murphy (Minnesota), P.U.R., 1927C, 807:
Authority to operate an auto transportation service over a route which is
served by another auto transportation company should be denied if no
necessity is shown for additional service.
In Re Hall, editorial notes, P. U. R., 1927E:
A certificate of convenience and necessity for the operation of a motor
carrier service has been denied by the Colorado Commission where the only

ground adduced for the certificate was that competition thereby afforded to
an existing utility would benefit the public by lowering rates. The
Commission said: "Up to the present time the Commission has never issued
a certificate authorizing a duplication of motor vehicle operation over a
given route unless it appeared that the service already rendered was not
adequate, that there was no ruinous competition or that the second
applicant could, while operating on a sound businesslike basis, afford
transportation at cheaper rates than those already in effect. There has been
no complaint to date as to the rates now being charged on the routes over
which the applicant desires to serve. Moreover, the Commission stand
ready, at any time the unreasonable of the rates of any carrier are
questioned, to determine their reasonableness and to order them reduced if
they are shown to be unreasonable." In this case the Commission also
expressed its disappoval of the practice of an applicant securing a certificate
for the sole purpose of transferring it to another.
In Re Sumner (Utah), P. U. R., 1927D, 734:
The operation of an automobile stage line will not be authorized over a
route adequately served by a railroad and other bus line, although the
proposed service would be an added convenience to the territory.
In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E., 175;
P. U. R., 1927E, 333:
The policy of the state is to compel an established public utility occupying a
given filed to provide adequate service and at the same time protect it from
ruinous competition, and to allow it an apportunity to provide additional
service when required instead of permitting such service by a newly
established competitor.
Upon the question of "Reason and Rule for Regulation," in section 775, Pond says:
The policy of regulation, upon which our present public utility commission
plan is based and which tends to do away with competition among public
utilities as they are natural monopolies, is at once the reason and the
justification for the holding of our courts that the regulation of an existing
system of transportation, which is properly serving a given field or may be
required to do so, is to be preferred to competition among several
independent systems. While requiring a proper service from a single system
for a city or territory in consideration for protecting it as a monopoly for all
the service required and in conserving its resources, no economic waste
results and service may be furnished at the minimum cost. The prime
object and real purpose of commission control is to secure adequate
sustained service for the public at the least possible cost, and to protect
and conserve investments already made for this purpose. Experience has
demostrated beyond any question that competition among natural
monopolies is wasteful economically and results finally in insufficient and
unsatisfactory service and extravagant rates. Neither the number of the
individuals demanding other service nor the question of the fares
constitutes the entire question, but rather what the proper agency should
be to furnish the best service to the public generally and continuously at the
least cost. Anything which tends to cripple seriously or destroy an

established system of transportation that is necessary to a community is

not a convenience and necessity for the public and its introduction would be
a handicap rather than a help ultimately in such a field.
That is the legal construction which should be placed on paragraph (e) of section 14,
and paragraph (b) and (c) of section 15 of the Public Service Law.
We are clearly of the opinion that the order of the Commission granting the petition
of Orlanes in question, for the reason therein stated, is null and void, and that it is in
direct conflict with the underlying and fundamental priciples for which the
Commission was created.1awphi1.net
The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons we have given this case the careful
consideration which its importance deserves. The Government having taken over the
control and supervision of all public utilities, so long as an operator under a prior
license complies with the terms and conditions of his license and reasonable rules
and regulation for its operation and meets the reasonable demands of the public, it
is the duty of the Commission to protect rather than to destroy his investment by
the granting of a subsequent license to another for the same thing over the same
route of travel. The granting of such a license does not serve its convenience or
promote the interests of the public.
The decision of the Public Service Commission, granting to Orlanes the license in
question, is revoked and set aside, and the case is remanded to the Commission for
such other and further proceedings as are not inconsistent with this opinion. Neither
party to recover costs on this appeal. So ordered.
Johnson, Street, Malcolm and Ostrand, JJ., concur.

Separate Opinions

ROMUALDEZ, J., dissenting:

I believe the Public Service Commission had jurisdiction to try this case and that
there is sufficient evidence of record to sustain the appealed judgment. However, I
think there sould be no conflict between trip hours, and that the Commission could
do away with it by making the necessary arrangements.

dated December 12, 2002 earlier that morning, volunteered to give a copy thereof to
the hearing officer.[2]
EN BANC
METROPOLITAN CEBU WATER DISTRICT
(MCWD),
Petitioner,

- versus -

MARGARITA A. ADALA,
Respondent.

G.R. No. 168914

Present:
PUNO, C.J.,
QUISUMBING,*
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,**
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR., and
NACHURA, JJ.
Promulgated:

In its Opposition, petitioner prayed for the denial of respondents application

on the following grounds: (1) petitioners Board of Directors had not consented to
the issuance of the franchise applied for, such consent being a mandatory condition
pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioners
water supply which it has the right to protect, and (3) the water needs of the
residents in the subject area was already being well served by petitioner.
After hearing and an ocular inspection of the area, the NWRB, by Decision
dated September 22, 2003, dismissed petitioners Opposition for lack of merit
and/or failure to state the cause of action [3] and ruled in favor of respondent as
follows:
PREMISES ALL CONSIDERED, and finding that Applicant is
legally and financially qualified to operate and maintain the subject
waterworks system, and that said operation shall redound to the
benefit of the of the [sic] consumers of Sitios San Vicente, Fatima
and Sambag at Bulacao Pardo, Cebu City, thereby promoting public
service in a proper and suitable manner, the instant application for
a Certificate of Public Convenience (CPC) is, hereby, GRANTED for
a period of five (5) years with authority to charge the proposed
rates herein set effective upon approval as follows:

July 4, 2007
x ------------------------------------------------x
DECISION
CARPIO MORALES, J.:
The Decision of the Regional Trial Court (RTC) of Cebu dated February 10,
2005, which affirmed in toto the Decision of the National Water Resources Board
(NWRB) dated September 22, 2003 in favor of Margarita A. Adala, respondent, is
being challenged in the present petition for review on certiorari.
Respondent filed on October 24, 2002 an application with the NWRB for the
issuance of a Certificate of Public Convenience (CPC) to operate and maintain
waterworks
system
in sitios San
Vicente,
Fatima,
and
Sambag in Barangay Bulacao, Cebu City.
At the initial hearing of December 16, 2002 during which respondent
submitted proof of compliance with jurisdictional requirements of notice and
publication, herein petitioner Metropolitan Cebu Water District, a government-owned
and controlled corporation created pursuant to P.D. 198 [1] which took effect upon its
issuance by then President Marcos on May 25, 1973, as amended, appeared through
its lawyers to oppose the application.
While petitioner filed a formal opposition by mail, a copy thereof had not,
on December 16, 2002, yet been received by the NWRB, the day of the
hearing. Counsel for respondent, who received a copy of petitioners Opposition

Consumption Blocks
0-10 cu. m.
11-20 cu. m.
21-30 cu. m.
31-40 cu. m.
41-50 cu. m.
51-60 cu. m.
61-70 cu. m.
71-100 cu. m.
Over 100 cu. m.

