Transpo Cases March 3

Republic of the PhilippinesSupreme Court

Manila

SECOND DIVISION

SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO),

Petitioner,

- versus - ENERGY REGULATORY COMMISSION,

Respondent.

G.R. No. 183626 Present: VELASCO, JR., J., *

NACHURA,**

Acting Chairperson,PERALTA,MENDOZA, andSERENO,*** JJ. Promulgated: October 4, 2010

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DECISION

NACHURA, J.:

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

Sec. 10. Rationalization of System Losses by Phasing Out Pilferage Losses as a Component Thereof. – There is hereby

established a cap on the recoverable rate of system losses as follows:

x x x x

(b) For rural electric cooperatives:

(i) Twenty-two percent (22%) at the end of the first year following the effectivity of this Act;

(ii) Twenty percent (20%) at the end of the second year following the effectivity of this Act;

(iii) Eighteen percent (18%) at the end of the third year following the effectivity of this Act;

(iv) Sixteen percent (16%) at the end of the fourth year following the effectivity of this Act; and

(v) Fourteen percent (14%) at the end of the fifth year following the effectivity of this Act.

Provided, that the ERB is hereby authorized to determine

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

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

thirty (30) working days after the conduct of hearings which must commence within thirty (30) working days upon the effectivity of this Act, issue the rules and regulation as may be necessary to ensure the efficient and effective implementation of the provisions of this Act, to include but not limited to, the development of methodologies for computing the amount of electricity illegally used and the amount of payment or deposit contemplated in Section 7 hereof as a result of the presence of the prima facie evidence discovered.

Corollary thereto, Sections 4 and 5 of Rule IX of the Implementing Rules and Regulations (IRR) of R.A. No. 7832 provide—

Section 4. Caps on System Loss allowed to Rural Electric Cooperatives. – The maximum rate of system loss that the cooperative can pass on to its customers shall be as follows:

a. Twenty-two percent (22%) effective on February

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

billing.c. Eighteen percent (18%) effective on February 1998

billing.d. Sixteen percent (16%) effective on February 1999

billing.e. Fourteen percent (14%) effective on February 2000

billing.

Section 5. Automatic Cost Adjustment Formula. – Each and every cooperative shall file with the ERB, on or before September 30, 1995, an application for approval of an amended Purchased Power Adjustment Clause that would reflect the new system loss cap to be included in its schedule of rates.

The automatic cost adjustment of every electric

cooperative shall be guided by the following formula: Purchased Power Adjustment Clause A(PPA) = ____________________ E B – (C + D) Where: A = Cost of electricity purchased and generated for the

previous month B = Total Kwh purchased and generated for the previous

month C = The actual system loss but not to exceed the

maximum recoverable rate of system loss in Kwh plus actual company use in kwhrs but not to exceed 1% of total kwhrs purchased and generated

D = kwh consumed by subsidized consumers E = Applicable base cost of power equal to the amount

incorporated into their basic rate per kwh.

In an Order[5] dated February 19, 1997, the ERB granted SURNECO and other rural electric cooperatives provisional authority to use and implement the Purchased Power Adjustment (PPA) formula pursuant to the mandatory provisions of R.A. No. 7832 and its IRR, with a directive to submit relevant and pertinent documents for the Board’s review, verification, and confirmation. In the meantime, the passage of R.A. No. 9136[6] led to the creation of the Energy Regulatory Commission (ERC), replacing and succeeding the ERB. All pending cases before the ERB were transferred to the ERC. ERB Case No. 96-49 was re-docketed as ERC Case No. 2001-343. In the Order dated June 17, 2003, the ERC clarified ERB’s earlier policy regarding the PPA formula to be used by the electric cooperatives, viz.—

After a careful evaluation of the records, the Commission noted that the PPA formula which was approved by the ERB was silent on whether the calculation of the cost of electricity purchased and generated in the formula should be “gross” or “net” of the discounts.

Let it be noted that the power cost is said to be at “gross” if the discounts are not passed-on to the end-users whereas it is said to be at “net” if the said discounts are passed-on to the end-users.

To attain uniformity in the implementation of the PPA

formula, the Commission has resolved that: 1. In the confirmation of past PPAs, the power cost shall

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

be based on “net.”

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

A. The computation and confirmation of the PPA prior to the

Commission’s Order dated June 17, 2003 shall be based on the approved PPA Formula;

B. The computation and confirmation of the PPA after the

Commission’s Order dated June 17, 2003 shall be based on the power cost “net” of discount; and

C. If the approved PPA Formula is silent on the terms of

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

Thereafter, the ERC continued its review, verification, and confirmation of the electric cooperatives’ implementation of the PPA formula based on the available data and information submitted by the latter.

On March 19, 2007, the ERC issued its assailed Order,[9] mandating that the

discounts earned by SURNECO from its power supplier should be deducted from the computation of the power cost, disposing in this wise ¾

WHEREFORE, the foregoing premises considered, the

Commission hereby confirms the Purchased Power Adjustment (PPA) of Surigao del Norte Electric Cooperative, Inc. (SURNECO) for the period February 1996 to July 2004 which resulted to an over-recovery amounting to EIGHTEEN MILLION ONE HUNDRED EIGHTY EIGHT THOUSAND SEVEN HUNDRED NINETY FOUR PESOS (PhP18,188,794.00) equivalent to PhP0.0500/kwh. In this connection, SURNECO is hereby directed to refund the amount of PhP0.0500/kwh to its Main Island consumers starting the next billing cycle from receipt of this Order until such time that the full amount shall have been refunded.

The Commission likewise confirms the PPA of SURNECO

for its Hikdop Island consumers for the period February 1996 to July 2004 which resulted to an under-recovery amounting to TWO MILLION FOUR HUNDRED SEVENTY EIGHT THOUSAND FORTY FIVE PESOS (PhP2,478,045.00). SURNECO is hereby authorized to collect from its Hikdop Island consumers the amount of PhP0.0100/kwh starting the next billing cycle from receipt of this Order until such time that the full amount shall have been collected.

Accordingly, SURNECO is directed to:

a) Reflect the PPA refund/collection as a separate item in the bill using the phrase “Previous Years’ Adjustment on Power Cost”;

b) Submit, within ten (10) days from its initial implementation of the refund/collection, a sworn statement indicating its compliance with the aforecited directive; and

c) Accomplish and submit a report in accordance with the attached prescribed format, on or before the 30th day of January of the succeeding year and every year thereafter until the amount shall have been fully refunded/collected. SO ORDERED.[10]

SURNECO filed a motion for reconsideration, but it was denied by the ERC in

its Order[11] dated May 29, 2007 on the ground that the motion did not raise any new matter which was not already passed upon by the ERC.

Aggrieved, SURNECO went to the CA via a petition for review,[12] with prayer

for the issuance of a temporary restraining order and preliminary injunction, seeking the annulment of the ERC Orders dated March 19, 2007 and May 29, 2007.

In its Decision dated April 17, 2008, the CA denied SURNECO’s petition and

affirmed the assailed Orders of the ERC. On June 25, 2008, upon motion for reconsideration[13] of SURNECO, the CA

issued its Resolution denying the same. Hence, this petition, with SURNECO ascribing error to the CA and the ERC in:

(1) disallowing its use of the multiplier scheme to compute its system’s loss; (2) ordering it to deduct from the power cost or refund to its consumers the discounts extended to it by its power supplier, NPC; and (3) ordering it to refund alleged over-recoveries arrived at by the ERC without giving SURNECO the opportunity to be heard.

The petition should be denied. First. SURNECO points out that the National Electrification Administration

(NEA), which used to be the government authority charged by law with the power to fix rates of rural electric cooperatives, entered into a loan agreement with the Asian Development Bank (ADB). The proceeds of the loan were intended for use by

qualified rural electric cooperatives, SURNECO included, in their rehabilitation and expansion projects. The loan agreement imposed a 15% system loss cap, but provided a Power Cost Adjustment Clause authorizing cooperatives to charge and show “system losses in excess of 15%” as a separate item in their consumer’s bill. Thus, the cooperatives charged their consumer-members “System Loss Levy” for system losses in excess of the 15% cap.

SURNECO states that, in January 1984, it was authorized by the NEA that all

increases in the NPC power cost (in case of NPC-connected cooperatives) shall be uniformly passed on to the member-consumers using the 1.4 multiplier, which is divided into 1.3 as allowance for 23% system loss and 0.1 as provision for the corresponding increase in operating expenses to partly offset the effects of inflation.[14] Subsequently, the NEA, through NEA Memorandum No. 1-A dated March 30, 1992, revised the aforesaid issuance as follows—

Pursuant to NEA Board Resolution No. 98, Series of 1991,

x x x, the revised cooperatives’ multiplier will be as follows: 1.2 – Rural Electric Cooperatives (RECs) with system loss

of 15% and below;1.3 – RECs with system loss ranging from 16% to 22%;1.4 – RECs with system loss of 23% and above.

SURNECO posits that, per NEA Memorandum No. 1-A, the NEA had authorized it to adopt a multiplier scheme as the method to recover system loss. It claims that this cannot be abrogated, revoked, or superseded by any order, resolution, or issuance by the ERC prescribing a certain formula to implement the caps of recoverable rate of system loss under R.A. No. 7832 without violating the non-impairment clause[15] of the Constitution.

We disagree. SURNECO cannot insist on using the multiplier scheme even

after the imposition of the system loss caps under Section 10 of R.A. No. 7832. The law took effect on January 17, 1995. Perusing Section 10, and also Section 11,[16] providing for the application of the caps as of the date of the effectivity of R.A. No. 7832, readily shows that the imposition of the caps was self-executory and did not require the issuance of any enabling set of rules or any action by the then ERB, now ERC. Thus, the caps should have been applied as of January 17, 1995 when R.A. No. 7832 took effect.

Indeed, under NEA Memorandum No. 1-A, the use of the multiplier scheme

allows the recovery of system losses even beyond the caps mandated in R.A. No. 7832, which is intended to gradually phase out pilferage losses as a component of the recoverable system losses by the distributing utilities such as SURNECO. However, it is totally repugnant to and incompatible with the system loss caps established in R.A. No. 7832, and is repealed by Section 16 [17] of the law. As between NEA Memorandum No. 1-A, a mere administrative issuance, and R.A. No. 7832, a legislative enactment, the latter must prevail.[18]

Second. The ERC was merely implementing the system loss caps in R.A. No.

7832 when it reviewed and confirmed SURNECO’S PPA charges, and ordered the refund of the amount collected in excess of the allowable system loss caps through its continued use of the multiplier scheme. As the ERC held in its March 19, 2007 Order—

On January 14, 2005, the Commission issued an Order

adopting a new PPA policy as follows: (a) the computation and confirmation of the PPA prior to the Commission’s Order dated June

17, 2003 shall be based on the approved PPA Formula; (b) the computation and confirmation of the PPA after the Commission’s Order dated June 17, 2003 shall be based on the power cost “net” of discount; and (c) if the approved PPA Formula is silent in terms of discount, the computation and confirmation of the PPA shall be based on the power cost at “gross” reduced by the amount of discounts extended to customers, subject to the submission of proofs that said discounts are indeed being extended to customers.

However, the Commission deemed it appropriate to clarify

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

I. The over-or-under recovery will be

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

II. Calculation of the DU’s allowable

power cost as prescribed in the PPA formula:

a. If the PPA formula explicitly

provides the manner by which discounts availed from the power supplier/s shall be treated, the allowable power cost will be computed based on the specific provision of the formula, which may either be at “net” or “gross”; and

b. If the PPA formula is silent in

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

III. Calculation of DU’s actual

revenues/actual amount billed to end-users.

a. On actual PPA computed

at net of discounts availed from power supplier/s:

a.1. If a DU bills at net of

discounts availed from the power supplier/s (i.e., gross power cost minus discounts from power supplier/s) and the DU is not extending discounts to

end-users, the actual revenue should be equal to the allowable power cost; and

a.2. If a DU bills at net of

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

b. On actual PPA computed at gross:

b.1. If a DU bills at gross (i.e.,

gross power cost not reduced by discounts from power supplier/s) and the DU is extending discounts to end-users, the actual revenue shall be calculated as: gross power revenue less discounts extended to end-users. The result shall then be compared to the allowable power cost; and

b.2. If a DU bills at gross (i.e.,

gross power cost not reduced by discounts from power supplier/s) and the DU is not extending discounts to end-users, the actual revenue shall be taken as is which shall be compared to the allowable power cost.

IV. In the calculation of the DU’s actual

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

The foregoing clarification was intended to ensure that only the actual costs of purchased power are recovered by the DUs.

In the meantime, SURNECO submitted reports on its

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

The Commission evaluated SURNECO’s monthly PPA

implementation covering the period February 1996 to July 2004, which disclosed the following:

Schedule 1, Main Island

Period Covered Over(Under)

Recoveries(In PhP)

Over(Under)

Recoveries (In kWh)

February 1996 to December 1998

20,737,074 0.2077

January 1999 to July 2004

(2,548,280) (0.0097)

TOTAL 18,188,794 0.0500

Schedule 2, Municipality of Hikdop

February 1996 to December 1998 PPA Plus Basic Cha[r]ge

70,235

0.3190

January 1999 to July 2004

(2,548,280) (0.0097)

TOTAL (2,478,045) (0.0100) The over-recoveries were due to the following:

1. For the period February 1996 to December 1998,

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

2. SURNECO’s basic charge for Hikdop end-users were

beyond the approved basic charge for the period

February 1996 to September 1998 resulting to a net over-recovery of PhP128,489.00.

SURNECO’s under recoveries for the period January 1999

to June 2004 were due to the following:

1. For the period August 2001 to June 2004, SURNECO erroneously deducted the Power Act Reduction Adjustments (PARA) in the total purchased power cost of its PPA computation resulting to an under-recovery of PhP1,377,763.00;

2. SURNECO’s power cost and kWh computation

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

3. The new grossed-up factor scheme adopted by the

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

In directing SURNECO to refund its over-recoveries based on PPA policies, which only ensured that the PPA mechanism remains a purely cost-recovery mechanism and not a revenue-generating scheme for the electric cooperatives, the ERC merely exercised its authority to regulate and approve the rates imposed by the electric cooperatives on their consumers. The ERC simply performed its mandate to protect the public interest imbued in those rates.

It is beyond cavil that the State, in the exercise of police power, can

regulate the rates imposed by a public utility such as SURNECO. As we held inRepublic of the Philippines v. Manila Electric Company[20]—

The regulation of rates to be charged by public utilities is

founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation. Likewise, SURNECO cannot validly assert that the caps set by R.A. No. 7832

are arbitrary, or that they violate the non-impairment clause of the Constitution for allegedly traversing the loan agreement between NEA and ADB. Striking down a legislative enactment, or any of its provisions, can be done only by way of a direct action, not through a collateral attack, and more so, not for the first time on appeal in order to avoid compliance. The challenge to the law’s constitutionality should also be raised at the earliest opportunity.[21]

Even assuming, merely for argument’s sake, that the ERC issuances

violated the NEA and ADB covenant, the contract had to yield to the greater authority of the State’s exercise of police power. It has long been settled that police power legislation, adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people prevail not only over future contracts but even over those already in existence, for all private

contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.[22]

SURNECO also avers that the Electric Power Industry Reform Act of 2001

(EPIRA) removed the alleged arbitrary caps in R.A. No. 7832. We differ. The EPIRA allows the caps to remain until replaced by the caps to be determined by the ERC, pursuant to its delegated authority under Section 43[23] of R.A. No. 9136 to prescribe new system loss caps, based on technical parameters such as load density, sales mix, cost of service, delivery voltage, and other technical considerations it may promulgate.

Third. We also disagree with SURNECO in its insistence that the PPA

confirmation policies constituted an amendment to the IRR of R.A. No. 7832 and must, therefore, comply with the publication requirement for the effectivity of administrative issuances.

.The PPA formula provided in the IRR of R.A. No. 7832 was only a model to

be used as a guide by the electric cooperatives in proposing their own PPA formula for approval by the then ERB. Sections 4 and 5, Rule IX of the IRR directed the electric cooperatives to apply for approval of such formula with the ERB so that the system loss caps under the law would be incorporated in their computation of power cost adjustments. The IRR did not provide for a specific formula; therefore, there was nothing in the IRR that was amended or could have been amended relative to the PPA formula. The IRR left to the ERB, now the ERC, the authority to approve and oversee the implementation of the electric cooperatives’ PPA formula in the exercise of its rate-making power over them.

We likewise differ from SURNECO’s stance that it was denied due process when the ERC issued its questioned Orders. Administrative due process simply requires an opportunity to explain one’s side or to seek reconsideration of the action or ruling complained of.[24] It means being given the opportunity to be heard before judgment, and for this purpose, a formal trial-type hearing is not even essential. It is enough that the parties are given a fair and reasonable chance to demonstrate their respective positions and to present evidence in support thereof.[25]

Verily, the PPA confirmation necessitated a review of the electric

cooperatives’ monthly documentary submissions to substantiate their PPA charges. The cooperatives were duly informed of the need for other required supporting documents and were allowed to submit them accordingly. In fact, hearings were conducted. Moreover, the ERC conducted exit conferences with the electric cooperatives’ representatives, SURNECO included, to discuss preliminary figures and to double-check these figures for inaccuracies, if there were any. In addition, after the issuance of the ERC Orders, the electric cooperatives were allowed to file their respective motions for reconsideration. It cannot be gainsaid, therefore, that SURNECO was not denied due process.

Finally, the core of the issues raised is factual in character. It needs only to

be reiterated that factual findings of administrative bodies on technical matters within their area of expertise should be accorded not only respect but even finality if they are supported by substantial evidence even if not overwhelming or preponderant,[26] more so if affirmed by the CA. Absent any grave abuse of discretion on the part of ERC, we must sustain its findings. Hence, its assailed Orders, following the rule of non-interference on matters addressed to the sound discretion of government agencies entrusted with the regulation of activities coming their special technical knowledge and training, must be upheld.[27]

WHEREFORE, the petition is DENIED. The Decision dated April 17, 2008

and the Resolution dated June 25, 2008 of the Court of Appeals in CA-G.R. SP No. 99781 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 192088 October 9, 2012

INITIATIVES FOR DIALOGUE AND EMPOWERMENT THROUGH ALTERNATIVE LEGAL SERVICES, INC. (IDEALS, INC.), represented by its Executive Director, Mr. Edgardo Ligon, and FREEDOM FROM DEBT COALITION (FDC), represented by its Vice President Rebecca L. Malay, AKBAYAN CITIZEN'S ACTION PARTY, represented by its Chair Emeritus Loretta Anne P. Rosales, ALLIANCE OF PROGRESSIVE LABOR, represented by its Chairperson, Daniel L. Edralin, REP. WALDEN BELLO, in his capacity as duly-elected Member of the House of Representatives, Petitioners, vs.POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (PSALM), represented by its Acting President and Chief Executive Officer Atty. Ma. Luz L. Caminero, METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), represented by its Administrator Atty. Diosdado M. Allado, NATIONAL IRRIGATION ADMINISTRATION (NIA), represented by its Administrator Carlos S. Salazar, KOREA WATER RESOURCES CORPORATION, represented by its Chief Executive Officer, Kim Kuen-Ho and/or Attorneys-in-fact, Atty. Anna Bianca L. Torres and Atty. Luther D. Ramos, FIRST GEN NORTHERN ENERGY CORP., represented by its President, Mr. Federico R. Lopez, SAN MIGUEL CORP., represented by its President, Mr. Ramon S. Ang, SNABOITIZ POWER-PANGASINAN INC., represented by its President, Mr. Antonio R. Moraza, TRANS-ASIA OIL AND ENERGY DEVELOPMENT CORPORATION, represented by its President and CEO, Mr. Francisco L. Viray, and DMCI POWER CORP., represented by its President, Mr. Nestor Dadivas,Respondents.

D E C I S I O N

VILLARAMA, J.:

Before us is a petition for certiorari and prohibition seeking to permanently enjoin the sale of the Angat Hydro-Electric Power Plant (AHEPP) to Korea Water Resources Corporation (K-Water) which won the public bidding conducted by the Power Sector Assets and Liabilities Management Corporation (PSALM).

The Facts

Respondent PSALM is a government-owned and controlled corporation created by virtue of Republic Act No. 9136,1otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA). The EPIRAprovided a framework for the restructuring of the electric power industry, including the privatization of the assets of the National Power Corporation (NPC), the transition to the desired competitive structure, and the definition of the responsibilities of the various government agencies and private entities. Said law mandated PSALM to manage the orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets, and Independent Power Producer (IPP) contracts with the objective of liquidating all NPC

financial obligations and stranded contract costs in an optimal manner, which liquidation is to be completed within PSALM’s 25-year term of existence.2

Sometime in August 2005, PSALM commenced the privatization of the 246-megawatt (MW) AHEPP located in San Lorenzo, Norzagaray, Bulacan. AHEPP’s main units built in 1967 and 1968, and 5 auxiliary units, form part of the Angat Complex which includes the Angat Dam, Angat Reservoir and the outlying watershed area. A portion of the AHEPP - the 10 MW Auxiliary Unit No. 4 completed on June 16, 1986 and the 18 MW Auxiliary Unit No. 5 completed on January 14, 1993 - is owned by respondent Metropolitan Waterworks and Sewerage System (MWSS).3 The main units produce a total of 200 MW of power while the auxiliary units yield the remaining 46 MW of power. The Angat Dam and AHEPP are utilized for power generation, irrigation, water supply and flood control purposes. Because of its multi-functional design, the operation of the Angat Complex involves various government agencies, namely: (1) NPC; (2) National Water Resources Board (NWRB); (3) MWSS; (4) respondent National Irrigation Administration (NIA); and (5) Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA).

On December 15, 2009, PSALM’s Board of Directors approved the Bidding Procedures for the privatization of the AHEPP. An Invitation to Bid was published on January 11, 12 and 13, 2010 in three major national newspapers. Subject of the bid was the AHEPP consisting of 4 main units and 3 auxiliary units with an aggregate installed capacity of 218 MW. The two auxiliary units owned by MWSS were excluded from the bid.

The following terms and conditions for the purchase of AHEPP were set forth in the Bidding Package:

IB-05 CONDITION OF THE SALE

The Asset shall be sold on an "AS IS, WHERE IS" basis.

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

The priority of water usage under Philippine Law would have to be observed by the Buyer/Operator.

The Winning Bidder/Buyer shall be requested to enter into an operations and maintenance agreement with PSALM for the Non-Power Components in accordance with the terms and conditions of the O & M Agreement to be issued as part of the Final Transaction Documents. The Buyer, as Operator, shall be required to operate and maintain the Non-Power Components at its own cost and expense. PSALM is currently negotiating a water protocol agreement with various parties which are currently the MWSS, NIA, the National Water Resources Board and NPC. If required by PSALM, the Buyer will be required to enter into the said water protocol agreement as a condition to the award of the Asset.

The Buyer shall be responsible for securing the necessary rights to occupy the land underlying the Asset.4 (Emphasis supplied.)

All participating bidders were required to comply with the following:

(a) submission of a Letter of Interest; (b) execution of Confidentiality Agreement and Undertaking; and (c) payment of a non-refundable fee of US$ 2,500 as Participation Fee.5 After holding pre-bid conferences and forum discussions with various stakeholders, PSALM received the following bids from six competing firms:

K-Water US$ 440,880,000.00First Gen Northern Energy 365,000,678.00Corporation San Miguel Corporation 312,500,000.00SNAboitiz Power-Pangasinan, Inc. 256,000,000.00Trans-Asia Oil & Energy 237,000,000.00Development Corporation DMCI Power Corporation 188,890,000.00

On May 5, 2010, and after a post-bid evaluation, PSALM’s Board of Directors approved and confirmed the issuance of a Notice of Award to the highest bidder, K-Water.6

On May 19, 2010, the present petition with prayer for a temporary restraining order (TRO) and/or writ of preliminary injunction was filed by the Initiatives for Dialogue and Empowerment Through Alternative Legal Services, Inc. (IDEALS), Freedom from Debt Coalition (FDC), AKBAYAN Citizen’s Action Party (AKBAYAN) and Alliance of Progressive Labor.

On May 24, 2010, this Court issued a Status QuoAnte Order directing the respondents to maintain the status quo prevailing before the filing of the petition and to file their respective Comments on the petition.7

Arguments of the Parties

Petitioners contend that PSALM gravely abused its discretion when, in the conduct of the bidding it disregarded and violated the people’s right to information guaranteed under the Constitution, as follows: (1) the bidding process was commenced by PSALM without having previously released to the public critical information such as the terms and conditions of the sale, the parties qualified to bid and the minimum bid price, as laid down in the case of Chavez v. Public Estates Authority8; (2) PSALM refused to divulge significant information requested by petitioners, matters which are of public concern; and (3) the bidding was not conducted in an open and transparent manner, participation was indiscriminately restricted to the private sectors in violation of the EPIRA which provides that its provisions shall be "construed in favor of the establishment, promotion, preservation of competition and people empowerment so that the widest participation of the people, whether directly or indirectly, is ensured."9

Petitioners also assail the PSALM in not offering the sale of the AHEPP to MWSS which co-owned the Angat Complex together with NPC and NIA. Being a mere co-owner, PSALM cannot sell the AHEPP without the consent of co-owners MWSS and NIA, and being an indivisible thing, PSALM has a positive obligation to offer its undivided interest to the other co-owners before selling the same to an outsider. Hence,

PSALM’s unilateral disposition of the said hydro complex facility violates the Civil Code rules on co-ownership (Art. 498) and Sec. 47 (e) of the EPIRA which granted PSALM the legal option of transferring possession, control and operation of NPC generating assets like the AHEPP to another entity in order "to protect potable water, irrigation and all other requirements imbued with public interest."

As to the participation in the bidding of and award of contract to K-Water which is a foreign corporation, petitioners contend that PSALM clearly violated the constitutional provisions on the appropriation and utilization of water as a natural resource, as implemented by the Water Code of the Philippines limiting water rights to Filipino citizens and corporations which are at least 60% Filipino-owned. Further considering the importance of the Angat Dam which is the source of 97% of Metro Manila’s water supply, as well as irrigation for farmlands in 20 municipalities and towns in Pampanga and Bulacan, petitioners assert that PSALM should prioritize such domestic and community use of water over that of power generation.

They maintain that the Philippine Government, along with its agencies and subdivisions, have an obligation under international law, to recognize and protect the legally enforceable human right to water of petitioners and the public in general.

Petitioners cite the Advisory on the "Right to Water in Light of the Privatization of the Angat Hydro-Electric Power Plant"10 dated November 9, 2009 issued by the Commission on Human Rights (CHR) urging the Government to revisit and reassess its policy on water resources vis-à-vis its concurrent obligations under international law to provide, and ensure and sustain, among others, "safe, sufficient, affordable and convenient access to drinking water." Since investment in hydropower business is primarily driven by generation of revenues both for the government and private sector, the CHR warns that once the AHEPP is privatized, there will be less accessible water supply, particularly for those living in Metro Manila and the Province of Bulacan and nearby areas which are currently benefited by the AHEPP. The CHR believes that the management of AHEPP is better left to MWSS being a government body and considering the public interest involved. However, should the decision to privatize the AHEPP become inevitable, the CHR strongly calls for specific and concrete safeguards to ensure the right to water of all, as the domestic use of water is more fundamental than the need for electric power.

Petitioners thus argue that the protection of their right to water and of public interest requires that the bidding process initiated by PSALM be declared null and void for violating such right, as defined by international law and by domestic law establishing the State’s obligation to ensure water security for its people.

