123 Republic vs Medina

8/18/2019 123 Republic vs Medina

1/40

EN BANC

G.R. No. L-32068 October 4, 1971

REPUBLIC OF !E P!ILIPPINE", petitioner,

vs.

!ON. ENRI#UE $E%IN&, !ON. GREGORIO

P&NG&NIB&N, !ON. 'O"UE L. C&%I&O,

!ON. FILO$ENO (IN&N&R, !ON. P&)

*EO PL&N&", + &oc+te Coo/er

o te Pbc "erce Coo/ +/5

$&NIL& ELECRIC CO$P&N, respondents.

G.R. No. L-32083 October 4, 1971

&$ELIO R. $UUC, etto/er,

vs.

$&NIL& ELECRIC CO$P&N +/5 !E

PUBLIC "ER*ICE CO$$I""ION,

reo/5e/t.

G.R. No. L-321 October 4, 1971

$&OR &NONIO '. *ILLEG&", or +/5 /

be+ o te Ct o $+/+ +/5 + oter $+/+ co/ceo/+re +r t+te5,

etto/er,

vs.

PUBLIC "ER*ICE CO$$I""ION, !ON.

ENRI#UE $E%IN&, + Coo/er,

GREGORIO C. P&NG&NIB&N, 'O"UE L.

C&%I&O, FILO$ENO C. (IN&N&R, +/5 P&)

*EO PL&N&", + &oc+te Coo/er

o te PUBLIC "ER*ICE CO$$I""ION, +/5

$&NIL& ELECRIC CO$P&N, reo/5e/t.

G.R. No. L-32374 October 4, 1971

REPUBLIC OF !E P!ILIPPINE", etto/er,

vs.

PUBLIC "ER*ICE CO$$I""ION +/5 $&NIL&

ELECRIC CO$P&N, reo/5e/t,

&$ELIO R. $UUC, +/5 LEON&R%O B&RO,

/tere/or.

G.R. No. L-32402 October 4, 1971

$&NIL& ELECRIC CO$P&N, etto/er,

vs.

PUBLIC "ER*ICE CO$$I""ION +/5

REPUBLIC OF !E P!ILIPPINE",

reo/5e/t.

G.R. No. L-32464 October 4, 1971

R&$ON &. GON)&LE), etto/er,

vs.

$&NIL& ELECRIC CO$P&N +/5 PUBLIC

"ER*ICE CO$$I""ION, reo/5e/t.

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 etitioner.

Porfirio !. del Pilar and Leonardo Baro for

resondent PS".

Jose L. Africa, Pastor S. del Rosario, Renato #.

$a%ada, &i'(erto #. $a%ada, "amilo ).

Q*iason and Francisco "arreon for resondent

+eraldo.

REE", '.B.L., J.:

On 7 May 1970, Manila Electric Company

(hereinater termed ME!A"CO# iled an

application $ith the %&'lic ervice Commission

see)in* approval o revised rate sched&les, $ith

increased char*es, claimin* that the loatin*

e+chan*e rate and economic conditions

res&ltin* thererom increased its operatin* and

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2/40

maintenance e+penses 'y more than 0-, and

li)e$ise increased the peso cost o servicin* its

orei*n de'ts, ca&sin* it to inc&r an operational

deicit and net loss o over one million pesos a

month. he proposed ne$ rates, applicant

contended, $o&ld *ive it a reasona'le ret&rn o

'elo$ 1/- o the present val&e o its properties

devoted to the p&'lic service, and implicated no

additional '&rden to small cons&mers (o 100

2 or less per month# constit&tin* aro&nd

3/- o petitioner4s c&stomers.

Em'odied in the aorementioned application $as

a motion 5or immediate provision approval o

proposed rates,5 $hich, over the opposition o

the petitioner !ep&'lic and others (6ille*as,

M&t&c, on8ale8 and Baro#, $as *ranted 'y the

respondent Commission in an order dated /0May 1970, 5at the ris) o the applicant,5 s&'ect

to ret&rn o the s&ms collected i, 5ater hearin*

on the merits, the application $as not o&nd

meritorio&s. 5A motion or reconsideration o said

order a&thori8in* the provisional increase in rate

char*es $as iled 'y the oppositors 'eore the

Commission in (anc '&t $as denied in its order

dated : ;&ne 1970. he oppositors iled petitions

or certiorari and prohi'ition $ith preliminary

in&nction to ann&l and set aside the t$o orders

aorementioned, $hich $ere *iven d&e co&rse

(.!. Nos. ", ":, "


3/40

he anne+es in s&pport o the eneral A&ditin*

Oice $ere iled a e$ days later.

Ater hearin* on the merits o the petition, d&rin*

$hich respondent ME!A"CO add&ced its

evidence (mornin* and aternoon, /7 May, 1, /,

: Dmornin* only, 13, 1= Dmornin* only, 17, 1>,

19 and // and ;&ne and the oppositors on /: /

and /3 ;&ne 1970#, on :0 ;&ne 1970,

respondent Commission, thro&*h the 2onora'le

Commissioner Enri&e Medina, %residin*, and

the 2onora'le Associate Commissioners

re*orio C. %an*ani'an and ;os&e ". Cadiao,

Mem'ers, prom&l*ated a decision indin* the

proposed rates reasona'le and &stiied $ith

minor ad&stments, and the dispositive part o

$hich is as ollo$sF

?N 6?E O A"" 2E

O!EO?N, the %&'lic

ervice Commission here'y

AG2O!?HE and A%%!O6E

the proposed rate sched&les o

Meralco attached as Anne+es

5A5, 5A- in the

'illin*s &nder the revised rates

or every thirty (:0# centavos

chan*e in the e+chan*e rate

rom %=.00. ?n airness, s&ch

ad&stment sho&ld 'e &p$ard as

$ell as do$n$ard, dependin*

on $hether the e+chan*e rate

*oes &p or do$n.

he ollo$in* c&rrency

e+chan*e rate ad&stment shall,

thereore, apply '&t &sin* only

:.0- instead o :.>-.

hen the avera*e o the daily

G.. ollar sellin* rate o the

%hilippine national Ban) d&rin*

a calendar &arter is less or

more than =.00 pesos to one (1#

G.. dollar, a correspondin*ad&stment shall 'e made on all

'illin*s or the s&cceedin*

calendar &arter as comp&ted

&nder the !esidential Meter

(!M


4/40

or the p&rpose o ins&rin* that

the a'ove ad&stment shall 'e

carried o&t properly, the

ecretary o the Commission is

here'y ordered to o'tain rom

the %hilippine National Ban) the

necessary inormation as to said

'an)4s daily G.. dollar sellin*

rates@ compile s&ch inormation@

comp&te the avera*e o s&ch

daily rate d&rin* a calendar

&arter@ and $ithin ive (3# days

ater the end o s&ch &arter,

iss&e a certiication o the

res&lts o his comp&tation.

?n line $ith one o the conditions

stated in the Order o thisCommission dated /1 May

1970, the Commission here'y

orders the Meralco to reim'&rse

to or credit to the acco&nts o all

its 77,>1 residential

cons&mers $hatever amo&nts

or s&ms o money it has

collected or received rom said

cons&mers &nder the

provisional a&thority in e+cess

o the residential rates approved

and a&thori8ed in this decisionand attached hereto as Anne+

5A5.

he increase hereina'ove

A%%!O6E and AG2O!?HE

shall 'e eective rom the date

o this decision and Anne+es

5A5, 5A#.Oppositors M&t&cand on8ale8 li)e$ise appealed, and $ere

allo$ed to intervene in the case.

Meralco in t&rn iled a motion or reconsideration

prayin* that the dispositive portion o the %&'lic

ervice Commission decision providin* or a

rate ad&stment o :- in the 'illin*s or every

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5/40

thirty centavos (%0.:0# chan*e in the e+chan*e

rate (&p or do$n# o %=.00 to every dollar 'e

modiied to a more le+i'le sched&le, 'y allo$in*

a chan*e o

1


6/40

provisional rates are 'y their nat&re temporary

and s&'ect to ad&stment in conormity $ith the

deinitive rates approved, and in the case at 'ar,

the %&'lic ervice Commission order o /0 May

1970 e+pressly so provided.

Oppositor 6ille*as contends that the %&'lic

ervice Commission co&ld not act on the

petition or provisional rates 'eca&se it

e+pressed no ca&se o action, there 'ein* in it

no statement o the val&e o the properties

devoted to the service to 'e &sed as 'ase rate.