Proposed Rates
P125.00(min. charge)
13.50 per cu. m.
14.50 per cu. m.
35.00 per cu. m.
37.00 per cu. m.
38.00 per cu. m.
40.00 per cu. m.
45.00 per cu. m.
50.00 per cu. m.

The Rules and Regulations, hereto, attached for the

operation of the waterworks system should be strictly complied
with.
Since the average production is below average day
demand, it is recommended to construct another well or increase
the well horsepower from 1.5 - 3.00 Hp to satisfy the water
requirement of the consumers.
Moreover, the rates herein approved should be posted by
GRANTEE at conspicuous places within the area serviced by it,
within seven (7) calendar days from notice of this Decision.
SO ORDERED.[4]

Its motion for reconsideration having been denied by the NWRB by Resolution
of May 17, 2004, petitioner appealed the case to the RTC of Cebu City. As
mentioned early on, the RTC denied the appeal and upheld the Decision of the NWRB
by Decision dated February 10, 2005. And the RTC denied too petitioners motion
for reconsideration by Order of May 13, 2005.
Hence, the present petition for review raising the following questions of law:
i.

ii.

WHETHER OR NOT THE CONSENT OF THE BOARD OF

DIRECTORS OF THE WATER DISTRICT IS A CONDITION
SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC
CONVENIENCE BY THE NATIONAL WATER RESOURCES
BOARD UPON OPERATORS OF WATERWORKS WITHIN THE
SERVICE AREA OF THE WATER DISTRICT?
WHETHER THE TERM FRANCHISE AS USED IN SECTION 47
OF PRESIDENTIAL DECREE 198, AS AMENDED MEANS A
FRANCHISE
GRANTED
BY
CONGRESS
THROUGH
LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS
MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED
BY THE NATIONAL WATER RESOURCES BOARD FOR THE
MAINTENANCE OF WATERWORKS SYSTEM OR WATER
SUPPLY SERVICE?[5]

Before discussing these substantive issues, a resolution of the procedural

grounds raised by respondent for the outright denial of the petition is in order.
By respondents claim, petitioners General Manager, Engineer Armando H.
Paredes, who filed the present petition and signed the accompanying verification and
certification of non-forum shopping, was not specifically authorized for that
purpose. Respondent cites Premium Marble Resources v. Court of Appeals [6] where
this Court held that, in the absence of a board resolution authorizing a person to act
for and in behalf of a corporation, the action filed in its behalf must fail since the
power of the corporation to sue and be sued in any court is lodged with the board of
directors that exercises its corporate powers.
Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of
Appeals[7] where this Court held that [f]or such officers to be deemed fully clothed
by the corporation to exercise a power of the Board, the latter
must specially authorize them to do so. (Emphasis supplied by respondent)
That there is a board resolution authorizing Engineer Paredes to file cases in
behalf of petitioner is not disputed. Attached to the petition is petitioners Board of
Directors Resolution No. 015-2004, the relevant portion of which states:
RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize
the General Manager, ENGR. ARMANDO H. PAREDES, to file in
behalf
of
the
Metropolitan
Cebu
Water
District expropriation and other cases and to affirm and
confirm above-stated authority with respect to previous cases filed
by MCWD.
x x x x[8] (Emphasis and underscoring supplied)

To respondent, however, the board resolution is invalid and ineffective for

being a roving authority and not a specific resolution pursuant to the ruling in ABSCBN.
That the subject board resolution does not authorize Engineer Paredes to file
the instant petition in particular but expropriation and other cases does not,by
itself, render the authorization invalid or ineffective.
In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words
similar to the questioned resolution, authorized persons to represent the
corporation, not for a specific case, but for a general class of cases. Significantly,
the Court upheld its validity:
In the present case, the corporation's board of
directors issued a Resolution specifically authorizing its
lawyers "to act as their agents in any action or
proceeding before the Supreme Court, the Court of Appeals,
or any other tribunal or agency[;] and to sign, execute and
deliver in connection therewith the necessary pleadings, motions,
verification,
affidavit
of
merit, certificate
of
non-forum
shopping and other instruments necessary for such action and
proceeding." The Resolution was sufficient to vest such
persons with the authority to bind the corporation and was
specific enough as to the acts they were empowered to
do. (Emphasis and underscoring supplied, italics in the original)
Nonetheless, while the questioned resolution sufficiently identifies the kind of
cases which Engineer Paredes may file in petitioners behalf, the same does not
authorize him for the specific act of signing verifications and certifications against
forum shopping. For it merely authorizes Engineer Paredes to file cases in behalf of
the corporation. There is no mention of signing verifications and certifications
against forum shopping, or, for that matter, any document of whatever nature.
A board resolution purporting to authorize a person to sign documents in
behalf of the corporation must explicitly vest such authority. BPI Leasing
Corporation v. Court of Appeals[10] so instructs:
Corporations have no powers except those expressly
conferred upon them by the Corporation Code and those that are
implied by or are incidental to its existence.These powers are
exercised through their board of directors and/or duly
authorized officers and agents. Hence, physical acts, like
the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate
bylaws or by specific act of the board of directors.
The records are bereft of the authority of BLC's [BPI
Leasing Corporation] counsel to institute the present
petition and to sign the certification of non-forum shopping.
While said counsel may be the counsel of record for BLC, the
representation does not vest upon him the authority to execute the
certification on behalf of his client. There must be a resolution
issued by the board of directors that specifically authorizes
him to institute the petition and execute the certification,