In its Comment With Urgent Motion to Lift Status Quo Ante Order, respondent PSALM prayed for the dismissal of the petition on the following procedural grounds: (a) a petition for certiorari is not the proper remedy because PSALM was not acting as a tribunal or board exercising judicial or quasi-judicial functions when it commenced the privatization of AHEPP; (b) the present petition is rendered moot by the issuance of a Notice of Award in favor of K-Water; (c) assuming the petition is not mooted by such contract award, this Court has no jurisdiction over the subject matter of the controversy involving a political question, and also because if it were the intent of Congress to exclude the AHEPP in the privatization of NPC assets, it should have clearly expressed such intent as it did with the Agus and Pulangui power plants under Sec. 47 of the EPIRA; (d) petitioners’ lack of standing to question the bidding process for failure to show any injury as a result thereof, while Rep. Walden Bello likewise does not have such legal standing in his capacity as a duly elected member of the House of Representatives as can be gleaned from the rulings in David v. Arroyo11 and Philippine Constitutional Association v. Enriquez.12

On the alleged violation of petitioners’ right to information, PSALM avers that it conducted the bidding in an open and transparent manner, through a series of events in accordance with the governing rules on public bidding. The non-disclosure of certain information in the invitation to bid was understandable, such as the minimum or reserve price which are still subject to negotiation and approval of PSALM’s Board of Directors. The ruling in Chavez v. Public Estates Authority13 is inapplicable since it involved government property which has become unserviceable or was no longer needed and thus fell under Sec. 79 of the Government Auditing Code whereas the instant case concerns a hydroelectric power plant adjacent to a dam which still provides water supply to Metro Manila. In the bidding for the AHEPP, PSALM claims that it relied on the Rules and Regulations Implementing the EPIRA, as well as COA Circular No. 89-296 on the general procedures for bidding by government agencies and instrumentalities of assets that will be divested or government property that will be disposed of. PSALM likewise avers that it was constrained to deny petitioner IDEALS’ letter dated April 20, 2010 requesting documents relative to the privatization of Angat Dam due to non-submission of a Letter of Interest, Confidentiality and Undertaking and non-payment of the Participation Fee. With regard to IDEALS’ request for information about the winning bidder, as contained in its letter dated May 14, 2010, the same was already referred to respondent K-Water’s counsel for appropriate action.

In any case, PSALM maintains that not all details relative to the privatization of the AHEPP can be readily disclosed; the confidentiality of certain matters was necessary to ensure the optimum bid price for the property.

PSALM further refutes the assertion of petitioners that the Angat Complex is an indivisible system and co-owned with MWSS and NIA. It contends that MWSS’s contribution in the funds used for the construction of the AHEPP did not give rise to a regime of co-ownership as the said funds were merely in exchange for the supply of water that MWSS would get from the Angat Dam, while the Umiray-AngatTransbasin Rehabilitation Project the improvement and repair of which were funded by MWSS, did not imply a co-ownership as these facilities are located in remote places. Moreover, PSALM points out that PSALM, MWSS and NIA each was issued a water permit, and are thus holders of separate water rights.

On the alleged violation of petitioners’ and the people’s right to water, PSALM contends that such is baseless and proceeds from the mistaken assumption that the Angat Dam was sold and as a result thereof, the continuity and availability of domestic water supply will be interrupted. PSALM stresses that only the hydroelectric facility is being sold and not the Angat Dam which remains to be owned by PSALM, and that the NWRB still governs the water allocation therein while the NPC-FFWSDO still retains exclusive control over the opening of spillway gates during rainy season. The foregoing evinces the continued collective control by government agencies over the Angat Dam, which in the meantime, is in dire need of repairs, the cost of which cannot be borne by the Government.

PSALM further debunks the nationality issue raised by petitioners, citing previous opinions rendered by the Department of Justice (DOJ) consistently holding that the utilization of water by a hydroelectric power plant does not constitute appropriation of water from its natural source considering that the source of water (dam) that enters the intake gate of the power plant is an artificial structure. Moreover, PSALM is mindful of the State’s duty to protect the public’s right to water when it sold the AHEPP. In fact, such concern as taken into consideration by PSALM in devising a privatization scheme for the AHEPP whereby the water allocation is continuously regulated by the NWRB and the dam and its spillway gates remain under the ownership and control of NPC.

In its Comment,14 respondent MWSS asserts that by virtue of its various statutory powers since its creation in 1971, which includes the construction, maintenance and operation of dams, reservoir and other waterworks within its territorial jurisdiction, it has supervision and control over the Angat Dam given that the Angat Reservoir supplies approximately 97% of the water requirements of Metro Manila. Over the course of its authority over the Angat Dam, Dykes and Reservoir, MWSS has incurred expenses to maintain their upkeep, improve and upgrade their facilities. Thus, in 1962, MWSS contributed about 20% for the construction cost of the Angat Dam and Dykes (then equivalent to about P 21 million); in 1992, MWSS contributed about P 218 million for the construction of Auxiliary Unit No. 5; in 1998, MWSS contributed P 73.5 million for the construction cost of the low level outlet; and subsequently, MWSS invested P 3.3 billion to build the Umiray-AngatTransbasin Tunnel to supplement the water supply available from the Angat Dam, which tunnel contributes a minimum of about 9 cubic meters per second to the Angat Reservoir, thus increasing power generation. MWSS argues that its powers over waterworks are vested upon it by a special law (MWSS Charter) which prevails over the EPIRA which is a general law, as well as other special laws, issuances and presidential edicts. And as contained in Sec. 1 of the MWSS Charter, which remains valid and effective, it is expressly provided that the establishment, operation and maintenance of waterworks systems must always be supervised by the State.

MWSS further alleges that after the enactment of EPIRA, it had expressed the desire to acquire ownership and control of the AHEPP so as not to leave the operation of the Angat Reservoir to private discretion that may prejudice the water allocation to MWSS as dictated by NWRB rules.

Representations were thereafter made with the Office of the President (OP) for the turn over of the management of these facilities to MWSS, and joint consultation was also held with PSALM officials for the possibility of a Management Committee to manage and control the Angat Dam Complex under the chairmanship of the water sector, which position was supported by former Secretary HermogenesEbdane of the Department of Public Works and Highways (DPWH). In March 2008, PSALM proposed the creation of an inter-agency technical working group (TWG) to draft the Operations and Maintenance (O & M) Agreement for the AHEPP that will be in effect after its privatization. PSALM likewise sought the view of the Office of the Government Corporate Counsel (OGCC) which opined that PSALM may turn over the facility to a qualified entity such as MWSS without need of public bidding. In 2009, various local governments supported the transfer of the control and management of the AHEPP to MWSS, while the League of Cities and Municipalities interposed its opposition to the privatization of the AHEPP fearing that it might increase the cost of water in Metro Manila, and also because it will be disadvantageous to the national government since the AHEPP only contributes 246 MW of electricity to the Luzon Grid. Even the CHR has advised the Government to reassess its privatization policy and to always consider paramount the most basic resources necessary and indispensable for human survival, which includes water.

MWSS further avers that upon the facilitation of the OGCC and participated in by various stakeholders, including its two concessionaires, Manila Water Company, Inc. and Maynilad Water Services, Inc., various meetings and conferences were held relative to the drafting of the

Memorandum of Agreement on the Angat Water Protocol. On April 20, 2010, the final draft of the Angat Water Protocol was finally complete. However, as of June 18, 2010, only MWSS and NIA signed the said final draft. MWSS thus contends that PSALM failed to institute any safeguards as prescribed in Sec. 47 of the EPIRA when it proceeded with the privatization of the AHEPP.

As to the issue of nationality requirement in the appropriation of water resources under the Constitution, MWSS cites the case of Manila Prince Hotel v. Government Service Insurance System15 which interpreted paragraph 2, Sec. 10, Art. XII of the 1987 Constitution providing that "in the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos" to imply "a mandatory, positive command which is complete in itself and which needs no further guidelines or implementing laws or rules for its enforcement x xx and is per se judicially enforceable." In this case, the AHEPP is in dire danger of being wholly-owned by a Korean corporation which probably merely considers it as just another business opportunity, and as such cannot be expected to observe and ensure the smooth facilitation of the more critical purposes of water supply and irrigation.

Respondent First Gen Northern Energy Corporation (FGNEC) also filed a Comment16 disagreeing with the contentions of petitioners and respondent MWSS on account of the following: (1) the NPC charter vested upon it complete jurisdiction and control over watersheds like the Angat Watershed surrounding the reservoir of the power plants, and hence Art. 498 of the Civil Code is inapplicable; (2) NPC, MWSS and NIA are not co-owners of the various rights over the Angat Dam as in fact each of them holds its own water rights; (3) the State through the EPIRA expressly mandates PSALM to privatize all NPC assets, which necessarily includes the AHEPP; (4) the privatization of the AHEPP will not affect the priority of water for domestic and municipal uses as there are sufficient safeguards to ensure the same, and also because the Water Code specifically mandates that such use shall take precedence over other uses, and even the EPIRA itself gives priority to use of water for domestic and municipal purposes over power generation; (5) the Water Protocol also safeguards priority of use of water for domestic purposes; (6) the bidding procedure for the AHEPP was valid, and the bidding was conducted by PSALM in an open and transparent manner; and (7) the right to information of petitioners and the public in general was fully satisfied, and PSALM adopted reasonable rules and regulations for the orderly conduct of its functions pursuant to its mandate under the EPIRA.

FGNEC nevertheless prays of this Court to declare the nationality requirements for the ownership, operation and maintenance of the AHEPP as prescribed by the Constitution and pertinent laws. Considering the allegation of petitioners that K-Water is owned by the Republic of South Korea, FGNEC asserts that PSALM should not have allowed said entity to participate in the bidding because under our Constitution, the exploration, development and utilization of natural resources are reserved to Filipino citizens or to corporations with 60% of their capital being owned by Filipinos.

Respondent NIA filed its Comment17 stating that its interest in this case is limited only to the protection of its water allocation drawn from the Angat Dam as determined by the NWRB. Acknowledging that it has to share the meager water resources with other government agencies in fulfilment of their respective mandate, NIA submits that it is willing to sit down and discuss issues relating to water allocation, as evidenced by the draft Memorandum of Agreement on the Angat Water Protocol. Since the reliefs prayed for in the instant petition will not be applicable to NIA which was not involved in the bidding conducted by PSALM, it will thus not be affected by the outcome of the case.

Respondents San Miguel Corporation (SMC), DMCI Power Corporation, Trans-Asia Oil and Energy Development Corporation and SNAboitiz Power-Pangasinan, Inc. filed their respective Comments18 with common submission that they are not real parties-in-interest and should be excluded from the case. They assert that PSALM acted pursuant to its mandate to privatize the AHEPP when it conducted the bidding, and

there exists no reason for them to take any action to invalidate the said bidding wherein they lost to the highest bidder K-Water.

On its part, respondent K-Water filed a Manifestation In Lieu of Comment19 stating that it is not in a position to respond to petitioners’ allegations, having justifiably relied on the mandate and expertise of PSALM in the conduct of public bidding for the privatization of the AHEPP and had no reason to question the legality or constitutionality of the privatization process, including the bidding. K-Water submits that its participation in the bidding for the AHEPP was guided at all times by an abiding respect for the Constitution and the laws of the Philippines, and hopes for a prompt resolution of the present petition to further strengthen and enhance the investment environment – considering the level of investment entailed, not only in financial terms – by providing a definitive resolution and reliable guidance for investors, whether Filipino or foreign, as basis for effective investment and business decisions.

In their Consolidated Reply,20 petitioners contend that the instant petition is not mooted with the issuance of a Notice of Award to K-Water because the privatization of AHEPP is not finished until and unless the deed of absolute sale has been executed. They cite the ruling in David v. Arroyo,21 that courts will decide cases, otherwise moot and academic, if:

first, there is a grave violation of the Constitution; second, the exceptional character of the situation and the paramount public interest is involved; third, when constitutional issue raised requires formulation of controlling principles to guide the bench, the bar and the public; and fourth, the case is capable of repetition yet evading review.

Petitioners reiterate their legal standing to file the present suit in their capacity as taxpayers, or as Filipino citizens asserting the promotion and protection of a public right, aside from being directly injured by the proceedings of PSALM. As to the absence of Certification and Verification of Non-Forum Shopping from petitioner Bello in the file copy of PSALM, the same was a mere inadvertence in photocopying the same.

On the matter of compliance with an open and transparent bidding, petitioners also reiterate as held in Chavez v. Public Estates Authority,22 that the Court’s interpretation of public bidding applies to any law which requires public bidding, especially since Sec. 79 of the Government Auditing Code does not enumerate the data that must be disclosed to the public. PSALM should have followed the minimum requirements laid down in said case instead of adopting the "format generally used by government entities in their procurement of goods, infrastructure and consultancy services," considering that what was involved in Chavez is an amended Joint Venture Agreement which seeks to transfer title and ownership over government property. Petitioners point out that the requirement under COA Circular 89-296 as regards confidentiality covers only sealed proposals and not all information relating to the AHEPP privatization. PSALM’s simple referral of IDEALS’ request letter to the counsel of K-Water is very telling, indicating PSALM’s limited knowledge about a company it allowed to participate in the bidding and which even won the bidding.

On the transfer of water rights to K-Water, petitioners reiterate that this violates the Water Code, and contrary to PSALM’s statements, once NPC transfers its water permit to K-Water, in accordance with the terms of the Asset Purchase Agreement, NPC gives up its authority to extract or utilize water from the Angat River. Petitioners further assert that the terms of the sale of AHEPP allowing the buyer the operation

and management of the Non-Power Components, constitutes a relinquishment of government control over the Angat Dam, in violation of Art. XII, Sec. 2 of the Constitution. PSALM likewise has not stated that all stakeholders have signed the Water Protocol. Such absence of a signed Water Protocol is alarming in the light of PSALM’s pronouncement that the terms of the sale to K-Water would still subject to negotiation. Is PSALM’s refusal to sign the Water Protocol part of its strategy to negotiate the terms of the sale with the bidders? If so, then PSALM is blithely and cavalierly bargaining away the Filipinos’ right to water.

Responding to the claims of MWSS in its Comment, PSALM contends that MWSS’s allegations regarding the bidding process is belied by MWSS’s own admission that it held discussions with PSALM to highlight the important points and issues surrounding the AHEPP privatization that needed to be threshed out. Moreover, MWSS also admits having participated, along with other agencies and stakeholders, various meetings and conferences relative to the drafting of a Memorandum of Agreement on the Angat Water Protocol.

As regards the Angat Dam, PSALM emphasizes that MWSS never exercised jurisdiction and control over the said facility. PSALM points out that the Angat Dam was constructed in 1967, or four years before the enactment of Republic Act No. 6234, upon the commissioning thereof by the NPC and the consequent construction by Grogun, Inc., a private corporation. MWSS’ attempt to base its claim of jurisdiction over the Angat Dam upon its characterization of EPIRA as a general law must likewise fail. PSALM explains that EPIRA cannot be classified as a general law as it applies to a particular portion of the State, i.e., the energy sector. The EPIRA must be deemed an exception to the provision in the Revised MWSS Charter on MWSS’s general jurisdiction over waterworks systems.

PSALM stresses that pursuant to the EPIRA, PSALM took ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate and other disposable assets, which necessarily includes the AHEPP Complex, of which the Angat Dam is part. As to the OGCC opinion cited by MWSS to support its position that control and management of the Angat Dam Complex should be turned over to MWSS, the OGCC had already issued a second opinion dated August 20, 2008 which clarified the tenor of its earlier Opinion No. 107, s. 2008, stating that "the disposal of the Angat HEPP by sale through public bidding – the principal mode of disposition under EPIRA – remains PSALM’s primary option." Moreover, as pointed out by the National Economic Development Authority (NEDA) in its letter dated September 16, 2009, the ownership and operation of a hydropower plant goes beyond the mandate of MWSS. This view is consistent with the provisions of EPIRA mandating the transfer of ownership and control of NPC generation assets, IPP Contracts, real estate and other disposable assets to a private person or entity. Consequently, a transfer to another government entity of the said NPC assets would be a clear violation of the EPIRA. Even assuming such is allowed by EPIRA, it would not serve the objective of the EPIRA, i.e., that of liquidating all NPC’s financial obligations and would merely transfer NPC’s debts from the hands of one government entity to another, the funds that would be utilized by MWSS in the acquisition of the AHEPP would doubtless come from the pockets of the Filipino people.

As regards the opposition of various local government units to the sale of the AHEPP, PSALM said that a forum was held specifically to address their concerns. After the said forum, these LGUs did not anymore raise the same concerns; such inaction on their part could be taken as an acquiescence to, and acceptance of, the explanations made by PSALM during the forum.

PSALM had made it clear that it is only the AHEPP and not the Angat Dam which was being privatized. The same wrong premise underpinned the position of the CHR with its erroneous allegation that MWSS is allowed, under its Revised Charter, to operate and maintain a power plant.

PSALM further contends that the sale of AHEPP to K-Water did not violate the Constitution’s provision on the State’s natural resources and neither is the ruling in Manila Prince Hotel applicable as said case was decided under different factual circumstances. It reiterates that the AHEPP, being a generation asset, can be sold to a foreign entity, under the EPIRA, in accordance with the policy reforms said law introduced in the power sector; the EPIRA aims to enable open access in the electricity market and then enable the government to concentrate more fully on the supply of basic needs to the Filipino people. Owing to the competitive and open nature of the generation sector, foreign corporation may own generation assets.

Issues

The present controversy raised the following issues:

1) Legal standing of petitioners;

2) Mootness of the petition;

3) Violation of the right to information;

4) Ownership of the AHEPP;

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

6) Violation of the Water Code provisions on the grant of water rights; and

7) Failure of PSALM to comply with Sec. 47 (e) of EPIRA.

Mootness and Locus Standi

PSALM’s contention that the present petition had already been mooted by the issuance of the Notice of Award to K-Water is misplaced. Though petitioners had sought the immediate issuance of injunction against the bidding commenced by PSALM -- specifically enjoining it from proceeding to the next step of issuing a notice of award to any of the bidders -- they further prayed that PSALM be permanently enjoined from disposing of the AHEPP through privatization. The petition was thus filed not only as a means of enforcing the State’s obligation to protect the citizens’ "right to water" that is recognized under international law and legally enforceable under our Constitution, but also to bar a foreign corporation from exploiting our water resources in violation of Sec. 2, Art. XII of the 1987 Constitution. If the impending sale of the AHEPP to K-Water indeed violates the Constitution, it is the duty of the Court to annul the contract award as well as its implementation. As this Court held in Chavez v. Philippine Estates Authority,23 "supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution."

We also rule that petitioners possess the requisite legal standing in filing this suit as citizens and taxpayers.

"Legal standing" or locus standi has been defined as a personal and substantial interest in the case such that the party has sustained or will sustain direct injury as a result of the governmental act that is being challenged, alleging more than a generalized grievance. The gist of the question of standing is whether a party alleges "such personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court depends for illumination of difficult constitutional questions."24 This Court, however, has adopted a liberal attitude on the locus standi of a petitioner where the petitioner is able to craft an issue of transcendental significance to the people, as when the issues raised are of paramount importance to the public.25Thus, when the proceeding involves the assertion of a public right, the mere fact that the petitioner is a citizen satisfies the requirement of personal interest.26

There can be no doubt that the matter of ensuring adequate water supply for domestic use is one of paramount importance to the public. That the continued availability of potable water in Metro Manila might be compromised if PSALM proceeds with the privatization of the hydroelectric power plant in the Angat Dam Complex confers upon petitioners such personal stake in the resolution of legal issues in a petition to stop its implementation.

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

Violation of Right to Information

The people’s right to information is provided in Section 7, Article III of the Constitution, which reads:

Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law. (Emphasis supplied.)

The people’s constitutional right to information is intertwined with the government’s constitutional duty of full public disclosure of all transactions involving public interest.28 Section 28, Article II of the Constitution declares the State policy of full transparency in all transactions involving public interest, to wit:

Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest. (Italics supplied.)

The foregoing constitutional provisions seek to promote transparency in policy-making and in the operations of the government, as well as provide the people sufficient information to exercise effectively other constitutional rights. They are also

essential to hold public officials "at all times x xx accountable to the people," for unless citizens have the proper information, they cannot hold public officials accountable for anything. Armed with the right information, citizens can participate in public discussions leading to the formulation of government policies and their effective implementation. An informed citizenry is essential to the existence and proper functioning of any democracy.29

Consistent with this policy, the EPIRA was enacted to provide for "an orderly and transparent privatization" of NPC’s assets and liabilities.30 Specifically, said law mandated that "all assets of NPC shall be sold in an open and transparent manner through public bidding."31

In Chavez v. Public Estates Authority32 involving the execution of an Amended Joint Venture Agreement on the disposition of reclaimed lands without public bidding, the Court held:

x x xBefore the consummation of the contract, PEA must, on its own and without demand from anyone, disclose to the public matters relating to the disposition of its property. These include the size, location, technical description and nature of the property being disposed of, the terms and conditions of the disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare all these data and disclose them to the public at the start of the disposition process, long before the consummation of the contract, because the Government

Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding or review committee is not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals. However, once the committee makes its official recommendation, there arises a "definite proposition" on the part of the government. From this moment, the public’s right to information attaches, and any citizen can access all the non-proprietary information leading to such definite proposition. In Chavez v. PCGG, the Court ruled as follows:

"Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain to definite propositions of the government not necessarily to intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier – such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information." (Emphasis supplied.)

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

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

In Chavez v. National Housing Authority,35 the Court held that pending the enactment of an enabling law, the release of information through postings in public bulletin boards and government websites satisfies the constitutional requirement, thus:

It is unfortunate, however, that after almost twenty (20) years from birth of the 1987 Constitution, there is still no enabling law that provides the mechanics for the compulsory duty of government agencies to disclose information on government transactions. Hopefully, the desired enabling law will finally see the light of day if and when Congress decides to approve the proposed "Freedom of Access to Information Act." In the meantime, it would suffice that government agencies post on their bulletin boards the documents incorporating the information on the steps and negotiations that produced the agreements and the agreements themselves, and if finances permit, to upload said information on their respective websites for easy access by interested parties. Without any law or regulation governing the right to disclose information, the NHA or any of the respondents cannot be faulted if they were not able to disclose information relative to the SMDRP to the public in general.36 (Emphasis supplied.)

The Court, however, distinguished the duty to disclose information from the duty to permit access to information on matters of public concern under Sec. 7, Art. III of the Constitution. Unlike the disclosure of information which is mandatory under the Constitution, the other aspect of the people’s right to know requires a demand or request for one to gain access to documents and paper of the particular agency. Moreover, the duty to disclose covers only transactions involving public interest, while the duty to allow access has a broader scope of information which embraces not only transactions involving public interest, but any matter contained in official communications and public documents of the government agency.37 Such relief must be granted to the party requesting access to official records, documents and papers relating to official acts, transactions, and decisions that are relevant to a government contract.

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

Consequently, this relief must be granted to petitioners by directing PSALM to allow petitioners access to the papers and documents relating to the company profile and legal capacity of the winning bidder. Based on PSALM’s own press releases, K-Water is described as a Korean firm with extensive experience in implementing and

managing water resources development projects in South Korea, and also contributed significantly to the development of that country’s heavy and chemical industries and the modernization of its national industrial structure.

AngatHEPP is Under the Jurisdiction ofthe Department of Energy Through NPC

It must be clarified that though petitioners had alleged a co-ownership by virtue of the joint supervision in the operation of the Angat Complex by MWSS, NPC and NIA, MWSS actually recognized the ownership and jurisdiction of NPC over the hydroelectric power plant itself. While MWSS had initially sought to acquire ownership of the AHEPP without public bidding, it now prays that PSALM be ordered to turn over the possession and control of the said facility to MWSS. MWSS invokes its own authority or "special powers" by virtue of its general jurisdiction over waterworks systems, and in consideration of its substantial investments in the construction of two auxiliary units in the AHEPP, as well as the construction of the Umiray-AngatTransbasin Tunnel to supplement the water intake at the Angat Reservoir which resulted in increased power generation.

Records disclosed that as early as December 2005, following the decision of PSALM’s Board of Directors to commence the sale process of the AHEPP along with Magat and AmlanHEPPs in August 2005, MWSS was actively cooperating and working with PSALM regarding the proposed Protocol for the Privatization of the AHEPP, specifically on the terms and conditions for the management, control and operation of the Angat Dam Complex taking into consideration the concerns of its concessionaires. A Technical Working Group (TWG) similar to that formed for the Operation and Management Agreement of Pantabangan and Magat dams was created, consisting of representatives from PSALM, MWSS and other concerned agencies, to formulate strategies for the effective implementation of the privatization of AHEPP and appropriate structure for the operation and management of the Angat Dam Complex.38

In March 2008, PSALM sought legal advice from the OGCC on available alternatives to a sale structure for the AHEPP. On May 27, 2008, then Government Corporate Counsel Alberto C. Agra issued Opinion No. 107, s. 200839stating that PSALM is not limited to "selling" as a means of fulfilling its mandate under the EPIRA, and that in dealing with the AHEPP, PSALM has the following options:

1. Transfer the ownership, possession, control, and operation of the Angat Facility to another entity, which may or may not be a private enterprise, as specifically provided under Section 47 (e) of RA 9136;

2. Transfer the Angat Facility, through whatever form, to another entity for the purpose of protecting the public interest.40

The OGCC cited COA Circular No. 89-296 which provides that government property or assets that are no longer serviceable or needed "may be transferred to other government entities/agencies without cost or at an appraised value upon authority of the head or governing body of the agency or corporation, and upon due accomplishment of an Invoice and Receipt of Property." Pointing out the absence of any prohibition under R.A. No. 9136 and its IRR for PSALM to transfer the AHEPP to another government instrumentality, and considering that MWSS is allowed under its charter to acquire the said facility, the OGCC expressed the view that PSALM may, "in the interest of stemming a potential water crisis, turn over the ownership,

operations and management of the Angat Facility to a qualified entity, such as the MWSS, without need of public bidding as the latter is also a government entity."41

Consequently, MWSS requested the Office of the President (OP) to exclude the AHEPP from the list of NPC assets to be privatized under the EPIRA. Said request was endorsed to the Department of Finance (DOF) which requested the National Economic Development Authority (NEDA) to give its comments. Meanwhile, on August 20, 2008, the OGCC issued a Clarification42 on its Opinion No. 107, s. 2008 stating that the tenor of the latter issuance was "permissive" and "necessarily, the disposal of the AHEPP by sale through public bidding – the principal mode of disposition under x xx R.A. 9136 – remains PSALM’s primary option." The OGCC further explained its position, thus:

If, in the exercise of PSALM’s discretion, it determines that privatization by sale through public bidding is the best mode to fulfill its mandate under R.A. 9136, and that this mode will not contravene the State’s declared policy on water resources, then the same is legally permissible.

Finally, in OGCC Opinion No. 107 s. 2008, this Office underscored "the overriding policy of the State x xx recognizing that ‘water is vital to national development x xx’ and the crucial role which the Angat Facility plays in the uninterrupted and adequate supply and distribution of potable water to residents of Metro Manila." This Office reiterates "the primacy of the State’s interest in mitigating the possible deleterious effects of an impending "water crisis" encompassing areas even beyond Metro Manila." Any transfer of the AHEPP to be undertaken by PSALM – whether to a private or public entity – must not contravene the State’s declared policy of ensuring the flow of clean, potable water under RA 6395 and 9136, and Presidential Decree 1067. Hence, said transfer and/or privatization scheme must ensure the preservation of the AHEPP as a vital source of water for Metro Manila and the surrounding provinces.43 (Emphasis supplied.)

On September 16, 2009, NEDA Deputy Director General Rolando G. Tungpalan, by way of comment to MWSS’s position, wrote the DOF stating that MWSS’s concern on ensuring an uninterrupted and adequate supply of water for domestic use is amply protected and consistently addressed in the EPIRA. Hence, NEDA concluded that there appears to be no basis to exclude AHEPP from the list of NPC generation assets to be privatized and no compelling reason to transfer its management, operations and control to MWSS.44 NEDA further pointed out that:

Ownership and operation of a hydropower plant, however, goes beyond the mandate of MWSS.To operate a power generation plant, given the sector’s legislative setup would require certification and permits that has to be secured by the operator. MWSS does not have the technical capability to undertake the operation and maintenance of the AHEPP nor manage the contract of a contracted private party to undertake the task for MWSS. While MWSS may tap NPC to operate and maintain the AHEPP, this, similar to contracting out a private party, may entail additional transaction costs, and ultimately result to higher generation rates.45 (Emphasis supplied.)

Thereafter, MWSS sought the support of the DPWH in a letter dated September 24, 2009 addressed to then Secretary Hermogenes E. Ebdane, Jr., for the exclusion of the AHEPP from the list of NPC assets to be privatized and instead transfer the ownership, possession and control thereof to MWSS with reasonable compensation. Acting on the said request, Secretary Ebdane, Jr. wrote a memorandum for the President recommending that "the Angat Dam be excluded from the list of NPC

assets to be privatized, and that the ownership, management and control of the Dam be transferred from NPC to MWSS, with reasonable compensation."46

Based on the foregoing factual backdrop, there seems to be no dispute as to the complete jurisdiction of NPC over the government-owned Angat Dam and AHEPP.