&ice it to say that the 'ase rate assets o

applicant4s properties $ere esta'lished as o

19=3, in this Co&rt4s decision in Manila Electric

Co. vs. %&'lic ervice Commission

(" %hil. :>3, :>>, $here

;&d*e 6icente de 6era, 'ein* temporarily

assi*ned to the p&'lic ervice Commission, had

to ret&rn to his district, and or this reason the

Commission decided the case even 'eore the

e+piration o the period alloted or the illin* o

co&nsel4s memoranda. his Co&rt r&led that the

irre*&larity did not $arrant modiication or reversal o the %&'lic ervice Commission

decision. ?ndeed, it $o&ld have 'een more

anomalo&s to speed &p the proceedin*s i

Commissioner Medina4s retirement rom the

service had not 'een impendin* at all.

?t is $ell to note here that the trial and hearin*s

$ere not contin&o&s, and intervals o several

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7/40

days, sometimes o a $ee) or more, too) place.

he main o&tlines o the case or respondent

Meralco (the adverse eect o the loatin* rate

on the cost o operation# appeared rom the

testimony in chie o applicant4s $itness Antonio

O8aeta, $hose cross e+amination $as len*thy,

occ&pyin* over 1:0 pa*es o the transcript.

2earin*s $ere held mornin* and aternoon, '&t

only once did they proceed 'eyond 3 p.m., and

most aternoon sessions startin* at /F00 p.m.

ended at or earlier. No &nd&e restrictions $ere

placed on oppositors &ntil the %&'lic ervice

Commission, apparently reali8in* that its policy

to allo$ even individ&al cons&mers to cross

e+amine independently applicant4s $itnesses

$as &n$or)a'le and $o&ld lead only to

con&sion, decided to limit the n&m'er o cross

e+aminers. his lay $ithin the trier4s discretionand sho&ld not 'e interered $ith in the a'sence

o a'&se, $hich is not here sho$n. As pointed

o&t 'y rancisco (!&les o Co&rt# in his

commentary on !&le 1:/, ection >, 5it is

&ndesira'le or more than one attorney to cross

e+amine the same $itnesses, and the ri*ht may

'e denied $here the interests o the co<

deendants are identical.5

Oppositors


8/40

(%hil. "on* istance elephone

Co. vs. Medina, "

;&ly 19=7, /0 C!A =39, =7=,

per anche8, ;.#

?t is inally &r*ed that only ive days elapsed

'et$een the time the case $as s&'mitted or

decision and the rendition o the &d*ment. or

itsel, this dat&m is inade&ate to s&pport

oppositor4s concl&sion o 'ias. he evidence

$as mainly doc&mentary, and the Meralco 'oo)s

o acco&nt had 'een relia'ly a&dited 'y

rep&ta'le private acco&ntants as $ell as 'y the

AO and the latter4s concl&sions $ere

em'odied in its report. Not only this, '&t the

case $as in act only an &pdatin* o the rate

'ase e+amined and passed &pon 'y the

Commission in 19=3, and airmed 'y the&preme Co&rt (v. 1> C!A =31#. he

dierence consisted in the eect o a notorio&s

and $ell as a test year ('eca&se the 19=9

i*&res $ere not yet a&dited $hen the hearin*s

$ere held in the %&'lic ervice Commission#,the

net val&e o ME!A"CO4s properties devoted to

p&'lic service, e+pressed in terms o present

cost ater ded&ctin* depreciation, $as

%91:,7,0>3.00 Addin* thereto a $or)in*

capital o t$o months operatin* e+penses,

e&ivalent to %/9,===,>7>.00 (i.e., 1= o total

operatin* e+penses or the year in the s&m o

%1=/,739,==1#, the Commission o&nd the rate

'ase (&pon $hich to comp&te the percenta*e o

reasona'le ret&rn# to 'e %9:,11:,9=:. ividin*

the operatin* income o %>7,313,91 'y the rate

'ase *ave are t&rn o 9./3-.

?n a&thori8in* an increase o rates, the %&'lic

ervice Commission proceeded on the 'asis

that the ME!A"CO as p&'lic &tility sho&ld

receive a reasona'le ret&rn on its investment,

e&ivalent to 1/- on the rate 'ase, the present

mar)et or replacement val&e o the properties

devoted to the service less depreciation, pl&s

operatin* capital e&ivalent to / months

operatin* income. ?n so doin*, the %&'lic

ervice Commission only ollo$ed the constant

doctrine o the case heretoore ad&dicated 'y

this Co&rt. aid the Commission in its decisionF

Accordin* to the evidence or

applicant, as o ecem'er :1,

19=>, Meralco4s *ross 'oo)

val&e $as %>70,0:0,0>9 and

%70:,=7=,:9> as o ecem'er

:1, 19=7. he avera*e *ross

'oo) val&e or 19=>, thereore,

$as %7>=,>3:,/:.00. or

p&rposes o rate 'ase

determination, ho$ever, thisCommission and o&r &preme

Co&rt have consistently r&les

that the controllin* standard in

determinin* the val&e o the

property $hich sho&ld 'e

incl&ded in its rate 'ase is the

present or mar)et val&e. he

cases &pholdin* this doctrine

Page | 8


9/40

are n&mero&s, amon* them areF

Metropolitan ater istrict vs.

%&'lic ervice, Commission, 3>

%hil. :97, 00 (19::#@

M&nicipality o %a*sanan vs.

Cacho 2idal*o Electric, .!.

No. :=3 (19::#@ %hilippine

!ail$ays Co. vs. Ast&rias &*ar

Central, ?nc. 7/ %hil. 3(191#@

ort&nato . 2alili vs. ?ce Cold

tora*e o the %hilippines, 77

%hil. >/: (197#@ %hil. %o$er

evelopment Co., %C Case

No. /9>1 (1933#@ and Manila

Electric Co. vs. %&'lic ervice

Commission, .!. No. "


10/40

either case, the *(lic o*ld

s*ffer there(- .

+++ +++ +++

? the ME!A"CO $ere not

constrained to 'orro$ or the

p&rpose o inancin* the

&nderta)in*s it proposes and is

re&ired 'y the circ&mstances

to p&rs&e, the rate o ret&rn or

its investments co&ld, in all

pro'a'ility, 'e red&ced. ?ndeed,

'eore it had decided to initiate

said &nderta)in*s, ME!A"CO

had, not only never increased its

rates K despite the act that

almost all other enterpriseshave raised their rates K '&t

also, vol&nteered to red*ce the

same.

4?t *oes $itho&t sayin* that the

rates o ret&rn are

&nderstanda'ly lo$er in the

Gnited tates $here there is a

comparative a'&ndance o

capital and it is, thereore,

relatively easier to raise &nds

locally, either 'y increasin* the

capitali8ation K $itho&t the

dan*er adverted to a'ove K or

thro&*h loans, &nder conditions

less onero&s than those &s&ally

o'tainin* in the %hilippines.4 K

+anila #lectric "oman- vs.

P*(lic Service "ommission,

G.R. 3o. L4567859 Ricardo

Rosal vs. +anila #lectric

"oman-, G.R. 3o. L456:6;9

Re*(lic of the Philiines vs.P*(lic Service "ommission,

G.R. 3o. L456:

C!A, ==># e noted that K

... Gpon the other hand, !icardo

!osal &r*es that the rates

sho&ld 'e o&nded &pon the

amo&nt o the investment made

'y ME!A"CO4s stoc)holders or

the 5historical cost5 orm&la. he

%C had adopted the present or

mar)et val&e theory, as the'asis or the comp&tation o the

earnin*s allo$a'le to and the

rate sched&le char*ea'le 'y the

ME!A"CO, as $ell as the

method o val&ation &sed and

the appraisal made 'y the

same, ater ma)in* thererom

some ded&ctions recommended

'y AO.

ith respect to the 5historicalcost5 orm&la &r*ed 'y !osal, it

sho&ld 'e noted that the present

or mar)et val&e theory adopted

'y the %C is in consonance

$ith the practice consistently

adhered to in this &risdiction

and &pheld in an &ninterr&pted

line o decisions o this Co&rt.

Page | 10


11/40

And said decisions are 'orne

o&t 'y the $ei*ht o a&thority in

other &risdictions.

Oppositors then, as they do no$ in the case at

'ar, ar*&ed that the 2ope Nat&ral as decision

o the Gnited tates &preme Co&rt had

reected the present val&e theory as o'solete.

his contention $as e+amined in o&r previo&s

decision and o&nd incorrect.

?t is &r*ed that the present val&e

theory is no$ an o'solete

doctrine, it havin* 'een reected

'y the &preme Co&rt o the

Gnited tates in ederal %o$er

Commission vs. 2ope Nat&ral

as Co. (:/0 G.. 391, >> ".ed. :::#, in $hich the pr&dent

investment or modiied ori*inal

cost theory $as alle*edly

adopted. his assertion is

inacc&rate. ?n said case the

Co&rt did not reect the present

or air mar)et val&e theory. ?t

merely re&sed to interere $ith

the action ta)en 'y the ederal

%o$er Commission in applyin*

said pr&dent investment or

modiied ori*inal cost theory.