for it is only then that his actions can be legally binding

upon BLC. (Emphasis, italics and underscoring supplied)
It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely
defines filing as the act of presenting the pleading or other paper to the clerk of
court. Since the signing of verifications and certifications against forum shopping is
not integral to the act of filing, this may not be deemed as necessarily included in an
authorization merely to file cases.
Engineer Paredes not having been specifically authorized to sign the
verification and certification against forum shopping in petitioners behalf, the instant
petition may be dismissed outright.
Technicality aside, the petition just the same merits dismissal.
In support of its contention that the consent of its Board of Directors is a
condition sine qua non for the grant of the CPC applied for by respondent, petitioner
cites Section 47 of P.D. 198[11] which states:
Sec. 47. Exclusive Franchise. No franchise shall be
granted to any other person or agency for domestic, industrial or
commercial water service within the district or any portion
thereof unless and except to the extent that the board of directors
of said district consents thereto by resolution duly adopted, such
resolution, however, shall be subject to review by the
Administration. (Emphasis and underscoring supplied)
There being no such consent on the part of its board of directors, petitioner
concludes that respondents application for CPC should be denied.
Both parties arguments center, in the main, on the scope of the word
franchise as used in the above-quoted provision.
Petitioner contends that franchise should be broadly interpreted, such that
the prohibition against its grant to other entities without the consent of the districts
board of directors extends to the issuance of CPCs. A contrary reading,
petitioner adds, would result in absurd consequences, for it would mean that
Congress power to grant franchises for the operation of waterworks systems cannot
be exercised without the consent of water districts.
Respondent, on the other hand, proffers that the same prohibition only
applies to franchises in the strict sense those granted by Congress by means of
statute and does not extend to CPCs granted by agencies such as the NWRB.
Respondent quotes the NWRB Resolution
distinguished a franchise from a CPC, thus:

dated May

17,

2004 which

A CPC is formal written authority issued by quasi-judicial

bodies for the operation and maintenance of a public utility for
which a franchise is not required by law and a CPC issued by this
Board is an authority to operate and maintain a waterworks
system or water supply service. On the other hand, a franchise is
privilege or authority to operate appropriate private property for
public use vested by Congress through legislation. Clearly,
therefore, a CPC is different from a franchise and Section 47

of
Presidential
Decree
198
refers
only
to
franchise. Accordingly, the possession of franchise by a
water district does not bar the issuance of a CPC for an area
covered by the water district. (Emphasis and underscoring
supplied by respondent)
Petitioners position that an overly strict construction of the term franchise
as used in Section 47 of P.D. 198 would lead to an absurd result impresses. If
franchises, in this context, were strictly understood to mean an authorization issuing
directly from the legislature, it would follow that, while Congress cannot issue
franchises for operating waterworks systems without the water districts consent, the
NWRB may keep on issuing CPCs authorizing the very same act even without such
consent. In effect, not only would the NWRB be subject to less constraints than
Congress in issuing franchises. The exclusive character of the franchise provided for
by Section 47 would be illusory.
Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,
has construed the term franchise broadly so as to include, not only
authorizations issuing directly from Congress in the form of statute, but also those
granted by administrative agencies to which the power to grant franchises has been
delegated by Congress, to wit:
[12]

Congress
has
granted
certain
administrative
agencies the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing
complexity of modern life, the multiplication of the subjects of
governmental regulation, and
the
increased
difficulty
of
administering the laws, there is a constantly growing tendency
towards the delegation of greater powers by the legislature, and
towards the approval of the practice by the courts. It is
generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency,
and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than
those of a legislative nature. In pursuance of this, it has
been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a
legislative franchise as though the grant had been made by
an act of the Legislature.[13]
That the legislative authority in this instance, then President Marcos [14]
intended to delegate its power to issue franchises in the case of water districts is
clear from the fact that, pursuant to the procedure outlined in P.D. 198, it no longer
plays a direct role in authorizing the formation and maintenance of water districts, it
having vested the same to local legislative bodies and the Local Water Utilities
Administration (LWUA).
Sections 6 and 7 of P.D. 198, as amended, state:
SECTION 6. Formation of District. This Act is the source
of authorization and power to form and maintain a
district. Once formed, a district is subject to the provisions of this
Act and not under the jurisdiction of any political subdivision. For
purposes of this Act, a district shall be considered as a quasi-public
corporation performing public service and supplying public wants.

As such, a district shall exercise the powers, rights and privileges

given to private corporations under existing laws, in addition to the
powers granted in, and subject to such restrictions imposed, under
this Act. To form a district, the legislative body of any city,
municipality or province shall enact a resolution containing
the following:
(a)
The name of the local water district, which shall
include the name of the city, municipality, or province, or region
thereof, served by said system, followed by the words "Water
District".
(b)
A description of the boundary of the district. In
the case of a city or municipality, such boundary may include all
lands within the city or municipality. A district may include one or
more municipalities, cities or provinces, or portions thereof:
Provided, That such municipalities, cities or provinces, or portions
thereof, cover a contiguous area.
(c)
A statement completely transferring any and all
waterworks and/or sewerage facilities managed, operated by or
under the control of such city, municipality or province to such
district upon the filing of resolution forming the district.
(d)
A statement identifying the purpose for which the
district is formed, which shall include those purposes outlined in
Section 5 above.
(e)
The names of the initial directors of the district
with the date of expiration of the term of office for each which
shall be on the 31st of December of first, second, or third evennumbered year after assuming office, as set forth in Section 11
hereof.
(f)
A statement that the district may only be
dissolved on the grounds and under the conditions set forth in
Section 45 of this Title.
(g)
A statement acknowledging the powers, rights
and obligations as set forth in Section 25 of this Title.
Nothing in the resolution of formation shall state or infer
that the local legislative body has the power to dissolve, alter or
affect the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any
combination thereof, desire to form a single district, a similar
resolution shall be adopted in each city, municipality and province;
or the city, municipality or province in which 75% of the total
active service connections are situated shall pass an initial
resolution to be concurred in by the other cities, municipalities or
provinces.
SECTION 7. Filing of Resolution. A certified copy of
the resolution or resolutions forming a district shall be