The Angat Reservoir and Dam were constructed from 1964 to 1967 and have become operational since 1968. They have multiple functions:

1) To provide irrigation to about 31,000 hectares of land in 20 municipalities and towns in Pampanga and Bulacan;

2) To supply the domestic and industrial water requirements of residents in Metro Manila;

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

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

The Angat Dam is a rockfill dam with a spillway equipped with three gates at a spilling level of 219 meters and has storage capacity of about 850 million cubic meters. Water supply to the MWSS is released through five auxiliary turbines where it is diverted to the two tunnels going to the Ipo Dam.48 The Angat Dam is one of the dams under the management of NPC while the La Mesa and Ipo dams are being managed by MWSS. MWSS is a government corporation existing by virtue of R.A. No. 6234.49 NAPOCOR or NPC is also a government-owned corporation created under Commonwealth Act (C.A.) No. 120,50 which, among others, was vested with the following powers under Sec. 2, paragraph (g):

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install, maintain, operate and improve gas, oil, or steam engines, and/or other prime movers, generators and other machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting system for the use of the Government and the general public; to sell electric power and to fix the rates and provide for the collection of the charges for any service rendered: Provided, That the rates of charges shall not be subject to revision by the Public Service Commission;

x x x x (Emphasis supplied.)

On September 10, 1971, R.A. No. 6395 was enacted which revised the charter of NPC, extending its corporate life to the year 2036. NPC thereafter continued to exercise complete jurisdiction over dams and power plants including the Angat Dam, Angat Reservoir and AHEPP. While the NPC was expressly granted authority to construct, operate and maintain power plants, MWSS was not vested with similar function. Section 3 (f), (o) and (p) of R.A. No. 6234 provides that MWSS’s powers and attributes include the following –

(f) To construct, maintain, and operate dams, reservoirs, conduits, aqueducts, tunnels, purification plants, water mains, pipes, fire hydrants, pumping stations, machineries and other waterworks for the purpose of supplying water to the inhabitants of its territory, for domestic and other purposes; and to purify, regulate and control the use, as well as prevent the wastage of water;

xxxx

(o) To assist in the establishment, operation and maintenance of waterworks and sewerage systems within its jurisdiction under cooperative basis;

(p) To approve and regulate the establishment and construction of waterworks and sewerage systems in privately owned subdivisions within its jurisdiction; x xx. (Emphasis supplied.)

On December 9, 1992, by virtue of R.A. No. 7638,51 NPC was placed under the Department of Energy (DOE) as one of its attached agencies.

Aside from its ownership and control of the Angat Dam and AHEPP, NPC was likewise mandated to exercise complete jurisdiction and control over its watershed, pursuant to Sec. 2 (n) and (o) of R.A. No. 6395 for development and conservation purposes:

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources; and

x x x x (Emphasis supplied.)

On December 4, 1965, Presidential Proclamation No. 505 was issued amending Proclamation No. 71 by transferring the administration of the watersheds established in Montalban, San Juan del Monte, Norzagaray, Angat, San Rafael, Peñaranda and Infanta, Provinces of Rizal, Bulacan, Nueva Ecija and Quezon, to NPC. Subsequent executive issuances Presidential Decree (P.D.) No. 1515 which was signed in June 1978 and amended by P.D. No. 1749 in December 1980 led to the creation of the NPC Watershed Management Division which presently has 11 watershed areas under its management.52

Privatization of AHEPP Mandatory Under EPIRA

With the advent of EPIRA in 2001, PSALM came into existence for the principal purpose of managing the orderly sale, privatization and disposition of generation assets, real estate and other disposable assets of the NPC including IPP Contracts. Accordingly, PSALM was authorized to take title to and possession of, those assets

transferred to it. EPIRA mandated that all such assets shall be sold through public bidding with the exception of Agus and Pulangui complexes in Mindanao, the privatization of which was left to the discretion of PSALM in consultation with Congress,53 thus:

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

x xxx

(d) All assets of NPC shall be sold in an open and transparent manner through public bidding, x xx;

x xxx

(f) The Agus and the Pulangui complexes in Mindanao shall be excluded from among the generation companies that will be initially privatized. Their ownership shall be transferred to the PSALM Corp. and both shall continue to be operated by the NPC. Said complexes may be privatized not earlier than ten (10) years from the effectivity of this Act, x xx.The privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM Corp. in consultation with Congress;

x xxx (Emphasis supplied.)

The intent of Congress not to exclude the AHEPP from the privatization of NPC generation assets is evident from the express provision exempting only the aforesaid two power plants in Mindanao. Had the legislature intended that PSALM should likewise be allowed discretion in case of NPC generation assets other than those mentioned in Sec. 47, it could have explicitly provided for the same. But the EPIRA exempted from privatization only those two plants in Mindanao and the Small Power Utilities Group (SPUG).54 Expressiouniusestexclusioalterius, the express inclusion of one implies the exclusion of all others.55

It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressiouniusestexclusioalterius.

The rule of expressiouniusestexclusioalterius is formulated in a number of ways. One variation of the rule is principle that what is expressed puts an end to that which is implied. Expressiumfacitcessaretacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.

x xxx

The rule of expressiouniusestexclusioalterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon one’s own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned.56

The Court therefore cannot sustain the position of petitioners, adopted by respondent MWSS, that PSALM should have exercised the discretion not to proceed with the privatization of AHEPP, or at least the availability of the option to transfer the said facility to another government entity such as MWSS. Having no such discretion in the first place, PSALM committed no grave abuse of discretion when it commenced the sale process of AHEPP pursuant to the EPIRA.

In any case, the Court finds that the operation and maintenance of a hydroelectric power plant is not among the statutorily granted powers of MWSS. Although MWSS was granted authority to construct and operate dams and reservoirs, such was for the specific purpose of supplying water for domestic and other uses, and the treatment, regulation and control of water usage, and not power generation.57 Moreover, since the sale of AHEPP by PSALM merely implements the legislated reforms for the electric power industry through schemes that aim "to enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors,"58 the proposed transfer to MWSS which is another government entity contravenes that State policy. COA Circular No. 89-296 likewise has no application to NPC generating assets which are still serviceable and definitely needed by the Government for the purpose of liquidating NPC’s accumulated debts amounting to billions in US Dollars. Said administrative circular cannot prevail over the EPIRA, a special law governing the disposition of government properties under the jurisdiction of the DOE through NPC.

Sale of Government-Owned AHEPPto a Foreign Corporation Not Prohibited

But Only Filipino Citizens and Corporations60% of whose capital is owned by Filipinos

May be Granted Water Rights

The core issue concerns the legal implications of the acquisition by K-Water of the AHEPP in relation to the constitutional policy on our natural resources.

Sec. 2, Art. XII of the 1987 Constitution provides in part:

SEC.2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In case of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.


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

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

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

a. All waters belong to the State.

b. All waters that belong to the State can not be the subject to acquisitive prescription.

c. The State may allow the use or development of waters by administrative concession.

d. The utilization, exploitation, development, conservation and protection of water resources shall be subject to the control and regulation of the government through the National Water Resources Council x xx

e. Preference in the use and development of waters shall consider current usages and be responsive to the changing needs of the country.

x xxx

Art. 9. Waters may be appropriated and used in accordance with the provisions of this Code.

Appropriation of water, as used in this Code, is the acquisition of rights over the use of waters or the taking or diverting of waters from a natural source in the manner and for any purpose allowed by law.

Art. 10. Water may be appropriated for the following purposes:

x xxx

(d) Power generation

x xxx

Art. 13. Except as otherwise herein provided, no person including government instrumentalities or government-owned or controlled corporations, shall appropriate water without a water right, which shall be evidenced by a document known as a water permit.

Water right is the privilege granted by the government to appropriate and use water.

x xxx

Art. 15. Only citizens of the Philippines, of legal age, as well as juridical persons, who are duly qualified by law to exploit and develop water resources, may apply for water permits. (Emphasis supplied.)

It is clear that the law limits the grant of water rights only to Filipino citizens and juridical entities duly qualified by law to exploit and develop water resources, including private corporations with sixty percent of their capital owned by Filipinos. In the case of Angat River, the NWRB has issued separate water permits to MWSS, NPC and NIA.61

Under the EPIRA, the generation of electric power, a business affected with public interest, was opened to private sector and any new generation company is required to secure a certificate of compliance from the Energy Regulatory Commission (ERC), as well as health, safety and environmental clearances from the concerned government agencies. Power generation shall not be considered a public utility operation,62 and hence no franchise is necessary. Foreign investors are likewise allowed entry into the electric power industry. However, there is no mention of water rights in the privatization of multi-purpose hydropower facilities. Section 47 (e) addressed the issue of water security, as follows:

(e) In cases of transfer of possession, control, operation or privatization of multi-purpose hydro facilities, safeguards shall be prescribed to ensure that the national government may direct water usage in cases of shortage to protect potable water, irrigation, and all other requirements imbued with public interest;


This provision is consistent with the priority accorded to domestic and municipal uses of water63 under the Water Code, thus:

Art. 22. Between two or more appropriators of water from the same sources of supply, priority in time of appropriation shall give the better right, except that in times of emergency the use of water for domestic and municipal purposes shall have a better right over all other uses; Provided, That, where water shortage is recurrent and the appropriator for municipal use has a lower priority in time of appropriation, then it shall be his duty to find an alternative source of supply in accordance with conditions prescribed by the Board. (Emphasis supplied.)

Rule 23, Section 6 of the Implementing Rules and Regulations (IRR) of the EPIRA provided for the structure of appropriation of water resources in multi-purpose hydropower plants which will undergo privatization, as follows:

Section 6. Privatization of Hydroelectric Generation Plants.

(a) Consistent with Section 47(e) of the Act and Section 4(f) of this Rule, the Privatization of hydro facilities of NPC shall cover the power component including assignable long-term water rights agreements for the use of water, which shall be passed onto and respected by the buyers of the hydroelectric power plants.

(b) The National Water Resources Board (NWRB) shall ensure that the allocation for irrigation, as indicated by the NIA and requirements for domestic water supply as provided for by the appropriate Local Water District(s) are recognized and provided for in the water rights agreements. NPC or PSALM may also impose additional conditions in the shareholding agreement with the winning bidders to ensure national security, including, but not limited to, the use of water during drought or calamity.

(c) Consistent with Section 34(d) of the Act, the NPC shall continue to be responsible for watershed rehabilitation and management and shall be entitled to the environmental charge equivalent to one-fourth of one centavo per kilowatt-hour sales (P0.0025/kWh), which shall form part of the Universal Charge. This environmental fund shall be used solely for watershed rehabilitation and management and shall bemanaged by NPC under existing arrangements. NPC shall submit an annual report to the DOE detailing the progress of the water shed rehabilitation program.

(d) The NPC and PSALM or NIA, as the case may be, shall continue to be responsible for the dam structure and all other appurtenant structures necessary for the safe and reliable operation of the hydropower plants. The NPC and PSALM or NIA, as the case may be, shall enter into an operations and maintenance agreement with the private operator of the power plant to cover the dam structure and all other appurtenant facilities. (Emphasis supplied.)

In accordance with the foregoing implementing regulations, and in furtherance of the Asset Purchase Agreement64(APA), PSALM, NPC and K-Water executed on April 28, 2010 an Operations and Maintenance Agreement65 (O & M Agreement) for the administration, rehabilitation, operation, preservation and maintenance, by K-Water as the eventual owner of the AHEPP, of the Non-Power Components meaning the Angat Dam, non-power equipment, facilities, installations, and appurtenant devices and structures, including the water sourced from the Angat Reservoir.

It is the position of PSALM that as the new owner only of the hydroelectric power plant, K-Water will be a mere operator of the Angat Dam. In the power generation activity, K-Water will have to utilize the waters already extracted from the river and impounded on the dam. This process of generating electric power from the dam water entering the power plant thus does not constitute appropriation within the meaning of natural resource utilization in the Constitution and the Water Code.

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

Hydroelectric energy is produced by the force of falling water. The capacity to produce this energy is dependent on both the available flow and the height from which it falls. Building up behind a high dam, water accumulates potential energy. This is transformed into mechanical energy when the water rushes down the sluice and strikes the rotary blades of turbine. The turbine's rotation spins electromagnets which generate current in stationary coils of wire. Finally, the current is put through a

transformer where the voltage is increased for long distance transmission over power lines.66

Foreign ownership of a hydropower facility is not prohibited under existing laws. The construction, rehabilitation and development of hydropower plants are among those infrastructure projects which even wholly-owned foreign corporations are allowed to undertake under the Amended Build-Operate-Transfer (Amended BOT) Law (R.A. No. 7718).67

Beginning 1987, the policy has been openness to foreign investments as evident in the fiscal incentives provided for the restructuring and privatization of the power industry in the Philippines, under the Power Sector Restructuring Program (PSRP) of the Asian Development Bank.

The establishment of institutional and legal framework for the entry of private sector in the power industry began with the issuance by President Corazon C. Aquino of Executive Order No. 215 in 1987. Said order allowed the entry of private sector – the IPPs –to participate in the power generation activities in the country. The entry of IPPs was facilitated and made attractive through the first BOT Law in 1990 (R.A. No. 6957) which aimed to "minimize the burden of infrastructure projects on the national government budget, minimize external borrowing for infrastructure projects, and use the efficiency of the private sector in delivering a public good." In 1993, the Electric Power Crisis Act was passed giving the President emergency powers to urgently address the power crisis in the country.68 The full implementation of the restructuring and privatization of the power industry was achieved when Congress passed the EPIRA in 2001.

With respect to foreign investors, the nationality issue had been framed in terms of the character or nature of the power generation process itself, i.e., whether the activity amounts to utilization of natural resources within the meaning of Sec. 2, Art. XII of the Constitution. If so, then foreign companies cannot engage in hydropower generation business; but if not, then government may legally allow even foreign-owned companies to operate hydropower facilities.

The DOJ has consistently regarded hydropower generation by foreign entities as not constitutionally proscribed based on the definition of water appropriation under the Water Code, thus:

Opinion No. 173, 1984

This refers to your request for opinion on the possibility of granting water permits to foreign corporations authorized to do business in the Philippines x xx

x xxx

x xx while the Water Code imposes a nationality requirement for the grant of water permits, the same refers to the privilege "to appropriate and use water." This should be interpreted to mean the extraction of water from its natural source (Art. 9, P.D. No. 1067). Once removed therefrom, they cease to be a part of the natural resources of the country and are the subject of ordinary commerce and may be acquired by foreigners (Op. No. 55, series of 1939). x xx in case of a contract of lease, the water permit shall be secured by the lessor and included in the lease as an improvement. The water so removed from the natural source may be appropriated/used by the foreign corporation leasing the property.

Opinion No. 14, S. 1995

The nationality requirement imposed by the Water Code refers to the privilege "to appropriate and use water." This, we have consistently interpreted to mean the extraction of water directly from its natural source. Once removed from its natural source the water ceases to be a part of the natural resources of the country and may be subject of ordinary commerce and may even be acquired by foreigners. (Secretary of Justice Op. No. 173, s. 1984; No. 24, s. 1989; No. 100 s. 1994)

In fine, we reiterate our earlier view that a foreign entity may legally process or treat water after its removal from a natural source by a qualified person, natural or juridical.

Opinion No. 122, s. 1998

The crucial issue at hand is the determination of whether the utilization of water by the power plant to be owned and operated by a foreign-owned corporation (SRPC) will violate the provisions of the Water Code.

As proposed, the participation of SRPC to the arrangement commences upon construction of the power station, consisting of a dam and a power plant. After the completion of the said station, its ownership and control shall be turned over to NPC. However, SRPC shall remain the owner of the power plant and shall operate it for a period of twenty-five (25) years.

It appears that the dam, which will be owned and controlled by NPC, will block the natural flow of the river. The power plant, which is situated next to it, will entirely depend upon the dam for its water supply which will pass through an intake gate situated one hundred (100) meters above the riverbed. Due to the distance from the riverbed, water could not enter the power plant absent the dam that traps the flow of the river. It appears further that no water shall enter the power tunnel without specific dispatch instructions from NPC, and such supplied water shall be used only by SRPC for power generation and not for any other purpose. When electricity is generated therein, the same shall be supplied to NPC for distribution to the public. These facts x xx viewed in relation to the Water Code, specifically Article 9 thereof, x xx clearly show that there is no circumvention of the law.

This Department has declared that the nationality requirement imposed by the Water Code refers to the privilege "to appropriate and use water" and has interpreted this phrase to mean the extraction of water directly from its natural source (Secretary of Justice Opinion No. 14, s. 1995). "Natural" is defined as that which is produced without aid of stop, valves, slides, or other supplementary means (see Webster’s New International Dictionary, Second Edition, p. 1630). The water that is used by the power plant could not enter the intake gate without the dam, which is a man-made structure. Such being the case, the source of the water that enters the power plant is of artificial character rather than natural. This Department is consistent in ruling, that once water is removed from its natural source, it ceases to be a part of the natural resources of the country and may be the subject of ordinary commerce and may even be acquired by foreigners. (Ibid., No. 173, s. 1984; No. 24, s. 1989; No. 100, s. 1994).

It is also significant to note that NPC, a government-owned and controlled corporation, has the effective control over all elements of the extraction process, including the amount and timing thereof considering that x xx the water will flow out

of the power tunnel and through the power plant, to be used for the generation of electricity, only when the Downstream Gates are opened, which occur only upon the specific water release instructions given by NPC to SRPC. This specific feature of the agreement, taken together with the above-stated analysis of the source of water that enters the plant, support the view that the nationality requirement embodied in Article XII, Section 2 of the present Constitution and in Article 15 of the Water Code, is not violated.69

(Emphasis supplied.)

The latest executive interpretation is stated in DOJ Opinion No. 52, s. 2005 which was rendered upon the request of PSALM in connection with the proposed sale structure for the privatization of hydroelectric and geothermal generation assets (Gencos) of NPC. PSALM sought a ruling on the legality of its proposed privatization scheme whereby the non-power components (dam, reservoir and appurtenant structures and watershed area) shall be owned by the State through government entities like NPC or NIA which shall exercise control over the release of water, while the ownership of the power components (power plant and related facilities) is open to both Filipino citizens/corporations and 100% foreign-owned corporations.

Sustaining the position of PSALM, then Secretary Raul M. Gonzalez opined:

Premised on the condition that only the power components shall be transferred to the foreign bidders while the non-power components/structures shall be retained by state agencies concerned, we find that both PSALM’s proposal and position are tenable.

x xxx

x xx as ruled in one case by a U.S. court:

Where the State of New York took its natural resources consisting of Saratoga Spring and, through a bottling process, put those resources into preserved condition where they could be sold to the public in competition with private waters, the state agencies were not immune from federal taxes imposed upon bottled waters on the theory that state was engaged in the sale of "natural resources."

Applied to the instant case, and construed in relation to the earlier-mentioned constitutional inhibition, it would appear clear that while both waters and geothermal steam are, undoubtedly "natural resources", within the meaning of Section 2 Article XII of the present Constitution, hence, their exploitation, development and utilization should be limited to Filipino citizens or corporations or associations at least sixty per centum of the capital of which is owned by Filipino citizens, the utilization thereof can be opened even to foreign nationals, after the same have been extracted from the source by qualified persons or entities. The rationale is because, since they no longer form part of the natural resources of the country, they become subject to ordinary commerce.

A contrary interpretation, i.e., that the removed or extracted natural resources would remain inalienable especially to foreign nationals, can lead to absurd consequences, e.g. that said waters and geothermal steam, and any other extracted natural resources, cannot be acquired by foreign nationals for sale within or outside the country, which could not have been intended by the framers of the Constitution.

The fact that under the proposal, the non-power components and structures shall be retained and maintained by the government entities concerned is, to us, not only a sufficient compliance of constitutional requirement of "full control and supervision of the State" in the exploitation, development and utilization of natural resources. It is also an enough safeguard against the evil sought to be avoided by the constitutional reservation x xx.70 (Italics in the original, emphasis supplied.)

Appropriation of water, as used in the Water Code refers to the "acquisition of rights over the use of waters or the taking or diverting of waters from a natural source in the manner and for any purpose allowed by law."71 This definition is not as broad as the concept of appropriation of water in American jurisprudence:

An appropriation of water flowing on the public domain consists in the capture, impounding, or diversion of it from its natural course or channel and its actual application to some beneficial use private or personal to the appropriator, to the entire exclusion (or exclusion to the extent of the water appropriated) of all other persons. x xx72

On the other hand, "water right" is defined in the Water Code as the privilege granted by the government to appropriate and use water.73 Black’s Law Dictionary defined "water rights" as "a legal right, in the nature of a corporeal hereditament, to use the water of a natural stream or water furnished through a ditch or canal, for general or specific purposes, such as irrigation, mining, power, or domestic use, either to its full capacity or to a measured extent or during a defined portion of the time," or "the right to have the water flow so that some portion of it may be reduced to possession and be made private property of individual, and it is therefore the right to divert water from natural stream by artificial means and apply the same to beneficial use."74

Under the Water Code concept of appropriation, a foreign company may not be said to be "appropriating" our natural resources if it utilizes the waters collected in the dam and converts the same into electricity through artificial devices. Since the NPC remains in control of the operation of the dam by virtue of water rights granted to it, as determined under DOJ Opinion No. 122, s. 1998, there is no legal impediment to foreign-owned companies undertaking the generation of electric power using waters already appropriated by NPC, the holder of water permit. Such was the situation of hydropower projects under the BOT contractual arrangements whereby foreign investors are allowed to finance or undertake construction and rehabilitation of infrastructure projects and/or own and operate the facility constructed. However, in case the facility requires a public utility franchise, the facility operator must be a Filipino corporation or at least 60% owned by Filipino.75

With the advent of privatization of the electric power industry which resulted in its segregation into four sectors -- generation, transmission, distribution and supply – NPC’s generation and transmission functions were unbundled. Power generation and transmission were treated as separate sectors governed by distinct rules under the new regulatory framework introduced by EPIRA. The National Transmission Corporation (TRANSCO) was created to own and operate the transmission assets and perform the transmission functions previously under NPC. While the NPC continues to undertake missionary electrification programs through the SPUG, PSALM was also created to liquidate the assets and liabilities of NPC.

Under the EPIRA, NPC’s generation function was restricted as it was allowed to "generate and sell electricity only from the undisposed generating assets and IPP contracts of PSALM" and was prohibited from incurring "any new obligations to

purchase power through bilateral contracts with generation companies or other suppliers."76 PSALM, on the other hand, was tasked "to structure the sale, privatization or disposition of NPC assets and IPP contracts and/or their energy output based on such terms and conditions which shall optimize the value and sale prices of said assets."77 In the case of multi-purpose hydropower plants, the IRR of R.A. No. 9136 provided that their privatization would extend to water rights which shall be transferred or assigned to the buyers thereof, subject to safeguards mandated by Sec. 47(e) to enable the national government to direct water usage in cases of shortage to protect water requirements imbued with public interest.

Accordingly, the Asset Purchase Agreement executed between PSALM and K-Water stipulated:

2.04 Matters Relating to the Non-Power Component

x xxx

Matters relating to Water Rights

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

x xxx

Multi-Purpose Facility

The BUYER is fully aware that the Non-Power Components is a multi-purpose hydro-facility and the water is currently being appropriated for domestic use, municipal use, irrigation and power generation. Anything in this Agreement notwithstanding, the BUYER shall, at all times even after the Payment Date, fully and faithfully comply with Philippine Law, including the Instructions, the Rule Curve and Operating Guidelines and the Water Protocol.78 (Emphasis supplied.)

Lease or transfer of water rights is allowed under the Water Code, subject to the approval of NWRB after due notice and hearing.79 However, lessees or transferees of such water rights must comply with the citizenship requirement imposed by the Water Code and its IRR. But regardless of such qualification of water permit holders/transferees, it is to be noted that there is no provision in the EPIRA itself authorizing the NPC to assign or transfer its water rights in case of transfer of operation and possession of multi-purpose hydropower facilities. Since only the power plant is to be sold and privatized, the operation of the non-power components such as the dam and reservoir, including the maintenance of the surrounding watershed, should remain under the jurisdiction and control of NPC which continue to be a government corporation. There is therefore no necessity for NPC to transfer its permit over the water rights to K-Water. Pursuant to its purchase and operation/management contracts with K-Water, NPC may authorize the latter to use water in the dam to generate electricity.

NPC’s water rights remain an integral aspect of its jurisdiction and control over the dam and reservoir. That the EPIRAitselfdid not ordain any transfer of water rights leads us to infer that Congress intended NPC to continue exercising full supervision over the dam, reservoir and, more importantly, to remain in complete control of the extraction or diversion of water from the Angat River. Indeed, there can be no debate that the best means of ensuring that PSALM/NPC can fulfill the duty to prescribe "safeguards to enable the national government to direct water usage to protect potable water, irrigation, and all other requirements imbued with public interest" is for it to retain the water rights over those water resources from where the dam waters are extracted. In this way, the State’s full supervision and control over the country’s water resources is also assured notwithstanding the privatized power generation business.

Section 6 (a) of the IRR of R.A. No. 9136 insofar as it directs the transfer of water rights in the privatization of multi-purpose hydropower facilities, is thus merely directory.

It is worth mentioning that the Water Code explicitly provides that Filipino citizens and juridical persons who may apply for water permits should be "duly qualified by law to exploit and develop water resources."

Thus, aside from the grant of authority to construct and operate dams and power plants, NPC’s Revised Charter specifically authorized it –

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby.80

The MWSS is likewise vested with the power to construct, maintain and operate dams and reservoirs for the purpose of supplying water for domestic and other purposes, as well to construct, develop, maintain and operate such artesian wells and springs as may be needed in its operation within its territory.81 On the other hand, NIA, also a water permit holder in Angat River, is vested with similar authority to utilize water resources, as follows:

(b) To investigate all available and possible water resources in the country for the purpose of utilizing the same for irrigation, and to plan, design and construct the necessary projects to make the ten to twenty-year period following the approval of this Act as the Irrigation Age of the Republic of the Philippines;82

(c) To construct multiple-purpose water resources projects designed primarily for irrigation, and secondarily for hydraulic power development and/or other uses such as flood control, drainage, land reclamation, domestic water supply, roads and highway construction and reforestation, among others, provided, that the plans, designs and the construction thereof, shall be undertaken in coordination with the agencies concerned;83

To reiterate, there is nothing in the EPIRAwhich declares that it is mandatory for PSALM or NPC to transfer or assign NPC’s water rights to buyers of its multi-purpose hydropower facilities as part of the privatization process. While PSALM was mandated to transfer the ownership of all hydropower plants except those mentioned in Sec. 47 (f), any transfer of possession, operation and control of the multi-purpose hydropower facilities, the intent to preserve water resources under the full supervision and control of the State is evident when PSALM was obligated to prescribe safeguards to enable the national government to direct water usage to domestic and other requirements "imbued with public interest." There is no express requirement for the transfer of water rights in all cases where the operation of hydropower facilities in a multi-purpose dam complex is turned over to the private sector.

As the new owner of the AHEPP, K-Water will have to utilize the waters in the Angat Dam for hydropower generation. Consistent with the goals of the EPIRA, private entities are allowed to undertake power generation activities and acquire NPC’s generation assets. But since only the hydroelectric power plants and appurtenances are being sold, the privatization scheme should enable the buyer of a hydroelectric power plant in NPC’s multi-purpose dam complex to have beneficialuse of the waters diverted or collected in the Angat Dam for its hydropower generation activities, and at the same time ensure that the NPC retains full supervision and control over the extraction and diversion of waters from the Angat River.

In fine, the Court rules that while the sale of AHEPP to a foreign corporation pursuant to the privatization mandated by the EPIRA did not violate Sec. 2, Art. XII of the 1987 Constitution which limits the exploration, development and utilization of natural resources under the full supervision and control of the State or the State’s undertaking the same through joint venture, co-production or production sharing agreements with Filipino corporations 60% of the capital of which is owned by Filipino citizens, the stipulation in the Asset Purchase Agreement and Operations and Maintenance Agreement whereby NPC consents to the transfer of water rights to the foreign buyer, K-Water, contravenes the aforesaid constitutional provision and the Water Code.1âwphi1

Section 6, Rule 23 of the IRR of EPIRA, insofar as it ordered NPC’s water rights in multi-purpose hydropower facilities to be included in the sale thereof, is declared as merely directoryand not an absolute condition in the privatization scheme. In this case, we hold that NPC shall continue to be the holder of the water permit even as the operational control and day-to-day management of the AHEPP is turned over to K-Water under the terms and conditions of their APA and O & M Agreement, whereby NPC grants authority to K-Water to utilize the waters diverted or collected in the Angat Dam for hydropower generation. Further, NPC and K-Water shall faithfully comply with the terms and conditions of the Memorandum of Agreement on Water Protocol, as well as with such other regulations and issuances of the NWRB governing water rights and water usage.