M&ch o the opposition to the appealed decision

sprin*s rom the improper insistence in val&in*

the stoc)holder4s e&ity at the par val&e o the

shares, entirely i*norin* the act that $hen the

present ilipino stoc)holders ac&ired the stoc)

o the American o$ned ME!A"CO company,

they did so at several times the par val&e. o

comp&te the e&ity o the stoc)holders at par

val&e o the shares is evidently &n&st and $o&ld

res&lt in i+in* the ret&rns o an &tility atconiscatory levels, partic&larly or recent

stoc)holders that ac&ired shares at a premi&m.

Meas&red a*ainst act&al cost, the divident

percenta*e does not appear a'normal.

he !ep&'lic and other oppositors also insist

that the AO did not have or $as not *iven

ade&ate time to chec) the acc&racy o the

i*&res s&'mitted 'y ME!A"CO@ and yet rom

/3 ;&ne 1970, $hen the AO report $as iled in

the %&'lic ervice Commission, do$n to the

time the case $as s&'mitted or decision in

;&ne, 1971, the oppositors have ailed to s&'mit

any concrete i*&res to sho$ error in the data

relied &pon 'y the Commission.

?t is ar*&ed that rom 19=3 to 19=9 o&t o

%1>1.:73 million reven&es, ME!A"CO only

retained in '&siness %>0.=>> million. his is

diic&lt to 'elieve considerin* the indin*s o the

Commission that or the same period

ME!A"CO4 constr&ction e+pendit&res

amo&nted to %77>,//7,0>/, $hich is more than

the reven&e rom the rate increase

(%1>1,:7,:#and its orei*n loans(%:1>,==1,>=9# added to*ether(%300,0:=,:0:#.

hese i*&res o the %&'lic ervice Commission

are no$here disp&ted.

As to the ar*&ment that the trendin* or repricin*

o ME!A"CO4s properties res&lted in inlated

val&es, the decision appealed rom (Brie or

%etitioner, pa*e 3:# correctly o'servedF

Atty. Ba&tista ar*&es that

Meralco has trended or re<

priced its properties three times

since 19=: res&ltin* in over

val&ation o its &tility plant in

service. 2e contends that the

dollar components o Meralco4s

property in service prior to 19=:

$ere already trended in 19=:,

then trended a*ain in 19=> and

then their dollar cost $as

m&ltiplied 'y = (%= to I1#.his

ar*&ment stems rom a

misapprehension o the p&rposeo the trendin* method $hich,

as has 'een stated

herein'eore, is to *ive

reco*nition to chan*in*

economic conditions and

variations in the p&rchasin*

po$er o the c&rrency 'et$een

the time o investment and the

Page | 11


12/40

time o the rate 'ase

comp&tation. hile it is tr&e

that, in 19=:, the dollar portion

o po$er plants s&'stations, and

'&ildin*s $ere trended 'y &sin*

the trend actor applica'le or

the period rom date o

ac&isition o the e&ipment to

19=:, the e&ipment $as

merely 'ro&*ht to 19=:

replacement cost or 19=:

present val&e. o trend to 19=>

cost level, the 19=: dollar cost

$as m&ltiplied 'y the trend

actor applica'le or the period

'e*innin* rom 19=: to 19=> to

'rin* the dollar cost to 19=>

cost levels. he total o thedollar component trended as

a'ove stated to 19=> cost levels

$as then m&ltiplied 'y si+ on the

'asis o the e+chan*e rate o

%=.00 to G.. I1.00. he

contention, thereore, o Atty.

Ba&tista, is $itho&t merit.

he oppositors li)e$ise point o&t that the AO

report disallo$ed %10,=/1,>0: o ME!A"CO4s

yearly 19=> operatin* e+penses.

O this amo&nt, %3,077, 317 incl&des

advertisin*, lie ins&rance premi&ms, and other

rin*e 'eneits to employees, $hich certainly did

not *o to the stoc)holders o the company and

lar*ely contri'&ted to its tro&'le ree service and

la'or relations. O these items, the decision

&nder appeal o'served K

ith respect to the ;ollys

!ecreation Center $hich is a

place $ithin the compo&nd o Meralco $here employees

en*a*e in sports and athletics

activities, the Commission

'elieves that the same sho&ld

not have 'een disallo$ed

considerin* that this contri'&tes

to the eiciency o employees in

the perormance o their $or)

and thereore 'eneits perhaps

indirectly the p&'lic that they

service.

he Commission also notes that

AO has disallo$ed the

ollo$in* dis'&rsement as part

o Meralco4s operatin*

e+pensesF

(a# ro&p ?ns&rance premi&msF

('# ?nstit&tional Advertisin*@ and

(c# ranchise a+es.

ro&p ins&rance premi&ms are

those that are paid 'y Meralcoor the ins&rance policies o

Meralco4s employees. hose are

act&ally part o the salaries o

employees as the Commission

&nderstands it and since these

are considered as incl&ded in

the comp&tation o the salaries

o the employees, they are

proper operatin* e+penses.

?nstit&tional Advertisin*

e+penses have 'een allo$ed 'y

this Commission in the past as

proper operatin* e+penses. ?n

the case o Meralco it may

appear that there is no need to

advertise its '&siness

considerin* that there is no

competitor, yet the Commission

ta)es &dicial notice o the act

that all television pro*rams

sponsored 'y Meralco are those

that instr&ct the cons&mers onho$ to save on electricity and

ho$ to avoid accidents s&ch as

electrical ire 'y the improper

&se o electrical appliances and

connections. &ch 'ein* the

case, the Commission r&les that

Page | 12


13/40

these instit&tional advertisin*

e+penses are allo$a'le.

ith respect to ranchise ta+es,

the AO representative, Mr.

%a'lo B&manla*, testiied that

these are ranchise ta+es that

have not 'een paid 'y Meralco

'eca&se they are 'ein*

disp&ted. 2e admits, ho$ever,

that in the past, AO has

allo$ed these as operatin*

e+penses and that this is the

irst time that AO has

disallo$ed contested ranchise

ta+es. his Commission has not

'een *iven any valid reasons or

the s&dden depart&re 'y theAO o its treatment o these

disp&ted ranchise ta+es and

thereore holds that the

disallo$ance is improper.

hese o'servations e ind correct. B&t even i

e disre*ard the entire %10,=/1,>0: operatin*

e+penses o'ected to 'y the AO, only 1 = o the

amo&nt (%1,770,::0#$o&ld have to 'e ded&cted

rom the / months $or)in* capital allo$ed 'y

the Commission (%/>,1:3,9# and considered

as ormin* the rate 'ase in addition to the val&e

o the property in service (%91:,7,0>3#.

hereore, ded&ctin* the %1,770.:00 rom the

$or)in* capital leaves %/=,:=3.1>@ and the

rate o ret&rn can 'e comp&ted as ollo$sF

%roperty in

service .......................................

.. %91:.7,0>3 (ecision, pa*e

1>#

/ months $or)in*capital ..............................

%/=,:=3,1>

!ate

'ase ...........................................

...... %9:9,>1/,/::

(as a*ainst the 'ase i+ed in the

decision at %91,3>/,3:#.

ividin* the operatin* income o %107,:/3,>73

'y this red&ced rate 'ase o %9:9,>1/,/::

yields a rate o ret&rn o 11.-, $ell $ithin the

1/- heretoore considered reasona'le in

previo&s decisions o the Commission and o

this &preme Co&rt.

?t is note$orthy that the AO comp&tation,

despite e+cl&in* the %10,=/1,>0: disallo$ed

rom ME!A"CO4s ann&al operatin* e+penses

and &sin* only the 'oo) val&e o the property in

service, $itho&t even trendin* property val&es or

considerin* normali8ation ad&stment o

e+penses, o&nd a rate o ret&rn amo&ntin* to

1/.1/- or 19=> and 11.>=- or 19=9. ince'oo) val&es are 'elo$ present val&es, that have

consistently r&n hi*her, the act&al rates o ret&rn

o ME!A"CO are even lo$er than those o&nd

in the AO report. he oppositors persistently

i*nore the dierence in the p&rchasin* val&e o

the pesos spent $hen the company plants $ere

ac&ired or constr&cted, and the lo$er peso

val&es o the &tilities4 c&rrent income in the years

19=>


14/40

disp&ted or contradicted. he o'ection,

thereore, is devoid o merit.

By and lar*e, oppositors have not sho$n any

errors in the appealed decision important

eno&*h to $arrant reversal. ?t m&st 'e 'orne in

mind that rate i+in* involves a series o

technical operations into the details o $hich e

are ill rates on

the 'asis o a

so


15/40

their act&al 'asis, can 'e thoro&*hly tested and

in&ired into, and thereater either adopted or

reected.

