Manila
EN BANC
G.R. No. L-32068 October 4, 1971
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
HON. ENRIQUE MEDINA, HON. GREGORIO PANGANIBAN, HON. JOSUE L. CADIAO, HON. FILOMENO KINTANAR, HON. PAZ VETO PLANAS, as Associate Commissioners of the Public Service Commission and MANILA ELECTRIC COMPANY, respondents.
G.R. No. L-32083 October 4, 1971
AMELITO R. MUTUC, petitioner,
vs.
MANILA ELECTRIC COMPANY and THE PUBLIC SERVICE COMMISSION, respondents.
G.R. No. L-32155 October 4, 1971
MAYOR ANTONIO J. VILLEGAS, for and in behalf of the City of Manila and all other Manila concessionaires similarly situated, petitioner,
vs.
PUBLIC SERVICE COMMISSION, HON. ENRIQUE MEDINA, as Commissioner, GREGORIO C. PANGANIBAN, JOSUE L. CADIAO, FILOMENO C. KINTANAR, and PAZ VETO PLANAS, as Associate Commissioners of the PUBLIC SERVICE COMMISSION, and MANILA ELECTRIC COMPANY, respondents.
G.R. No. L-32374 October 4, 1971
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
PUBLIC SERVICE COMMISSION and MANILA ELECTRIC COMPANY, respondents, AMELITO R. MUTUC, and LEONARDO BARO, intervenors.
G.R. No. L-32402 October 4, 1971
MANILA ELECTRIC COMPANY, petitioner,
vs.
PUBLIC SERVICE COMMISSION and REPUBLIC OF THE PHILIPPINES, respondents.
G.R. No. L-32464 October 4, 1971
RAMON A. GONZALEZ, petitioner,
vs.
MANILA ELECTRIC COMPANY and PUBLIC SERVICE COMMISSION, respondents.
Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General Ricardo L. Pronove, Jr., Solicitor Bernardo P. Pardo and Solicitor Pedro A. Ramirez for petitioner.
Porfirio H. del Pilar and Leonardo Baro for respondent PSC.
Jose L. Africa, Pastor S. del Rosario, Renato E. Tañada, Wigberto E. Tañada, Camilo D. Quiason and Francisco Carreon for respondent Meraldo.
REYES, J.B.L., J.:
On 7 May 1970, Manila Electric Company (hereinafter termed MERALCO) filed an application with the Public Service Commission seeking approval of revised rate schedules, with increased charges, claiming that the floating exchange rate and economic conditions resulting therefrom increased its operating and maintenance expenses by more than 40%, and likewise increased the peso cost of servicing its foreign debts, causing it to incur an operational deficit and net loss of over one million pesos a month. The proposed new rates, applicant contended, would give it a reasonable return of below 12% of the present value of its properties devoted to the public service, and implicated no additional burden to small consumers (of 100 KWH or less per month) constituting around 52% of petitioner's customers.
Embodied in the aforementioned application was a motion "for immediate provision approval of proposed rates," which, over the opposition of the petitioner Republic and others (Villegas, Mutuc, Gonzalez and Baro), was granted by the respondent Commission in an order dated 20 May 1970, "at the risk of the applicant," subject to return of the sums collected if, "after hearing on the merits, the application was not found meritorious. "A motion for reconsideration of said order authorizing the provisional increase in rate charges was filed by the oppositors before the Commission in banc but was denied in its order dated 3 June 1970. The oppositors filed petitions for certiorari and prohibition with preliminary injunction to annul and set aside the two orders aforementioned, which were given due course (G.R. Nos. L-32068, L-32083, L-32155, and L-32464).
In the meanwhile, in 18 May 1970, the Republic and other oppositors filed an opposition to respondent MERALCO's main application for increase in rate charges on the ground that the floating rate of exchange notwithstanding, the applicant's sound financial condition is still capable of maintaining efficient service and meeting due payments on its obligations, with a reasonable rate of return on its investment; that the applicant's cash reserves accumulated and realized from its huge net annual profits over the past years is capable of sustaining itself without resorting to borrowings, despite the alleged increase in operating expenses; that the proper basis of rate fixing is the fair value of its property useful and being used in the service of the public, without regard to encumbrance or indebtedness; that the increase in rate sought is excessive and unreasonable and will bring about greater hardship to the people, as well as directly cause increase in the cost of production which will have to be unduly borne by the consuming public; and that the rate of increase prayed for cannot be supported by the evidence to be presented in justification thereof, apart from other grounds that may become apparent in the course of the proceedings.
On 27 May 1970, the respondent Commission, through Commissioner Enrique Medina, issued an order directing the Auditor General to conduct an examination of respondent MERALCO's books of accounts pursuant to Commonwealth Act No. 325 and to submit a report thereof within fifteen days (Annex C, petition for review, L-32374).