forwarded
to
the
office
of
the
Secretary
of
Administration. If found by the Administration to conform
to the requirements of Section 6 and the policy objectives in
Section 2, the resolution shall be duly filed.The district shall
be deemed duly formed and existing upon the date of such
filing. A certified copy of said resolution showing the stamp of the
Administration shall be maintained in the office of the district.
Upon such filing, the local government or governments concerned
shall lose ownership, supervision and control or any right
whatsoever over the district except as provided herein. (Emphasis
and underscoring supplied)
It bears noting that once a district is duly formed and existing after
following the above procedure, it acquires the exclusive franchise referred to in
Section 47. Thus, P.D. 198 itself, in harmony with Philippine Airlines, Inc. v. Civil
Aeronautics Board,[15] gives the name franchise to an authorization that does not
proceed directly from the legislature.
It would thus be incongruous to adopt in this instance the strict
interpretation proffered by respondent and exclude from the scope of the term
franchise the CPCs issued by the NWRB.[16]
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies
to the issuance of CPCs for the reasons discussed above, the same provision
must be deemed void ab initio for being irreconcilable with Article XIV
Section 5 of the 1973 Constitution which was ratified on January 17, 1973 the
constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of
Art. XIV of the 1973 Constitution reads:
SECTION 5. 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 the capital of which 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 Batasang Pambansa when the public
interest 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 the capital thereof.
(Emphasis and underscoring supplied)
This provision has been substantially reproduced in Article XII Section 11 of
the 1987 Constitution, including the prohibition against exclusive franchises. [17]
In view of the purposes for which they are established, [18] water districts fall
under the term public utility as defined in the case of National Power Corporation
v. Court of Appeals:[19]
A public utility is 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. x x x (Emphasis and underscoring

supplied)
It bears noting, moreover, that as early as 1933, the Court held that a
particular water district the Metropolitan Water District is a public utility.[20]
The ruling in National Waterworks and Sewerage Authority v. NWSA
Consolidated Unions[21] is also instructive:

We agree with petitioner that the NAWASA is a public

utility because its primary function is to construct, maintain
and operate water reservoirs and waterworks for the
purpose of supplying water to the inhabitants, as well as
consolidate and centralize all water supplies and drainage systems
in the Philippines. x x x (Emphasis supplied)
Since Section 47 of P.D. 198, which vests an exclusive franchise upon public
utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, [22] it
is unconstitutional and may not, therefore, be relied upon by petitioner in support
of its opposition against respondents application for CPC and the subsequent grant
thereof by the NWRB.
WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is
thus, in light of the foregoing discussions, DISMISSED.
SO ORDERED.

G.R. No. L-39019 January 22, 1988

MANILA ELECTRIC COMPANY and PEDRO YAMBAO, petitioners-appellants,
vs.
THE HONORABLE COURT OF APPEALS and ISAAC CHAVEZ, SR., ISAAC O.
CHAVEZ, JR., ROSENDO O. CHAVES, and JUAN O. CHAVES, respondentsappellees.

Plaintiff Isaac Chaves became a customer of defendant MERALCO

in the year 1953 when he and his family were residing at No. 211D Rubi, Manila. In connection with the contract for electrical
service, he deposited the sum of P5.00 (Exh. "A") with defendant
MERALCO on February 12, 1953. This deposit in the name of
plaintiff Isaac Chaves was retained by MERALCO and made to
apply to subsequent contracts for electrical service entered into
after subsequent transfers of the Chaves family to other residences
and up to the time this family went to reside at the place
aforementioned, at No. 2656 Mercedes Street, Singalong,
Manila. ...

YAP, J.:
In an action for recovery of damages for embarassment, humiliation, wounded
feelings and hurt pride, caused to herein private respondents, by reason of the
disconnection of their electrical service by the petitioners, the then Court of First
Instance of Manila, Sixth Judicial District, Branch XXIV, rendered a decision dated
December 13,1967, ordering herein petitioners jointly and severally to pay private
respondents the sum of Ten Thousand (P10,000.00) Pesos as moral damages, Two
Thousand (P2,000.00) Pesos as exemplary damages and, One Thousand (P1,000.00)
Pesos as attorney's fees, and dismissing petitioners' counterclaim.
On appeal, the Court of Appeals and in toto the trial court's decision. Their Motion
for Reconsideration having been denied, petitioners filed the instant petition for
certiorari.
Petitioner Manila Electric Company (MERALCO) is a public utility corporation
providing electric power for the consumption of the general public in Metro Manila.
Petitioner Pedro Yambao is a bill collector of MERALCO.
Private respondents Isaac Chaves and Juana O. Chaves, husband and wife, filed the
complaint for damages, together with their children, Isaac O. Chaves, Jr. and
Rosendo O. Chaves. Isaac Sr. and Isaac Jr. and Rosendo were members of the
Philippine Bar; Isaac, Sr. and Isaac, Jr. were practicing lawyers and Rosendo was a
Legal Officer at the Agricultural Productivity Commission. Juana O. Chaves was a
public school teacher.
The facts as found by the trial court and adopted by the Court of Appeals are as
follows:

At or about the end of March, 1965, defendant Pedro Yambao went

to the residence of plaintiffs and presented two overdue bills, one
for January 11 to February 9,1965, for the sum of P7.90 (Exhibit
"C"), and the other for February 9 to March 10, 1965, for the
amount of P7.20 (Exhibit "C"). Juana O. Chaves, however,
informed Yambao that these bills would be paid at the MERALCO
main office.
Accordingly, on April 2, 1965, Isaac Chaves went to the
defendant's main office at San Marcelino, Manila, but paid only the
bill marked as Exhibit 'C" leaving the other bill Identified as Exhibit
"C-l" unpaid.
Past 2:30 o'clock in the afternoon of April 21,1965, MERALCO
caused the electric service in plaintiff's residence to be
discontinued and the power line cut off.
The next day, April 22, 1965, at about 9:00 a.m., plaintiff Rosendo
O. Chaves went to the MERALCO main office and paid the amount
of P7.20 for the bill marked as Exhibit "C-l", and the sum of P7.00
for the subsequent bill corresponding to the period from March 10
up to April 8, 1965 (Exhibit "C-2") after his attention was called to
the latter account. Rosendo O. Chaves then sought the help of
Atty. Lourdy Torres, one of the defendants' counsel, and,
thereafter, the power line was reconnected and electric service
restored to the Chaves residence at about 7:00 p.m. of that same
day. 1
Petitioners dispute the finding that there was no notice given to herein respondent.
However, since only questions of law may be raised in a petition for certiorari under
Rule 45 of the Revised Rules of Court, petitioners, 'for the sake of argument and for
the purpose of giving focus on the legal issues', do not take issue with such finding.
Petitioners contend that in the absence of bad faith, they could not be held liable for
moral and exemplary damages as well as attorney's fees. The failure to give a notice
of disconnection to private respondents might have been a breach of duty or breach
of contract, but by itself does not constitute bad faith or fraud; it must be shown

that such a failure was motivated by in or done with fraudulent intent.Petitioners

also maintain that ' private respondents were in arrears in the payment of their
electricity bills when their electric service was connected, no moral damages may be
recovered by them under the 'clean hands' doctrine enunciated in Mabutas vs.
Calapan Electric Company, CA-G.R. No. L-9683-R, May 26, 1964.