"i)e$ise, the Co&rt does not 'elieve that it

sho&ld no$ in&ire into the merits o

ME!A"CO4s appeal (.!. No. "


16/40

reservation that the manner 'y $hich the

maority, impelled 'y the pec&liar act&al milie&,

has disposed o these cases, sho&ld properly 'e

re*arded as adhoc .

hese is yet another matter &pon $hich ? dier

$ith the maority. ?t is indeed a sal&tary doctrine,

implied in the maority opinion a'ly penned 'y

Mr. ;&stice ;. B. ". !eyes, that the olicitor

eneral, in representation o the cons&min*

p&'lic, may, at any time he seems necessary,

petition the %&'lic ervice Commission or a

reversion o the rates i+ed 'y this re*&latory

a*ency, since there is no res /*dicata in rate<

ma)in* ad&dication. No$here, ho$ever, in the

said opinion is there a reco*nition in aected

private parties in *eneral the ri*ht to see) a

revision o rates. he dispositive portion o thesaid opinion, as ? constr&e it, reserved the ri*ht

to see) a revision only to the parties in these

cases and only in reerence thereto. ? this is so,

then ? say that this Co&rt has &nd&ly constricted

the covera*e o the doctrine. or my part, ?

$o&ld e+pand the doctrine e+plicitly to a&thori8e

the mayor and the m&nicipal or city co&ncil o a

m&nicipality or city directly aected 'y a

previo&s ad&dication to initiate action or rate

revision. ?n s&ch an event, the olicitor may as),

and sho&ld 'e allo$ed, to intervene. ? $o&ld not

leave the representation o the cons&min* p&'lice+cl&sively to the olicitor eneral, or a n&m'er

o reasons, the 'asic o $hich are that (1# the

olicitor eneral is not necessarily 'etter

sit&ated than m&nicipal or city oicials to

determine the need and the time or a re<

e+amination o previo&sly ad&dicated rates, and

(/# it &ndo&'tedly can happen that e+ercise 'y

the olicitor eneral o his initiative may, or one

reason or another, 'e slo$ in comin* (i it comes

at all#, and, $hen it comes, it ee'le and

thereore in eect&al.

At all events, 'eca&se ? 'elieve that $hat

&ltimately is important in p&'lic &tility

ad&dication is the end res&lt, hold no 'rie

a*ainst the end disposition o these cases

arrived at 'y the maority, $hich in may

considered vie$ is morally &st.

his limited conc&rrence sho&ld end here. B&t

'eca&se these cases have posed a sharp

controversy on $hat actors sho&ld 'e

considered in the determination o the rate 'ase

and in the comp&tation o the rate o ret&rn on

investment, ? am compelled to *o arther and

*ive e+pression to my o$n st&dy and

perspective on $hat the determinants sho&ld 'e.

? re*ard the po$er o the tate to re*&late the

level o ret&rn that '&sinesses 5cloted $ith a

p&'lic interest5 may *enerate rom those $ho

ma)e &se o their properties and services as

'ein* &ndamentally a master o la$. ?t is

thereore relevant to ass&me that in the ever<

rec&rrin* contest o determinin* the precise

constit&tional 'o&ndaries o that po$er, the

administrative implementation o rate7= in +*nn vs. llinois. 1 he G.. &preme

Co&rt, in stri)in* do$n the contention that an?llinois stat&te $hich prescri'ed a ma+im&m on

the amo&nt o char*es that *rain elevator

operators may demand rom the p&'lic violated

the d&e process cla&se o the G.. Constit&tion,

saidF

Page | 16


17/40

... "oo)in* then, to the common

la$, rom $hence came the ri*ht

$hich the Constit&tion protects,

$e ind that $hen private

property is 5aected $ith a

p&'lic interest, it ceases to 'e

/*ris rivati only.5 his $as said

'y "ord Chie ;&stice 2alemore

than t$o h&ndred years a*o, in

his treatise )e Porti(*s Maris, 1

2ar*. "a$ racts, 7>, and has

'een accepted $itho&t o'ection

as an essential element in the

la$ o property eversince....

hen, thereore, one devotes

his property to a &se in $hich

the p&'lic has an interest, he, in

eect, *rants to the p&'lic aninterest in that &se, and m&st

s&'mit to 'e controlled 'y the

p&'lic or the common *ood, to

the e+tent o the interest he has

th&s created. 2e may $ithdra$

his *rant 'y discontin&in* the

&se@ '&t, so lon* as he

maintains the &se, he m&st

s&'mit to the control.

"e*islative po$er over these '&sinesses in the

matter o price9, the G.. &preme Co&rt in

Rea'an vs. Farmers1 Loan C $r*st "o. 2 said

that.

...$hile it is not the province o

the co&rts to enter &pon the

merely administrative d&ty o

ramin* a tari o rates or

carria*e, it is $ithin the scope o

&dicial po$er and a part o

&dicial d&ty to restrain anythin*

$hich, in the orm o a

re*&lation o rates, operates to

deny to the o$ners o property

invested in the '&siness o

transportation that e&al

protection $hich is the

constit&tional ri*ht o all o$ners

o other property. here is

nothin* ne$ or stran*e in this.

his ass&mption 'y the G.. &preme Co&rt o the &ltimate responsi'ility to ad&d*e $hat is a

constit&tionally permissi'le str&ct&re or level o

rates or p&'lic &tilities nat&rally called or the

settin* &p o an accepta'le and s&icient

standard. he Co&rt held in Rea'an that the

rates sho&ld 'e reasona'le. 3 B&t $hat is a

reasona'le rate5 By $hat method or 'asis can

this 'e determined so that the dollar amo&nt that

is arrived at may 'e said to 'e reasona'leP

?n the leadin* case o Sm-th vs. Ames, 4 the

G.. &preme Co&rt too) occasion to en&merate

the 'ases &pon $hich the reasona'le rate may

'e calc&lated. ?t saidF

e hold, ho$ever, that the

'asis o all calc&lations as to the

reasona'leness o rates to 'e

char*ed 'y a corporation

maintainin* a hi*h$ay &nder

le*islative sanction m&st 'e the

air val&e o the property 'ein*

&sed 'y it or the convenience o the p&'lic. And, in order to

ascertain that val&e, the ori*inal

cost o constr&ction, the amo&nt

e+pended in permanent

improvements, the amo&nt and

mar)et val&e o its 'onds and

stoc), the present as compared

$ith the ori*inal cost o

Page | 17


18/40

constr&ction, the pro'a'le

earnin* capacity o the property

&nder partic&lar rates prescri'ed

'y stat&te, and the s&m re&ired

to meet operatin* e+penses, are

all matters or consideration,

and are to 'e *iven s&ch $ei*ht

as may 'e &st and ri*ht in each

case. e do not say that there

mi*ht not 'e other matters to 'e

re*arded in estimatin* the val&e

o the property.

hat the company is entitled to

as) is a air ret&rn &pon the

val&e o that $hich it employs

or the p&'lic convenience...

he ore*oin* opinion, i constr&ed as layin*

do$n a speciic orm&la 'y $hich to &antiy

n&merically a reasona'le rate, can 'e said to

have entirely ailed to accomplish its p&rpose. ?n

spite o its 'ein* all thin*s to all men, ho$ever, it

did serve one la&da'le end, or it did indicate

&ite plainly that a reasona'le rate is a rate that

*ives a air ret&rn on the air val&e o the

property 'ein* &sed or p&'lic convenience.

he 5air val&e5 r&le has &ndo&'tedly its o$n

share o practical diic&lties $hich the Co&rt

itsel $as &ite ran) to reco*ni8e. ?n the so<

called +innesota Rate "ases decided in 191/,

the Co&rt saidF

he ascertainment o that val&e

is not controlled 'y artiicial

r&les. ?t is not a matter o

orm&las, '&t there m&st 'e

reasona'le &d*ment, havin* its

'asis in a proper consideration

o all relevant acts...

Any realistic appreciation o all the relevant acts

in a val&ation pro'lem, ho$ever, m&st have to

'e*in $ith the premise that val&es are

necessarily dated val&es. ?n the choice o the

partic&lar space


19/40

are o dierent a*es $ith

dierent e+pectations o lie. B&t

it is clear that some s&'stantial

allo$ance or depreciation o&*ht

to have 'een made

?n a s&'se&ent case, 9 the Co&rt held that

accr&ed depreciation sho&ld 'e a ded&ction

a*ainst the c&rrent val&e o the i+ed assets

rather than their act&al cost, as is &s&ally

ollo$ed in acco&ntin* proced&re. his r&lin*

$as adhered to in the %hilippines in the case o

Encha*sti Steamshi "o. vs. P*(lic tilit-

"ommission. 10

Another pro'lem that $as elevated to the G..