On 9 June 1970, the Office of the Auditor General, by letter, requested the respondent Commission to allow it sufficient time until 30 June 1970 to submit its report. On 16 June 1970, the Commissioner replied that in view of his impending retirement on 2 July 1970, the report be submitted on or before 20 June 1970 (Annex D, petition for review, L-32374).
On 19 June 1970, the Office of the Auditor General, by return indorsement, informed the Commissioner that although the examination could be finished that day, yet it would take about a week or so to prepare and write the report (Annex E).
On 24 June 1970, the Office of the Auditor General submitted its report to the respondent Commission, without the supporting documents mentioned therein and, for lack of material time, without being able to delve "into as much detail as would ordinarily be done in a rate audit, considering the magnitude of the utility's operations, so that only the bit items were test-checked." Neither was it able to verify the reasonableness of the valuation for lack of material time and the voluminous nature of the appraisal report (Annex F, petition for review). The annexes in support of the General Auditing Office were filed a few days later.
After hearing on the merits of the petition, during which respondent MERALCO adduced its evidence (morning and afternoon, 27 May, 1, 2, 3 [morning only], 15, 16 [morning only], 17, 18, 19 and 22 and June and the oppositors on 23 24 and 25 June 1970), on 30 June 1970, respondent Commission, through the Honorable Commissioner Enrique Medina, Presiding, and the Honorable Associate Commissioners Gregorio C. Panganiban and Josue L. Cadiao, Members, promulgated a decision finding the proposed rates reasonable and justified with minor adjustments, and the dispositive part of which is as follows:
IN VIEW OF ALL THE FOREGOING, the Public Service Commission hereby AUTHORIZES and APPROVES the proposed rate schedules of Meralco attached as Annexes "A", "A-1", and "A-2" and are made part of this decision except that the following shall be exempted from any increase:
(1) All government-owned hospitals certified by the Bureau of Hospitals as such;
(2) Street lightings for public streets and public plazas.
The Commission is approving a rate adjustment of 36.5% over the old rate based on a P2.10 or 54% increase in the exchange rate from P3.90 to P6.00 to U.S $1.00 considering that 70% of Meralco's cost is affected by the exchange rate. In view of the above, there should be an adjustment of 3.8% in the billings under the revised rates for every thirty (30) centavos change in the exchange rate from P6.00. In fairness, such adjustment should be upward as well as downward, depending on whether the exchange rate goes up or down.
The following currency exchange rate adjustment shall, therefore, apply but using only 3.0% instead of 3.8%.
When the average of the daily U.S. Dollar selling rate of the Philippine national Bank during a calendar quarter is less or more than 6.00 pesos to one (1) U.S. dollar, a corresponding adjustment shall be made on all billings for the succeeding calendar quarter as computed under the Residential Meter (RM-5), the General Service (GS-4) and the General Power (GP-4) rate schedules. Such adjustment shall be a reduction or an increase at the rate of 3.0 per cent for each full 0.30 peso increase above 6.00 pesos to one (1) U.S. dollar of the abovementioned average of the daily selling rate of the U.S. dollar.
Residential and commercial customers consuming up to but not more than 120 kilowatt hours and 90 kilowatt hours, respectively, who do not receive any rate increase under the revised rates shall also receive the benefit of a downward adjustment in their rates should the exchange rate go down below P6.00 as specified above but shall, however, be exempted from any upward adjustment should the exchange rate go above P6.00 to U.S. $1.00.
For the purpose of insuring that the above adjustment shall be carried out properly, the Secretary of the Commission is hereby ordered to obtain from the Philippine National Bank the necessary information as to said bank's daily U.S. dollar selling rates; compile such information; compute the average of such daily rate during a calendar quarter; and within five (5) days after the end of such quarter, issue a certification of the results of his computation.
In line with one of the conditions stated in the Order of this Commission dated 21 May 1970, the Commission hereby orders the Meralco to reimburse to or credit to the accounts of all its 477,814 residential consumers whatever amounts or sums of money it has collected or received from said consumers under the provisional authority in excess of the residential rates approved and authorized in this decision and attached hereto as Annex "A".
The increase hereinabove APPROVED and AUTHORIZED shall be effective from the date of this decision and Annexes "A", "A-1", "A-2" cancel and supersede all previously authorized rate schedules. (Annex G, petition for review, L-32374).
On 1 July 1970, respondent Commission, through the same Presiding Commissioner and Associate Commissioners, issued an order clarifying and supplementing its decision that in case the decision should be appealed the provisional rates should apply in the meantime (Annex H, petition, L-32374).
On 20 July 1970, the Republic filed a motion for reconsideration of the decision (Annex G) and order (Annex H) with the Commission in banc, requesting the Secretary to include in the calendar of the Commission in banc on 6 August 1970 (Annex I, petition for review, L-32374).
On 10 August 1970, the oppositors below filed with the respondent Commission a notice of appeal from the decision dated 30 June 1970 and supplementary order dated 1 July 1970 (Annex J, Ibid).