Revised Order No. 1 of the Public Service Commission, the conditions under which
and the manner by which a public utility such as MERALCO may effect a
disconnection of service to a delinquent customer. Among others, a prior written
notice to the customer is required before disconnection of the service. Failure to give
such prior notice amounts to a tort, as held by us in a similar case, 4 where we said:

In its decision, the respondent Court of Appeals held that MERALCO's right to
disconnect the electric service of a delinquent customer "is an absolute one, subject
only to the requirement that defendant MERALCO should give the customer a written
notice of disconnection 48 hours in advance." This requirement is embodied in
Section 97 of the Revised Order No. 1 of the Public Service Commission which
provides as follows:

... petitioner's act in 'disconnecting respondent Ongsip's gas

service without prior notice constitutes breach of contract
amounting to an independent tort. The prematurity of the action is
indicative of an intent to cause additional mental and moral
suffering to private respondent. This is a clear violation of Article
21 of the Civil Code which provides that any person who wilfully
causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter
for damages. This is reiterated by paragraph 10 of Article 2219 of
the Code. Moreover, the award of moral damages is sanctioned by
Article 2220 which provides that wilfull injury to property may be a
legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.

Section 97. Payment of bills. A public service, may require that

bills for service be paid within a specified time after rendition.
When the billing period covers a month or more, the minimum
time allowed will be ten days and upon expiration of the specified
time, service may be discontinued for the non-payment of bills,
provided that a 48 hours' written notice of such disconnection has
been given the customer: Provided, however, that disconnections
of service shall not be made on Sundays and official holidays and
never after 2 p.m. of any working day: Provided, further, that if at
the moment the disconnection is to be made the customer tenders
payment of the unpaid bill to the agent or employee of the
operator who is to effect the disconnection, the said agent or
employee shall be obliged to accept tender of payment and issue a
temporary receipt for the amount and shall desist from
disconnecting the service. 2
The respondent court stressed the importance and necessity of the 48-hour advance
written notification before a disconnection of service may be effected. Said the
court:
... It sets in motion the disconnection of an electrical service of the
customer by giving the notice, determining the expiration date
thereof, and executing the disconnection. It, therefore, behooves
the defendant MERALCO that before it disconnects a customer's
electrical service, there should be sufficient evidence that the
requirements for the disconnection had been duly complied with,
otherwise, the poor consumer can be subjected to the whims and
caprices of the defendant, by the mere pretension that the written
notice had been duly served upon the customer. 3
We find no reversible error in the decision appealed from. One can not deny the vital
role which a public utility such as MERALCO, having a monopoly of the supply of
electrical power in Metro Manila and some nearby municipalities, plays in the life of
people living in such areas. Electricity has become a necessity to most people in
these areas justifying the exercise by the State of its regulatory power over the
business of supplying electrical service to the public, in which petitioner MERALCO is
engaged. Thus, the state may regulate, as it has done through Section 97 of the

Likewise, we find no merit in petitioners' contention that being in arrears in the

payment of their bills, the private respondents are not entitled to moral damages
under the doctrine that "he who comes to court in demand of equity, must come
with clean hands." We rejected this argument in the Manila Gas Corporation case,
supra, wherein we held that respondents' default in the payment of his bills "cannot
be utilized by petitioner to defeat or null the claim for damages. At most, this
circumstance can be considered as a mitigating factor in ascertaining the amount of
damages to which respondent ... is entitled."
Accordingly, we find no grave abuse of discretion committed by respondent court in
affirming the trial court's decision. The petition is hereby DISMISSED for lack of
merit.
SO ORDERED.

G.R. No. 145399

March 17, 2006

MANILA ELECTRIC COMPANY (MERALCO), Petitioner,

vs.
ENERGY REGULATORY BOARD (ERB), and EDGAR L. TI, doing business
under the name and style of ELT ENTERPRISE, Respondents.

45 in relation to Section 66 thereof. MERALCO further argued that the ERB is without
jurisdiction to issue a provisional relief and order the restoration of electric service,
that authority being vested only on regular courts.
On the same day, MERALCO instituted a criminal complaint against Ti for violation of
R. A. No. 7832 before the Prosecutors Office of Rizal. The criminal complaint
appears to be still pending resolution.

DECISION
On November 11, 1999, MERALCO filed its comment7 to Tis complaint in ERB Case
No. 99-67 and there moved for the dismissal thereof on the ground of lack of
jurisdiction.

GARCIA, J.:
Before us is this petition for review on certiorari to annul and set aside the
decision1 dated September 22, 2000 of the Court of Appeals (CA) in CA G.R. SP No.
56946, which effectively affirmed the Orders of the Energy Regulatory Board 2 (ERB)
dated October 22, 1999 and December 27, 1999 in ERB Case No. 99-67.
The assailed CA decision upheld public respondent ERBs exercise of jurisdiction over
cases involving complaints for reconnection of electric service cut-off for alleged
violation of Republic Act (R.A.) No. 7832, otherwise known as the "Anti-electricity
and Electric Transmission Lines/Materials Pilferage Act of 1994," as well as ERBs
authority to issue a provisional order of reconnection.
The factual background:
On October 18, 1999, herein private respondent Edgar L. Ti, doing business under
the name and style ELT Enterprise, filed a verified complaint 3 before the ERB against
petitioner Manila Electric Company (MERALCO). In it, Ti alleged inter alia that
MERALCO unlawfully disconnected partially the electric service in his business
establishment located at Little Baguio, San Juan, Metro Manila and seized three (3)
of his electric meters on mere suspicion of meter tampering. Aggravating the
situation, Ti adds, was the fact that the notice of disconnection was served at night,
while the actual disconnection was not done in the presence of the owner of ELT
Enterprise or his representative. The unauthorized disconnection, Ti claimed, has
caused him great damage which, if not immediately addressed, would result to
irreparable injury. He thus prayed that pending hearing of his complaint, docketed as
ERB Case No. 99-67, electric service be restored in his establishment.
In an Order dated October 22, 1999, the ERB, by way of provisional relief, ordered
the desired reconnection of electric service and, at the same, directed MERALCO to
submit its comment on the complaint.
4