&preme Co&rt or resol&tion in connection $ith

its avora'le attit&de to$ard the 5reprod&ctioncost ne$5 theory $as $hether the p&'lic &tility

sho&ld 'e priced on the 'asis o avera*e prices

or spot prices. he critical importance o an

ade&ate and reasona'le 'asis or i+in* the

prices o p&'lic &til ity assets &nder the

reprod&ction cost calc&lation standard cannot 'e

overemphasi8ed since the prices o commodities

in the mar)et are in a contin&o&s state o l&+,

inl&enced as they are not only 'y social and

political t&r'&leness '&t also 'y the e+pectations

o '&yers and s&ppliers. h&s, one a&thority on

p&'lic &tility re*&lation, $ritin* in 19/>,

o'servedF

Gntil very recently the most

avored 'asis or the

determination o &nit costs has

'een a ive


20/40


21/40

he 5reprod&ction cost ne$5 concept $as also

critici8ed 'y the G.. ?nterstate Commerce

Commission in these $ordsF 14

ynthetic estimates o cost o

reprod&ction 'ased &pon

statistics sho$in* price and

$a*e chan*ed do not ma)e

allo$ance or improved methods

o assem'ly and constr&ction.

As $ill hereinater 'e more &lly

indicated, $e o&nd in e+as

Midland !ailroad, s*ra, at

pa*e 10, that the increase in

the cost o la'or and materials

'et$een 1900 and 191 $as

lar*ely oset 'y improvement in

the art o constr&ction. 2o$ ar there may have 'een a similar

oset, so ar as costs in the

period rom 19/0./-.

Ass&min* an >0- pay


22/40

%roponents o the 5reprod&ction cost ne$5

theory ar*&e, ho$ever, that the intrinsic val&e o

the peso as a res&lt o inlation has *reatly

depreciated and thereore p&'lic &tility o$ners

sho&ld 'e *iven a correspondin* increase in

proits. ?t is pointed o&t, or e+ample, that it

prices rose rom an inde+ o 100 in 19=0 to //3

in 19=7, this means that in 19=7 the peso

'o&*ht less than hal as m&ch. ?, thereore, had

invested %1,000 in 19=0 and received =- o

%=0 or it a year, that investment sho&ld 'e

val&ed in 19=7 at %/,/30 and earn %1:3. ?n this

sit&ation the %1:3 in 19=7 $o&ld then have the

same p&rchasin* po$er as %=0 in 19=0.

o this ar*&ment, opponents o the theory

co&nter, ho$ever, that this line o reasonin*

$o&ld 'e valid only i (a# investments *enerallyare so re$arded d&rin* periods o declinin*

p&rchasin* po$er@ and ('# the increased pesos

o ret&rn *o e&ally to the sec&rity holders.

E+perience has sho$n, &nort&nately, that these

ass&mptions do not occ&r in act. Gtility 'onds,

notes, and preerred stoc)s have speciic yields

$hich are i+ed o'li*ations re*ardless o the

l&ct&ations in the p&rchasin* po$er o money.

h&s, i one is a holder o a ten


23/40

co&rts. ?t $o&ld, $hen once

made in respect to any &tility, 'e

i+ed, or all time, s&'ect only to

increases to represent additions

to plant, ater allo$ance or the

depreciation incl&ded in the

ann&al operatin* char*es...

... $enty


24/40

to raise the money necessary

or the proper dischar*e o its

p&'lic d&ties.

O'vio&sly, the &se o these tests in practice

re&ires pra*matic ad&stments and rational

processes *enerally accepted in the ield o

inance, economics and acco&ntin*. his

concl&sion inds ample s&pport in the act that

as early as 191, the G.. ?nterstate Commerce

Commission already imposed a &niorm system

o acco&ntin* or electric rail$ay companies.

his $as ollo$s in 19/= 'y another &niorm

system o acco&ntin* prescri'ed or telephone

companies and steam railroad systems. 2 he

ederal %o$er Commission, &nder the ederal

%o$er Act, has also done the same. 26

A 'rie ill&stration o ho$, in partic&lar, the

ederal %o$er Commission has approached the

pro'lem o rate re*&lation, $as descri'ed in one

la$ o&rnal as ollo$sF 27

he revised re*&lations or

electric &tilities and licenses

re&ire a &ll cost


25/40

re*&latory 'ody is allo$ed $ide discretion in the

choice o methods rationally related to the

achievement o this end.

he val&e o this )ind o approach is $ell<

reco*ni8ed 'y the G.. &preme Co&rt. ?n

Federal Poer "ommission vs. !oe 3at*ral

Gas "o., that Co&rt saidF 28

Gnder the stat&tory standard o

5&st and reasona'le5 it is the

res&lt reached not the method

employed $hich is controllin*. ?t

is not the theory '&t the impact

o the rate order $hich co&nts. ?

the total eect o the rate order

cannot 'e said to 'e &n&st and

&nreasona'le, &dicial in&iry&nder the Act is at an end. he

act that the method employed

to reach that res&lt may contain

inirmities is not then important.

Moreover, the Commission4s

order does not 'ecome s&spect

'y reason o the act that it is

challen*ed. ?t is the prod&ct o

e+pert &d*ment $hich carries a

pres&mption o validity. And he

$ho $o&ld &pset the rate order

&nder the Act carries the heavy

'&rden o ma)in* a convincin*

sho$in* that it is invalid

'eca&se it is &n&st and

&nreasona'le in its

conse&ences.

!ate controversies in many cases, ho$ever,

have not ended in the re*&latory commissions.

And there is no do&'t that they $on4t. 2ence, the

reco*nition in a re*&latory a*ency o ample

discretion in the choice o s&ch rationalprocesses as mi*ht 'e appropriate to the

sol&tion o its hi*hly complicated and practical

diic&lties, s&**ests that it sho&ld indicate &lly

and care&lly, in every case, the method or

methods it has employed, the p&rposes $hich

*&ided its action, and the reasons that made the

method or methods chosen and the p&rposes

p&rs&ed relevant &nder the acts o the case. 29

?n this $ay, the Co&rt4s eval&ation o the

Commission4s orders $o&ld 'e more acc&rate,

eicacio&s and sensi'le. or, ater all, the

Co&rt4s responsi'ility, as held in n Re Permian

Basin Area Rate

"ases, 30 5is not to s&pplant the Commission4s

'alance o those interests $hich are more nearly

to its li)in*, '&t instead ass&re itsel that the

Commission has *iven reasoned consideration

to each o the pertinent actors.

Apart rom the &estion o $hether or not the

Co&rt sho&ld actively intervene in the

Commission4s choice o an appropriate method

'y $hich to meas&re the rate 'ase and the rate

o ret&rn, American co&rts have also dealt $ith

the pro'lem o $hether certain properties o the

&tility company sho&ld 'e incl&ded in the rate'ase or val&ation p&rposes.

One s&ch item pertains to those constr&cted o&r

o retained earnin*s. ?n Board of P*(lic tilit-

"ommissioners vs. 3e Eor? $elehone "o., 31

the G.. &preme Co&rt e+pressed the vie$ that

property constr&cted o&t o s&rpl&s earnin*s

'elon*s to the &tility and is entitled to yield a air

ret&rn rom the rates char*ed the cons&mers as

&lly and completely as i it had 'een &rnished

'y the investors rom o&tside so&rces. ?n this

case, the Ne$ ;ersey Commission o&nd that

the company in previo&s years had earned and

set aside or depreciation amo&nts lar*ely in

e+cess o the act&al depreciation accr&in*, and

held that the company co&ld not claim an

increase o rates &ntil this e+cess in the

depreciation reserve had 'een e+ha&sted in

ma)in* &p c&rrent operatin* deicits. ?n

reversin* the r&lin* o the Commission, the

Co&rt saidF

...Constit&tional protectiona*ainst coniscation does not

depend on the so&rce o the

money &sed to p&rchase the

property. ?t is eno&*h that it is

&sed to render the service. he

c&stomers are entitled to

demand service and the

company m&st comply. he

Page | 25


26/40

company is entitled to &st

compensation and, to have the

service, the c&stomers m&st pay

or it. he relation 'et$een the

company and its c&stomers is

not that o partners, a*ent and

principal, or tr&stee and

'eneiciary. he reven&e paid

'y the c&stomers or service

'elon*s to the company...

he Co&rt also &stiied its decision on the

*ro&nd that rates $hich in the past $ere

&nchallen*ed, or, i challen*ed, $ere approved

'y the a&thorities, sho&ld 'e ass&med to have

'een reasona'le, or, at most, not so

&nreasona'le as to *ive the p&'lic a ri*ht o

action a*ainst the &tility company to recover anypart o the char*es paid. Conse&ently,

$hatever has 'een collected &nder previo&sly

approved rates 'ecame the property o the

company $hich it is ree to &se as any other

type o private property.