WHEREFORE, the present petition for certiorari and prohibition with prayer for injunctive relief/s is PARTLY GRANTED.

The following DISPOSITIONS are in ORDER:

1) The bidding conducted and the Notice of Award issued by PSALM in favor of the winning bidder, KOREA WATER RESOURCES CORPORATION (K-WATER), are declared VALID and LEGAL;

2) PSALM is directed to FURNISH the petitioners with copies of all documents and records in its files pertaining to K-Water;

3) Section 6 (a), Rule 23, IRR of the EPIRA, is hereby declared as merely DIRECTORY, and not an absolute condition in all cases where NPC-owned hydropower generation facilities are privatized;

4) NPC shall CONTINUE to be the HOLDER of Water Permit No. 6512 issued by the National Water Resources Board. NPC shall authorize K-Water to utilize the waters in the Angat Dam for hydropower generation, subject to the NWRB’s rules and regulations governing water right and usage. The Asset Purchase Agreement and Operation & Management Agreement between NPC/PSALM and K- Water are thus amended accordingly.

Except for the requirement of securing a water permit, K-Water remains BOUND by its undertakings and warranties under the APA and O & M Agreement;

5) NPC shall be a CO-PARTY with K-Water in the Water Protocol Agreement with MWSS and NIA, and not merely as a conforming authority or agency; and

6) The Status Quo Ante Order issued by this Court on May 24, 2010 is hereby LIFTED and SET ASIDE.

No pronouncement as to costs.

SO ORDERED.

DISSENTING OPINION

VELASCO, JR., J.:

Subject of this petition for certiorari and prohibition are two Agreement entered into by and between Power Sector Assets and Liabilities Management Corporation (PSALM) and Korean Water Resources Corporation (K-Water), involving the Angat Hydro-Electric Power Plant (AHEPP) and the Angat Dam Complex. The first agreement, denominated as Asset Purchase Agreement (APA), covers AHEPP, while the second, the Operation and Maintenance Agreement (O & M), covers the non-power components of AHEPP, including Angat Dam. PSALM entered into the said agreements pursuant to its mandate under Republic Act No. (RA) 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA) to privatize the assets of National Power Corporation (NPC).

Petitioners question the validity of the said agreements for being repugnant to the 1987 Constitution, specifically Sec. 2, Art. XII thereof, Presidential Decree No. (PD) 1067 or the Water Code of the Philippines (Water Code), and the EPIRA. They allege that PSALM acted with grave abuse of discretion when it allowed K-Water, a corporate entity wholly owned by the Republic of Korea, to participate in the bidding process, and thereafter declaring it the winning bidder.1

I submit that the two Agreements themselves are, in their entirety, null and void for infringing the ownership and nationality limitations in Sec. 2, Art. XII of the 1987 Constitution, which provides:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant." (Emphasis supplied.)

The Agreements fall squarely within the ambit of the aforequoted constitutional provision, and are, thus, properly subject to the nationality restriction provided therein. K-Water, being a wholly foreign-owned corporation, is disqualified from engaging in activities involving the exploration, development, and utilization of water and natural resources belonging to the state. Necessarily, it is barred from operating Angat Dam, a structure indispensable in ensuring water security in Metro Manila. PSALM, therefore, committed grave abuse of discretion amounting to lack or excess of jurisdiction when it allowed K-Water to participate in the bidding out of properties that will directly extract and utilize natural resources of the Philippines.

The Facts

On June 8, 2001, RA 9136 or the EPIRA was passed into law. Among the policies declared therein is the "orderly and transparent privatization of the assets and liabilities of the National Power Corporation (NPC)."2 To carry out this policy, the EPIRA created PSALM, a government-owned and controlled corporation with the mandate to "manage the orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets, and IPP [independent power producers] contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner."3 To enable PSALM to effectively discharge its functions under the law, it was allowed to "take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate, and all other disposable assets."4 On the manner of privatization of NPC assets, the EPIRA provides:

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

(a) The privatization value to the national government of the NPC generation assets, real estate, other disposable assets as well as IPP contracts shall be optimized;

(b) The participation by Filipino citizens and corporations in the purchase of NPC assets shall be encouraged;

In the case of foreign buyers at least seventy-five percent (75%) of the funds used to acquire NPC-generating assets and generating contracts shall be inwardly remitted and registered with the Bangko Sentral ng Pilipinas.

x x x x

(d) All generation assets and IPP contracts shall be sold in an open and transparent manner through public bidding;

x x x x

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

(i) NPC may generate and sell electricity only from the undisposed generating assets and IPP contracts of PSALM Corp.: Provided, That any unsold capacity shall be privatized not later than eight (8) years from the effectivity of this Act.

Pursuant to the EPIRA, PSALM is currently the owner of the subject Angat Dam complex, including AHEPP.

On January 11, 2010, PSALM officially opened the process of privatization of AHEPP, through the publication of an Invitation to Bid in local broadsheets on January 11, 12, and 13, 2010.5 This notice was also posted on its website.6In the Invitation to Bid, interested parties were required to submit a Letter of Interest (LOI) which expresses the interested party’s intention to participate in the bidding, a Confidentiality Agreement and Undertaking with PSALM, and a non-refundable participation fee of two thousand five hundred US dollars (USD 2,500).

The bidding package indicated that the prospective bid shall cover the sale and purchase of the asset, and operations and maintenance by the buyer of the non-power components, to wit:

The four main units each have a rated capacity of 50 MW. Main units 1 and 2 were commissioned in 1967 and main units 3 and 4 in 1968. Three auxiliary units each have a rated capacity of 6 MW and were commissioned as follows: auxiliary units 1 and 2 in 1967 and auxiliary unit 3 in 1978. It is the foregoing 4 main units and 3 auxiliary units with an aggregate installed capacity of 218 MW that is the subject of the Bid.

x x x x

The Asset includes all the items listed in Schedule A (List of Assets). All other assets which may be found on the site or with the Asset but are not listed in Schedule A do not form part of the Asset. The Non-Power Components are more particularly described in Schedule B (Non-Power Components). The Information Memorandum contained in the Bidding Package also contains relevant information on the Asset and Non-Power Component. The final list of the Asset and the description of the Non-Power Components shall be contained in the Final Transaction Documents.7 (Emphasis in the original.)

The bidding package also contains the following conditions with respect to the proposed sale of AHEPP:

The Asset shall be sold on an "AS IS, WHERE IS" basis.

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

The priority of water usage under Philippine Law would have to be observed by the Buyer/Operator.

The Winning Bidder/Buyer shall be required to enter into an operations and maintenance agreement with PSALM for the Non-Power Components in accordance with the terms and conditions of the O&M Agreement to be issued as part of the Final Transaction Documents. The Buyer, as Operator, shall be required to operate and maintain the Non-Power Components at its own cost and expense.

PSALM is currently negotiating a water protocol agreement with various parties which are currently the MWSS, NIA, National Water Resources Board and NPC. If required by PSALM, the Buyer will be required to enter into the said water protocol agreement as a condition to the award of the Asset.

The Buyer shall be responsible for securing the necessary rights to occupy the underlying Asset.8

On February 17, 2010, a pre-bid conference was conducted between PSALM, prospective bidders, and government agencies affected by the privatization.9

On April 5, 2010, PSALM declared the bids of the following as complying with the bidding procedures: (1) DMCI Power Corporation (DMCI); (2) First Gen Northern Energy Corporation (First Gen); (3) Korean Water Resources Corporation (K-Water); (4) San Miguel Corporation (SMC); (5) SN Aboitiz Power-Pangasinan, Inc. (SN Aboitiz); and (6) Trans-Asia Oil & Energy Development Corporation (Trans-Asia). Five other bidders were, however, disqualified for failure to comply with the pre-qualification requirements.10

On April 16, 2010, PSALM approved the Asset Purchase Agreement (for AHEPP) and the Operations & Maintenance Agreement (for the Non-Power Components) for the public bidding.11 Following the opening and evaluation of the bid envelopes of the six qualifying firms on April 28, 2010, the PSALM Bids and Awards Committee opened the bid envelopes of the six qualifying firms, and found their respective bids as follows:

Korean Water Resources Corporation USD 440,880,000

First Gen Northern Energy Corporation 365,000,678

San Miguel Corporation 312,500,000

SN Aboitiz Power-Pangasinan, Inc. 256,000,000

Trans-Asia Oil & Energy Development Corporation 237,000,000

DMCI Power Corporation 188,890,000

On May 5, 2010, after the post-bid evaluation, the Board of Directors of PSALM approved and confirmed the issuance of a Notice of Award in favor of K-Water.12 In its Manifestation in lieu of Comment,13 K-Water opted not make any statement as to its being a Korean state-owned corporation. PSALM, however, in its Comment14 admitted that K-Water is a Korean state-owned corporation.

In the instant petition, petitioners assert that the sale of AHEPP is imbued with public interest, 97% of the water supply of Metro Manila sourced as it were directly from Angat Dam. They argue that the physical control and management of Angat Dam, as well as the security of the water supply, are matters of transcendental interest to them as residents of Metro Manila. In spite of this, petitioners claim, PSALM kept the bidding process largely confidential, and information over such process withheld from the public. Further, they maintain that the bidding process for AHEPP undermined the elements of the right to water.15 Lastly, they argue that PSALM, in grave abuse of its discretion, overstepped the Constitution and the Water Code in allowing foreign-owned corporation, K-Water, to participate in the bidding, and later favoring it with a Notice of Award.16

They, thus, urge the nullification of the same, and the enjoinment of the privatization of AHEPP.

On May 24, 2010, this Court issued a Status Quo Ante Order,17 directing the parties and all concerned to maintain the status quo prevailing before the filing of the petition, until further orders from the Court.

Respondents Trans-Asia, DMCI, SN Aboitiz, and SMC forthwith filed their respective Comments,18 all averring that they are merely nominal parties to the petition, and thus are not real parties-in-interest.

In its Comment19 dated June 17, 2010, respondent NIA disclaimed involvement in the bidding conducted by PSALM concerning AHEPP, adding that its interest is "only limited to the protection of its water allocation drawn from the Angat Dam as determined by the National Water Resources Board (NWRB)."

In its Comment20 dated June 22, 2010, respondent PSALM stressed its compliance with the relevant laws and the Constitution in conducting the bidding process for AHEPP, describing the process as open and transparent manner, and with full respect to the limitations set forth in the Constitution. It further alleged that contrary to the

petitioners’ posture, the agreements will have no effect on the right to water, as they do not involve the sale of Angat Dam itself.

On the procedural aspect, PSALM claimed that the petitioners have no standing to file the petition, and that a petition for certiorari is not the proper remedy, PSALM not exercising discretionary powers. Further, they take the view that the controversy has been rendered moot and academic by the issuance of a Notice of Award. In any case, they added, the petition poses a political question over which the Court has no jurisdiction.

Vis-à-vis the AHEPP and Angat Dam, PSALM argued that it is the sole owner of the two facilities, by virtue of the transfer of ownership from NPC under Sec. 49 of the EPIRA. Neither MWSS nor NIA, it said, was a co-owner of the said structures. Further, transfer of ownership of AHEPP to MWSS or NIA would not be in accordance with the law, since the respective charters of MWSS and NIA do not have provisions for their operating a hydro-power facility like AHEPP.

Finally, PSALM, citing DOJ Opinions to the effect that there is no constitutional barrier to the operation of a power plant by a foreign entity, would assert that the award of the AHEPP to K-Water is in accordance with the law, since AHEPP, as a generation asset, may be sold to a foreign entity.

Respondent First Gen, in its Comment21 dated June 23, 2010, supported the position of PSALM with respect to the AHEPP being subject to privatization under the terms of the EPIRA. AHEPP, it concurred, is merely one facility in the Angat Complex, exclusively owned and operated by NPC. Further, it claimed that the watershed is under the exclusive jurisdiction and control of NPC, pursuant to Executive Order No. (EO) 258,22 which provides:

Section 2. NPC’s jurisdiction and control over the Angat Watershed Reservation is hereby restored. Accordingly, NPC shall be responsible for its management, protection, development and rehabilitation in accordance with the provisions of Sec. 3(n) of Republic Act No. 6359, as amended, Sec. 2 of Executive Order No. 224 and the preceding Section.

For its part, respondent MWSS, in its Comment23 of July 19, 2010, stated that AHEPP is not like any other hydro-electric power plant, because while its power contribution to the Luzon grid is negligible, its water supply to the commercial and domestic needs of the clientele of MWSS is incontestable and indispensable. Pushing this point, MWSS would argue that the case is really about the virtual surrender of the control and operation of the Angat Dam and Reservoir to a foreign country, thereby impinging on the water supply of twelve million Filipinos.

Respondent MWSS further asserted that, by statutory mandate, part of the waterworks that are within its jurisdiction and under its control and supervision ipso jure are the Angat Dam, Dykes and Reservoir. This is by virtue of Sections 1 and 3 of the MWSS Charter24 which vests MWSS with the powers of control, supervision, and regulation of the use of all waterworks systems, including dams, reservoirs, and other waterworks for the purpose of supplying water to inhabitants of its territory. It claimed that in the exercise of its jurisdiction over Angat Dam, it even incurred expenses for its upkeep and maintenance.

MWSS related that upon the passage of EPIRA, it wrote PSALM informing the latter of its desire to acquire ownership or control, upon payment of just compensation, over

AHEPP. In this regard, MWSS draws attention to the support it got for its desire from the Department of Public Works and Highways (DPWH) and various local government units.

In 2006, PSALM also acknowledged the need to come up with effective strategies for the implementation of the privatization of AHEPP. MWSS and PSALM thereafter engaged in several discussions over AHEPP and the control and management of AHEPP and Angat Dam. A draft of the Angat Water Protocol was made between MWSS, PSALM, NIA, NPC, and NWRB. However, only MWSS and NIA signed the draft protocol.

MWSS then went on to argue that due to the non-signing of the Water Protocol, respondent PSALM failed to provide safeguards to protect potable water, irrigation, and all other requirements imbued with public interest, in violation of the EPIRA. It then went on to say that the sale of AHEPP to a foreign corporation violates the Constitution. It said that the waters of the Angat River that propel the AHEPP to supply water and irrigation and generate power form part of the National Patrimony. It added that K-Water would probably simply consider AHEPP as another business opportunity, contrary to the role that the Angat Dam Complex plays in the life of the Filipino people. Thus, MWSS prayed for the granting of the petition, and in the alternative, to order PSALM to turn over control and management of AHEPP to MWSS.

Meanwhile, respondent K-Water filed a Manifestation in lieu of Comment, wherein it averred that it merely relied on the mandate and expertise of PSALM in conducting the bidding process for the privatization of AHEPP. It stated that in participating with the bidding process, it was guided at all times by the Constitution and the laws of the Philippines.

Petitioners, in their Consolidated Reply25 dated October 29, 2010, traversed in some detail respondent PSALM’s allegations and supportive arguments on the issues of legal standing, mootness of the petition, and on whether a political question is posed in the controversy. On the matter of mootness, they claimed that the issuance of a Notice of Award does not ipso facto render the case moot, as it is not the final step for the privatization of AHEPP. On the claim that the controversy constitutes a political question, they replied that they have amply argued that PSALM’s exercise of power is limited by the Constitution, the EPIRA, other laws, as well as binding norms of international law. Thus, its acts in conducting the bidding process fall within the expanded jurisdiction of this Court. On the matter of standing, they claimed to have sufficient personality as the issue involves a public right. Moreover, they invoked the transcendental importance doctrine and the rule on liberality when it comes to public rights.

And on the matter of how PSALM conducted the bidding, the petitioners reiterated their contention that PSALM ran roughshod over the public’s right to be informed of the bidding process, the terms and conditions of the privatization, the bidding procedures, minimum price, and other similar information. They related that Initiatives for Dialogue and Empowerment through Alternative Legal Services, Inc.’s (IDEAL’s) request for information on the winning bidder was unheeded, with PSALM merely referring the matter to the counsel of K-Water for appropriate action.

On the matter of water rights, they related that the provisions of the APA itself negate PSALM’s contention that it is erroneous to conclude that water rights will be necessarily transferred to respondent K-Water as a result of the AHEPP. They claimed that this is a wanton disregard of the provisions of the Water Code.

While conceding that Angat Dam is not being sold, petitioners nonetheless maintain that, by the terms of the Agreements in question, the control over Angat Dam, among other non-power components will also be given to the buyer. This, taken with the fact that the Water Protocol continues to be unsigned, the petitioners argue, leads to no other conclusion except PSALM’s failure to provide safeguards to ensure adequate water supply coming from Angat Dam. This, they claimed, would result in the winning K-Water having complete control over the entire Angat Dam Complex.

As a counterpoint, particularly to the allegations of MWSS in its Comment, respondent PSALM, in its Comment,26stated that the non-signing of the Water Protocol was merely due to its observance of this Court’s Status Quo Ante Order. It claimed that MWSS admitted participating, along with various stakeholders, in the discussions over AHEPP, through the various meetings and correspondences held relative to the drafting of the Memorandum of Agreement on the Angat Water Protocol.

On the issue of jurisdiction over Angat Dam, PSALM replied that MWSS never exercised control and jurisdiction over Angat Dam. The arguments of MWSS, so PSALM claims, are based on the faulty characterization of EPIRA as a general law and the MWSS Charter as a special law.

Further, PSALM stressed that its mandate under the EPIRA is to privatize the assets of NPC, i.e., to transfer ownership and control thereof to a private person or entity, not to another government entity.

PSALM also reiterated that AHEPP may be sold to a foreign entity, in accordance with the policy reforms espoused by EPIRA, i.e., to enable open access in the electricity market and then enable the government to concentrate more fully on the supply of basic needs of the people. Even assuming that the transfer of AHEPP to MWSS is allowed under EPIRA, the same would not serve the objective of EPIRA of liquidating all of the financial obligations of NPC.

The Issues

1.

WHETHER THE PETITIONERS AVAILED OF THE PROPER REMEDY BY FILING THIS PETITION FOR CERTIORARI AND PROHIBITION.

2.

WHETHER THE PETITION HAS BEEN RENDERED MOOT AND ACADEMIC BY THE ISSUANCE OF A NOTICE OF AWARD IN FAVOR OF RESPONDENT K-WATER ON MAY 5, 2010

3.

WHETHER THE PETITION INVOLVES A POLITICAL QUESTION

4.

WHETHER THE PETITIONERS HAVE LEGAL STANDING TO FILE THE INSTANT PETITION

5.

WHETHER THE PETITIONER’S RIGHT TO INFORMATION HAS BEEN VIOLATED BY THE PUBLIC RESPONDENT PSALM

6.

WHETHER PETITIONER ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT UNDERTOOK THE PRIVATIZATION OF AHEPP

7.

WHETHER THE PUBLIC RESPONDENT PSALM ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ALLOWED K-WATER TO PARTICIPATE IN THE BIDDING FOR AHEPP, AND LATER AWARDED K-WATER AS THE HIGHEST BIDDER

Discussion

First Issue:Petition for Certiorari and Prohibition as the Proper Remedy

The Court’s jurisdiction over questions of grave abuse of discretion finds expression in Art. VIII, Sec. 1 of the Constitution vesting the Court the power to "determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This expanded power of judicial review allows the Court to review acts of other branches of the government, to determine whether such acts are committed with grave abuse of discretion amounting to lack or excess of jurisdiction.

Grave abuse of discretion generally refers to:

capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.27 (Citations omitted.)

However, not all errors in exercise of judgment amount to grave abuse of discretion. The transgression, jurisprudence teaches, must be "so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law."28

In the case before Us, the petitioners allege that respondent PSALM exceeded its jurisdiction when it allowed K-Water to participate in the bidding for the privatization of AHEPP, and later awarded the contract to it. In its exercise of its mandate under the EPIRA, PSALM exercises not only ministerial, but also discretionary powers. The EPIRA merely provides that the privatization be done "in an open and transparent manner through public bidding,"29suggesting that it is up to PSALM to decide the specific manner and method in conducting the bidding process.

In determining the terms of reference of the public bidding to be conducted, as well as in determining the qualifications of the respective bidders, respondent PSALM exercises discretionary, not ministerial, powers. Corollarily, when it allowed K-Water to participate in the bidding, and when it eventually awarded the contract to K-Water as the highest bidder, PSALM was engaged not in ministerial functions, but was actually exercising its discretionary powers.

Hence, as a government agency discharging official functions, its actions are subject to judicial review by this Court, as expressly provided under Art. VIII, Sec. 1, par. 2 of the Constitution.

This Court’s jurisdiction over petitions for certiorari under Rule 65 is concurrent with Regional Trial Courts. This jurisdiction arrangement calls for the application of the doctrine of hierarchy of courts, such that this Court generally will not entertain petitions filed directly before it. However, direct recourse to this Court may be allowed in certain situations. As We said in Chavez v. National Housing Authority (NHA):30

Such resort may be allowed in certain situations, wherein this Court ruled that petitions for certiorari, prohibition, mandamus, though cognizable by other courts, may directly be filed with us if the redress desired cannot be obtained in the appropriate courts or where exceptions compelling circumstances justify availment of a remedy within and calling for the exercise of this Court’s primary jurisdiction. (citation omitted)

As in Chavez, herein petitioners have made serious constitutional challenges not only with respect to the constitutional provision on exploitation, development, and utilization of natural resources, but also the primordial right of the people to access to clean water. The matter concerning Angat Dam and its impact on the water supply to the entire Metro Manila area and neighboring cities and provinces, involving a huge number of people has, to be sure, far-reaching consequences. These imperatives merit direct consideration by this Court, and compel us, as now, to turn a blind eye to the judicial structure, like that envisioned in the hierarchy of courts rule, "meant to provide an orderly dispensation of justice and consider the instant petition as a justified deviation from an established precept."31

Second Issue:Mootness of the Petition

PSALM maintains that the petition no longer presents an actual justiciable controversy due to the mootness of the issues presented in the petition, for, as claimed, the petitioners are seeking to enjoin the performance of an act that it has already performed, i.e., that of the issuance of a Notice of Award to the highest winning bidder in the public bidding for AHEPP.32

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

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

Third Issue:Application of the Political Question Doctrine

Political questions, as defined in Tañada v. Cuenco,33 refer to:

those questions which, under the Constitution, are to be decided by the people in their sovereign capacity, or in regard to which full discretionary authority has been delegated to the legislature or the executive branch of the Government.

Simply put, the political question doctrine applies when the question calls for a ruling on the wisdom, and not the legality, of a particular governmental act or issuance.

The political question doctrine has no application in the case here. In the privatization of AHEPP, PSALM’s discretion is circumscribed not only by the provisions of EPIRA and its Implementing Rules and Regulations (IRR), but also by pertinent laws that are consequential and relevant to its mandate of privatizing the power generation assets of NPC. Needless to stress, PSALM is duty bound to abide by the parameters set by the Constitution. In case it violates any existing law or the Constitution, it cannot hide behind the mantle of the political question doctrine, because such violation inevitably calls for the exercise of judicial review by this Court.

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

Respondent PSALM’s contention that the petition partakes of the nature of a collateral attack on EPIRA34 is misplaced. Petitioners’ challenge is not directed, as it were, against the wisdom of or the inherent infirmity of the EPIRA, but the legality of PSALM’s acts, which, to the petitioners, violate their paramount constitutional rights. This falls squarely within the expanded jurisdiction of this Court.

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

We would still not be precluded from resolving it under the expanded jurisdiction conferred upon us that now covers in proper cases even political questions (Daza v. Singson, 180 SCRA 496), provided naturally, that the question is not solely and exclusively political (as when the Executive extends recognition to a foreign government) but one which really necessitates a forthright determination of constitutionality, involving as it does a question of national importance.

Fourth Issue:Legal Standing of Petitioners

The petitioners have sufficient locus standi to file the instant petition.

The petitioners raise questions relating to two different provisions of the Constitution, to wit: (1) the right to information on matters of public concern36 and (2) the limitation on the exploration, development, and utilization of natural resources to Filipino citizens and corporations and associations at least sixty per centum of whose capital is owned by such citizens.37

On the first constitutional question, the petition urges the Court to compel PSALM to disclose publicly the details and records of the Agreements with K-Water. On the second issue, the petition seeks to declare the Agreements as unconstitutional, for violating the constitutional limitation that only Filipino citizens and Filipino corporations may engage in the exploration, development, and utilization of natural resources.

Where the issue revolves around the people’s right to information, the requisite legal standing is met by the mere fact that the petitioner is a citizen. The Court said as much in Akbayan Citizens Action Party v. Aquino:38

In a petition anchored upon the right of the people to information on matters of public concern, which is a public right by its very nature, petitioners need not show that they have any legal or special interest in the result, it being sufficient to show that they are citizens and, therefore, part of the general public which possesses the right. (Emphasis supplied.)

Of the same tenor is the Court’s pronouncement in Guingona, Jr. v. Commission on Elections:39 "If the petition is anchored on the people’s right to information on matters of public concern, any citizen can be a real party in interest."

Here, the members of the petitioner-organizations are Filipino citizens. In view of the relevant jurisprudence on the matter, that fact alone is sufficient to confer upon them legal personality to file this case to assert their right to information on matters of public concern.

On the second constitutional question, on the constitutional limitation on the exploration, development, and utilization of natural resources, the rule on locus standi is not sufficiently overcome by the mere fact that the petitioners are citizens. The general rule applies and the petition must show that the party filing has a "personal stake in the outcome of the controversy."40 As stated in Telecommunications and Broadcast Attorneys of the Philippines, Inc., v. COMELEC,41 "there must be a showing that the citizen personally suffered some actual or threatened injury arising from the alleged illegal official act." Thus, petitioners here technically lack the requisite legal standing to file the petition as taxpayers, as they have no direct and personal interest in the controversy.

The above notwithstanding, the petitioners have sufficiently crafted an issue involving matters of transcendental importance to the public. Thus, the technical procedural rules on locus standi may be set aside to allow this Court to make a pronouncement on the issue. We have held before that the Court:

has discretion to take cognizance of a suit which does not satisfy the requirement of legal standing when paramount interest is involved. In not a few cases, the Court has adopted a liberal attitude on the locus standi of a petitioner where the petitioner is able to craft an issue of transcendental significance to the people.42

Here, the interest of the petitioners is inchoate in that neither they as organizations nor their respective members will suffer any direct injury in the allowing of a foreign corporation to utilize Philippine water resources. As residents of Metro Manila, the consequences of the privatization of AHEPP will have an impact on the petitioners, albeit not the direct injury contemplated by law.

The issues they have raised, including the effect of the Agreements on water security in Metro Manila, and the significance of Angat Dam as part of the Angat-Ipo-La Mesa system, is, however, a matter of transcendental importance. Hence, the technical rules on standing may be brushed aside, and enable this Court to exercise judicial review.

Fifth Issue:Alleged Violation of Petitioners’ Right to Information

Petitioners fault PSALM for failing to provide them with information on the details of the transaction that PSALM was entering into, in breach of their constitutional right to information regarding matters of public concern. In particular, petitioners rue that the Invitation to Bid published by PSALM did not specify crucial information related to the sale of the water facility, including the terms and conditions of the disposition, the qualification of bidders, the minimum price, and other basic details.43 They allege that PSALM should have publicly disclosed such crucial information on the privatization of AHEPP, pursuant to its legal obligation to conduct the bidding in an open and transparent manner.

As a counter-argument, PSALM states that it had discharged its duty of disclosure when it publicly disseminated information regarding the privatization of AHEPP, effected not only through the publication of the Invitation to Bid, but right "from the very start of the disposition process."44

First, PSALM points out, it wrote the Regional Director of the National Commission on Indigenous Peoples (NCIP), informing him of the planned disposition of AHEPP, and inviting him to a meeting to discuss matters related to the concerns of indigenous peoples in the area. Then, it conducted a forum in a hotel, with various stakeholders in attendance, "to provide them an opportunity to share relevant information and to thoroughly discuss the structure and pertinent provisions of the sale."45 Third, it also published the relevant information on its website, in the form of press releases.