On October 29, 1999, MERALCO moved for a reconsideration of the aforementioned

provisional reconnection order, alleging that an inspection conducted by its service
inspectors accompanied by elements of the Philippine National Police found Ti to
have tampered three (3) electric meters installed in his business premises by
manipulating the dial pointers thereof. The fraudulent act of Ti, according to
MERALCO, constituted a violation of R.A. No. 7832 legally warranting the immediate
disconnection of the electric supply on his establishment, as provided under Section

On December 27, 1999, the ERB issued an Order8 denying MERALCOs motion for
reconsideration, thereby virtually reiterating the reconnection directive contained in
its earlier Order of October 22, 1999.9 Partly wrote the ERB in its December 27,
1999 Order:
[Petitioner MERALCOs] contention that this Board has no jurisdiction over the
subject matter of the instant complaint, which is the restoration of the partial
shutdown of the electric service to complainants building, cannot be upheld. The law
gives consumers who have a cause of grievance against any public utility, such as
herein [petitioner] MERALCO, a complete, speedy and adequate remedy. That is the
purpose of Commonwealth Act No. 146, as amended, creating the Public Service
Commission, this Boards predecessor office, and prescribing its duties and powers,
and the reason why it was enacted .10 (Words in bracket added.)
Dissatisfied, MERALCO went to the CA on a petition for certiorari, thereat docketed
as CA-G.R. SP No. 56946, assailing as having been issued without jurisdiction or
with grave abuse of discretion, the ERBs orders dated October 22, 1999 and
December 27, 1999.
Eventually, the CA, in a Decision dated September 22, 2000,11 veritably rejected
MERALCOs imputation of lack of jurisdiction or grave abuse of discretion on the part
of the ERB and, accordingly, affirmed the latters twin assailed orders and dismissed
MERALCOs recourse thereto. Partly says the CA in its decision:
The agency charged with regulatory and adjudicatory functions covering the energy
sector is the Energy Regulatory Board created under E.O. No. 172 dated May 8,
1987. The nucleus of the ERB was the Board of Energy established by P.D. No. 1206
dated October 6, 1977, which had the power to regulate and fix power rates to be
charged by electric companies and to issue certificates of public convenience for the
operation of electric power utilities and services. 12
xxx xxx xxx
xxx. E.O. No. 172, dated June 5, 1987, saw the further need to create an
independent body which gave birth to the present ERB. The aim of course is to
achieve a more coherent and effective policy formulation, coordination,

implementation and monitoring within the energy sector, and to consolidate in one
body all the regulatory and adjudicatory functions covering the energy sector.13

To determine the ERBs jurisdiction, a look at the legislative history of the regulatory
agencies preceding it is apropos. These agencies and the corresponding statute or
issuance creating each are as indicated below:

xxx xxx xxx

There should be no debate then about ERBs possessing jurisdiction to regulate and
adjudicate matters relating to its functions as highlighted above. The law clearly
affords any customer, like private respondent, a plain, complete and adequate
remedy for any grievance against a public utility, and the ERB not only has the right,
but the duty as well, to grant relief in proper cases. Relevant provisions of the Public
Service Act have been substantially carried over in statutes creating independent
specialized agencies, like ERB, with regulatory and adjudicatory powers. 14

1. The first regulatory body, the Board of Rate Regulation (BRR), was
created by virtue of Act No. 1779.18 Its regulatory mandate under Section 5
of the law was limited to fixing or regulating rates of every public service
corporation.
2. In 1913, Act No. 230719 created the Board of Public Utility Commissioners
(BPUC) to take over the functions of the BRR. By express provision of Act
No. 2307, the BPUC was vested with jurisdiction, supervision and control
over all public utilities and their properties and franchises.

Hence, petitioner MERALCOs present recourse, on the following grounds:

A.
THE CONCLUSION OF THE [CA] THAT THE PUBLIC RESPONDENT HAS JURISDICTION
TO HEAR CONTROVERSIES BETWEEN PRIVATE RESPONDENT AND PETITIONER
ARISING FROM VIOLATION OF THE SERVICE CONTRACT AND CASES FALLING
UNDER R.A. 7832 IS CONTRARY TO EXISTING LAW.
B.
THE [CA] ERRONEOUSLY CONCLUDED THAT PUBLIC RESPONDENT HAS AUTHORITY
TO ISSUE PROVISIONAL REMEDY IN THE NATURE OF WRIT OF PRELIMINARY
MANDATORY INJUNCTION. ASSUMING ARGUENDO THAT IT HAS THE POWER, IT
VIOLATED R.A. 7832 WHEN IT ORDERED THE RECONNECTION OF SERVICE
WITHOUT THE REQUISITE BOND.15
The pivotal issue before the Court turns on whether or not public respondent ERB
has jurisdiction to order the reconnection of electric service in cases arising from
alleged violation of R. A. No. 7832.
Petitioner MERALCO urges the resolution of the issue in the negative on the rationale
that there is no provision in Executive Order (E.O.) No. 172, series of 1987, the ERB
charter, granting that agency adjudicative jurisdiction over violations of R. A. No.
7832, let alone order the restoration of a disconnected electric service. Such
jurisdiction, as petitioner insisted all along, is vested with the regular courts.

3. On November 7, 1936, Commonwealth Act (C.A.) No. 146, or the Public

Service Act (PSA), was passed creating the Public Service Commission
(PSC) to replace the BPUC. Like the BPUC, the PSC was expressly granted
jurisdiction, supervision and control over public services, with the
concomitant authority of calling on the public force to exercise its power, to
wit:
SEC. 13. Except as otherwise provided herein, the Commission shall have general
supervision and regulation of,jurisdiction and control over, all public utilities, and also
over their property, property rights, equipment, facilities and franchises so far as
may be necessary for the purpose of carrying out the provisions of this Act, and in
the exercise of its authority it shall have the necessary powers and the aid of the
public force xxx xxx xxx. (Emphasis supplied)
Section 14 of C.A. No. 146 defines the term "public service" or "public utility" as
including "every individual, copartnership, association, corporation or joint-stock
company, . . . that now or hereafter may own, operate, manage or control within the
Philippines, for hire or compensation, any common carrier, xxx xxx, electric light,
heat, power, xxx xxx, when owned, operated and managed for public use or
service within the Philippines xxx xxx." Under the succeeding Section 17(a), the PSC
has the power even without prior hearing
(a) To investigate, upon its own initiative, or upon complaint in writing, any matter
concerning any public service as regards matters under its jurisdiction; to require
any public service to furnish safe, adequate and proper service as the public interest
may require and warrant, to enforce compliance with any standard, rule, regulation,
order or other requirement of this Act or of the Commission, xxx.