For lack of quorum to enable the respondent Commission to sit in banc, owing to the retirement from the service of Commissioner Enrique Medina on 2 July 1970, the existence of a vacancy among the five Associate Commissioners, thereby leaving only four incumbent Associate Commissioners, namely, Hon. Gregorio C. Panganiban, Josue L. Cadiao, Filomeno C. Kintanar and Paz Veto Planas, and it being the provision in section 3 of the Public Service Act that five Commissioners shall constitute a quorum for sessions in banc, the petitioner's motion for reconsideration could not be heard and resolved by the respondent Commission. For this reason, the Republic filed a petition for review (L-32374) without awaiting the resolution of the respondent Commission on the petitioner's motion for reconsideration, the filing of which notwithstanding is not a condition precedent to enable the petitioner to appeal from said decision of the respondent Commission (Mirasol Transportation Co. vs. Negros Trevelways Corp., 64 Phil. 317; Mondia vs. Public Service Commission, 65 Phil. 708).Oppositors Mutuc and Gonzalez likewise appealed, and were allowed to intervene in the case.
Meralco in turn filed a motion for reconsideration praying that the dispositive portion of the Public Service Commission decision providing for a rate adjustment of 3% in the billings for every thirty centavos (P0.30) change in the exchange rate (up or down) of P6.00 to every dollar be modified to a more flexible schedule, by allowing a change of 1-¼% for every P0.10 increase or decrease in the exchange rate. Its motion for reconsideration being unacted upon, for lack of a quorum, Meralco resorted to this Court (G.R. No. L-32402).
The appellant Republic of the Philippines assigned six alleged errors committed by the respondent Commission, while appellant Gonzalez in turn assigned ten errors. These assignments of error raise in fact three issues:
1) The validity of the order of 20 May 1970 authorizing the provisional rates;
2) That the oppositors-appellants were denied due process by curtailing their evidence;
3) That the rates authorized are not warranted, and that a different method in fixing the rate base should have been adopted.
It having been agreed that the evidence submitted in connection with, or in support of, the provisional rates should be taken as evidence submitted on the merits of the petition, and a decision on the merits having been rendered by the Commission, after consideration of all the evidence submitted by the parties, the review of the Public Service Commission order of 20 May 1970 (authorizing the provisional rates) would serve no practical purpose, since the decision on the merits superseded said order, and the moneys collected thereunder by Meralco would have to be returned or credited to customers in so far as they exceeded the rates authorized by the ultimate decision. Anyway, the brief of petitioner Gonzalez in the Case L-32464 discusses the propriety of the authorization of provisional rates.
It is contended by petitioner Gonzalez, however, that the provisional rate proceedings were void for want of jurisdiction, because the notice of hearing was first published in two newspapers of general circulation beginning 9 May 1970, and continued for 10 consecutive days until 19 May 1970; that the hearings on the provisional rates actually started 14 May, and said rates were approved on 20 May 1970.
We do not find this contention meritorious, considering that when the hearings were begun the notice had already been published six days in succession, and moreover, Section 16(c) of the Public Service Acgt (Commonwealth Act No. 146), in its first proviso, expressly prescribes —
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 30 days thereafter, upon publication and notice to the concerns operating in the territory affected... (Emphasis supplied)
If the Commission is empowered to approve provisional rates even without a hearing, a fortiori it may act on such rates upon a six-day notice to persons concerned. In fact, when the provisional rates were approved on 20 May, the full 10 days notice had been published. To be sure petitioner Gonzalez argues that the proviso quoted applies only to initial, not revised, rates. The Public Service Act however, makes no distinction; it speaks of rates proposed by public services; and whether initial or revised, these rates are necessarily proposed merely, until the Commission approves them. The Public Service Commission practice, moreover, is to hear and approve revised rates without published notices or hearing. The reason is easily discerned: The provisional rates are by their nature temporary and subject to adjustment in conformity with the definitive rates approved, and in the case at bar, the Public Service Commission order of 20 May 1970 expressly so provided.
Oppositor Villegas contends that the Public Service Commission could not act on the petition for provisional rates because it expressed no cause of action, there being in it no statement of the value of the properties devoted to the service to be used as base rate. Suffice it to say that the base rate assets of applicant's properties were established as of 1965, in this Court's decision in Manila Electric Co. vs. Public Service Commission (L-24762, 14 November 1966), 18 SCRA 651; and subsequent additions thereto appeared in the annual reports filed in the Public Service Commission by MERALCO, as required by law [Commonwealth Act No. 146, Section 17, paragraph (h)], and of which the Commission could take judicial notice, being part of its own records.
Reliance upon our decision in PLDT vs. Medina, L-24340,18 July 1967, 20 SCRA 659, is misplaced. That case involved a petition for reconsideration by Araneta University to reduce the PLDT rates fixed in a decision of the Public Service Commission that had become final one year previously, and which Araneta University filed in the finished proceedings. Naturally, it was ruled that the petition was improper, since the cases had been definitely closed, and that to modify the rates established required a new proceeding with proper or reasonable notice to interested parties. No question of provisional rates were at all involved.