?t is diic&lt to disa*ree $ith the approach ta)en

'y the American co&rt $ith respect to property

'&ilt o&t o s&rpl&s proits. 2o$ever, it $o&ld

seem that $here its application in speciic

instances $o&ld $or) hardship on the

cons&mers, there is one $ay o&t. And this is the

do$n$ard ad&stment o the rate o ret&rn. his

sol&tion appears most e&ita'le in a case $here

sec&rity holders re*&larly receive a reasona'le

amo&nt o dividents &nder e+istin* rates, and, in

addition thereto, the company has 'een a'le to

p&t &p 'etterments and improvements.

Another type o property $hich has *iven rise to

complicated pro'lems in the process o

determinin* $hich items sho&ld 'e incl&ded in

the inventory or val&ation p&rposes, is thatac&ired 'y the company $itho&t cost or only or

a minimal cost, and str&ct&res '&ilt thro&*h

company &nds '&t over $hich $hen completed

it can claim no title. or instance, a provincial

*overnment may donate lands or ri*hts o $ay

to a railroad company to speed &p the

development o the transportation system $ithin

the province, or the m&nicipal or city *overnment

may re&ire that an electric company in layin*

do$n its mains or &nder*ro&nd t&nnels sho&ld

reconstract and pave the streets aected 'y

s&ch constr&ctions. he 'asic &estion is,

thereore, oten as)ed $hether property so

ac&ired $itho&t cost and those '&ilt 'y the

&tility over $hich it ac&ires no title sho&ld 'e

allo$ed to 'e capitali8ed a*ainst the cons&mers.

As developed in American case


27/40

considered in determinin*

reasona'le rates. Act&al title

and possession are not al$ays

concl&sive. he determination o

a reasona'le rate is an

e&ita'le process and e&ity $ill

demand that certain property to

$hich the company has no title

sho&ld 'e incl&ded and certain

property to $hich the company

has title sho&ld 'e e+cl&ded....

A lot $o&ld depend, thereore, &pon the p&rpose

or $hich a contri'&tion $as *iven in resolvin*

the vario&s disa*reements that may 'e

enco&ntered in this partic&lar aspect o rate<

'ase determination.

here is yet another class o &tility property

a'o&t $hich men o dierent pers&asions may

'e e+pected to entertain diver*ent vie$s in the

orm&lation o speciic *ro&nd r&les or p&rposes

o rate


28/40

C&"RO, J., conc&rrin*F

My conc&rrence is limited to the res&lt reached

'y the maority o my 'rethren 'eca&se o

mis*ivin*s ? entertain $ith respect to a n&m'er

o adective aspects o the cases at 'ar.

? am hard p&t to a*ree that there $as no

&nseemly haste $ith $hich the hearin*s 'elo$

$ere cond&cted and terminated. he na**in*

impression that a'ides $ith me ater a

conscientio&s per&sal o the proceedin*s 'elo$

is that Commissioner Enri&e Medina $as

racin* a*ainst time to terminate the hearin*s,

'eca&se he had set, as the deadline or the

handin* do$n o the decision (o the division o

the Commission $hich he headed#, the day

'eore the date o his comp&lsory retirementrom p&'lic service. his &nseemly haste cannot

command the approval o people($hether

la$yers or persons &nschooled in the la$#$ho

have an innate love or orderliness. E+pedition is

no do&'t desira'le in the disposition o cases,

'&t it m&st nonetheless al$ays o'serve d*e

rocess, $hich o co&rse 'asically means ormal

opport&nity aorded to all parties to 'e f*ll-

heard. hen d&e process is impaired 'eca&se

o inordinate haste, perceptive o'serves $o&ld

dra$ the implication that le*al, processes have

'een eroded. And there $o&ld 'e dar), al'eit

veiled or circ&mloc&tory, imp&tations o

maleasance, noneasance or miseasance, or a

com'ination o t$o or all o these. eli'erate

speed is to 'e commended@ inordinate haste

deserves only condemnation.

? li)e$ise vie$ $ith some de*ree o concern an

innovation in p&'lic &tility ad&dication that in

eect has received the sanction o the maority

here. his Co&rt has proceeded to decide the

cases at 'ar despite its a$areness that a motionor reconsideration o the decision a *o is

pendin* 'eore the %&'lic ervice Commission

en (anc , $hich motion co&ld not or some len*th

o time 'e resolved 'eca&se o the lac) o

&or&m in that 'ody.

!eali8in*, ho$ever, that the demands o moral

&stice indicate need or positive or$ard action

on the part o this Co&rt, ? cannot, in conscience,

completely disa*ree $ith the position ta)en 'y

the maority that this Co&rt can and sho&ld *o

ahead, peremptorily s$eepin* a$ay proced&ral

road loc)s, to decide these cases in order the

'etter to s&'serve the p&'lic interest.

Nevertheless, ? $ant to place on record my

reservation that the manner 'y $hich the

maority, impelled 'y the pec&liar act&al milie&,

has disposed o these cases, sho&ld properly 'e

re*arded as adhoc .

hese is yet another matter &pon $hich ? dier

$ith the maority. ?t is indeed a sal&tary doctrine,

implied in the maority opinion a'ly penned 'y

Mr. ;&stice ;. B. ". !eyes, that the olicitor eneral, in representation o the cons&min*

p&'lic, may, at any time he seems necessary,

petition the %&'lic ervice Commission or a

reversion o the rates i+ed 'y this re*&latory

a*ency, since there is no res /*dicata in rate<

ma)in* ad&dication. No$here, ho$ever, in the

said opinion is there a reco*nition in aected

private parties in *eneral the ri*ht to see) a

revision o rates. he dispositive portion o the

said opinion, as ? constr&e it, reserved the ri*ht

to see) a revision only to the parties in these

cases and only in reerence thereto. ? this is so,then ? say that this Co&rt has &nd&ly constricted

the covera*e o the doctrine. or my part, ?

$o&ld e+pand the doctrine e+plicitly to a&thori8e

the mayor and the m&nicipal or city co&ncil o a

m&nicipality or city directly aected 'y a

previo&s ad&dication to initiate action or rate

revision. ?n s&ch an event, the olicitor may as),

and sho&ld 'e allo$ed, to intervene. ? $o&ld not

leave the representation o the cons&min* p&'lic

e+cl&sively to the olicitor eneral, or a n&m'er

o reasons, the 'asic o $hich are that (1# theolicitor eneral is not necessarily 'etter

sit&ated than m&nicipal or city oicials to

determine the need and the time or a re<

e+amination o previo&sly ad&dicated rates, and

(/# it &ndo&'tedly can happen that e+ercise 'y

the olicitor eneral o his initiative may, or one

reason or another, 'e slo$ in comin* (i it comes

Page | 28


29/40

at all#, and, $hen it comes, it ee'le and

thereore in eect&al.

At all events, 'eca&se ? 'elieve that $hat

&ltimately is important in p&'lic &tility

ad&dication is the end res&lt, hold no 'rie

a*ainst the end disposition o these cases

arrived at 'y the maority, $hich in may

considered vie$ is morally &st.

his limited conc&rrence sho&ld end here. B&t

'eca&se these cases have posed a sharp

controversy on $hat actors sho&ld 'e

considered in the determination o the rate 'ase

and in the comp&tation o the rate o ret&rn on

investment, ? am compelled to *o arther and

*ive e+pression to my o$n st&dy and

perspective on $hat the determinants sho&ld 'e.

? re*ard the po$er o the tate to re*&late the

level o ret&rn that '&sinesses 5cloted $ith a

p&'lic interest5 may *enerate rom those $ho

ma)e &se o their properties and services as

'ein* &ndamentally a master o la$. ?t is

thereore relevant to ass&me that in the ever<

rec&rrin* contest o determinin* the precise

constit&tional 'o&ndaries o that po$er, the

administrative implementation o rate7= in +*nn vs. llinois. 1 he G.. &preme

Co&rt, in stri)in* do$n the contention that an

?llinois stat&te $hich prescri'ed a ma+im&m on

the amo&nt o char*es that *rain elevator

operators may demand rom the p&'lic violated

the d&e process cla&se o the G.. Constit&tion,

saidF

... "oo)in* then, to the common

la$, rom $hence came the ri*ht

$hich the Constit&tion protects,

$e ind that $hen private

property is 5aected $ith a

p&'lic interest, it ceases to 'e

/*ris rivati only.5 his $as said

'y "ord Chie ;&stice 2alemore

than t$o h&ndred years a*o, inhis treatise )e Porti(*s Maris, 1

2ar*. "a$ racts, 7>, and has

'een accepted $itho&t o'ection

as an essential element in the

la$ o property eversince....

hen, thereore, one devotes

his property to a &se in $hich

the p&'lic has an interest, he, in

eect, *rants to the p&'lic an

interest in that &se, and m&st

s&'mit to 'e controlled 'y the

p&'lic or the common *ood, tothe e+tent o the interest he has

th&s created. 2e may $ithdra$

his *rant 'y discontin&in* the

&se@ '&t, so lon* as he

maintains the &se, he m&st

s&'mit to the control.