On April 20, 2010, the petitioners sent a letter to respondent PSALM requesting certain documents and information relating to the privatization of AHEPP. This request was denied, however, allegedly due to a violation of the bidding procedures. In its letter dated April 30, 2010, PSALM stated that it can only release such documents to persons and entities which submitted a Letter of Interest, paid the participation fee, and executed a Confidentiality Agreement and Undertaking.

On May 14, 2010, the petitioners sent a second letter specifically requesting for detailed information on the winning bidder, including its company profile, contact person or responsible officer, office address and Philippine registration. PSALM replied, in a letter dated May 19, 2010, that the petitioner’s request has been referred to the counsel of K-Water.

The people’s right to information is based on Art. III, Sec. 7 of the Constitution, which states:

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

The policy of public disclosure and transparency of governmental transactions involving public interest enunciated in Art. II, Sec. 28 of the Constitution complements the right of the people to information:

Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest.

The purpose of these two constitutional provisions, as we observed in Chavez v. Public Estates Authority, is:

to promote transparency in policy-making and in the operations of the government, as well as provide the people sufficient information to exercise effectively other constitutional rights. These twin provisions are essential to the exercise of freedom of expression. x x x Armed with the right information, citizens can participate in public discussions leading to the formulation of government policies and their effective implementation. An informed citizenry is essential to the existence and proper functioning of any democracy.46

This right to information, however, is not without limitation. Fr. Joaquin Bernas S.J. notes that the two sentences of Section 7 guarantee only one general right, the right to information on matters of public concern. The right to access official records merely implements the right to information.

Thus, regulatory discretion must include both authority to determine what matters are of public concern and authority to determine the manner of access to them.47

We have sufficiently elucidated the matter of right to information in Chavez, where We said:

We must first distinguish between information the law on public bidding requires PEA to disclose publicly, and information the constitutional right to information requires PEA to release to the public. Before the consummation of the contract, PEA must, on its own and without demand from anyone, disclose to the public matters relating to the disposition of its property. These include the size, location, technical description and nature of the property being disposed of, the terms and conditions of the disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare all these data and disclose them to the public at the start of the disposition process, long before the consummation of the contract, because the

Government Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding or review committee is not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals. However, once the committee makes its official recommendation, there arises a "definite proposition" on the part of the government. From this moment, the public’s right to information attaches, and any citizen can access all the non-proprietary information leading to such definite proposition. In Chavez v. PCGG, the Court ruled as follows:

"Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain to definite propositions of the government, not necessarily to intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier – such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information." (Emphasis supplied.)

The right covers three categories of information which are "matters of public concern," namely: (1) official records; (2) documents and papers pertaining to official acts, transactions and decisions; and (3) government research data used in formulating policies. The first category refers to any document that is part of the public records in the custody of government agencies or officials. The second category refers to documents and papers recording, evidencing, establishing, confirming, supporting, justifying or explaining official acts, transactions or decisions of government agencies or officials. The third category refers to research data, whether raw, collated or processed, owned by the government and used in formulating government policies.

x x x x

We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order. Congress has also prescribed other limitations on the right to information in several legislations. (Emphasis supplied, citations omitted.)

We further explored the matter of right to information in Chavez v. NHA, where We ruled that:

x x x Government agencies, without need of demand from anyone, must bring into public view all the steps and negotiations leading to the consummation of the transaction and the contents of the perfected contract. Such information must

pertain to "definite propositions of the government," meaning official recommendations or final positions reached on the different matters subject of negotiation. The government agency, however, need not disclose "intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the exploratory stage." The limitation also covers privileged communication like information on military and diplomatic secrets; information affecting national security; information on investigations of crimes by law enforcement agencies before the prosecution of the accused; information on foreign relations, intelligence, and other classified information.48

Even without any demand from anyone then, it behooved PSALM to publicly disclose, information regarding the disposition of AHEPP. Here, PSALM routinely published news and updates on the sale of AHEPP on its website.49It also organized several forums where various stakeholders were apprised of the procedure to be implemented in the privatization of AHEPP. As there is yet no sufficient enabling law to provide the specific requirements in the discharge of its duty under the Constitution, these unilateral actions from PSALM must be construed to be a sufficient compliance of its duty under the Constitution. As We observed in Chavez v. NHA:

It is unfortunate, however, that after almost twenty (20) years from birth of the 1987 Constitution, there is still no enabling law that provides the mechanics for the compulsory duty of government agencies to disclose information on government transactions. Hopefully, the desired enabling law will finally see the light of day if and when Congress decides to approve the proposed "Freedom of Access to Information Act." In the meantime, it would suffice that government agencies post on their bulletin boards the documents incorporating the information on the steps and negotiations that produced the agreements and the agreements themselves, and if finances permit, to upload said information on their respective websites for easy access by interested parties. Without any law or regulation governing the right to disclose information, the NHA or any of the respondents cannot be faulted if they were not able to disclose information relative to the SMDRP to the public in general.50

It must be noted however, that aside from its duty to disclose material information regarding the sale of AHEPP, which, We hold, it had sufficiently discharged when it regularly published updates on its website, PSALM further has the duty to allow access to information on matters of public concern. This burden requires a demand or request from a member of the public, to which the right properly belongs. "The gateway to information opens to the public the following: (1) official records; (2) documents and papers pertaining to official acts, transactions, or decisions; and (3) government research data used as a basis for policy development."51

When petitioners’ wrote PSALM a letter of April 20, 2010 requesting certain documents and information relating to the privatization of AHEPP but was denied, PSALM veritably violated the petitioners’ right to information. It should have permitted access to the specific documents containing the desired information, in light of the disclosure of the same information thus made in its website. The documents referred to are neither confidential nor privileged in nature, as the gist thereof had already been published in the news bulletins in the website of PSALM, and as such, access thereto must be granted to the petitioner. On the contrary, the documents requested partake of the nature of official information.

The Court also takes stock of the fact that on May 14, 2010, petitioners requested via another letter specifically requesting detailed information on the winning bidder, including its company profile, contact person or responsible officer, office address

and Philippine registration. By way of reply, PSALM informed the petitioners that their request has been referred to the counsel of K-Water.

PSALM’s reply to the petitioners’ adverted second letter is insufficient to discharge its duty under the Constitution. The reply is evasive, at best. At that stage of the bidding process, PSALM already had possession of and can provide, if so minded, the information requested. As such, there was hardly any need to refer the request to K-Water.

Given the above perspective, the petitioners must be granted relief by granting them access to such documents and papers relating to the disposition of AHEPP, provided the accommodation is limited to official documents and official acts and transactions.

Sixth Issue:The Legality of the Privatization of AHEPP

The mandate of PSALM under EPIRA is clear-privatization sale of NPC generation assets, real estate, and other disposable assets. Toward the accomplishment of this mandate, EPIRA has vested the PSALM with the following powers:

(a) To formulate and implement a program for the sale and privatization of the NPC assets and IPP contracts and the liquidation of NPC debts and stranded contract costs, such liquidation to be completed within the Corporation’s term of existence;

(b) To take title to and possession of, administer and conserve the assets and IPP contracts transferred to it; to sell or dispose of the same at such price and under such terms and conditions as it may deem necessary or proper, subject to applicable laws, rules and regulations;

x x x x

(i) To own, hold, acquire, or lease real and personal properties as may be necessary or required in the discharge of its functions.52

PSALM, as may be noted, was not empowered under the EPIRA to determine which NPC assets are to be privatized. The law merely authorized PSALM to decide upon the specific program to utilize in the disposition of NPC assets, and not the power to determine the coverage of the privatization. The EPIRA itself had laid down which particular assets are to be privatized, and which are not. Sec. 47 thereof provides:

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

x x x x

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

x x x x

(g) The ownership of the Caliraya-Botokan-Kalayaan (CBK) pump storage complex shall be transferred to the PSALM Corporation and shall continue to be operated by NPC.

It is clear from the aforequoted provision that the intention of EPIRA is to include in the privatization program all generating assets, real estate, and other disposable assets of NPC, save those specifically excluded under the same Act. By express provision, only three facilities are excepted from privatization, viz.: Agus and Pulangui Complexes, and the Caliraya-Botokan-Kalayaan pump storage complex, and the assets of the Small Power Utilities Group (SPUG). Nowhere in EPIRA is the AHEPP mentioned as part of the excluded properties. It can, thus, be inferred that the legislative intent is to include AHEPP in the privatization scheme that PSALM will implement.Expresio unius est exclusio alterius.

PSALM is correct in arguing, therefore, that in privatizing AHEPP, it did no more than to perform its mandate under EPIRA. PSALM is also correct in its position that the respective charters of MWSS and NIA do not grant either of them the power to operate a power plant. It is clear that under the EPIRA, the fate of AHEPP is that of being privatized––PSALM neither has discretion to exclude the property from privatization, nor choose to abandon its duty to dispose of them through public bidding. Thus, PSALM committed no grave abuse of discretion in its decision to privatize AHEPP, and in its subsequent acts toward that end.

Petitioners’ prayer to enjoin the privatization sale of AHEPP must therefore, fail. The provisions of EPIRA are determinative of the matter, and where the EPIRA provides that the assets of NPC must be privatized, then the command of the law must reign supreme. This Court must uphold the letter and the spirit of EPIRA, even in light of petitioners’ argument on the possible repercussions of the privatization of AHEPP.

Seventh Issue:The Validity of the APA and O&M agreements

This brings Us to the substantive issue of the case. But first, a brief background on the subject Angat Dam Complex is in order, the assailed Agreements revolving as it were on that enormous infrastructure, its features and operations.

The Angat Dam Complex

The Angat Dam Complex is part of the Anga-Ipo-La Mesa Dam system. Originating from the western flank of the Sierra Madre Mountains, the waters cut through mountainous terrain in a westerly direction and flow to Angat River in San Lorenzo, Norzagaray, Bulacan, where the Angat Dam and Reservoir is located.53

Angat Dam and Reservoir is a multipurpose rockfill dam constructed in 1964-1967, and provides multiple functions:

(1) to provide irrigation to about 31,000 hectares of land in 20 municipalities and towns in Pampanga and Bulacan;

(2) to supply the domestic and industrial water requirements of the residents in Metro Manila;

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

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

The reservoir is 35 km. long when the water surface of 2,300 hectares is at normal maximum pool, and 3 km. wide at its widest point.55 From the reservoir, the water enters the intake tower and is conveyed by the power tunnel to the penstocks and valve chambers, and finally to the turbine runners of the AHEPP.56

AHEPP, meanwhile, is a 246 Megawatts (MW) rated hydroelectric power plant also located in San Lorenzo, Norzagaray, Bulacan. It is part of the Angat Dam Complex and is situated near the Angat Dam, as it relies on the waters coming from the dam to generate power. AHEPP consists of four (4) main units, producing 200 MW of power, and five (5) auxiliary units, producing 46MW of power.57

AHEPP utilizes the waters of Angat Dam for hydropower generation by taking in water from its intake tower. The waters are then conveyed by the power tunnel to the penstocks and valve chambers, and finally to the turbine runners in the AHEPP. Discharge is conveyed to the outlet by the tailrace tunnel.58

From the Angat Dam Complex, the waters may flow in either of two directions. The waters may be directed to Ipo Dam, near its confluence with Ipo River.59 From there, the waters downstream are diverted to the Novaliches Portal and the La Mesa Dam in Quezon City.60 From there, the waters are treated to supply water to end consumers in Metro Manila. The waters may also continue to go through the Balara Treatment Plant, and also finally to end consumers in Metro Manila. The waters coming from Angat Dam may also flow through Bustos Dam in Bustos, Bulacan, where the waters are eventually used for irrigation purposes by the National Irrigation Administration (NIA).61

Nature, Ownership, and Appropriation of Waters

Though of Spanish origin, the doctrine of Jura Regalia was first explicitly enshrined in the 1935 Philippine Constitution which proclaimed, as one of its dominating objectives, the nationalization and conservation of the natural resources of the country.62 Thus, the 1935 Constitution provides in its Sec. 1 of Art. XIII that:

Sec. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State x x x (emphasis supplied)

That this doctrine was enshrined in the Constitution was merely a means to an end, as "state ownership of natural resources was seen as a necessary starting point to secure recognition of the state’s power to control their disposition, exploitation, development, or utilization."63 In Miners Association of the Philippines, Inc. v. Factoran,64this Court found the importance of this limitation in the Constitution, thus:

The exploration, development and utilization of the country's natural resources are matters vital to the public interest and the general welfare of the people. The recognition of the importance of the country's natural resources was expressed as early as the 1984 Constitutional Convention. In connection therewith, the 1986 U.P. Constitution Project observed: "The 1984 Constitutional Convention recognized the importance of our natural resources not only for its security and national defense. Our natural resources which constitute the exclusive heritage of the Filipino nation, should be preserved for those under the sovereign authority of that nation and for their prosperity. This will ensure the country's survival as a viable and sovereign republic." (Emphasis supplied)

The 1973 Constitution also incorporated the jura regalia doctrine in its Sec. 2, Art. XII:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, flora and fauna, and other natural resources are owned by the State. x x x (emphasis supplied)

It was then transposed to the 1987 Constitution, with Sec. 2, Art. XII thereof providing:

Sec. 2 All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. x x x (emphasis supplied)

The 1935, 1973, and 1987 Constitutions uniformly provide that all waters belong to the State. Statutorily, the Water Code reaffirms that "all waters belong to the state."65

Corollary to the principle of state ownership of all waters is the provision limiting the exploration, development, and utilization of such resources to certain individuals and subject to certain restrictions. In the 1935 Constitution, this rule was enunciated, thus:

x x x their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution.66

The 1973 Constitution carried a similar provision, to wit:

Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the Philippines shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital which is owned by such citizens x x x67

The 1987 Constitution couched the limitations a bit differently:

x x x The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. x x x68 (emphasis supplied)

In La Bugal B’laan v. Ramos,69 We reconstructed and stratified the foregoing Constitutional provision, thus:

1. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot be alienated by the State.

2. The exploration, development and utilization (EDU) of natural resources shall be under the full control and supervision of the State.

3. The State may undertake these EDU activities through either of the following:

(a) By itself directly and solely

(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino citizens or corporations, at least 60 percent of the capital of which is owned by such citizens.

The constitutional policy and bias concerning water resources is implemented primarily by the Water Code. It provides that the state may "allow the use or development of waters by administrative concession"70 given in the form of a water permit.71 Article 13 of the Code grants the permit holder the right to appropriate water, "appropriation" being defined under the law as "the acquisition of rights over the use of waters or the taking or diverting of waters from a natural source in the manner and for any purpose allowed by law."72 Finally, the Code limits the granting of water permits only to "citizens of the Philippines, of legal age, as well as juridical persons, who are duly qualified by law to exploit and develop water resources."73

Created to control and regulate the utilization, exploitation, development, conservation and protection of water resources is the National Water Resources Council,74 later renamed National Water Resources Board (NWRB).75The NWRB is the government agency responsible for the granting of water permits, as well as the regulation of water permits already issued.

In fine, the Constitution and the Water Code provide that all waters belong to the State. The State may nevertheless allow the exploration, development, and utilization of such water resources, through the granting of water permits, but only to

qualified persons and entities. And when the Constitution and the Water Code speak of qualified persons, the reference is explicit: Filipino citizens and associations or corporations sixty percent of the capital of which is owned by Filipinos. Such is the protection afforded to Philippine water resources.

The Operations and Maintenance AgreementBy the O & M Agreement, PSALM cedes to K-Water, as operator, the administration, management, operation, maintenance, preservation, repair, and rehabilitation of what the contract considers as the Non-Power Components,76 defined thereunder as "the Angat Dam, non-power equipment, facilities and installations, and appurtenant devices and structures which are particularly described in Annex 1."77 The O & M Agreement is for a period of twenty-five (25) years, renewable for another twenty-five (25) years, maximum, upon mutual and written agreement of the parties.78

As couched, the agreement does not include the operation of watershed area, which shall continue to be under the NPC’s control and administration. However, in case of emergencies and the NPC does not act to alleviate the emergency in connection with its performance of its obligations in the watershed, the operator shall have the option to prevent the emergency, to mitigate its adverse effects on the purchased assets and non-power components, and to undertake remedial measures to address the emergency.79

Article 9 of the O & M Agreement also provides that the buyer/operator, if not organized under Philippine law, warrants that "it shall preserve and maintain in full force and effect its existence as a corporation duly organized under such laws and its qualifications to do business in the

Republic of the Philippines."80 The following is also expressly stipulated: the O & M Agreement is merely "being executed in furtherance of and ancillary to the APA and"81 "shall not survive the termination of the APA."82

The Asset Purchase AgreementThe APA includes the sale of the 218 MW AHEPP on an "as is where is" basis83 to buyer, K-Water. Excluded from the sale are Auxiliary Units 4 and 5, with a rated capacity of 10 MW and 18 MW, respectively. The non-power components of the Angat Dam Complex, including Angat Dam, while not subject to sale under the APA, are covered by the O & M Agreement.

On the matter of water rights, the APA, in its Art. 2.05, provides that the "NPC consents, subject to Philippine Law, to the (i) transfer of the Water Permit to the BUYER or its Affiliate, and (ii) use by the BUYER or its Affiliate of the water covered by the Water Permit."84 The buyer shall then provide NPC with electricity and water free of charge.85This bolsters the claim that control over the waters of Angat Dam is, under the APA, handed over to K-Water.

As in the O & M Agreement, the APA also contains a provision on warranties on the buyer’s qualification to engage in business in the country and to comply "at all times fully comply with Philippine Law."86

Clearly then, the purchase agreement grants the buyer not only ownership of the physical structure of AHEPP, but also the corresponding right to operate the hydropower facility for its intended purpose, which in turn requires the utilization of the water resources in Angat Dam. The use and exploitation of water resources

critical for power generation is doubtless the underlying purpose of the contract involving the sale of the physical structure of AHEPP.

The waters of Angat Dam andReservoir form part of the naturalresources of the PhilippinesBased on the foregoing factual backdrop, I submit that the APA and O & M Agreements, individually or as a package, are themselves infringing on the constitutional imperative limiting the exploration, development, and utilization of the natural resources of the Philippines to Filipino citizens and associations or corporations sixty percent of the capital of which is owned by Filipinos. I also take the view that K-Water was, from the start, disqualified from participating in the bidding for the two projects in question.

Consider:

The waters flowing through Angat River, and eventually to the Angat Dam and Reservoir, form part of the country’s natural resources. There cannot be a substantial distinction between the waters in Angat River, on one hand, and those settling in the Angat Dam and Reservoir, on the other. There is no rhyme or reason to claim that the waters in the dam cease to be part of the protected natural resources envisaged in the Constitution.

First, the fact that an artificial structure was constructed to provide a temporary catchment for the naturally-flowing waters does not necessarily remove the waters from being part of the natural resources of the Philippines. The waters themselves are natural in that it is "brought about by nature, as opposed to artificial means."87

From the spillway gates of the Angat Dam, some of the waters are diverted to Ipo Dam, and others still flow to Bustos Dam. Eventually, the waters passing through Ipo Dam end up in Tullahan River in Metro Manila. If there is any detention of the waters, it is merely temporary, as Angat Dam is not meant to permanently impound the waters. An examination of the flow of waters from Angat River readily shows that the waters go through a contiguous series of dams and rivers, and the waters are not actually extracted from it, when they pass through structures such as the AHEPP.

To say that the waters in the Angat Dam and Reservoir have already been extracted or appropriated by the mere fact that there is a catchment system in Angat Dam would be to make a distinction between the nature of the waters in different parts of this contiguous series. On the contrary, the waters have not been extracted from its natural source, the river and the dam forming a unitary system. The waters naturally flowing through Angat River are the very same waters that are stored in Angat Dam. Their characteristics, quality, and purity cannot be distinguished from each other. It is the mechanisms in AHEPP that permanently extract water from its natural source. Angat Dam merely serves to temporarily impound the waters, which are later allowed to flow downstream.

Were We to hold that the waters in Angat Dam cease to become a natural resource, the same logic would lead to the conclusion that the waters downstream in Ipo Dam are sourced partly from natural resources (i.e. those directly flowing from Ipo River) and partly from artificial sources, since part of the waters passing through Ipo Dam already passed through Angat Dam. By extension, Tullahan River would not be considered a natural resource, as the waters there are sourced from La Mesa Dam. The law could not have intended such absurd distinctions. Lex simper intendit quod convenitrationi. The law always intends that which is agreeable to reason.

Appropriation of water implies beneficial use of the water, for any of the particular purposes enumerated in the Water Code. In the case of Angat Dam, the waters in the dam, so long as they remain in the dam or in the reservoir, carry with them no economic value––they cannot be directly used for any beneficial purpose. They cannot be directly used for any of the purposes specified in the Water Code, including power generation, the intended use of the waters in AHEPP.88

Second, the definition of water in the Water Code is broad enough to cover the waters of Angat Dam. Waters are defined simply as "water under the grounds, water above the ground, water in the atmosphere and the waters of the sea within the territorial jurisdiction of the Philippines."89 The requirement of water permits is also broad enough to cover those coming from Angat Dam, because the only exceptions provided in the Code are waters appropriated by means of hand carried receptacles, and those used for bathing, washing, watering or dipping of domestic or farm animals, and navigation of watercrafts or transportation of logs and other objects by floatation.90

Pursuant to this water permit requirement, the waters of Angat Dam are presently covered by three separate water permits granted to three different entities, all for specific purposes: (1) Water Permit No. 650491 to NIA, for irrigation purposes; (2) Water Permit No. 651292 to NPC, for power purposes; and (3) Water Permit No. 1146293 to MWSS for municipal/industrial purposes. Needless to state, all the entities currently holding water permits over Angat Dam are qualified to hold such permits, both under the Constitution and the Water Code.

The grant by NWRB of permits covering the waters not only within the Angat River but also those already impounded in the dam reveals an intention on the part of the agency to treat the waters of Angat River, including the waters in Angat Dam, as part of the water resources of the Philippines. There is an intention to treat the waters flowing from the river to the dam system as one contiguous system, all falling within the ambit of protection afforded by the Constitution and the Water Code to such water resources. Had NWRB through these years viewed the waters in Angat River as not part of the natural resources of the Philippines when they end up in the dam, how explain the water permits extended covering the waters in the dam itself; it would have suffice to grant a single water permit for the sole purpose of building and operating a dam.

Third, the DOJ Opinions cited by PSALM are not authoritative statements of the rule on the matter. Indeed, the DOJ Opinion94 saying that the agreement between PSALM and K-Water does not violate the constitution is not binding on this Court. Its probative value is limited to just that, an opinion.

The opinion of the DOJ that the waters to be used in the operation of AHEPP have already been extracted is based on a misapplication of a US Supreme Court ruling. The cited U.S. v. State of New York,95 concerning the Saratoga Springs Reservation, is not in point with the facts here. In that case, the issue revolves around the taxability of the bottling for sale and selling of mineral and table water from Saratoga Springs by the State of New York, Saratoga Springs Commission, and Saratoga Springs Authority. The US Supreme Court there ruled that they are subject to taxation, because the activity was a business enterprise and not merely a sale of natural resources.

The US Supreme Court noted that the State: "took its natural resources and, through a bottling process, put those resources into a preserved condition where they could be sold to the public in competition with private waters."96

The process of bottling water involves the permanent extraction of water from its natural source. There lies the difference. Here, there is no actual extraction of waters, as the waters remain in the river-dam system. What we have here is the operation of a power plant using resources that originate from Angat River and held in the Angat Dam and Reservoir.

The DOJ further opined that:

The fact that under the proposal, the non-power components and structures shall be retained and maintained by the government entities concerned is, to us, not only a sufficient compliance of constitutional requirement of "full control and supervision of the State" in the exploration, development, and utilization of natural resources. It is also an enough safeguard against the evil sought to be avoided by the constitutional reservation x x x97

This opinion is based on a clear misapprehension of facts. A cursory reading of the express terms of the O & M Agreement reveals that the operation and management of Angat Dam is being handed over the operator, K-Water. There is no such safeguard anywhere in the APA and O & M Agreement.

K-Water is disqualified fromparticipating in the biddingPSALM argues that NPC’s obligation to transfer its water permit is subject to a suspensive condition, i.e., K-Water has to become a Filipino corporation, to become the transferee of NPC of its water permit.98 This is an implied admission that PSALM knew of K-Water’s disqualification to participate in the bidding. PSALM knew that the use of waters is indispensable in the operation of the power plant, and it goes against the spirit of EPIRA to sell the power plant to an entity which is legally barred from operating it. PSALM, therefore, should have disqualified K-Water at the outset.

It is unfortunate that instead of disqualifying K-Water, PSALM allowed the former to bid and eventually inked an Agreement with it on the operation of Angat Dam. That PSALM allowed this course of events to transpire constitutes a grave abuse of discretion.

The Agreements Violate the ConstitutionThe APA transfers ownership of the Angat Hydro-electric Power Plant to the buyer, K-Water. To operate this power plant, K-Water, as the new owner, will have to utilize the waters coming from Angat Dam, as it is the energy generated by the downstream of water that will be used to generate electricity. The use of natural resources in the operation of a power plant by a foreign corporation is contrary to the words and spirit of the Constitution.

The O & M is more straightforward, in that it expressly authorizes the operator, K-Water, to administer and manage non-power components, which it defines as "the Angat Dam, non-power equipment, facilities and installations, and appurtenant devices and structures which are particularly described in Annex 1."99 While it is true, as PSALM argues, that Angat Dam itself is not being sold, the operation and management of the same is being handed to a wholly foreign corporation. This is cannot be countenanced under the express limitations in Constitution and the Water Code.

In fine, the Agreements between PSALM and K-Water necessarily grant to corporation wholly owned by a foreign state not just access to but direct control over the water

resources of Angat Dam, and consequently some portions of the Angat River as well. On this ground, both agreements are constitutionally and statutorily infirm. They must be nullified.

The ponencia would rule toward the validity of the Agreements, but would disallow the transfer or assignment of NPC of its Water Rights under its Water Permit to K-Water. NPC retains control over the flow of waters (presumably by maintaining control over the spillway gates of Angat Dam), while K-Water is given the right to use the waters coming from the dam to generate electricity.

The Water Permit of NPC itself however, states that the right given to NPC is limited to power generation, and precisely for the purpose of operating the AHEPP.100 It is not given complete control over the waters of Angat River and Angat Dam, because the waters there are covered by separate water permits for different purposes. What NPC is actually giving up to K-Water is its right to utilize the waters of Angat River for power generation, the very right granted to it under its Water Permit. This, it cannot do, because of an express prohibition under the Water Code and the Constitution.

It would be splitting hairs to differentiate between the control of waters by the NPC and the K-Water’s right to use the water for power generation. Water Permit No. 6512 granted to NPC will be rendered inutile if NPC assigns its right to use the water for power generation. That ensuing arrangement has the same effect as an assignment or transfer. To allow K-Water to utilize the waters without a corresponding water permit indirectly circumvents the regulatory measures imposed by the Water Code in appropriating water resources.

Thus, the Agreement concerning water rights is in direct contravention of the Water Code and Sec. 2, Art. XII of the Constitution. K-Water, being a wholly foreign-owned corporation, is disqualified from obtaining water permits and from being the transferee or assignee of an existing Water Permit. It is further barred from entering into any agreement that has the effect of transferring any of the water rights covered by existing water permits.

PSALM argues on this point that it will not be K-Water, as the operator of Angat Dam, which will extract or utilize the water from its natural source. They allege that it will be NPC, MWSS, and NIA that will continue to utilize and extract water, store them in the reservoir, then pass through Angat Dam where the operator, K-Water, will be subjected to rules on water releases.101

PSALM would have Us believe that the operator of Angat Dam will merely play a passive role in the control of the waters in Angat Dam, yielding instead to MWSS, NIA and NPC, the last being the very entity which grants the operator its rights under its water permit. This argument is hardly convincing, if not altogether implausible. It is foolhardy to believe that NPC, the assignor of the water permit, would get to retain some control over the water, much less retain the right to extract the waters. This goes contrary to the very nature of an assignment. Once it assigns its water permit to the operator, it necessarily relinquishes any right it may have under the water permit. In fact, if it does further engage in water-related activities in Angat River and Angat Dam, it will be violating the Water Code for engaging in appropriation of water without the requisite permit.