The second basic issue raised by oppositor-appellants is that they were allegedly denied due process. It is averred that the hearings on the merits were conducted with improper haste, because of the avowed desire of Commissioner Medina (to whom the hearing had been entrusted by the Commission en banc) to finish the case before his impending retirement on 1 July 1970; and that to attain this purpose, hearings were conducted morning and afternoon; that cross examinations were curtailed, and oppositor Gonzalez was denied presentation of witnesses; that oppositors were not given adequate time to examine the documents exhibited and even the General Auditing Office was compelled to submit an incomplete report of its examination of the MERALCO books of account.
These are serious charges, but are not substantiated by the record before us. While the initial hearing of the application had been set for 11 May 1970, hearing was deferred and started on 14 May at the request of the Solicitor General, representing oppositor Republic of the Philippines. Thereafter, hearings were intermittently held for a total of 42 days, from 14 May to 25 June, and the case finally decided on 30 June. While the case could have proceeded at a more leisurely pace, the time employed does not sustain the charge that the case was "railroaded."
Undoubtedly, the impending retirement of Commissioner Medina did play a role in his being strict in granting continuances; but in the absence of any evidence of improper motivation (and none was produced), or of proof that oppositors were denied adequate opportunity (of which moreanon), such conduct does not constitute irregularity warranting reversal. An analogous situation obtained in Manila Yellow Taxicab vs. Barredo, 58 Phil. 385, 388, where Judge Vicente de Vera, being temporarily assigned to the public Service Commission, had to return to his district, and for this reason the Commission decided the case even before the expiration of the period alloted for the filling of counsel's memoranda. This Court ruled that the irregularity did not warrant modification or reversal of the Public Service Commission decision. Indeed, it would have been more anomalous to speed up the proceedings if Commissioner Medina's retirement from the service had not been impending at all.
It is well to note here that the trial and hearings were not continuous, and intervals of several days, sometimes of a week or more, took place. The main outlines of the case for respondent Meralco (the adverse effect of the floating rate on the cost of operation) appeared from the testimony in chief of applicant's witness Antonio Ozaeta, whose cross examination was lengthy, occupying over 130 pages of the transcript. Hearings were held morning and afternoon, but only once did they proceed beyond 5 p.m., and most afternoon sessions starting at 2:00 p.m. ended at 4 or earlier. No undue restrictions were placed on oppositors until the Public Service Commission, apparently realizing that its policy to allow even individual consumers to cross examine independently applicant's witnesses was unworkable and would lead only to confusion, decided to limit the number of cross examiners. This lay within the trier's discretion and should not be interfered with in the absence of abuse, which is not here shown. As pointed out by Francisco (Rules of Court) in his commentary on Rule 132, Section 8, "it is undesirable for more than one attorney to cross examine the same witnesses, and the right may be denied where the interests of the co-defendants are identical."
Oppositors-appellants insist that the Public Service Commission gave the General Auditing Office (GAO) only fifteen days to submit its report on its examination of Meralco's books of account and that the examination was incomplete. This is not accurate. On 27 May 1970, GAO was given 15 days to make its report, and did not protest that the period fixed was insufficient. Neither did it complain, when subsequently it asked for an extension and was given up to 20 June 1970 (Petition, Case G.R. No. L-32374, Annexes C and D). In fact, GAO finished the audit on 19 June 1970, according to the testimony of Pablo S. Bumanglag, head of the auditing team (t.s.n., 25 June 1970, page 4), and submitted its written report on 25 June 1970. Nowhere did he claim that the period allotted was insufficient. Nor was it likely to be such, since Auditor Bumanglag admitted he was familiar with the Meralco books of account (t.s.n., page 35), that had been audited in 1964. Moreover, the subsequent yearly reports of said company were also audited by GAO conformably to the Public Service Act. True, the supporting schedules were not attached to the report until a few days afterward but it is not shown that they contradicted the Report of 25 June 1970 in any way.
Finally, some of the oppositors appear to have gone to unreasonable lengths in their effort to delay the hearings, insisting on continuances to present witnesses who were not identified nor subpoenaed and whose names were not given; and, when rebuffed in such attempt, have resorted to filing graft charges against some of the commissioners, with the clear purpose of forcing their withdrawal from the case and this delay the proceedings further. Such tactics must be condemned. At any rate, no statement or offer of proof was made for the record of what the oppositor expected to prove by the witnesses as should have been done, 1 in order that on appeal the superior Court may appraise whether the proposed testimony could change the result and thus warrant a remand for rehearing.