The Court disagrees.

Jurisdiction is conferred by law. Corollary to this basic postulate is the general rule
that the jurisdiction of a court or tribunal over the subject matter is determined by
the allegations in the complaint17 or petition and not in those of the defendants
answer or similar responsive pleading.
16

4. Then came Presidential Decree (P.D.) No. 1,20 reorganizing the national
government and implementing the Integrated Reorganization Plan. Under the
reorganization plan, jurisdiction, supervision and control over public services related
to electric light, and power heretofore vested in the PSC were transferred to the
Board of Power and Waterworks (BOPW).

Later, P.D. No. 120621 abolished the BOPW. Its powers and function relative to power
utilities, including its authority to grant provisional relief,22 were transferred to the
newly-created Board of Energy (BOE).

receipt of the same. The three (3) disconnection notices dated October 13, 1999
were served only on the security guard on duty . xxx
xxx xxx xxx

5. On May 8, 1987, then President Corazon C. Aquino issued E.O. No. 172
reconstituting the BOE into the ERB, transferring the formers functions and powers
under P.D. No. 1206 to the latter23 and consolidating in and entrusting on the ERB
"all the regulatory and adjudicatory functions covering the energy sector." 24 Section
14 of E.O. No. 172 states that "(T)he applicable provisions of [C.A.] No. 146, as
amended, otherwise known as the Public Service Act; xxx and [P.D.] No. 1206, as
amended, creating the Department of Energy, shall continue to have full force and
effect, except insofar as inconsistent with this Order." 25
Given the foregoing consideration, it is valid to say that certain provisions of the PSA
(C.A. No. 146, as amended) have been carried over in the executive order, i.e., E.O.
No. 172, creating the ERB. Foremost of these relate to the transfer to the ERB of the
jurisdiction and control heretofore pertaining to and exercised by the PSC over
electric, light and power corporations owned, operated and/or managed for public
use or service. And as Section 17(a) of C.A. No. 146, as amended, supra, provides,
this jurisdiction and control includes the power to investigate any matter concerning
any public service and to require any public utility or public service corporation to
furnish adequate and proper service. Any suggestion that the transfer of PSCs
functions and powers to the ERB is inconsistent with E.O. No. 172 must be rejected,
the principal objective of the said issuance being precisely to reinforce the powers of
the ERB as the sole regulatory body over the energy sector.26
Needless to stress, petitioner MERALCO, being an electric service provider, is under
the regulatory jurisdiction and supervision of the ERB.
What remains to be determined then is whether or not, based on the allegations in
private respondent Tis complaint in ERB Case No. 99-67, the ERBs jurisdiction,
supervision and/or control over petitioner MERALCO is/are duly invoked.

11. A public service corporation like [Meralco] should not resort to unlawful acts in
ferreting out electric pilferers like what was done in the instant case .
12. [Meralco] should be reminded of its responsibility as a public service corporation
which is clothed with public interest not to resort to oppression and abuse of
authority which do not speak well of a giant corporation . 27
It is fairly clear from the foregoing that the ERB can properly take cognizance of
respondent Tis complaint for reconnection of electric service in ERB Case No. 99-67,
touching as it does on the obligation of a public utility to supply adequate electricity
and proper service to the consuming public. It bears to reiterate that the ERB, by
force of the aforecited Sections 13 and 17(a) of C.A. No 146, as amended, in relation
to Section 14 of E.O. No. 172, has jurisdiction, control and supervision over all public
services, their franchises and properties, with power to investigate any matter
respecting its jurisdiction and to require any public service to furnish safe, adequate
and proper service as the public interest may require. To us, the power of control
and supervision over public utilities would otherwise be a meaningless delegation
were the ERB is precluded from requiring a public utility to reconnect pending the
determination of propriety of the disconnection. For sure, respondent Tis complaint
prayed for no other relief than the immediate restoration in his business
establishment of electric light and power service, to wit:
WHEREFORE premises considered, it is respectfully prayed of this Honorable Board
to order respondent Meralco to restore the partial shutdown of electric light and
power service that it unlawfully cut-off from the business establishment of herein
complainant, pending notice and hearing, and that the order granting provisional
relief should be issued immediately upon the filing of this complaint to prevent any
further serious and irreparable damage and injury to herein complainant.

The pertinent allegations in the complaint are, as follows:

3. [Respondent Ti] is the owner of ELT Center a consumer of electric light and
power for its 8-storey building supplied by [Meralco] since his operation in October
1998 to the present.
4. That [Meralco] through its authorized inspectors, agents or representatives
swooped down on the ELT Building and proceeded by force, to disconnect the
electric service of [respondent Ti] and in the process seized three (3) electric meters
. The claim of the raiding team that the tampering on the electric meters
confiscated was done "in flagrante delicto" is a pure fabrication . without any
factual basis. This unfortunate incident occurred on October 13 and 14, 1999
between the unholy hours of 11:30 pm 1:30 am .
5. That the Notices of Disconnection dated October 13, 1999 were served at the
unholy hours of the night when there was nobody in the premises to acknowledge

That after, notice and hearing, the provisional relief herein Granted should be
made PERMANENT.28
There can be no quibbling that the ERB may investigate and ascertain the propriety
of the disconnection due to an alleged violation of R. A. No. 7832. Necessarily, in the
course of such investigation, the ERB may, if factually and legally justified, order the
electric service provider, petitioner MERALCO in this instance, to reconnect the
consumers, private respondents in this case, power supply and resume service.
Compelling the complaining consumer to still go to court to secure, if proper, a
reconnection order, as petitioners line of argument urges, would be reading into R.
A. No. 7832 something not written therein.
In any event, Section 929 of R. A. No. 7832 speaks of restraining orders or writs of
injunction against the exercise by an electric provider of its right and authority "to
disconnect" electric service. Here, the provisional relief granted by the ERB in its