Moreover, PSALM made an express admission that it is not NPC alone that engages in water-related activities in Angat Dam, as MWSS and NIA, pursuant to their respective water permits, engage in appropriation of water in Angat Dam. Even PAGASA engages in activities within the dam complex. Yet the O&M Agreement

readily grants the operator the power to administer the entire Dam, without consent from the other agencies operating in Angat Dam, as the Water Protocol between the concerned agencies and entities has yet to be finalized.

Power generation may not coveredby the nationality restrictions, butuse of natural resources for powergeneration is subject to thelimitation in the ConstitutionWhile it is established that power generation is not considered a public utility operation,102 thus not subject to the nationality requirement for public utilities, the operator of a power plant is nevertheless bound to comply with the pertinent constitutional provision when using natural resources of the Philippines, including water resources. As already discussed, the operation of AHEPP necessarily requires the utilization and extraction of water resources. Thus, its operation should be limited to Filipino citizens and corporations or associations at least sixty per centum of whose capital is owned by such citizens, following the clear mandate of the Constitution.

PSALM has no power to cede control over Angat DamThe O&M Agreement, in no uncertain terms, confers the operation of Angat Dam, among other non-power components, to the operator; that is, the buyer of AHEPP. But by express admission103 of respondent PSALM, the following governmental agencies jointly operate within the Angat Dam Complex:

First, NWRB controls the exploitation, development, and conservation of the waters. It regulates the water from Angat River and allocates them to the three water permit holders, NPC, MWSS, and NIA.

Second, NIA appropriates the water coming from the outflow of the main units of AHEPP to Bustos Dam, for use in its irrigation systems.

Third, MWSS appropriates water coming from the outflow of the auxiliary units of AHEPP, for domestic and other purposes through its two concessionaires, Manila Water Company, Inc. and Maynilad Water Services, Inc.

Fourth, PAGASA uses its facilities located within the Angat Complex to forecast weather in the area, forecasts which are vital to the operation of the complex itself.

Fifth, the Flood Forecasting and Warning System for Dam Operations (NPC-FFWSDO) is responsible for the opening of the spillway gates during the rainy season. It has sole authority to disseminate flood warning and notifies the public, particularly those residing along the riverbanks, during spilling operation.

Sixth, the NPC-Watershed is responsible for preserving and conserving the forest of Angat Watershed, vital to the maintenance of water storage in the Dam.

The O&M Agreement hands over to the operator, lock, stock, and barrel, the operation of the entire Angat Dam, among other non-power components within the Angat Dam Complex, to K-Water. This agreement undermines the capacity and power of the various governmental agencies to operate within the dam, as the operation thereof is being handed over to a private entity.

The distinction that PSALM intends to create is more illusory than real. The O&M Agreement is explicit in handing over the operation of the dam to the operator/buyer of AHEPP. There is an utter lack of supposed protocols in the management of water between the operator and the various government agencies, as there is yet no finalized Water Protocol. The provisions of the O&M Agreement by themselves unreasonably limit the powers and responsibilities of the different government agencies involved insofar as control of the waters of Angat Dam is concerned. Their participation in the finalization of the Water Protocol is already unjustly limited in that the provisions they may propose to include in the Protocol must respect the powers already given to the operator in the O&M Agreement.

This may result in dangerous consequences, as the operator can effectively inhibit the responsible governmental agencies from conducting activities within Angat Dam––activities that are vital not only to those entities with operation within Angat Dam, but also to the general public who will suffer the consequences of improper management of the waters in Angat Dam. In the event of unnatural swelling of the waters in the dam, for purposes of public accountability, the proper government agencies should be the ones to manage the outflow of water from the dam, and not a private operator.

To require the buyer to operate Angat Dam and the non-power components is null and void. The operation must always be in the hands of the government. The buyer can only be obliged to maintain the non-power components, but still under the control and supervision of the government.

The flow of waters to and from Angat Dam must at all times be within the control of the government, lest it lose control over vital functions including ensuring water security and flood control. Water security of the consuming public must take precedence over proprietary interests such as the operation of a power plant. Flood control, an increasingly important government function in light of the changing times, should never be left to a private entity, especially one with proprietary interests.

The operation of Angat Dam not only involves the utilization and extraction of waters, but also important government functions, including flood control, weather forecasting, and providing adequate water supply to the populace. Had it only been the former, the government under the Constitution is permitted to enter into joint venture agreements with those entities qualified under Sec. 2, Art. XII of the Constitution. However, the latter are necessary government functions which the government cannot devolve to private entities, including Filipino citizens and corporations.

It leads Us then to conclude that the pivotal provisions of the O&M Agreement entered into with K-Water, specifically those referring to the operation of Angat Dam, are repugnant to the letter and spirit of the 1987 Constitution.104 The control and supervision of such areas must at all times be under the direct control and supervision of the government.

The maintenance of the dam, however, is a different matter. It is a proprietary function that the government may assign or impose to private entities. In the case here, We find it just to impose such duty to maintain the facility to the buyer of AHEPP, as it is in the best interest of the operations of AHEPP to ensure the optimal conditions of the structures of the dam. The performance of this duty, however, must still be under the supervision of the government.

In view of the urgency and time constraints in the privatization of AHEPP, PSALM has the option to award the sale of AHEPP to any of the losing qualified bidders, provided that the Angat Water Protocol is executed and signed by all the concerned government agencies and that the

Operations & Maintenance Agreement shall contain the provision that the operation of the Angat Dam, and the non-power components shall remain with the government while the maintenance and repair of the Dam and other non-power components shall be shouldered by the winning bidder, under the supervision and control of the government.

For the foregoing reasons, I vote to GRANT the Petition. The following dispositions are in order:

(1) PSALM should FURNISH the petitioners with copies of official documents, acts, and records relating to the bidding process for AHEPP;

(2) The award by PSALM of the AHEPP to K-Water is NULL AND VOID and UNCONSTITUTIONAL, as K-Water is DISQUALIFIED from participating in the bidding to privatize AHEPP. Accordingly, the APA and O&M Agreement entered into between PSALM and K-Water should be declared NULL AND VOID for being repugnant to Sec. 2, Art. XII of the Constitution; PSALM should be PERMANENTLY ENJOINED from further pursuing the sale of AHEPP in favor of K-Water; and from further pursuing the sale of AHEPP in favor of K-Water; and

(3) ONLY Filipino citizens and corporations at least sixty per centum (60%) of whose capital is owned by Filipinio citizens are QUALIFIED to participate in the bidding for the sale of AHEPP.

G.R. No. 170656 August 15, 2007THE METROPOLITAN MANILA DEVELOPMENT AUTHORITY and BAYANI FERNANDO as Chairman of the Metropolitan Manila Development Authority, petitioners, vs.VIRON TRANSPORTATION CO., INC., respondent.

x --------------------------------------------- x

G.R. No. 170657 August 15, 2007HON. ALBERTO G. ROMULO, Executive Secretary, the METROPOLITAN MANILA DEVELOPMENT AUTHORITY and BAYANI FERNANDO as Chairman of the Metropolitan Manila Development Authority,petitioners, vs.MENCORP TRANSPORTATION SYSTEM, INC., respondent.

D E C I S I O N

CARPIO MORALES, J.:

The following conditions in 1969, as observed by this Court:

Vehicles have increased in number. Traffic congestion has moved from bad to worse, from tolerable to critical. The number of people who use the thoroughfares has multiplied x x x,1

have remained unchecked and have reverberated to this day. Traffic jams continue to clog the streets of Metro Manila, bringing vehicles to a standstill at main road arteries during rush hour traffic and sapping people’s energies and patience in the process.

The present petition for review on certiorari, rooted in the traffic congestion problem, questions the authority of the Metropolitan Manila Development Authority (MMDA) to order the closure of provincial bus terminals along Epifanio de los Santos Avenue (EDSA) and major thoroughfares of Metro Manila.

Specifically challenged are two Orders issued by Judge Silvino T. Pampilo, Jr. of the Regional Trial Court (RTC) of Manila, Branch 26 in Civil Case Nos. 03-105850 and 03-106224.

The first assailed Order of September 8, 2005,2 which resolved a motion for reconsideration filed by herein respondents, declared Executive Order (E.O.) No. 179, hereafter referred to as the E.O., "unconstitutional as it constitutes an unreasonable exercise of police power." The second assailed Order of November 23, 20053 denied petitioners’ motion for reconsideration.

The following facts are not disputed:

President Gloria Macapagal Arroyo issued the E.O. on February 10, 2003, "Providing for the Establishment of Greater Manila Mass Transport System," the pertinent portions of which read:

WHEREAS, Metro Manila continues to be the center of employment opportunities, trade and commerce of the Greater Metro Manila area;

WHEREAS, the traffic situation in Metro Manila has affected the adjacent provinces of Bulacan, Cavite, Laguna, and Rizal, owing to the continued movement of residents and industries to more affordable and economically viable locations in these provinces;

WHEREAS, the Metropolitan Manila Development Authority (MMDA) is tasked to undertake measures to ease traffic congestion in Metro Manila and ensure the convenient and efficient travel of commuters within its jurisdiction;

WHEREAS, a primary cause of traffic congestion in Metro Manila has been the numerous buses plying the streets that impedes [sic] the flow of vehicles and commuters due to the inefficient connectivity of the different transport modes;

WHEREAS, the MMDA has recommended a plan to decongest traffic by eliminating the bus terminals now located along major Metro Manila thoroughfares and providing more convenient access to the mass transport system to the commuting public through the provision of mass transport terminal facilities that would integrate the existing transport modes, namely the buses, the rail-based systems of the LRT, MRT and PNR and to facilitate and ensure efficient travel through the improved connectivity of the different transport modes;

WHEREAS, the national government must provide the necessary funding requirements to immediately implement and render operational these projects; and extent to MMDA such other assistance as may be warranted to ensure their expeditious prosecution.

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, by virtue of the powers vested in me by law, do hereby order:

Section 1. THE PROJECT. – The project shall be identified as GREATER MANILA TRANSPORT SYSTEM Project.

Section 2. PROJECT OBJECTIVES. – In accordance with the plan proposed by MMDA, the project aims to develop four (4) interim intermodal mass transport terminals to integrate the different transport modes, as well as those that shall hereafter be developed, to serve the commuting public in the northwest, north, east, south, and southwest of Metro Manila. Initially, the project

shall concentrate on immediately establishing the mass transport terminals for the north and south Metro Manila commuters as hereinafter described.

Section 3. PROJECT IMPLEMENTING AGENCY. – The Metropolitan Manila Development Authority (MMDA) , is hereby designated as the implementing Agency for the project. For this purpose, MMDA is directed to undertake such infrastructure development work as may be necessary and, thereafter, manage the project until it may be turned-over to more appropriate agencies, if found suitable and convenient. Specifically, MMDA shall have the following functions and responsibilities:

a) Cause the preparation of the Master Plan for the projects, including the designs and costing;

b) Coordinate the use of the land and/or properties needed for the project with the respective agencies and/or entities owning them;

c) Supervise and manage the construction of the necessary structures and facilities;

d) Execute such contracts or agreements as may be necessary, with the appropriate government agencies, entities, and/or private persons, in accordance with existing laws and pertinent regulations, to facilitate the implementation of the project;

e) Accept, manage and disburse such funds as may be necessary for the construction and/or implementation of the projects, in accordance with prevailing accounting and audit polices and practice in government.

f) Enlist the assistance of any national government agency, office or department, including local government units, government-owned or controlled corporations, as may be necessary;

g) Assign or hire the necessary personnel for the above purposes; and

h) Perform such other related functions as may be necessary to enable it to accomplish the objectives and purposes of this Executive Order.4 (Emphasis in the original; underscoring supplied)

As the above-quoted portions of the E.O. noted, the primary cause of traffic congestion in Metro Manila has been the numerous buses plying the streets and the

inefficient connectivity of the different transport modes;5 and the MMDA had "recommended a plan to decongest traffic by eliminating the bus terminals now located along major Metro Manila thoroughfares and providing more and convenient access to the mass transport system to the commuting public through the provision of mass transport terminal facilities"6 which plan is referred to under the E.O. as the Greater Manila Mass Transport System Project (the Project).

The E.O. thus designated the MMDA as the implementing agency for the Project.

Pursuant to the E.O., the Metro Manila Council (MMC), the governing board and policymaking body of the MMDA, issued Resolution No. 03-07 series of 20037 expressing full support of the Project. Recognizing the imperative to integrate the different transport modes via the establishment of common bus parking terminal areas, the MMC cited the need to remove the bus terminals located along major thoroughfares of Metro Manila.8

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

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

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

Viron also asked for a ruling on whether the planned closure of provincial bus terminals would contravene the Public Service Act and related laws which mandate public utilities to provide and maintain their own terminals as a requisite for the privilege of operating as common carriers.13

Mencorp Transportation System, Inc. (Mencorp), another provincial bus operator, later filed a similar petition for declaratory relief14 against Executive Secretary Alberto G. Romulo and MMDA Chairman Fernando.

Mencorp asked the court to declare the E.O. unconstitutional and illegal for transgressing the possessory rights of owners and operators of public land transportation units over their respective terminals.

Averring that MMDA Chairman Fernando had begun to implement a plan to close and eliminate all provincial bus terminals along EDSA and in the whole of the metropolis and to transfer their operations to common bus terminals,15 Mencorp prayed for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to restrain the impending closure of its bus terminals which it was leasing at the corner of EDSA and New York Street in Cubao and at the intersection of Blumentritt,

Laon Laan and Halcon Streets in Quezon City. The petition was docketed as Civil Case No. 03-106224 and was raffled to Branch 47 of the RTC of Manila.

Mencorp’s petition was consolidated on June 19, 2003 with Viron’s petition which was raffled to Branch 26 of the RTC, Manila.

Mencorp’s prayer for a TRO and/or writ of injunction was denied as was its application for the issuance of a preliminary injunction.16

In the Pre-Trial Order17 issued by the trial court, the issues were narrowed down to whether 1) the MMDA’s power to regulate traffic in Metro Manila included the power to direct provincial bus operators to abandon and close their duly established and existing bus terminals in order to conduct business in a common terminal; (2) the E.O. is consistent with the Public Service Act and the Constitution; and (3) provincial bus operators would be deprived of their real properties without due process of law should they be required to use the common bus terminals.

Upon the agreement of the parties, they filed their respective position papers in lieu of hearings.

By Decision18 of January 24, 2005, the trial court sustained the constitutionality and legality of the E.O. pursuant to R.A. No. 7924, which empowered the MMDA to administer Metro Manila’s basic services including those of transport and traffic management.

The trial court held that the E.O. was a valid exercise of the police power of the State as it satisfied the two tests of lawful subject matter and lawful means, hence, Viron’s and Mencorp’s property rights must yield to police power.

On the separate motions for reconsideration of Viron and Mencorp, the trial court, by Order of September 8, 2005, reversed its Decision, this time holding that the E.O. was "an unreasonable exercise of police power"; that the authority of the MMDA under Section (5)(e) of R.A. No. 7924 does not include the power to order the closure of Viron’s and Mencorp’s existing bus terminals; and that the E.O. is inconsistent with the provisions of the Public Service Act.

Petitioners’ motion for reconsideration was denied by Resolution of November 23, 2005.

Hence, this petition, which faults the trial court for failing to rule that: (1) the requisites of declaratory relief are not present, there being no justiciable controversy in Civil Case Nos. 03-105850 and 03-106224; and (2) the President has the authority to undertake or cause the implementation of the Project.19

Petitioners contend that there is no justiciable controversy in the cases for declaratory relief as nothing in the body of the E.O. mentions or orders the closure and elimination of bus terminals along the major thoroughfares of Metro Manila. Viron and Mencorp, they argue, failed to produce any letter or communication from the Executive Department apprising them of an immediate plan to close down their bus terminals.

And petitioners maintain that the E.O. is only an administrative directive to government agencies to coordinate with the MMDA and to make available for use government property along EDSA and South Expressway corridors. They add that the only relation created by the E.O. is that between the Chief Executive and the implementing officials, but not between third persons.

The petition fails.

It is true, as respondents have pointed out, that the alleged deficiency of the consolidated petitions to meet the requirement of justiciability was not among the issues defined for resolution in the Pre-Trial Order of January 12, 2004. It is equally true, however, that the question was repeatedly raised by petitioners in their Answer to Viron’s petition,20 their Comment of April 29, 2003 opposing Mencorp’s prayer for the issuance of a TRO,21 and their Position Paper of August 23, 2004.22

In bringing their petitions before the trial court, both respondents pleaded the existence of the essential requisites for their respective petitions for declaratory relief,23 and refuted petitioners’ contention that a justiciable controversy was lacking.24 There can be no denying, therefore, that the issue was raised and discussed by the parties before the trial court.

The following are the essential requisites for a declaratory relief petition: (a) there must be a justiciable controversy; (b) the controversy must be between persons whose interests are adverse; (c) the party seeking declaratory relief must have a legal interest in the controversy; and (d) the issue invoked must be ripe for judicial determination.25

The requirement of the presence of a justiciable controversy is satisfied when an actual controversy or the ripening seeds thereof exist between the parties, all of whom are sui juris and before the court, and the declaration sought will help in ending the controversy.26 A question becomes justiciable when it is translated into a claim of right which is actually contested.27

In the present cases, respondents’ resort to court was prompted by the issuance of the E.O. The 4th Whereas clause of the E.O. sets out in clear strokes the MMDA’s plan to "decongest traffic by eliminating the bus terminals now located along major Metro Manila thoroughfares and providing more convenient access to the mass transport system to the commuting public through the provision of mass transport terminal facilities x x x." (Emphasis supplied)

Section 2 of the E.O. thereafter lays down the immediate establishment of common bus terminals for north- and south-bound commuters. For this purpose, Section 8 directs the Department of Budget and Management to allocate funds of not more than one hundred million pesos (P100,000,000) to cover the cost of the construction of the north and south terminals. And the E.O. was made effective immediately.

The MMDA’s resolve to immediately implement the Project, its denials to the contrary notwithstanding, is also evident from telltale circumstances, foremost of which was the passage by the MMC of Resolution No. 03-07, Series of 2003 expressing its full support of the immediate implementation of the Project.

Notable from the 5th Whereas clause of the MMC Resolution is the plan to "remove the bus terminals located along major thoroughfares of Metro Manila and an urgent

need to integrate the different transport modes." The 7th Whereas clause proceeds to mention the establishment of the North and South terminals.

As alleged in Viron’s petition, a diagram of the GMA-MTS North Bus/Rail Terminal had been drawn up, and construction of the terminal is already in progress. The MMDA, in its Answer28 and Position Paper,29 in fact affirmed that the government had begun to implement the Project.

It thus appears that the issue has already transcended the boundaries of what is merely conjectural or anticipatory.lawphil

Under the circumstances, for respondents to wait for the actual issuance by the MMDA of an order for the closure of respondents’ bus terminals would be foolhardy for, by then, the proper action to bring would no longer be for declaratory relief which, under Section 1, Rule 6330 of the Rules of Court, must be brought before there is a breach or violation of rights.

As for petitioners’ contention that the E.O. is a mere administrative issuance which creates no relation with third persons, it does not persuade. Suffice it to stress that to ensure the success of the Project for which the concerned government agencies are directed to coordinate their activities and resources, the existing bus terminals owned, operated or leased by third persons like respondents would have to be eliminated; and respondents would be forced to operate from the common bus terminals.

It cannot be gainsaid that the E.O. would have an adverse effect on respondents. The closure of their bus terminals would mean, among other things, the loss of income from the operation and/or rentals of stalls thereat. Precisely, respondents claim a deprivation of their constitutional right to property without due process of law.

Respondents have thus amply demonstrated a "personal and substantial interest in the case such that [they have] sustained, or will sustain, direct injury as a result of [the E.O.’s] enforcement."31 Consequently, the established rule that the constitutionality of a law or administrative issuance can be challenged by one who will sustain a direct injury as a result of its enforcement has been satisfied by respondents.

On to the merits of the case.

Respondents posit that the MMDA is devoid of authority to order the elimination of their bus terminals under the E.O. which, they argue, is unconstitutional because it violates both the Constitution and the Public Service Act; and that neither is the MMDA clothed with such authority under R.A. No. 7924.

Petitioners submit, however, that the real issue concerns the President’s authority to undertake or to cause the implementation of the Project. They assert that the authority of the President is derived from E.O. No. 125, "Reorganizing the Ministry of Transportation and Communications Defining its Powers and Functions and for Other Purposes," her residual power and/or E.O. No. 292, otherwise known as the Administrative Code of 1987. They add that the E.O. is also a valid exercise of the police power.

E.O. No. 125,32 which former President Corazon Aquino issued in the exercise of legislative powers, reorganized the then Ministry (now Department) of Transportation and Communications. Sections 4, 5, 6 and 22 of E.O. 125, as amended by E.O. 125-A,33 read:

SECTION 4. Mandate. — The Ministry shall be the primary policy, planning, programming, coordinating, implementing, regulating and administrative entity of the Executive Branch of the government in the promotion, development and regulation of dependable and coordinated networks of transportationand communication systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services.

To accomplish such mandate, the Ministry shall have the following objectives:

(a) Promote the development of dependable and coordinated networks of transportation and communications systems;

(b) Guide government and private investment in the development of the country’s intermodal transportation and communications systems in a most practical, expeditious, and orderly fashion for maximum safety, service, and cost effectiveness; (Emphasis and underscoring supplied)

x x x x

SECTION 5. Powers and Functions. — To accomplish its mandate, the Ministry shall have the following powers and functions:

(a) Formulate and recommend national policies and guidelines for the preparation and implementation of integrated and comprehensive transportation and communications systems at the national, regional and local levels;

(b) Establish and administer comprehensive and integrated programs for transportation and communications, and for this purpose, may call on any agency, corporation, or organization, whether public or private, whose development programs include transportation and communications as an integral part thereof, to participate and assist in the preparation and implementation of such program;

(c) Assess, review and provide direction to transportation and communications research and development programs of the government in coordination with other institutions concerned;

(d) Administer all laws, rules and regulations in the field of transportation and communications; (Emphasis and underscoring supplied)

x x x x

SECTION 6. Authority and Responsibility. — The authority and responsibility for the exercise of the mandate of the Ministry and for the discharge of its powers and functions shall be vested in the Minister of Transportation and Communications, hereinafter referred to as the Minister, who shall have supervision and control over the Ministry and shall be appointed by the President. (Emphasis and underscoring supplied)

SECTION 22. Implementing Authority of Minister. — The Minister shall issue such orders, rules, regulations and other issuances as may be necessary to ensure the effective implementation of the provisions of this Executive Order. (Emphasis and underscoring supplied)

It is readily apparent from the abovequoted provisions of E.O. No. 125, as amended, that the President, then possessed of and exercising legislative powers, mandated the DOTC to be the primary policy, planning, programming, coordinating, implementing, regulating and administrative entity to promote, develop and regulate networks of transportation and communications. The grant of authority to the DOTC includes the power to establishand administer comprehensive and integrated programs for transportation and communications.

As may be seen further, the Minister (now Secretary) of the DOTC is vested with the authority and responsibility to exercise the mandate given to the department. Accordingly, the DOTC Secretary is authorized to issue such orders, rules, regulations and other issuances as may be necessary to ensure the effective implementation of the law.

Since, under the law, the DOTC is authorized to establish and administer programs and projects for transportation, it follows that the President may exercise the same power and authority to order the implementation of the Project, which admittedly is one for transportation.

Such authority springs from the President’s power of control over all executive departments as well as the obligation for the faithful execution of the laws under Article VII, Section 17 of the Constitution which provides:

SECTION 17. The President shall have control of all the executive departments, bureaus and offices. He shall ensure that the laws be faithfully executed.

This constitutional provision is echoed in Section 1, Book III of the Administrative Code of 1987. Notably, Section 38, Chapter 37, Book IV of the same Code defines the President’s power of supervision and control over the executive departments, viz:

SECTION 38. Definition of Administrative Relationships. — Unless otherwise expressly stated in the Code or in other laws defining the special

relationships of particular agencies, administrative relationships shall be categorized and defined as follows:

(1) Supervision and Control. — Supervision and control shall include authority to act directly whenever a specific function is entrusted by law or regulation to a subordinate; direct the performance of duty; restrain the commission of acts; review, approve, reverse or modify acts and decisions of subordinate officials or units; determine priorities in the execution of plans and programs. Unless a different meaning is explicitly provided in the specific law governing the relationship of particular agencies the word "control" shall encompass supervision and control as defined in this paragraph. x x x (Emphasis and underscoring supplied)

Thus, whenever a specific function is entrusted by law or regulation to a subordinate, the President may act directly or merely direct the performance of a duty.34

Respecting the President’s authority to order the implementation of the Project in the exercise of the police power of the State, suffice it to stress that the powers vested in the DOTC Secretary to establish and administer comprehensive and integrated programs for transportation and communications and to issue orders, rules and regulations to implement such mandate (which, as previously discussed, may also be exercised by the President) have been so delegated for the good and welfare of the people. Hence, these powers partake of the nature of police power.

Police power is the plenary power vested in the legislature to make, ordain, and establish wholesome and reasonable laws, statutes and ordinances, not repugnant to the Constitution, for the good and welfare of the people.35 This power to prescribe regulations to promote the health, morals, education, good order or safety, and general welfare of the people flows from the recognition that salus populi est suprema lex ─ the welfare of the people is the supreme law.

While police power rests primarily with the legislature, such power may be delegated, as it is in fact increasingly being delegated.36 By virtue of a valid delegation, the power may be exercised by the President and administrative boards37 as well as by the lawmaking bodies of municipal corporations or local governments under an express delegation by the Local Government Code of 1991.38

The authority of the President to order the implementation of the Project notwithstanding, the designation of the MMDA as the implementing agency for the Project may not be sustained. It is ultra vires, there being no legal basis therefor.

It bears stressing that under the provisions of E.O. No. 125, as amended, it is the DOTC, and not the MMDA, which is authorized to establish and implement a project such as the one subject of the cases at bar. Thus, the President, although authorized to establish or cause the implementation of the Project, must exercise the authority through the instrumentality of the DOTC which, by law, is the primary implementing and administrative entity in the promotion, development and regulation of networks of transportation, and the one so authorized to establish and implement a project such as the Project in question.

By designating the MMDA as the implementing agency of the Project, the President clearly overstepped the limits of the authority conferred by law, rendering E.O. No. 179 ultra vires.

In another vein, the validity of the designation of MMDA flies in the absence of a specific grant of authority to it under R.A. No. 7924.

To recall, R.A. No. 7924 declared the Metropolitan Manila area39 as a "special development and administrative region" and placed the administration of "metro-wide" basic services affecting the region under the MMDA.

Section 2 of R.A. No. 7924 specifically authorizes the MMDA to perform "planning, monitoring and coordinative functions, and in the process exercise regulatory and supervisory authority over the delivery of metro-wide services," including transport and traffic management.40 Section 5 of the same law enumerates the powers and functions of the MMDA as follows:

(a) Formulate, coordinate and regulate the implementation of medium and long-term plans and programs for the delivery of metro-wide services, land use and physical development within Metropolitan Manila, consistent with national development objectives and priorities;

(b) Prepare, coordinate and regulate the implementation of medium-term investment programs for metro-wide services which shall indicate sources and uses of funds for priority programs and projects, and which shall include the packaging of projects and presentation to funding institutions;

(c) Undertake and manage on its own metro-wide programs and projects for the delivery of specific services under its jurisdiction, subject to the approval of the Council. For this purpose, MMDA can create appropriate project management offices;

(d) Coordinate and monitor the implementation of such plans, programs and projects in Metro Manila; identify bottlenecks and adopt solutions to problems of implementation;

(e) The MMDA shall set the policies concerning traffic in Metro Manila, and shall coordinate and regulate the implementation of all programs and projects concerning traffic management, specifically pertaining to enforcement, engineering and education . Upon request, it shall be extended assistance and cooperation, including but not limited to, assignment of personnel, by all other government agencies and offices concerned;

(f) Install and administer a single ticketing system, fix, impose and collect fines and penalties for all kinds of violations of traffic rules and regulations , whether moving or non-moving in nature, and confiscate and suspend or revoke drivers’ licenses in the enforcement of such traffic laws and regulations, the provisions of RA 4136 and PD 1605 to the contrary notwithstanding. For this purpose, the Authority shall impose all traffic laws and regulations in Metro Manila, through its traffic operation center, and may deputize members of the PNP, traffic enforcers of local government units, duly licensed security guards, or members of non-governmental organizations to whom may be

delegated certain authority, subject to such conditions and requirements as the Authority may impose; and

(g) Perform other related functions required to achieve the objectives of the MMDA, including the undertaking of delivery of basic services to the local government units, when deemed necessary subject to prior coordination with and consent of the local government unit concerned." (Emphasis and underscoring supplied)

The scope of the function of MMDA as an administrative, coordinating and policy-setting body has been settled inMetropolitan Manila Development Authority (MMDA) v. Bel-Air Village Association, Inc.41 In that case, the Court stressed:

Clearly, the scope of the MMDA’s function is limited to the delivery of the seven (7) basic services. One of these is transport and traffic management which includes the formulation and monitoring of policies, standards and projects to rationalize the existing transport operations, infrastructure requirements, the use of thoroughfares and promotion of the safe movement of persons and goods. It also covers the mass transport system and the institution of a system of road regulation, the administration of all traffic enforcement operations, traffic engineering services and traffic education programs, including the institution of a single ticketing system in Metro Manila for traffic violations. Under this service, the MMDA is expressly authorized to "to set the policies concerning traffic" and "coordinate and regulate the implementation of all traffic management programs." In addition, the MMDA may install and administer a single ticketing system," fix, impose and collect fines and penalties for all traffic violations.