"e*islative po$er over these '&sinesses in the

matter o price9, the G.. &preme Co&rt in

Rea'an vs. Farmers1 Loan C $r*st "o.2

saidthat.

...$hile it is not the province o

the co&rts to enter &pon the

merely administrative d&ty o

ramin* a tari o rates or

carria*e, it is $ithin the scope o

&dicial po$er and a part o

Page | 29


30/40

&dicial d&ty to restrain anythin*

$hich, in the orm o a

re*&lation o rates, operates to

deny to the o$ners o property

invested in the '&siness o

transportation that e&al

protection $hich is the

constit&tional ri*ht o all o$ners

o other property. here is

nothin* ne$ or stran*e in this.

his ass&mption 'y the G.. &preme Co&rt o

the &ltimate responsi'ility to ad&d*e $hat is a

constit&tionally permissi'le str&ct&re or level o

rates or p&'lic &tilities nat&rally called or the

settin* &p o an accepta'le and s&icient

standard. he Co&rt held in Rea'an that the

rates sho&ld 'e reasona'le. 3

B&t $hat is areasona'le rate5 By $hat method or 'asis can

this 'e determined so that the dollar amo&nt that

is arrived at may 'e said to 'e reasona'leP

?n the leadin* case o Sm-th vs. Ames, 4 the

G.. &preme Co&rt too) occasion to en&merate

the 'ases &pon $hich the reasona'le rate may

'e calc&lated. ?t saidF

e hold, ho$ever, that the

'asis o all calc&lations as to the

reasona'leness o rates to 'e

char*ed 'y a corporation

maintainin* a hi*h$ay &nder

le*islative sanction m&st 'e the

air val&e o the property 'ein*

&sed 'y it or the convenience o

the p&'lic. And, in order to

ascertain that val&e, the ori*inal

cost o constr&ction, the amo&nt

e+pended in permanent

improvements, the amo&nt and

mar)et val&e o its 'onds andstoc), the present as compared

$ith the ori*inal cost o

constr&ction, the pro'a'le

earnin* capacity o the property

&nder partic&lar rates prescri'ed

'y stat&te, and the s&m re&ired

to meet operatin* e+penses, are

all matters or consideration,

and are to 'e *iven s&ch $ei*ht

as may 'e &st and ri*ht in each

case. e do not say that there

mi*ht not 'e other matters to 'e

re*arded in estimatin* the val&e

o the property.

hat the company is entitled to

as) is a air ret&rn &pon the

val&e o that $hich it employs

or the p&'lic convenience...

he ore*oin* opinion, i constr&ed as layin*

do$n a speciic orm&la 'y $hich to &antiy

n&merically a reasona'le rate, can 'e said to

have entirely ailed to accomplish its p&rpose. ?n

spite o its 'ein* all thin*s to all men, ho$ever, it

did serve one la&da'le end, or it did indicate&ite plainly that a reasona'le rate is a rate that

*ives a air ret&rn on the air val&e o the

property 'ein* &sed or p&'lic convenience.

he 5air val&e5 r&le has &ndo&'tedly its o$n

share o practical diic&lties $hich the Co&rt

itsel $as &ite ran) to reco*ni8e. ?n the so<

called +innesota Rate "ases decided in 191/,

the Co&rt saidF

he ascertainment o that val&e

is not controlled 'y artiicial

r&les. ?t is not a matter o

orm&las, '&t there m&st 'e

reasona'le &d*ment, havin* its

'asis in a proper consideration

o all relevant acts...

Any realistic appreciation o all the relevant acts

in a val&ation pro'lem, ho$ever, m&st have to

'e*in $ith the premise that val&es are

necessarily dated val&es. ?n the choice o the

partic&lar space


31/40


32/40

$hich have seemed to 'e

entirely o&t o line $ith present

conditions. o the co&rts,

&ndo&'tedly $ith rel&ctance,

have 'een orced to t&rn a$ay

rom a'normal present

conditions and the o'solete

acts o the past, to spec&lation

on $hat the &t&re is *oin* to

'e... 11

he &se o 5spot prices,5 $ith a reasona'le

allo$ance or &t&re price chan*es, $as so&*ht

to 'e &stiied in one case, as ollo$sF 12

?t is impossi'le to ascertain $hat

$ill amo&nt to a air ret&rn &pon

property devoted to p&'licservice $itho&t *ivin*

consideration to the cost o

la'or, s&pplies, etc., at the time

the investi*ation is made. An

honest and intelli*ent orecast o

pro'a'le &t&re val&es made

&pon a vie$ o all the relevant

circ&mstances, is essential. ?

the hi*hly important element o

present costs is $holly

disre*arded s&ch a orecast

'ecomes impossi'le. Estimates

o tomorro$ cannot i*nore the

prices o today.

;&stice Brandeis, in a dissentin* opinion $ritten

in another case 13 $here spot reprod&ction cost

$as &sed instead o the avera*e price o a &tility

company4s assets or a ten


33/40

price level had 'e*&n to rise,

improved machinery and ne$

devices tended or some years

to red&ce constr&ction costs...

he en*ineer spo)e in i*&res

K a lan*&a*e implyin*

certit&de. 2is estimates seemed

to 'e ree o the inirmities $hich

have stamped as &ntr&st$orthy

the opinion evidence o e+perts

common in condemnation

cases. h&s, or some time,

replacement cost, on the 'asis

o the prices prevailin* at the

date o the val&ation, $as oten

adopted 'y state commissions

as the standard or i+in* the

rate 'ase. B&t *rad&ally it cameto 'e reali8ed that the

deiniteness o the en*ineer4s

calc&lations $as del&sive@ that

they rested &pon shitin*

theories@ and that their

estimates varied so $idely as to

intensiy, rather than to allay,

do&'ts. hen the price levels

had risen lar*ely, and estimates

o replacement cost indicated

val&es m&ch *reater than the

act&al cost o installation, manycommissions re&sed to

consider val&a'le $hat one

declared to 'e ass&mptions

'ased on thin*s that never

happened and estimates

re&irin* the proection o the

en*ineer4s ima*ination into the

&t&re and methods o

constr&ction and installation that

have never 'een and never $ill

'e adopted 'y sane men

he 5reprod&ction cost ne$5 concept $as also

critici8ed 'y the G.. ?nterstate Commerce

Commission in these $ordsF 14

ynthetic estimates o cost o

reprod&ction 'ased &pon

statistics sho$in* price and

$a*e chan*ed do not ma)e

allo$ance or improved methods

o assem'ly and constr&ction.

As $ill hereinater 'e more &lly

indicated, $e o&nd in e+as

Midland !ailroad, s*ra, at

pa*e 10, that the increase in

the cost o la'or and materials

'et$een 1900 and 191 $as

lar*ely oset 'y improvement in

the art o constr&ction. 2o$ ar

there may have 'een a similar

oset, so ar as costs in the

period rom 19/0


34/40

-

Bonds ........................................

................. %300,000

3- %reerred

toc) .........................................

/30,000

Common

toc) .........................................

....... /30,000 %1,000,000

Gpon the a'ove ass&mptions, i the company is

allo$ed and earns a =- ret&rn on its assets

'ased on ori*inal cost, it $ill have %=0,000 $ith

$hich to pay %/0,000 o 'ond interest and

%1/,300 o preerred dividents, leavin* %/7,300

or common stoc) K a ret&rn o 11-. ? >0- o

this amo&nt $ere paid o&t in common dividents,

the yield on the common stoc) $o&ld 'e >.>-.

"et &s no$ ass&me that the company4s rate

'ase is increased 'y :0- to lend si*niicance to

reprod&ction cost or trended ori*inal cost &nder

the e+istin* price levels. ? the same ret&rn o =-

$ere applied to this ne$ rate 'ase, the company

$ill have %7>,000 in net income. ed&ctin*

a*ain the 'ond interest payment o %/0,000 and

the preerred dividend o %1/,300, there $o&ld

'e availa'le or common stoc) the s&m o

%3,300, a ret&rn e&ivalents to 1>./-.

Ass&min* an >0- pay


35/40

%o$er Commission has also, in several cases,

interpreted the Nat&ral as Act 19 as a&thori8in*

it to &tili8e the ori*inal cost o prod&ction and

transmission properties o *as companies as the

rate 'ase. ?ts interpretation o the Act has 'een,

in act, sanctioned 'y the G.. &preme Co&rt

as early as 19 in Federal Poer "ommission

vs. !oe 3at*ral Gas "o. (:/0 G.. 391 D19#.