The Commission's resolve to avoid unnecessary delay in this particular case appears justified in view of the unwholesome situation that could arise were the hearing Commissioner to withdraw at the middle of the trial, since a newcomer would not be able to proceed without first acquainting himself with what had previously transpired; and also because the evidence indicated that serious losses would be incurred by the applicant public utility were it to continue serving at the rates previously approved. While it is the Commission's duty to protect the public, i.e., the persons who are to use and pay for the service, still —
Such service does not necessarily mean reduced rates. It could be quite the contrary. So it is, that at bottom, a just rate must be founded upon conditions which are fair and reasonable both to the public utility and the public itself. (Phil. Long Distance Telephone Co. vs. Medina, L-24340, 18 July 1967, 20 SCRA 659, 676, per Sanchez, J.)
It is finally urged that only five days elapsed between the time the case was submitted for decision and the rendition of the judgment. For itself, this datum is inadequate to support oppositor's conclusion of bias. The evidence was mainly documentary, and the Meralco books of account had been reliably audited by reputable private accountants as well as by the GAO and the latter's conclusions were embodied in its report. Not only this, but the case was in fact only an updating of the rate base examined and passed upon by the Commission in 1965, and affirmed by the Supreme Court (v. 18 SCRA 651). The difference consisted in the effect of a notorious and well-known fact, the floating rate of the peso vis-a-vis the U.S. dollar, with the consequent increase in the cost of imported materials. That in the decision on the merits Meralco was required to reimburse or credit to residential consumers the difference between the rates provisionally approved and those finally authorized is evidence that the Commission acted not blindly but with discernment in judging the case.
We conclude that the claim of denial of due process is unfounded and must be overruled.
The foregoing consider and should not, however, be understood as an approval of the practice of unnecessarily curtailing the opportunities of parties litigant, barring exceptional circumstances. Otherwise, suspicion is aroused, and the public confidence eroded, to the detriment of the administration of justice. It is the duty of tribunals, judicial or quasi-judicial, not only to be just but to appear to be actually so. It is equally their task to sedulously avoid giving rise to speculation, rumours and gossip by hasty or ill-considered action.
The Commission found from the evidence that, taking as a basis the audited operation figures for 1968 as a test year (because the 1969 figures were not yet audited when the hearings were held in the Public Service Commission),the net value of MERALCO's properties devoted to public service, expressed in terms of present cost after deducting depreciation, was P913,447,085.00 Adding thereto a working capital of two months operating expenses, equivalent to P29,666,878.00 (i.e., 1/6 of total operating expenses for the year in the sum of P162,759,661), the Commission found the rate base (upon which to compute the percentage of reasonable return) to be P943,113,963. Dividing the operating income of P87,515,491 by the rate base gave are turn of 9.25%.
In authorizing an increase of rates, the Public Service Commission proceeded on the basis that the MERALCO as public utility should receive a reasonable return on its investment, equivalent to 12% on the rate base, the present market or replacement value of the properties devoted to the service less depreciation, plus operating capital equivalent to 2 months operating income. In so doing, the Public Service Commission only followed the constant doctrine of the case heretofore adjudicated by this Court. Said the Commission in its decision:
According to the evidence for applicant, as of December 31, 1968, Meralco's gross book value was P870,030,089 and P703,676,398 as of December 31, 1967. The average gross book value for 1968, therefore, was P786,853,243.00. For purposes of rate base determination, however, this Commission and our Supreme Court have consistently rules that the controlling standard in determining the value of the property which should be included in its rate base is the present or market value. The cases upholding this doctrine are numerous, among them are: Metropolitan Water District vs. Public Service, Commission, 58 Phil. 397, 400 (1933); Municipality of Pagsanjan vs. Cacho & Hidalgo Electric, G.R. No. 36544 (1933); Philippine Railways Co. vs. Asturias Sugar Central, Inc. 72 Phil. 454(1941); Fortunato F. Halili vs. Ice & Cold Storage of the Philippines, 77 Phil. 823 (1947); Phil. Power Development Co., PSC Case No. 2981 (1955); and Manila Electric Co. vs. Public Service Commission, G.R. No. L-24762 (Nov. 14, 1966) 2
In following the doctrine of this Supreme Court, the public Service Commission can hardly be accused of abuse of discretion. In our previous decision in 1966, Manila Electric Co. vs. Public Service Commission, G.R. No. L-24762,14 November 1966, 18 SCRA 651, objections raised against the 12% rate of return, identical to those interposed in the present case, were examined and overruled. This Court, per the present Chief Justice Concepcion, then ruled:
With respect to the return allowable to the MERALCO it is urged that the rate authorized by the PSC is higher than that prevailing in the United States. It is well settled, however, that the rate of return permissible depends upon existing conditions. In the Philippines, our decisions have consistently adopted the 12% rate for public utilities and the PSC has done no more than adhere to the established jurisprudence thereon. Indeed, the GAO report concedes that 12% is the fair rate of return for the Meralco. This is not the proper occasion to inquire into the wisdom of such jurisprudence, although it is a matter of common knowledge that the prevailing rates of interest on loans in the Philippines are generally higher than those charged in the United States. The fact is that, in view of the circumstance, nobody would lend the necessary funds to the MERALCO, if its returns were frized at a lower rate. The reason is obvious: Capitalists would prefer to lend their resources to other public utilities because the latter would, generally, be in a better position to pay a higher rate of interest and offer a greater assurance of stability and capacity to meet its obligations, all other things being equal.