It will be noted that the powers of the MMDA are limited to the following acts: formulation, coordination, regulation, implementation, preparation, management, monitoring, setting of policies, installation of a system and administration. There is no syllable in R.A. No. 7924 that grants the MMDA police power, let alone legislative power. Even the Metro Manila Council has not been delegated any legislative power. Unlike the legislative bodies of the local government units, there is no provision in R.A. No. 7924 that empowers the MMDA or its Council to ‘enact ordinances, approve resolutions and appropriate funds for the general welfare’ of the inhabitants of Metro Manila. The MMDA is, as termed in the charter itself, a ‘development authority.’ It is an agency created for the purpose of laying down policies andcoordinating with the various national government agencies, people’s organizations, non-governmental organizations and the private sector for the efficient and expeditious delivery of basic services in the vast metropolitan area. All its functions are administrative in nature and these are actually summed up in the charter itself, viz:

‘SECTION 2. Creation of the Metropolitan Manila Development Authority. — . . .

The MMDA shall perform planning, monitoring and coordinative functions, and in the processexercise regulatory and supervisory authority over the delivery of metro-wide services within Metro Manila, without diminution

of the autonomy of the local government units concerning purely local matters.’42 (Emphasis and underscoring supplied)

In light of the administrative nature of its powers and functions, the MMDA is devoid of authority to implement the Project as envisioned by the E.O; hence, it could not have been validly designated by the President to undertake the Project. It follows that the MMDA cannot validly order the elimination of respondents’ terminals.

Even the MMDA’s claimed authority under the police power must necessarily fail in consonance with the above-quoted ruling in MMDA v. Bel-Air Village Association, Inc. and this Court’s subsequent ruling in Metropolitan Manila Development Authority v. Garin43 that the MMDA is not vested with police power.

Even assuming arguendo that police power was delegated to the MMDA, its exercise of such power does not satisfy the two tests of a valid police power measure, viz: (1) the interest of the public generally, as distinguished from that of a particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.44 Stated differently, the police power legislation must be firmly grounded on public interest and welfare and a reasonable relation must exist between the purposes and the means.

As early as Calalang v. Williams,45 this Court recognized that traffic congestion is a public, not merely a private, concern. The Court therein held that public welfare underlies the contested statute authorizing the Director of Public Works to promulgate rules and regulations to regulate and control traffic on national roads.

Likewise, in Luque v. Villegas,46 this Court emphasized that public welfare lies at the bottom of any regulatory measure designed "to relieve congestion of traffic, which is, to say the least, a menace to public safety."47 As such, measures calculated to promote the safety and convenience of the people using the thoroughfares by the regulation of vehicular traffic present a proper subject for the exercise of police power.

Notably, the parties herein concede that traffic congestion is a public concern that needs to be addressed immediately. Indeed, the E.O. was issued due to the felt need to address the worsening traffic congestion in Metro Manila which, the MMDA so determined, is caused by the increasing volume of buses plying the major thoroughfares and the inefficient connectivity of existing transport systems. It is thus beyond cavil that the motivating force behind the issuance of the E.O. is the interest of the public in general.

Are the means employed appropriate and reasonably necessary for the accomplishment of the purpose. Are they not duly oppressive?

With the avowed objective of decongesting traffic in Metro Manila, the E.O. seeks to "eliminate[e] the bus terminals now located along major Metro Manila thoroughfares and provid[e] more convenient access to the mass transport system to the commuting public through the provision of mass transport terminal facilities x x x."48 Common carriers with terminals along the major thoroughfares of Metro Manila would thus be compelled to close down their existing bus terminals and use the MMDA-designated common parking areas.

In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,49 two city ordinances were passed by the Sangguniang Panlungsod of Lucena, directing public utility vehicles to unload and load passengers at the Lucena Grand Central Terminal, which was given the exclusive franchise to operate a single common terminal. Declaring that no other terminals shall be situated, constructed, maintained or established inside or within the city of Lucena, thesanggunian declared as inoperable all temporary terminals therein.

The ordinances were challenged before this Court for being unconstitutional on the ground that, inter alia, the measures constituted an invalid exercise of police power, an undue taking of private property, and a violation of the constitutional prohibition against monopolies.

Citing De la Cruz v. Paras50 and Lupangco v. Court of Appeals,51 this Court held that the assailed ordinances were characterized by overbreadth, as they went beyond what was reasonably necessary to solve the traffic problem in the city. And it found that the compulsory use of the Lucena Grand Terminal was unduly oppressive because it would subject its users to fees, rentals and charges.

The true role of Constitutional Law is to effect an equilibrium between authority and liberty so that rights are exercised within the framework of the law and the laws are enacted with due deference to rights.

A due deference to the rights of the individual thus requires a more careful formulation of solutions to societal problems.

From the memorandum filed before this Court by petitioner, it is gathered that the Sangguniang Panlungsod had identified the cause of traffic congestion to be the indiscriminate loading and unloading of passengers by buses on the streets of the city proper, hence, the conclusion that the terminals contributed to the proliferation of buses obstructing traffic on the city streets.

Bus terminals per se do not, however, impede or help impede the flow of traffic. How the outright proscription against the existence of all terminals, apart from that franchised to petitioner, can be considered as reasonably necessary to solve the traffic problem, this Court has not been enlightened. If terminals lack adequate space such that bus drivers are compelled to load and unload passengers on the streets instead of inside the terminals, then reasonable specifications for the size of terminals could be instituted, with permits to operate the same denied those which are unable to meet the specifications.

In the subject ordinances, however, the scope of the proscription against the maintenance of terminals is so broad that even entities which might be able to provide facilities better than the franchised terminal are barred from operating at all. (Emphasis and underscoring supplied)

As in Lucena, this Court fails to see how the prohibition against the existence of respondents’ terminals can be considered a reasonable necessity to ease traffic congestion in the metropolis. On the contrary, the elimination of respondents’ bus terminals brings forth the distinct possibility and the equally harrowing reality of

traffic congestion in the common parking areas, a case of transference from one site to another.

Less intrusive measures such as curbing the proliferation of "colorum" buses, vans and taxis entering Metro Manila and using the streets for parking and passenger pick-up points, as respondents suggest, might even be more effective in easing the traffic situation. So would the strict enforcement of traffic rules and the removal of obstructions from major thoroughfares.

As to the alleged confiscatory character of the E.O., it need only to be stated that respondents’ certificates of public convenience confer no property right, and are mere licenses or privileges.52 As such, these must yield to legislation safeguarding the interest of the people.

Even then, for reasons which bear reiteration, the MMDA cannot order the closure of respondents’ terminals not only because no authority to implement the Project has been granted nor legislative or police power been delegated to it, but also because the elimination of the terminals does not satisfy the standards of a valid police power measure.

Finally, an order for the closure of respondents’ terminals is not in line with the provisions of the Public Service Act.

Paragraph (a), Section 13 of Chapter II of the Public Service Act (now Section 5 of Executive Order No. 202, creating the Land Transportation Franchising and Regulatory Board or LFTRB) vested the Public Service Commission (PSC, now the LTFRB) with "x x x jurisdiction, supervision and control over all public services and their franchises, equipment and other properties x x x."

Consonant with such grant of authority, the PSC was empowered to "impose such conditions as to construction, equipment, maintenance, service, or operation as the public interests and convenience may reasonably require"53 in approving any franchise or privilege.

Further, Section 16 (g) and (h) of the Public Service Act54 provided that the Commission shall have the power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary:

(g) To compel any public service to furnish safe, adequate, and proper service as regards the manner of furnishing the same as well as the maintenance of the necessary material and equipment.

(h) To require any public service to establish, construct, maintain, and operate any reasonable extension of its existing facilities, where in the judgment of said Commission, such extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same and when the financial condition of the said public service reasonably warrants the original expenditure required in making and operating such extension.(Emphasis and underscoring supplied)

The establishment, as well as the maintenance of vehicle parking areas or passenger terminals, is generally considered a necessary service to be provided by provincial

bus operators like respondents, hence, the investments they have poured into the acquisition or lease of suitable terminal sites. Eliminating the terminals would thus run counter to the provisions of the Public Service Act.

This Court commiserates with the MMDA for the roadblocks thrown in the way of its efforts at solving the pestering problem of traffic congestion in Metro Manila. These efforts are commendable, to say the least, in the face of the abominable traffic situation of our roads day in and day out. This Court can only interpret, not change, the law, however. It needs only to be reiterated that it is the DOTC ─ as the primary policy, planning, programming, coordinating, implementing, regulating and administrative entity to promote, develop and regulate networks of transportation and communications ─ which has the power to establish and administer a transportation project like the Project subject of the case at bar.

No matter how noble the intentions of the MMDA may be then, any plan, strategy or project which it is not authorized to implement cannot pass muster.

WHEREFORE, the Petition is, in light of the foregoing disquisition, DENIED. E.O. No. 179 is declared NULL and VOID for being ultra vires.

SO ORDERED.

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner, vs.HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.

Potenciano A. Flores for petitioner.

Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.

Jose F. Miravite for movants.

KAPUNAN, J.:

Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he has thus created. 1

An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and

thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b) DOTC Department Order No.92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in full:

One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transport sector. Along this line, the Government intends to move away gradually from regulatory policies and make progress towards greater reliance on free market forces.

Based on several surveys and observations, bus companies are already charging passenger rates above and below the official fare declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country (except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year.

Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service.

The implementation of the said fare range scheme shall start on 6 August 1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those operating within Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates — (a) the rates to be approved should be proposed by public service operators; (b) there should be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6 without complying with the requirements of the Public Service Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered by the untimely motu propioimplementation of the proposal by the mere expedient of publicizing the fare range scheme without calling a public hearing, which scheme many as early as during the Secretary's predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired.

3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc caused by the recent earthquake.

4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can

consider measures and reforms in the industry that will be socially uplifting, especially for the people in the areas devastated by the recent earthquake.

In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare range scheme this year be further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following schedule of fares on a straight computation method, viz:

AUTHORIZED FARES

LUZONMIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37STUDENT P1.15 P0.28

VISAYAS/MINDANAO

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

AIRCON (PER KM.) P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued Department Order No.92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in view of the importance of the provisions contained therein:

WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the primary policy, planning, regulating and implementing agency on transportation;

WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction;

WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and bring the transport sector nearer to a balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic regulation of land, air, and water transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route.

The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchise application and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of demand management measures in conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services.

2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15% above and below the indicative or reference rate.

Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the level of competition.

For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the public and the government, following public bids for the services. The advisability of bidding out the services or using other kinds of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation warrants government intervention shall programs of this type be considered. Existing programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that

the adoption of the rules and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5

On February 17, 1993, the LTFRB issued Memorandum CircularNo. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the following challenged portions:

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IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s).

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V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and premier services.

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(Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitled under existing laws.

SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificates of public convenience.

We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides:

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Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant. One who is directly affected by and whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz:

. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Aranetav. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].

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In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, andnon-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]).

Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning the

apportionment, by district, of the number of elective members of Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary:

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(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours).

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Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section

5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and delicate matters asroute-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this Court categorically declared that:

In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to its advantage to do so.

The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not authorized the Public Service Commission to delegate that power to a common carrier or other public service. The rates of public services like the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such rates must be authorized or approved by the Public Service Commission after they have been shown to be just and reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new rates

effective without the approval of the Public Service Commission, and the Public Service Commission itself cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission. The commission must approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change them every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it would be to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13(Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bank interest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the following:

Year** LTFRB authorized Fare Range Fare to berate*** collected perkilometer

1990 P0.37 15% (P0.05) P0.421994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.561998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.732002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory

as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government must not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should the requisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved. To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will undermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to public interest.

On the presumption of public need.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states:

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence ornon-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which he has undertaken torender. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to exercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilities themselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department OrderNo. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between administrative officers.

WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular

No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decrease the duly prescribed transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for a certificate of public convenience and placing the burden of proving that there is no need for the proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

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

MANDBUSCO, INC., MANDALUYONG BUS CO., INC., PRESCILO CAMAGANACAN, BLAS REYES and ANASTACIO ESMAO, petitioners, vs.PABLO FRANSCISCO, respondent.

Clemente and Clemente for petitioners.

Baldomero S. Luque for respondent.

CASTRO, J.:

The respondent Pablo Francisco applied for a certificate of public convenience covering the operation of five (5) PUJ jitneys from barrio Pinagbuhatan, Pasig, Rizal to the intersection of Highway 54 and Shaw Boulevard, Mandaluyong, Rizal (otherwise known as the "Crossing") and vice-versa. Hearing was conducted, after due notice and publication, enabling both the respondent applicant and the oppositors Mandbusco, Inc., et al., to adduce their respective evidence. On June 15, 1964 a decision was rendered by the Public Service Commission granting the respondent's application, it appearing to a division of three commissioners that:

After [a] careful study of the evidence presented by the parties, the Commission finds that the proposed service will benefit the people of Bo. Pinagbuhatan considering that there is no direct service from that place to the crossing of Highway 54 and Shaw Blvd. It can be noted also that the provincial capitol, provincial hospital and other big establishments are located past the Poblacion of Pasig and nearer to the other proposed terminal at Highway 54 and Shaw Blvd. and that residents from Pinagbuhatan have to take 2 rides to reach these places.

The dispositive portion of the decision reads:

Finding further from the evidence adduced by the applicant that he is [a] Filipino citizen, legally and financially capable [of operating and maintaining] the same, the oppositions filed in this case are hereby overruled and the certificate of public convenience applied for, may be, as it is hereby GRANTED to the applicant ....

It is mainly at the findings above-quoted that the petitioners, all bus operators, have aimed their present petition for review, following the rejection of their motion for reconsideration by the Commission en banc.

The petitioners want to make capital of the declarations of their two witnesses, Federico Dantayana and Arturo Clemente. Let us appraise these declarations.

Dantayana, an official inspector of the Commission, testified that he posted himself somewhere along the route covered by the respondent's application, and conducted a survey of the number of passenger vehicles availing themselves of the use of the Shaw Boulevard in going to and coming from Pasig, Rizal. The inspection sheets offered in evidence show that buses with a usual loading capacity of from 65 to 75 passengers each were barely half-filled on the whole, while "jitneys" with a usual loading capacity of 13 passengers each actually carried an average of only 6 passengers each for every trip. These facts, the petitioners argue, illustrate an excess of available passenger vehicles over the actual needs of the riding public. They negate the advisability of allowing the applicant's "jitneys" to serve the route between barrio Pinagbuhatan and the crossing of Highway 54 and Shaw Boulevard in Mandaluyong.

Closely scrutinizing Dantayana's testimony, we cannot acquiesce in the petitioners' conclusions. The length of the route which the respondent applied for is divided into two parts. The first starts at barrio Pinagbuhatan and ends at the poblacion of the town of Pasig. The second begins at the poblacion and winds up at the crossing of Highway 54 and Shaw Boulevard in Mandaluyong. Dantayana's survey covered passenger vehicles passing through the second part of the route applied for. It appears, however, that the second part is actually only a converging point for passenger vehicles coming from towns east of Pasig, not to mention other passenger vehicles, equally numerous, destined for Manila coming from their terminals located in the Pasig poblacion itself. In short, Dantayana's survey does not at all indicate the volume of the traffic of passenger vehicles corning all the way from barrio Pinagbuhatan. After all, the primary objective of the grant of the certificate of public convenience in question was the welfare of the inhabitants of barrio Pinagbuhatan and other inhabitants along the first part of the route applied for.

The petitioners' only other witness, Arturo Clemente, the president of both the Mandbusco, Inc. and of the Pasig-Manila Bus Operators Association, testified that a total of 125 buses are operating between Pasig, Rizal and Quiapo, Manila, all taking the Shaw Boulevard, which thoroughfare is part of the route applied for by the respondent. Likewise, a total of 51 "jitneys" serve that same portion of Shaw Boulevard to and from the various points in Pasig. In addition, a total of 171 buses coming from towns east of Pasig pass daily through the latter town, proceed to Shaw Boulevard, and then to Manila. All these public conveyances, the witness pointed out, are more than adequate to meet the transportation needs of the riding public in the areas served. The petitioners, the witness added, have made substantial investments in their business and, therefore, the allowance of additional public transportation vehicles, clearly unneeded, would result in ruinous competition and threaten the stability of their financial positions.

This argument suffers, however, from the same basic oversight afflicting the testimony of Dantayana. All the vehicles mentioned by Clemente, except possibly for two buses — a matter which we will shortly discuss — do not run the full course of the route applied for by the respondent. The overlapping of service exists only with regard to the second part of that route, and this is clearly unavoidable since the stretch of road from the Pasig poblacion to the crossing serves as a common access to Highway 54 whence passengers embark for separate destinations.

In the course of the hearing the petitioners presented a certificate of public convenience allowing the Mandaluyong Bus Co., Inc. to utilize two of their buses, and a third as reserve, for the line from Pinagbuhatan (Pasig, Rizal) to Plaza Miranda (Quiapo, Manila) via Mandaluyong, Rizal. This, according to petitioners, should completely negate the finding of the Commission that there exists no direct service

from barrio Pinagbuhatan to the crossing of Highway 54 and Shaw Boulevard. We disagree. The certificate of public convenience adverted to merely proves that authority has been given to the grantee to operate public utility vehicles in the designated territory. It cannot serve as proof that the grantee has made actual use of such authority. Lacking any positive proof that the petitioners (or any of them) adequately serve the transportation requirements of the inhabitants of barrio Pinagbuhatan and the adjacent places, we are not inclined to overturn the finding of fact of the Commission, realizing as we do, after the reading of the record, that the same is reasonably supported by evidence.1

The petitioners invoke the "old operator rule," which is to the effect that a public utility operator should be shielded from ruinous competition by affording him the opportunity to improve his equipment and service before allowing a new operator to serve in the same territory he covers.2 This rule has no application in this case because the certificate of public convenience granted to the respondent is a maiden franchise covering the particular line connecting barrio Pinagbuhatan and the crossing of Highway 54 and Shaw Boulevard. The certificate of public convenience authorizing the Mandaluyong Bus Co., Inc. to operate two buses, with one reserve, on the line extending from barrio Pinagbuhatan to Plaza Miranda in Quiapo, Manila, while in a sense overlapping with the authority given to the respondent, was essentially intended to cover the great distance run between barrio Pinagbuhatan and Quiapo, Manila, via Pasig Boulevard, P. Sanchez, V. Mapa, Valenzuela, Old Sta. Mesa, Sta. Mesa Boulevard, Legarda, Tanduay, P. Casal, Ayala Bridge, Concepcion, Arroceros, Quezon Bridge and Quezon Boulevard. Upon the other hand, the grant in favor of the respondent covers only a brief shuttle run of 8 kilometers linking barrio Pinagbuhatan directly with the Pasig poblacion and the crossing of Highway 54 and Shaw Boulevard. The Commission favored the respondent with the certificate of public convenience in question; we are not prepared to substitute our discretion with that of the Public Service Commission in the determination of what can best meet the requirements of public convenience.

The ability of the respondent to finance the maintenance and operation of the service he applied for is likewise questioned by the petitioners. This issue is now academic for the reason that the respondent has, since his receipt of the franchise, actually registered the five units covered by the authority. He has, moreover, registered one reserve unit for the same line, with the approval of the Commission. These units, plus the assets he proved he owns, are sufficient guaranty that the respondent can sustain the service he applied for.3

The petitioners, in their brief, invoke the Public Service Commission Memorandum of May 15, 1963 and its Supplemental Memorandum of July 22, 1963, with a view to establishing that the certificate of public convenience in favor of respondent was issued in violation of these memoranda. The first memorandum comes as a suggestion to all Commissioners that action on all pending applications, for certificates of public convenience for the operation of passenger service in Manila, Quezon City, Pasay City, Caloocan, Mandaluyong, Parañaque, San Juan and Makati, be suspended until further studies could be made. The supplemental memorandum contains an order addressed to the Secretary of the Commission enjoining him from calendaring for hearing or for continuation of hearing any application for passenger service in Manila and suburbs; and any decision purporting to have been rendered prior to May 15, 1963 but had not been turned over to the Secretary and recorded prior to the date of the order, should be withheld until further orders. It is not difficult to see that the territory applied for is not among the one enumerated in the Memorandum of May 15, 1963. The respondent's service stretches mainly across the town of Pasig in Rizal, and if it abuts into a tiny fraction of Mandaluyong, one of the areas covered by the enumeration, the incursion is incidental and does not necessarily render Mandaluyong the mainstream of the respondent's service.

Moreover, even if the memorandum in question comprehend the present application, still public welfare and convenience, where positively found by the Commission to be subserved, should prevail.4

ACCORDINGLY, the decision appealed from is hereby affirmed. No pronouncement as to costs.

G.R. No. L-28865 December 19, 1928

BATANGAS TRANSPORTATION CO., petitioner-appellant, vs.CAYETANO ORLANES, respondent-appellee.

L. D. Lockwood and C. de G. Alvear for appellant.Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.

STATEMENT

In his application for a permit, the appellee Orlanes alleges that he is the holder of a certificate of public convenience issued by the Public Service Commission in case No. 7306, to operate an autobus line from Taal to Lucena, passing through Batangas, Bolbok and Bantilan, in the Province of Batangas, and Candelaria and Sariaya, in the Province of Tayabas, without any fixed schedule; that by reason of the requirements of public convenience, he has applied for a fixed schedule from Bantilan to Lucena and return; that in case No. 7306, he cannot accept passengers or cargo from Taal to any point before Balbok, and vice versa; that the public convenience requires that he be converted into what is known as a regular operator on a fixed schedule between Taal and Bantilan and intermediate points, and for that purpose, he has submitted to the Commission proposed schedule for a license to make trips between those and intermediate points. He then alleges that by reason of increase of traffic, the public convenience also requires that he be permitted to accept passengers and cargo at points between Taal and Bantilan, and he asked for authority to establish that schedule, and to accept passengers at all points between Taal and Bantilan.

To this petition the Batangas Transportation Company appeared and filed an application for a permit, in which it alleged that it is operating a regular service of auto trucks between the principal municipalities of the Province of Batangas and some of those of the Province of Tayabas; that since 1918, it has been operating a regular service between Taal and Rosario, and that in 1920, its service was extended to the municipality of San Juan de Bolbok, with a certificate of public convenience issued by the Public Servise Commission; that in the year 1925 Orlanes obtained from the Commission a certificate of public convenience to operate an irregular service of auto trucks between Taal, Province of Batangas, and Lucena, Province of Tayabas, passing through the municipalities of Bauan, Batangas, Ibaan, Rosario, and San Juan de Bolbok, with the express limitation that he could not accept passengers from intermediate points between Taal and Bolbok, except those which were going to points beyond San Juan de Bolbok or to the Province of Tayabas; that he inaugurated this irregular in March, 1926, but maintained it on that part of the line between Taal and Bantilan only for about three months, when he abandoned that portion of it in the month of June and did not renew it until five days before the hearing of case No. 10301, which was set for November 24, 1926, in which hearing the Batangas Transportation Company asked for additional hours for its line between Batangas and Bantilan; that in June, 1926, Orlanes sought to obtain a license as a regular operator on that portion of the line between Bantilan and Lucena without having asked for a permit for tat portion of the line between Bantilan and Taal; that from June, 1926, Orlanes and the Batangas Transportation Company were jointly operating a regular service between Bantilan and Lucena, with trips every half an hour, and Orlanes not having asked for a regular service between Bantilan and Taal, the Batangas Transportation Company remedied this lack of service under the authority of the Commission, and increased its trips between Bantilan and Tayabas to make due and timely connections in Bantilan on a half-hour service between

Bantilan and Batangas with connections there for Taal and all other points in the Province of Batangas. It is then alleged that the service maintained by the company is sufficient to satisafy the convenience of the public, and that the public convenience does not require the granting of the permit for the service which Orlanes petitions, and that to do so would result in ruinous competition and to the grave prejudice of the company and without any benefit to the public, and it prayed that the petition of Orlanes to operate a regular service be denied.

After the evidence was taken upon such issues, the Public Service Commission granted the petition of Orlanes, as prayed for, and the company then filed a motion for a rehearing, which was denied, and the case is now before this court, in which the appellant assigns the following errors:

The Commission erred in ordering that a certificate of public convenience be issued in favor of Cayetano Orlanes to operate the proposed service without finding and declaring that the public interest will be prompted in a proper and suitable by the operation of such service, or when the evidence does not show that the public interests will be so prompted.

That the Commission erred in denying the motion for a rehearing.

JOHNS, J.:

The questions presented involve a legal construction of the powers and duties of the Public Service Commission, and the purpose and intent for which it was created, and the legal rights and privileges of a public utility operating under a prior license.

It must be conceded that an autobus line is a public utility, and that in all things and respects, it is what is legally known as a common carrier, and that it is an important factor in the business conditions of the Islands, which is daily branching out and growing very fast.

Before such a business can be operated, it must apply for, and obtain, a license or permit from the Public Service Commission, and comply with certain defined terms and conditions, and when license is once, granted, the operator must conform to, and comply with all, reasonable rules and regulations of the Public Service Commission. The object and purpose of such a commission, among other things, is to look out for, and protect, the interests of the public, and, in the instant case, to provide it with safe and suitable means of travel over the highways in question, in like manner that a railroad would be operated under like terms and conditions. To all intents and purposes, the operation of an autobus line is very similar to that of a railroad, and a license for its operation should be granted or refused on like terms and conditions. For many and different reasons, it has never been the policy of a public service commission to grant a license for the operation of a new line of railroad which parallels and covers the same field and territory of another old established line, for the simple reason that it would result in ruinous competition between the two lines, and would not be of any benefit or convenience to the public.

The Public Service Commission has ample power and authority to make any and all reasonable rules and regulations for the operation of any public utility and to enforce

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

That is to say, the Public Service Commission, as such has the power to specify and define the terms and conditions upon which the public utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the terms and conditions for which the license was granted the Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions.

Hence, and for such reasons, the fact that the Commission has previously granted a license to any person to operate a bus line over a given highway and refuses to grant a similar license to another person over the same highway, does not in the least create a monopoly in the person of the licensee, for the reason that at all times the Public Service Commission has the power to say what is a reasonable compensation to the utility, and to make reasonable rules and regulations for the convenience of the traveling public and to enforce them.

In the instant case, Orlanes seek to have a certificate of public convenience to operate a line of auto trucks with fixed times of departure between Taal and Bantilan, in the municipality of Bolbok, Province of Batangas, with the right to receive passengers and freight from intermediate points. The evidence is conclusive that at the time of his application, Orlanes was what is known as an irregular operator between Bantilan and Taal, and that the Batangas operator between Batangas and Rosario. Orlanes now seeks to have his irregular changed into a regular one, fixed hours of departure and arrival between Bantilan and Taal, and to set aside and nullify the prohibition against him in his certificate of public convenience, in substance and to the effect that he shall not have or receive any passengers or freight at any of the points served by the Batangas Transportation Company for which that company holds a prior license from the Commission. His petition to become such a regular operator over such conflicting routes is largely based upon the fact that, to comply with the growing demands of the public, the Batangas Transportation Company, in case No. 10301, applied to the Commission for a permit to increase the number of trip hours at and between the same places from Batangas to Rosario, and or for an order that all irregular operators be prohibited from operating their respective licenses, unless they should observe the interval of two hours before, or one hour after, the regular hours of the Batangas Transportation Company.