challenged Order of October 22, 1999 is for reconnection precisely because

petitioner MERALCO had already disconnected the power supply to Tis premises.
In this connection, it is significant to note that under Section 6 itself of R. A. No.
7832, the right and authority of a private electric utility to immediately disconnect
an electric service upon written notice or warning to a customer may be done
"without the need of a court or administrative order." We quote the pertinent
provision of Section 6:
SEC. 6. Disconnection of Electric Service. The private electric utility or rural electric
cooperative concerned shall have the right and authority to disconnect immediately
the electric service after serving a written notice or warning to that effect, without
the need of a court or administrative order, and deny restoration of the same, when
the owner of the house or establishment concerned or someone acting in his behalf
shall have been caught in flagrante delicto doing any of the acts enumerated in
Section 4(a) hereof, or when any of the circumstances so enumerated shall have
been discovered for the second time: xxx (Emphasis supplied).
Inferentially, the express mention of an "administrative order" under the aforequoted
provision negates MERALCOs principal submission that only the regular courts may
issue orders in matters involving violations of R. A. No. 7832. And more specifically
in the subject of disconnection, the legislature thereby implicitly recognized the
participation of an administrative body although a public utility need not secure a
prior order, whether from the court or from the former, in order to effect a
disconnection. Had the intention of Congress been to vest exclusively on the regular
courts cases involving violation of R. A. No. 7832, there is simply no sense for it to
include the term "administrative order" in Section 6.
The above conclusion is no more than being faithful to the rule that every part of a
statute should be given effect, a statute being enacted as an integrated measure
and not as a hodgepodge of conflicting provisions. 30 In line with this rule, it behooves
courts to adopt a construction that will give effect to every part of the statute, its
every word, if at all possible.31
The criminal aspect of the alleged violation of R. A. No. 7832 is of course a different
matter. A circumspect look at E.O. No. 172 yields no indication that the ERBs
jurisdiction extends to adjudication of criminal complaints for infringement of R. A.
No. 7832.
While a complaint for reconnection of a customers electric service is inter-related to
the criminal action for violation of R. A. No. 7832, the determination of the propriety
of the reconnection remains distinct and independent from the criminal action. The
dominant and primordial objective of a criminal prosecution is the punishment of the
offender, while a complaint for reconnection is intended merely to address a
consumers grievance against an electric service provider with respect to the
generation, transmission and supply of electric service. In fact, any determination or
ruling in the reconnection case is without prejudice to the criminal liability which
may be imposed in the criminal action. There is absolutely no conflict between the
exercise by the ERB of its power to entertain a complaint for reconnection of electric

service and the regular courts jurisdiction to entertain and act on a criminal action
against private respondent Ti for violation of R. A. No. 7832. The reason therefor is
not hard to discern: a criminal action affects the social order while an action for
reconnection of electric service pertains to the public utilitys obligation to provide
public service which partakes of the nature of a civil action and affects private
rights.32
It is petitioners posture that it is not within the ERBs power to grant a provisional
relief. Hence, its argument that the ERB gravely abused its discretion when it
ordered MERALCO to immediately reconnect Tis electric service pending hearing of
the main action in ERB Case No. 99-67.
Again, the Court disagrees.
Petitioner has evidently lost sight of Section 8 of E.O. No. 172 which explicitly vests
on the ERB, as an incident to its principal functions, the authority to grant
provisional relief, thus:
SEC. 8. Authority to Grant Provisional Relief. The [Energy Regulatory] Board may,
upon the filing of an application, petition or complaint or at any stage thereafter and
without prior hearing, on the basis of supporting papers duly verified or
authenticated, grant provisional relief on motion of a party in the case or on its own
initiative, without prejudice to a final decision after hearing, should the Board find
that the pleadings, together with such affidavits, documents and other evidence
which may be submitted in support of the motion, substantially support the
provisional order: . (Emphasis and words in bracket supplied.)
Furthermore, Section 2, Rule 13 of the Rules of Practice and Procedure Governing
Hearings Before the ERB,33provides as follows:
Section 2. Provisional relief. Upon the filing of an application, petition or complaint,
or at any stage thereafter, the Board may grant on motion of the pleader or on its
own initiative, the relief prayed for without prejudice to a final decision after
completion of the hearing should the Board find that the pleading, together with the
affidavits and supporting documents attached thereto and such additional evidence
as may have been presented, substantially support the provisional order; Provided:
That the Board may, motu proprio, continue to issue orders or grant relief in the
exercise of its powers of general supervision under existing laws. (Emphasis
supplied.)
As hereinabove explained, the ERB is endowed with the authority to hear and
adjudicate complaints for reconnection of electric service and to grant provisional or
ancillary relief during the pendency of the main action. At bottom then, the ERB did
no more than to exercise its legal mandate when it ordered petitioner MERALCO to
immediately restore the electric service at respondent Tis business establishment
pending hearing of the main case. The Court finds the ERBs provisional action to be
both factually and legally justified. Hence, the imputation of grave abuse of
discretion on its part is without leg to stand on.

Lastly, petitioner contends that the ERBs Order of October 22, 1999, directing the
reconnection of electric service at the business premises of respondent Ti is in the
nature of a writ of preliminary mandatory injunction which the ERB has no legal
basis to issue. Petitioner cites in this regard Section 9 of R. A. No. 7832 which reads:
SEC. 9. Restriction on the Issuance of Restraining Orders or Writs of Injunction. No
writ of injunction or restraining order shall be issued by any court against any
private electric utility or rural electric cooperative exercising the right and authority
to disconnect electric service as provided in this Act, unless there is prima facie
evidence that the disconnection was made with evident bad faith or grave abuse of
authority. (Emphasis supplied)
The Court remains unconvinced.
Administrative agencies, such as the ERB, are not considered courts; they are
neither part of the judicial system nor are they deemed judicial tribunals. 34 The
prohibition against the issuance of restraining order or writs of injunction does not
thus apply to ERB as the term "court" contemplated in the aforequoted provision
refers to a regular court belonging to the judicial department.

Parenthetically, Section 14 of R. A. No. 7832 authorizes the ERB to issue the

necessary implementing rules and regulations to ensure the efficient and effective
implementation of its provisions. Pursuant to such authority, the ERB, as aptly
observed by the CA, has approved, upon MERALCOs behest, the "Terms and
Conditions of Service" which apply to and govern all service connections in all places
within its franchise area. Specifically, the "Terms and Conditions of Service" provides
the customer an understanding of the limitations attendant to his use of the electric
service by MERALCO and further sets forth the rights and responsibilities of both the
customer and MERALCO under the electric service. These rules, to borrow from the
assailed decision of the CA, clearly afford any customer, like private respondent Ti, a
plain and adequate remedy for any grievance against a public utility.
WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of
Appeals dated September 22, 2000 is AFFIRMED.
Costs against petitioner.
SO ORDERED.