Then, also the interest due to the lenders would have to be paid by the MERALCO out of its net earnings. As a consequence the same would have to be somewhat higher than otherwise, in order that the borrower could reasonably warrant to the lender its (borrower's) ability to pay the debt, and still retain a margin of earning sufficient to encourage or justify its (borrower's) investment in the enterprise. Otherwise, the stockholders of the public utility would prefer, either to withdraw their investment and shift the same to another more profitable venture, or to refrain, at least, for the time being from embarking on a program of replacement of its old lines, installations, equipment and other facilities, as well as of expansion and improvement of this service. In either case, the public would suffer thereby.
x x x x x x x x x
If the MERALCO were not constrained to borrow for the purpose of financing the undertakings it proposes and is required by the circumstances to pursue, the rate of return for its investments could, in all probability, be reduced. Indeed, before it had decided to initiate said undertakings, MERALCO had, not only never increased its rates — despite the fact that almost all other enterprises have raised their rates — but also, volunteered to reduce the same.
'It goes without saying that the rates of return are understandably lower in the United States where there is a comparative abundance of capital and it is, therefore, relatively easier to raise funds locally, either by increasing the capitalization — without the danger adverted to above — or through loans, under conditions less onerous than those usually obtaining in the Philippines.' — Manila Electric Company vs. Public Service Commission, G.R. No. L-24762; Ricardo Rosal vs. Manila Electric Company, G.R. No. L-24841; Republic of the Philippines vs. Public Service Commission, G.R. No. L-24854; City of Manila vs. Public Service Commission, et al., G.R. No. L-24872, November 14, 1966, pages 19-23.
Oppositors vigorously criticize the method utilized in the appealed decision in determing the rate base and fair returns for MERALCO. We are not unaware of the fact that various theories or formulae have been proposed to appraise the assets and determine what are fair rates for public utilities. Of them three appear to have gained favor at various times: (1) the historical cost or prudent investment formula; (2) that of present cost or market value; and (3) the cost to reproduce theory (43 Am. Jur., page 646). The decided weight of authority, however, is to the effect that property valuation is not to be solved by formula, but depends upon particular circumstances and relevant facts affecting each utility as to what constitutes a just rate base and what would be the fair return, just to both the utility and the public. The historical cost formula had been proposed by oppositors in the 1965 MERALCO case, and in our 1966 decision (18 SCRA, 668) We noted that —
" x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x Upon the other hand, Ricardo Rosal urges that the rates should be founded upon the amount of the investment made by MERALCO's stockholders or the "historical cost" formula. The PSC had adopted the present or market value theory, as the basis for the computation of the earnings allowable to and the rate schedule chargeable by the MERALCO, as well as the method of valuation used and the appraisal made by the same, after making therefrom some deductions recommended by GAO.
With respect to the "historical cost" formula urged by Rosal, it should be noted that the present or market value theory adopted by the PSC is in consonance with the practice consistently adhered to in this jurisdiction and upheld in an uninterrupted line of decisions of this Court. And said decisions are borne out by the weight of authority in other jurisdictions.
Oppositors then, as they do now in the case at bar, argued that the Hope Natural Gas decision of the United States Supreme Court had rejected the present value theory as obsolete. This contention was examined in our previous decision and found incorrect.
It is urged that the present value theory is now an obsolete doctrine, it having been rejected by the Supreme Court of the United States in Federal Power Commission vs. Hope Natural Gas Co. (320 U.S. 591, 88 L. ed. 333), in which the prudent investment or modified original cost theory was allegedly adopted. This assertion is inaccurate. In said case the Court did not reject the present or fair market value theory. It merely refused to interfere with the action taken by the Federal Power Commission in applying said prudent investment or modified original cost theory.
Much of the opposition to the appealed decision springs from the improper insistence in valuing the stockholder's equity at the par value of the shares, entirely ignoring the fact that when the present Filipino stockholders acquired the stock of the American owned MERALCO company, they did so at several times the par value. To compute the equity of the stockholders at par value of the shares is evidently unjust and would result in fixing the returns of an utility at confiscatory levels, particularly for recent stockholders that acquired shares at a premium. Measured against actual cost, the divident percentage does not appear abnormal.
The Republic and other oppositors also insist that the GAO did not have or was not given adequate time to check the accuracy of the figures submitted by MERALCO; and yet from 25 June 1970, when the GAO report was filed in the Public Service Commission, down to the time the case was submitted for decision in June, 1971, the oppositors have failed to submit any concrete figures to show error in the data relied upon by the Commission.