Moreover, an over$helmin* maority o the

tates in the Gnited tates have li)e$ise

re&sed to adopt the reprod&ction cost orm&la

or p&rposes o rate


36/40

e no$ come to the pro'lem o determinin* the

correct rate o ret&rn $hich sho&ld 'e applied to

the rate 'ase. "eadin* co&rt decisions in the

Gnited tates have apparently provided three

primary tests or determinin* or meas&rin* the

rate o ret&rn, namely, (1# cost o attractin*

capital@ (/# maintenance o the inte*rity o

investment or preventin* the li*ht o capital@ and

(:# compara'le earnin*s or compara'le ris)s. 23

One o the earliest statements o reco*nition o

these tests 'y the G.. &preme Co&rt is o&nd

in Bl*efield &ater &or?s "o. vs. P*(lic Service

"ommission, $here the Co&rt heldF 24

hat ann&al rate $ill constit&te

&st compensation depends on

many circ&mstances and m&st

'e determined 'y the e+erciseo a air and enli*htened

&d*ment, havin* re*ard to all

relevant acts. A p&'lic &tility is

entitled to s&ch rates as $ill

permit it to earn a ret&rn on the

val&e o the property $hich it

employs or the convenience o

the p&'lic e&al to that *enerally

'ein* made at the same time

and in the same *eneral part o

the co&ntry on investments in

other '&siness &nderta)in*s$hich are attended 'y

correspondin* ris)s and

&ncertainties@ '&t it has no

constit&tional ri*hts to proits

s&ch as are reali8ed or

anticipated in hi*hly proita'le

enterprises or spec&lative

vent&res. he ret&rn sho&ld 'e

reasona'ly s&icient to ass&re

conidence in the inancial

so&ndness o the &tility andsho&ld 'e ade&ate, &nder

eicient and economical

mana*ement, to maintain and

s&pport its credit and ena'le it

to raise the money necessary

or the proper dischar*e o its

p&'lic d&ties.

O'vio&sly, the &se o these tests in practice

re&ires pra*matic ad&stments and rational

processes *enerally accepted in the ield o

inance, economics and acco&ntin*. his

concl&sion inds ample s&pport in the act that

as early as 191, the G.. ?nterstate Commerce

Commission already imposed a &niorm system

o acco&ntin* or electric rail$ay companies.

his $as ollo$s in 19/= 'y another &niorm

system o acco&ntin* prescri'ed or telephone

companies and steam railroad systems. 2 he

ederal %o$er Commission, &nder the ederal

%o$er Act, has also done the same. 26

A 'rie ill&stration o ho$, in partic&lar, the

ederal %o$er Commission has approached the

pro'lem o rate re*&lation, $as descri'ed in one

la$ o&rnal as ollo$sF27

he revised re*&lations or

electric &tilities and licenses

re&ire a &ll cost


37/40

capital, and ret&rns e+perienced

'y the company on the common

stoc) o&tstandin* over the

precedin* 3 years K incl&din*

(a# earnin*s oerin* price ratios

and ('# earnin*s and divident

price ratios.

(/# ?ncome ta+es comp&ted on

the 'asis o the rate o ret&rn

claimed, to*ether $ith the 'asis

on $hich income ta+es are

assi*ned amon* the

&risdictional '&siness, other

&tility department and non


38/40

Basin Area Rate

"ases, 30 5is not to s&pplant the Commission4s

'alance o those interests $hich are more nearly

to its li)in*, '&t instead ass&re itsel that the

Commission has *iven reasoned consideration

to each o the pertinent actors.

Apart rom the &estion o $hether or not the

Co&rt sho&ld actively intervene in the

Commission4s choice o an appropriate method

'y $hich to meas&re the rate 'ase and the rate

o ret&rn, American co&rts have also dealt $ith

the pro'lem o $hether certain properties o the

&tility company sho&ld 'e incl&ded in the rate

'ase or val&ation p&rposes.

One s&ch item pertains to those constr&cted o&r

o retained earnin*s. ?n Board of P*(lic tilit- "ommissioners vs. 3e Eor? $elehone "o., 31

the G.. &preme Co&rt e+pressed the vie$ that

property constr&cted o&t o s&rpl&s earnin*s

'elon*s to the &tility and is entitled to yield a air

ret&rn rom the rates char*ed the cons&mers as

&lly and completely as i it had 'een &rnished

'y the investors rom o&tside so&rces. ?n this

case, the Ne$ ;ersey Commission o&nd that

the company in previo&s years had earned and

set aside or depreciation amo&nts lar*ely in

e+cess o the act&al depreciation accr&in*, and

held that the company co&ld not claim an

increase o rates &ntil this e+cess in the

depreciation reserve had 'een e+ha&sted in

ma)in* &p c&rrent operatin* deicits. ?n

reversin* the r&lin* o the Commission, the

Co&rt saidF

...Constit&tional protection

a*ainst coniscation does not

depend on the so&rce o the

money &sed to p&rchase the

property. ?t is eno&*h that it is&sed to render the service. he

c&stomers are entitled to

demand service and the

company m&st comply. he

company is entitled to &st

compensation and, to have the

service, the c&stomers m&st pay

or it. he relation 'et$een the

company and its c&stomers is

not that o partners, a*ent and

principal, or tr&stee and

'eneiciary. he reven&e paid

'y the c&stomers or service

'elon*s to the company...

he Co&rt also &stiied its decision on the

*ro&nd that rates $hich in the past $ere

&nchallen*ed, or, i challen*ed, $ere approved

'y the a&thorities, sho&ld 'e ass&med to have

'een reasona'le, or, at most, not so

&nreasona'le as to *ive the p&'lic a ri*ht o

action a*ainst the &tility company to recover any

part o the char*es paid. Conse&ently,

$hatever has 'een collected &nder previo&sly

approved rates 'ecame the property o the

company $hich it is ree to &se as any other type o private property.

?t is diic&lt to disa*ree $ith the approach ta)en

'y the American co&rt $ith respect to property

'&ilt o&t o s&rpl&s proits. 2o$ever, it $o&ld

seem that $here its application in speciic

instances $o&ld $or) hardship on the

cons&mers, there is one $ay o&t. And this is the

do$n$ard ad&stment o the rate o ret&rn. his

sol&tion appears most e&ita'le in a case $here

sec&rity holders re*&larly receive a reasona'le

amo&nt o dividents &nder e+istin* rates, and, in

addition thereto, the company has 'een a'le to

p&t &p 'etterments and improvements.

Another type o property $hich has *iven rise to

complicated pro'lems in the process o

determinin* $hich items sho&ld 'e incl&ded in

the inventory or val&ation p&rposes, is that

ac&ired 'y the company $itho&t cost or only or

a minimal cost, and str&ct&res '&ilt thro&*h

company &nds '&t over $hich $hen completed

it can claim no title. or instance, a provincial*overnment may donate lands or ri*hts o $ay

to a railroad company to speed &p the

development o the transportation system $ithin

the province, or the m&nicipal or city *overnment

may re&ire that an electric company in layin*

do$n its mains or &nder*ro&nd t&nnels sho&ld

reconstract and pave the streets aected 'y

s&ch constr&ctions. he 'asic &estion is,

Page | 38


39/40

thereore, oten as)ed $hether property so

ac&ired $itho&t cost and those '&ilt 'y the

&tility over $hich it ac&ires no title sho&ld 'e

allo$ed to 'e capitali8ed a*ainst the cons&mers.

As developed in American case


40/40

service at the time o the investi*ation or rate<

revision p&rposes, since $hether an item o

property is act&ally 'ein* &sed or is 'ein*

reasona'ly held or operations is essentially and

primarily a act&al &estion. ?t involves (in the

very least# the e+ercise o reasoned &d*ment

and a realistic appraisal o val&es on the part o

o&r re*&latory a*ency.

?n the American e+perience, m&ch o the

con&sion and &ncertainty not only on this

aspect o &tility re*&lation, '&t on almost every

step o the re*&latory process, has 'een

eliminated thro&*h the enactment o &niorm

systems o acco&ntin* or classiication o &tility

property K somethin* $hich o&r o$n re*&latory

a*ency mi*ht $ell ollo$ and possi'ly improve

&pon. &ch standards are not, o co&rse, strictly'indin* &pon appraisers, commissions and

co&rts, '&t they do tend to 'rin* order o&t o

chaos. Close adherence to s&ch standards

$here they prod&ce no ar'itrary res&lt $ill not

li)ely provo)e reproach rom this Co&rt. 37

e do not e+cept to ollo$ and o'serve

American techni&es and principles all the $ay@

dierences do e+ist 'et$een o&r respective

&risdictions. B&t i $e maintain constant to&ch

$ith the *ro$th and development o p&'lic &tility

principles and practices in the Gnited tates, it is

mainly 'eca&se o o&r contin&in* &est or that

$hich, not 'ein* circ&mscri'ed 'y any political

'o&ndary or not 'ein* indi*eno&s to any

partic&lar le*al system, $ill provide one *ood

$or)a'le orm&la K to*ether $ith and amon*

many K or )eepin* o&r %hilippine society in

order.

Documents

123 Republic vs Medina