It is argued that from 1965 to 1969 out of P181.375 million revenues, MERALCO only retained in business P80.688 million. This is difficult to believe considering the findings of the Commission that for the same period MERALCO'S construction expenditures amounted to P778,227,082, which is more than the revenue from the rate increase (P181,374,434)and its foreign loans (P318,661,869) added together(P500,036,303). These figures of the Public Service Commission are nowhere disputed.
As to the argument that the trending or repricing of MERALCO's properties resulted in inflated values, the decision appealed from (Brief for Petitioner, page 53) correctly observed:
Atty. Bautista argues that Meralco has trended or re-priced its properties three times since 1963 resulting in over valuation of its utility plant in service. He contends that the dollar components of Meralco's property in service prior to 1963 were already trended in 1963, then trended again in 1968 and then their dollar cost was multiplied by 6 (P6 to $1).This argument stems from a misapprehension of the purpose of the trending method which, as has been stated hereinbefore, is to give recognition to changing economic conditions and variations in the purchasing power of the currency between the time of investment and the time of the rate base computation. While it is true that, in 1963, the dollar portion of power plants substations, and buildings were trended by using the trend factor applicable for the period from date of acquisition of the equipment to 1963, the equipment was merely brought to 1963 replacement cost or 1963 present value. To trend to 1968 cost level, the 1963 dollar cost was multiplied by the trend factor applicable for the period beginning from 1963 to 1968 to bring the dollar cost to 1968 cost levels. The total of the dollar component trended as above stated to 1968 cost levels was then multiplied by six on the basis of the exchange rate of P6.00 to U.S. $1.00. The contention, therefore, of Atty. Bautista, is without merit.
The oppositors likewise point out that the GAO report disallowed P10,621,803 of MERALCO's yearly 1968 operating expenses.
Of this amount, P5,077, 517 includes advertising, life insurance premiums, and other fringe benefits to employees, which certainly did not go to the stockholders of the company and largely contributed to its trouble free service and labor relations. Of these items, the decision under appeal observed —
With respect to the Jollys Recreation Center which is a place within the compound of Meralco where employees engage in sports and athletics activities, the Commission believes that the same should not have been disallowed considering that this contributes to the efficiency of employees in the performance of their work and therefore benefits perhaps indirectly the public that they service.
The Commission also notes that GAO has disallowed the following disbursement as part of Meralco's operating expenses:
(a) Group Insurance premiums:
(b) Institutional Advertising; and
(c) Franchise Taxes.
Group insurance premiums are those that are paid by Meralco for the insurance policies of Meralco's employees. Those are actually part of the salaries of employees as the Commission understands it and since these are considered as included in the computation of the salaries of the employees, they are proper operating expenses.
Institutional Advertising expenses have been allowed by this Commission in the past as proper operating expenses. In the case of Meralco it may appear that there is no need to advertise its business considering that there is no competitor, yet the Commission takes judicial notice of the fact that all television programs sponsored by Meralco are those that instruct the consumers on how to save on electricity and how to avoid accidents such as electrical fire by the improper use of electrical appliances and connections. Such being the case, the Commission rules that these institutional advertising expenses are allowable.
With respect to franchise taxes, the GAO representative, Mr. Pablo Bumanlag, testified that these are franchise taxes that have not been paid by Meralco because they are being disputed. He admits, however, that in the past, GAO has allowed these as operating expenses and that this is the first time that GAO has disallowed contested franchise taxes. This Commission has not been given any valid reasons for the sudden departure by the GAO of its treatment of these disputed franchise taxes and therefore holds that the disallowance is improper.
These observations We find correct. But even if We disregard the entire P10,621,803 operating expenses objected to by the GAO, only 1/6 of the amount (P1,770,330)would have to be deducted from the 2 months working capital allowed by the Commission (P28,135,449) and considered as forming the rate base in addition to the value of the property in service (P913,447,085). Therefore, deducting the P1,770.300 from the working capital leaves P26,365.148; and the rate of return can be computed as follows:
| Property in service ......................................... | P913.447,085 | (Decision, page 18) |
| 2 months working capital .............................. | P26,365,148
|
| Rate base ................................................. | P939,812,233 |
(as against the base fixed in the decision at P941,582,534).
Dividing the operating income of P107,325,875 by this reduced rate base of P939,812,233 yields a rate of return of 11.4%, well within the 12% heretofore considered reasonable in previous decisions of the Commission and of this Supreme Court.
It is noteworthy that the GAO computation, despite excluing the P10,621,803 disallowed from MERALCO's annual operating expenses and using only the book value of the property in service, without even trending property values or considering normalization adjustment of expenses, found a rate of return amounting to 12.12% for 1968 and 11.86% for 1969. Since book values are below present values, that have consistently run higher, the actual rates of return of MERALCO are even lower than those found in the GAO report. The oppositors persistently ignore the difference in the purchasing value of the pesos spent when the company plants were acquired or constructed, and the lower peso values of the utilities' current income in the years 1968-1970, specially since the floating rate was imposed.
It is unnecessary to stress that these peso values are not truly comparable.
Finally, the objection that MERALCO failed to set up a despreciation reserve account that could have been used by it to cushion the effects of the floating rate is contrary to the express prescription of Section 16(1) of the Public Service Act, providing that the depreciation fund "shall not be expended otherwise than for depreciation, improvements, new construction, extensions or conditions to the property of such public service." Thus MERALCO could not lawfully use the depreciation fund to meet the deficit in its operational expenses, as oppositors contend. On the other hand, the Public Service Commission did find that the company had used its depreciation fund for constructions, as authorized by law, and this finding has not been disputed or contradicted. The objection, therefore, is devoid of merit.
By and large, oppositors have not shown any errors in the appealed decision important enough to warrant reversal. It must be borne in mind that rate fixing involves a series of technical operations into the details of which We are ill-equipped to enter, and which is primarily entrusted to the Public Service Commission.
Much stress has been laid on the fact that MERALCO is one of the largest corporations in the Philippines with high earnings. Assuming this to be correct, although no competent evidence has been introduced in support thereof, what really matters is whether or not this particular utility renders efficient and satisfactory service and whether its net income bears a just relation to the size of its investment. As previously shown, even the GAO report is that MERALCO returns do not exceed 12% of its service assets. While a public utility like MERALCO may in effect be deemed to be a monopoly, its favored position as such is more than counterbalanced by the regulatory limitation on the rate of return on its capital and its unavoidable obligation to maintain and expand its services as demand therefor increases. Of course, its rates must always be just to the public, but protection of the latter does not necessarily mean that only reduced rates, regardless of economic conditions, can be just (PLDT vs. Medina, supra).
After the main briefs were filed in this case, the oppositor Republic submitted a motion for the remand of the case back to the Public Service Commission, to enable it to propound a new formula allegedly better fitted to determine a rate that would be more just to both the utility and the public, in lieu of the method heretofore used, that are claimed to have become obsolete. Appended to the motion is a report of the Presidential Economic Committee(PEC) on "Policy for Regulating Public Utility Earnings" dated 20 May 1971. Subsequently, in its reply brief, the Republic has likewise invoked a memorandum of the Presidential Staff to the Secretary of Justice, dated 28 May 1971, proposing that MERALCO rates be adjusted to a level not to exceed 5/93% over the 1968 rates on the basis of a so-called decision rule or "end result" doctrine. The first report of the PEC held that an increase of 25.4% was reasonable (as compared with the 36.5% allowed by the Public Service Commission).
We do not believe that a remand at this stage would be justified for the following reasons:
(a) MERALCO's evidence establishes that the confidence of its foreign creditors and suppliers required a stable rate of return adequate to satisfy them of its ability to meet its obligations. Any delay in fixing its just returns would hamper the utility's efforts to obtain needed financing that is not locally available, to the ultimate detriment of its services, specially since MERALCO does not depend upon Government guarantees.
(b) The wide divergence of the proposals of the PEC and the PES is evidence that the implications of the new formulae have not been thoroughly explored and they are still in the experimental stage, with still untested results. MERALCO contends, not without reason, that it would be more consonant with logic to apply first these new methods of computing rates to the tariffs of public utilities controlled by the government, like the National Power Corporation and the Philippine Railways.
(c) To suspend the effects of the decision of 30 June 1971, allowing the increased rates, would result in the revival of the provisional rates approved on 20 May 1971(as provided in the Public Service Commission resolution of 1 July 1971), when said provisional rates are admittedly more unfavorable to the consumers.
(d) At all events, the Republic can institute new proceedings in the Public Service Commission, with due notice to the parties concerned, where the merits of the new proposed formulae, and their factual basis, can be thoroughly tested and inquired into, and thereafter either adopted or rejected.
Likewise, the Court does not believe that it should now inquire into the merits of MERALCO's appeal (G.R. No. L-32402) to render the schedule of rates more flexible by allowing an upward or downward change in the rates of 1-¼% for every P0.10 variation in the dollar exchange rate, instead of the authorized charge divergence of 3% for every P0.30, for the reason that MERALCO's motion to this effect was not previously heard by the Commission due to lack of quorum therein.
WHEREFORE, the appealed decision of the Public Service Commission of 30 June 1971, in its Case No. 70-2966, is hereby affirmed, without prejudice to the right of the oppositors to initiate proceedings in the Commission for the adoption of the new formula heretofore discussed. The right is also reserved to MERALCO to file proceedings seeking to increase the flexibility of the rates fixed by the decision. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar and Fernando, JJ., concur.
Teehankee, Barredo, Villamor and Makasiar, JJ., took no part.
Footnotes
1 V. Francisco on Revised Rule 132, Section 35, page 1001.
2 18 SCRA, 651.
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