In his petition Orlanes sought to be releived from his prohibition to become a regular operator, and for a license to become a regular operator with a permission to make three trips daily between Bantilan and Taal, the granting of which make him a regular operator between those points and bring him in direct conflict and competition over the same points with the Batangas Transportation Company under its prior license, and in legal effect that was the order which the Commission made, of which the Batangas Transportation Company now complains.

The appellant squarely plants its case on the proposition:

Is a certificate of public convenience going to be issued to a second operator to operate a public utility in a field where, and in competition with, a first operator who is already operating, adequate and satisfactory service?

There is no claim or pretense that the Batangas Transportation Company has violated any of the terms and conditions of its license. Neiher does the Public Service Commission find as a fact that the grantring of a license to Orlanes as a regular operator between the points in question is required or necessary for the convenience of the traveling public, or that there is any complaint or criticism by the public of the services rendered by the Batangas Transportation Company over the route in question.

The law creating the Public service Commission of the Philippine Islands is known as Act No. 3108, as amended by Act No. 3316, and under it the supervision and control of public utilities is very broad and comprehensive.

Section 15 of Act No. 3108 provides that the Commission shall have power, after hearing, upon notice, by order in writing to require every public utility:

(a) To comply with the laws of the Philippine Islands;

(b) To furnish safe, adequate, and proper service as regards the manner of furnishing the same as well as the maintenance of the necessary material equipment, etc;

(c) To establish, construct, maintain, and operate any reasonable extention of its existing facilities, where such extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same;

(d) To keep a uniform system of books, records and accounts;

(e) To make specific answer with regard to any point on which the Commission requires information, and to furnish annual reports of finance and operations;

(f) To carry, whenever the Commission may require, a proper and adequate depreciation account;

(g) To notify the Commission of all accidents;

(h) That when any public utility purposes to increase or reduce any existing individual rates, it shall give the Commission written notice thirty days prior to the proposed change; and

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

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

In construing a similar law of the State of Kansas, the United States Supreme Court, in an opinion written by Chief Justice Taft, in Wichita Railroad and Light Co. vs. Public Utilities Commission of Kansas (260 U. S. 48; 67 Law. ed., 124), said:

The proceeding we are considering is governed by section 13. That is the general section of the act comprehensively describing the duty of the Commission, vesting it with power to fix and order substituted new rates for existing rates. The power is expressly made to depend on the condition that, after full hearing and investigation, the Commission shall find existing rates to be unjust, unreasonable, unjustly discriminatory, or unduly preferential. We conclude that a valid order of the Commission under the act must contain a finding of fact after hearing and investigation, upon which the order is founded, and that, for lack of such a finding, the order in this case was void.

This conclusion accords with the construction put upon similar statutes in other states. (State Public Utilities Commission ex rel. Springfield vs. Springfield Gas and E. Co., 291 Ill., 209; P. U. R., 1920C, 640; 125 N. E. 891; State Public Utilities Co. vs. Baltimore and O. S. W. R. Co., 281 Ill; 405; P. U. R., 1918B, 655; 118 N. E., 81.) Moreover, it accords with general principles of constitutional government. The maxim that a legislature may not delegate legislative power has some qualifications, as in the creation of municipalities, and also in the creation of administrative boards to apply to the myriad details of rate schedule the regulatory police power of the state. The latter qualification is made necessary in order that the legislative power may be effectively exercised. In creating such an administrative agency, the legislature, to prevent its being a pure delegation of legislative power, must enjoin upon a certain course of procedure and certain rules of decision in the perfomance of its function. It is a wholesome and necessary principle that such an agency must pursue the procedure and rules enjoined, and show a substantial compliance therewith, to give validity to its action. When, therefore, such an administrative agency is required, as a condition precedent to an order, to make a finding of facts, the validity of the order rest upon the needed finding. It is lacking, the order is ineffective.

It is pressed on us that the lack of an express finding may be supplied by implication and by reference to the averments of the petition invoking the action of the Commission. We cannot agree to this point. It is doubtful whether the facts averred in the petition were sufficient to justify a finding that the contract rates were unreasonably low; but we do not find it necessay to answer this question. We rest our decision on the principle that an express finding of unreasonableness by the Commission was indispensable under the statutes of the state.

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

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

CERTIFICATE OF PUBLIC CONVENIENCE

To whom it may concern:

THIS IS TO CERTIFY, That in pursuance of the power and authority conferred upon it by subsection (i) of section 15 of Act No. 3108 of the Philippine Legislature,

THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS, after having duly considered the application of ................. for a certificate of public convenience the operation of ........................ in connection with the evidence submitted in support thereof, has rendered its decision on................, 192...., in case No. ............, declaring that the operation by the applicant ...................... of the business above described will promote the public interests in a proper and suitable manner, and granting................. to this effect the corresponding authority, subject to the conditions prescribed in said decision.

Given at Manila Philippine Islands, this ......... day of ....................., 192 .....

PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS

By.................................. Commissioner

Attested:.....................................Secretary

That is to say, that the certificate of public convenince granted to Orlanes in the instant case expressly recites that it "will promote the public interests in a proper and suitable manner." Yet no such finding of fact was made by the Commission.

In the instant case, the evidence is conclusive that the Batangas Transportation Company operated its line five years before Orlanes ever turned a wheel, yet the legal effect of the decision of the Public Service Commission is to give an irregular operator, who was the last in the field, a preferential right over a regular operator, who was the first in the field. That is not the law, and there is no legal principle upon which it can be sustained.

So long as the first licensee keeps and performs the terms and conditions of its license and complies with the reasonable rules and regulations of the Commission and meets the reasonable demands of the public, it should have more or less of a vested and preferential right over a person who seeks to acquire another and a later license over the same route. Otherwise, the first license would not have protection on his investment, and would be subject to ruinous competition and thus defeat the very purpose and intent for which the Public Service Commission was created.

It does not appear that the public has ever made any complaint the Batangas Transportation Company, yet on its own volition and to meet the increase of its business, it has applied to the Public Service Commission for authority to increase the number of daily trips to nineteen, thus showing a spirit that ought to be commended.

Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by the Public Service Commission of Indiana (P. U. R., 1927-B, page 729), in which it was held:

A motor vehicle operator having received a certificate with a voluntary stipulation not to make stops (that is not to carry passengers) on a part of a route served by other carriers, and having contracted with such carries not to make the stops, will not subsequently are able to carry all passengers who present theselves for transportation within the restricted district.

And in Re Mount Baker Development Co., the Public Service Commission of Washington (P. U. R., 1925D, 705), held:

A cerificate authorizing through motor carrier service should not authorize local service between points served by the holders of a certificate, without first giving the certificate holders an opportunity to render additional service desired.

In the National Coal Company case (47 Phil., 356), this court said:

When there is no monopoly. — There is no such thing as a monopoly where a property is operated as a public utility under the rules and regulations of the Public Utility Commission and the terms and provision of the Public Utility Act.

Section 775 of Pond on Public Utilities, which is recognized as a standard authority, states the rule thus:

The policy of regulation, upon which our present public utility commission plan is based and which tends to do away with competition among public utilities as they are natural monopolies, is at once reason and the justification for the holding of our courts that the regulation of an existing system of transportation, which is properly serving a given field, or may be required to do so, is to be preferred to competition among several independent systems. While requiring a proper service from, a single system for a city or territory in consideration for protecting it as a monopoly for all service required and in conserving its resources, no economic waste results and service may be furnished at the minimum cost. The prime object and real purpose of commission control is to secure adequate sustained service for the public at the least possible cost, and to protect and conserve investments already made for this purpose. Experience has demonstrated beyond any question that competition among natural monopolies is wasteful economically and results finally in insufficient and unsatisfactory service and extravagant rates.

The rule has been laid down, without dissent in numerous decisions, that where an operator is rendering good, sufficient and adequate service to the public, that the convenince does not require and the public interests will not be promoted in a proper and suitable manner by giving another operator a certificate of public convenience to operate a competing line over the same ruote.

In Re Haydis (Cal.), P. U. R., 1920A, 923:

A certificate of convenience and necessity for the operation of an auto truck line in occupied territory will not be granted, where there is no complaint as to existing rates and the present company is rendering adequate service.

In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:

A Commission should not approve an additional charter and grant an additional certificate to a second bus company to operate in territory covered by a certificate granted to another bus company as a subsidiary of a railway company for operation in conjunction with the trolley system where one bus service would be ample for all requirements.

In Re Branham (Ariz.), P. U. R., 1924C, 500:

A showing must be clear and affirmative that an existing is unable or has refused to maintain adequate and satisfactory service, before a certificate of convenience and necessity will be granted for the operation of an additional service.

In Re Lambert (N. H.), P. U. R., 1923D, 572:

Authority to operate a jitney bus should be refused when permision has been given to other parties to operate and, from the evidence, they are equipped adequately to accommodate the public in this respect, no complaints having been received in regard to service rendered.

In Re White (Md.), P. U. R., 1924E, 316:

A motor vehicle operator who has built up a business between specified points after years of effort should not be deprived of the fruits of his labor and of the capital he has invested in his operation by a larger concern desiring to operate between the same points.

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

A certificate authorizing the operation of passenger motor service should be denied where the record shows that the admission of another operator into the territory served by present licensees is not necessary and would render their licensee oppressive and confiscatory because of further division and depletion of revenues and would defeat the purpose of the statue and disorganize the public service.

In Re Nevada California Stage Co., P. U. R., 1924A, 460:

The Nevada Commission denied an application for a certificate of convenience and necessity for the operation of an automobile passenger service in view of the fact that the service within the territory proposed to be served appeared to be adequate and it was the policy of the Commission to protect the established line in the enjoyment of business which it had built, and in view of the further fact that it was very uncertain whether the applicant could secure sufficient business to enable him to operate profitably.

In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:

Unless it is shown that the utility desiring to enter a competitive field can give such service as will be a positive advantage to the public, a certificate of convenience will be denied by the Idaho Commission, provided that the existing utility furnishing adequate service at reasonable rates at the time of the threatened competition.

In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:

Competition between bus lines should be prohibited the same as competition between common carriers.

In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:

Certificates permitting the operation of motor vehicles for carrying passengers for hire over regular routes between points served by steam and electric railways should not be granted when the existing service is reasonable, safe, and adequate as required by statue.

In Re Murphy (Minnesota), P.U.R., 1927C, 807:

Authority to operate an auto transportation service over a route which is served by another auto transportation company should be denied if no necessity is shown for additional service.

In Re Hall, editorial notes, P. U. R., 1927E:

A certificate of convenience and necessity for the operation of a motor carrier service has been denied by the Colorado Commission where the only ground adduced for the certificate was that competition thereby afforded to an existing utility would benefit the public by lowering rates. The Commission said: "Up to the present time the Commission has never issued a certificate authorizing a duplication of motor vehicle operation over a given route unless it appeared that the service already rendered was not adequate, that there was no ruinous competition or that the second applicant could, while operating on a sound businesslike basis, afford transportation at cheaper rates than those already in effect. There has been no complaint to date as to the rates now being charged on the routes over which the applicant desires to serve. Moreover, the Commission stand ready, at any time the unreasonable of the rates of any carrier are questioned, to determine their reasonableness and to order them reduced if they are shown to be unreasonable." In this case the Commission also expressed its disappoval of the practice of an applicant securing a certificate for the sole purpose of transferring it to another.

In Re Sumner (Utah), P. U. R., 1927D, 734:

The operation of an automobile stage line will not be authorized over a route adequately served by a railroad and other bus line, although the proposed service would be an added convenience to the territory.

In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E., 175; P. U. R., 1927E, 333:

The policy of the state is to compel an established public utility occupying a given filed to provide adequate service and at the same time protect it from ruinous competition, and to allow it an apportunity to provide additional service when required instead of permitting such service by a newly established competitor.

Upon the question of "Reason and Rule for Regulation," in section 775, Pond says:

The policy of regulation, upon which our present public utility commission plan is based and which tends to do away with competition among public utilities as they are natural monopolies, is at once the reason and the justification for the holding of our courts that the regulation of an existing system of transportation, which is properly serving a given field or may be required to do so, is to be preferred to competition among several independent systems. While requiring a proper service from a single system for a city or territory in consideration for protecting it as a monopoly for all the service required and in conserving its resources, no economic waste results and service may be furnished at the minimum cost. The prime object and real purpose of commission control is to secure adequate sustained service for the public at the least possible cost, and to protect and conserve investments already made for this purpose. Experience has demostrated beyond any question that competition among natural monopolies is wasteful economically and results finally in insufficient and unsatisfactory service and extravagant rates. Neither the number of the individuals demanding other service nor the question of the fares constitutes the entire question, but rather what the proper agency should be to furnish the best service to the public generally and continuously at the least cost. Anything which tends to cripple seriously or destroy an established system of transportation that is necessary to a community is not a convenience and necessity for the public and its introduction would be a handicap rather than a help ultimately in such a field.

That is the legal construction which should be placed on paragraph (e) of section 14, and paragraph (b) and (c) of section 15 of the Public Service Law.

We are clearly of the opinion that the order of the Commission granting the petition of Orlanes in question, for the reason therein stated, is null and void, and that it is in direct conflict with the underlying and fundamental priciples for which the Commission was created.1awphi1.net

The question presented is very important and far-reaching and one of first impression in this court, and for such reasons we have given this case the careful consideration which its importance deserves. The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior license complies with the terms and conditions of his license and reasonable rules and regulation for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the granting of a subsequent license to another for the same thing over the same route of travel. The granting of such a license does not serve its convenience or promote the interests of the public.

The decision of the Public Service Commission, granting to Orlanes the license in question, is revoked and set aside, and the case is remanded to the Commission for such other and further proceedings as are not inconsistent with this opinion. Neither party to recover costs on this appeal. So ordered.

Johnson, Street, Malcolm and Ostrand, JJ., concur.

Separate Opinions

ROMUALDEZ, J., dissenting:

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

EN BANC

METROPOLITAN CEBU WATER DISTRICT (MCWD), Petitioner, - versus - MARGARITA A. ADALA, Respondent.

G.R. No. 168914 Present:

PUNO, C.J.,QUISUMBING,*

YNARES-SANTIAGO,SANDOVAL-GUTIERREZ,**

CARPIO,AUSTRIA-MARTINEZ,CORONA,CARPIO MORALES,AZCUNA,TINGA,CHICO-NAZARIO,GARCIA,VELASCO, JR., andNACHURA, JJ.

Promulgated: July 4, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES, J.: The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005, which affirmed in toto the Decision of the National Water Resources Board (NWRB) dated September 22, 2003 in favor of Margarita A. Adala, respondent, is being challenged in the present petition for review on certiorari. Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City. At the initial hearing of December 16, 2002 during which respondent submitted proof of compliance with jurisdictional requirements of notice and publication, herein petitioner Metropolitan Cebu Water District, a government-owned and controlled corporation created pursuant to P.D. 198[1] which took effect upon its issuance by then President Marcos on May 25, 1973, as amended, appeared through its lawyers to oppose the application. While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002, yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a copy of petitioner’s Opposition dated December 12, 2002 earlier that morning, volunteered to give a copy thereof to the hearing officer.[2]

In its Opposition, petitioner prayed for the denial of respondent’s application on the following grounds: (1) petitioner’s Board of Directors had not consented to the issuance of the franchise applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioner’s water supply which it has the right to protect, and (3) the water needs of the residents in the subject area was already being well served by petitioner. After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, 2003, dismissed petitioner’s Opposition “for lack of merit and/or failure to state the cause of action”[3] and ruled in favor of respondent as follows:

PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to operate and maintain the subject waterworks system, and that said operation shall redound to the benefit of the of the [sic] consumers of Sitio’s San Vicente, Fatima and Sambag at Bulacao Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant application for a Certificate of Public Convenience (CPC) is, hereby, GRANTED for a period of five (5) years with authority to charge the proposed rates herein set effective upon approval as follows:

Consumption Blocks

Proposed Rates

0-10 cu. m. P125.00(min. charge)11-20 cu. m. 13.50 per cu. m.21-30 cu. m. 14.50 per cu. m.31-40 cu. m. 35.00 per cu. m.41-50 cu. m. 37.00 per cu. m.51-60 cu. m. 38.00 per cu. m.61-70 cu. m. 40.00 per cu. m.71-100 cu. m. 45.00 per cu. m.Over 100 cu. m. 50.00 per cu. m.

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

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

i. WHETHER OR NOT THE CONSENT OF THE BOARD OF

DIRECTORS OF THE WATER DISTRICT IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE SERVICE AREA OF THE WATER DISTRICT?

ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF

PRESIDENTIAL DECREE 198, AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY THE NATIONAL WATER RESOURCES BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM OR WATER SUPPLY SERVICE?[5]

Before discussing these substantive issues, a resolution of the procedural grounds raised by respondent for the outright denial of the petition is in order. By respondent’s claim, petitioner’s General Manager, Engineer Armando H. Paredes, who filed the present petition and signed the accompanying verification and certification of non-forum shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble Resources v. Court of Appeals[6] where this Court held that, in the absence of a board resolution authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must fail since “the power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers.” Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals[7] where this Court held that “[f]or such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so.” (Emphasis supplied by respondent) That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner is not disputed. Attached to the petition is petitioner’s Board of Director’s Resolution No. 015-2004, the relevant portion of which states:

RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf of the Metropolitan Cebu Water District expropriation and other cases and to affirm and confirm above-stated authority with respect to previous cases filed by MCWD.

x x x x[8] (Emphasis and underscoring supplied)

To respondent, however, the board resolution is invalid and ineffective for being a roving authority and not a specific resolution pursuant to the ruling inABS-CBN. That the subject board resolution does not authorize Engineer Paredes to file the instant petition in particular but “expropriation and other cases” does not,by itself, render the authorization invalid or ineffective.

In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words similar to the questioned resolution, authorized persons to represent the corporation, not for a specific case, but for a general class of cases. Significantly, the Court upheld its validity:

In the present case, the corporation's board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original)

Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which Engineer Paredes may file in petitioner’s behalf, the same does not authorize him for the specific act of signing verifications and certifications against forum shopping. For it merely authorizes Engineer Paredes to file cases in behalf of the corporation. There is no mention of signing verifications and certifications against forum shopping, or, for that matter, any document of whatever nature. A board resolution purporting to authorize a person to sign documents in behalf of the corporation must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals[10] so instructs:

Corporations have no powers except those expressly conferred upon them by the Corporation Code and those that are implied by or are incidental to its existence.These powers are exercised through their board of directors and/or duly authorized officers and agents. Hence, physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors. The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to institute the present petition and to sign the certification of non-forum shopping. While said counsel may be the counsel of record for BLC, the representation does not vest upon him the authority to execute the certification on behalf of his client. There must be a resolution issued by the board of directors that specifically authorizes him to institute the petition and execute the certification, for it is only then that his actions can be legally binding upon BLC. (Emphasis, italics and underscoring supplied)

It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as “the act of presenting the pleading or other paper to the clerk of court.” Since the signing of verifications and certifications against forum shopping is not integral to the act of filing, this may not be deemed as necessarily included in an authorization merely to file cases. Engineer Paredes not having been specifically authorized to sign the verification and certification against forum shopping in petitioner’s behalf, the instant petition may be dismissed outright. Technicality aside, the petition just the same merits dismissal.

In support of its contention that the consent of its Board of Directors is a condition sine qua non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D. 198[11] which states:

Sec. 47. Exclusive Franchise. — No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. (Emphasis and underscoring supplied)

There being no such consent on the part of its board of directors, petitioner concludes that respondent’s application for CPC should be denied. Both parties’ arguments center, in the main, on the scope of the word “franchise” as used in the above-quoted provision.

Petitioner contends that “franchise” should be broadly interpreted, such that the prohibition against its grant to other entities without the consent of the district’s board of directors extends to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences, for it would mean that Congress’ power to grant franchises for the operation of waterworks systems cannot be exercised without the consent of water districts.

Respondent, on the other hand, proffers that the same prohibition only

applies to franchises in the strict sense – those granted by Congress by means of statute – and does not extend to CPCs granted by agencies such as the NWRB. Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise from a CPC, thus:

A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance of a public utility for which a franchise is not required by law and a CPC issued by this Board is an authority to operate and maintain a waterworks system or water supply service. On the other hand, a franchise is privilege or authority to operate appropriate private property for public use vested by Congress through legislation. Clearly, therefore, a CPC is different from a franchise and Section 47 of Presidential Decree 198 refers only to franchise. Accordingly, the possession of franchise by a water district does not bar the issuance of a CPC for an area covered by the water district. (Emphasis and underscoring supplied by respondent)

Petitioner’s position that an overly strict construction of the term “franchise” as used in Section 47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly understood to mean an authorization issuing directly from the legislature, it would follow that, while Congress cannot issue franchises for operating waterworks systems without the water district’s consent, the NWRB may keep on issuing CPCs authorizing the very same act even without such consent. In effect, not only would the NWRB be subject to less constraints than Congress in issuing franchises. The exclusive character of the franchise provided for by Section 47 would be illusory. Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,[12] has construed the term “franchise” broadly so as to include, not only

authorizations issuing directly from Congress in the form of statute, but also those granted by administrative agencies to which the power to grant franchises has been delegated by Congress, to wit:

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[13]

That the legislative authority – in this instance, then President Marcos [14] – intended to delegate its power to issue franchises in the case of water districts is clear from the fact that, pursuant to the procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and maintenance of water districts, it having vested the same to local legislative bodies and the Local Water Utilities Administration (LWUA).

Sections 6 and 7 of P.D. 198, as amended, state:

SECTION 6. Formation of District. — This Act is the source of authorization and power to form and maintain a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. To form a district, the legislative body of any city, municipality or province shall enact a resolution containing the following: (a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District". (b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or portions thereof, cover a contiguous area. (c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or

under the control of such city, municipality or province to such district upon the filing of resolution forming the district. (d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above. (e) The names of the initial directors of the district with the date of expiration of the term of office for each which shall be on the 31st of December of first, second, or third even-numbered year after assuming office, as set forth in Section 11 hereof. (f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 45 of this Title. (g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of this Title. Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act. If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or province in which 75% of the total active service connections are situated shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces.

SECTION 7. Filing of Resolution. — A certified copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed.The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis and underscoring supplied)

It bears noting that once a district is “duly formed and existing” after following the above procedure, it acquires the “exclusive franchise” referred to in Section 47. Thus, P.D. 198 itself, in harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,[15] gives the name “franchise” to an authorization that does not proceed directly from the legislature.

It would thus be incongruous to adopt in this instance the strict interpretation proffered by respondent and exclude from the scope of the term “franchise” the CPCs issued by the NWRB.[16]

Nonetheless, while the prohibition in Section 47 of P.D. 198 applies

to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable with

Article XIV Section 5 of the 1973 Constitution which was ratified on January 17, 1973 – the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads:

SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis and underscoring supplied)

This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.[17] In view of the purposes for which they are established,[18] water districts fall under the term “public utility” as defined in the case of National Power Corporation v. Court of Appeals:[19]

A “public utility” is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas,water, transportation, telephone or telegraph service. x x x (Emphasis and underscoring supplied)

It bears noting, moreover, that as early as 1933, the Court held that a particular water district – the Metropolitan Water District – is a public utility.[20]

The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated Unions[21] is also instructive:

We agree with petitioner that the NAWASA is a public utility because its primary function is to construct, maintain and operate water reservoirs and waterworks for the purpose of supplying

water to the inhabitants, as well as consolidate and centralize all water supplies and drainage systems in the Philippines. x x x (Emphasis supplied)

Since Section 47 of P.D. 198, which vests an “exclusive franchise” upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, [22] it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondent’s application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in light of the foregoing discussions, DISMISSED. SO ORDERED.

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

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

YAP, J.:

In an action for recovery of damages for embarassment, humiliation, wounded feelings and hurt pride, caused to herein private respondents, by reason of the disconnection of their electrical service by the petitioners, the then Court of First Instance of Manila, Sixth Judicial District, Branch XXIV, rendered a decision dated December 13,1967, ordering herein petitioners jointly and severally to pay private respondents the sum of Ten Thousand (P10,000.00) Pesos as moral damages, Two Thousand (P2,000.00) Pesos as exemplary damages and, One Thousand (P1,000.00) Pesos as attorney's fees, and dismissing petitioners' counterclaim.

On appeal, the Court of Appeals and in toto the trial court's decision. Their Motion for Reconsideration having been denied, petitioners filed the instant petition for certiorari.

Petitioner Manila Electric Company (MERALCO) is a public utility corporation providing electric power for the consumption of the general public in Metro Manila. Petitioner Pedro Yambao is a bill collector of MERALCO.

Private respondents Isaac Chaves and Juana O. Chaves, husband and wife, filed the complaint for damages, together with their children, Isaac O. Chaves, Jr. and Rosendo O. Chaves. Isaac Sr. and Isaac Jr. and Rosendo were members of the Philippine Bar; Isaac, Sr. and Isaac, Jr. were practicing lawyers and Rosendo was a Legal Officer at the Agricultural Productivity Commission. Juana O. Chaves was a public school teacher.

The facts as found by the trial court and adopted by the Court of Appeals are as follows:

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

At or about the end of March, 1965, defendant Pedro Yambao went to the residence of plaintiffs and presented two overdue bills, one for January 11 to February 9,1965, for the sum of P7.90 (Exhibit "C"), and the other for February 9 to March 10, 1965, for the amount of P7.20 (Exhibit "C"). Juana O. Chaves, however, informed Yambao that these bills would be paid at the MERALCO main office.

Accordingly, on April 2, 1965, Isaac Chaves went to the defendant's main office at San Marcelino, Manila, but paid only the bill marked as Exhibit 'C" leaving the other bill Identified as Exhibit "C-l" unpaid.

Past 2:30 o'clock in the afternoon of April 21,1965, MERALCO caused the electric service in plaintiff's residence to be discontinued and the power line cut off.

The next day, April 22, 1965, at about 9:00 a.m., plaintiff Rosendo O. Chaves went to the MERALCO main office and paid the amount of P7.20 for the bill marked as Exhibit "C-l", and the sum of P7.00 for the subsequent bill corresponding to the period from March 10 up to April 8, 1965 (Exhibit "C-2") after his attention was called to the latter account. Rosendo O. Chaves then sought the help of Atty. Lourdy Torres, one of the defendants' counsel, and, thereafter, the power line was reconnected and electric service restored to the Chaves residence at about 7:00 p.m. of that same day. 1

Petitioners dispute the finding that there was no notice given to herein respondent. However, since only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court, petitioners, 'for the sake of argument and for the purpose of giving focus on the legal issues', do not take issue with such finding.

Petitioners contend that in the absence of bad faith, they could not be held liable for moral and exemplary damages as well as attorney's fees. The failure to give a notice of disconnection to private respondents might have been a breach of duty or breach of contract, but by itself does not constitute bad faith or fraud; it must be shown that such a failure was motivated by in or done with fraudulent intent.Petitioners also maintain that ' private respondents were in arrears in the payment of their electricity bills when their electric service was connected, no moral damages may be recovered by them under the 'clean hands' doctrine enunciated in Mabutas vs. Calapan Electric Company, CA-G.R. No. L-9683-R, May 26, 1964.

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

Section 97. Payment of bills. — A public service, may require that bills for service be paid within a specified time after rendition. When the billing period covers a month or more, the minimum time allowed will be ten days and upon expiration of the specified time,

service may be discontinued for the non-payment of bills, provided that a 48 hours' written notice of such disconnection has been given the customer: Provided, however, that disconnections of service shall not be made on Sundays and official holidays and never after 2 p.m. of any working day: Provided, further, that if at the moment the disconnection is to be made the customer tenders payment of the unpaid bill to the agent or employee of the operator who is to effect the disconnection, the said agent or employee shall be obliged to accept tender of payment and issue a temporary receipt for the amount and shall desist from disconnecting the service. 2

The respondent court stressed the importance and necessity of the 48-hour advance written notification before a disconnection of service may be effected. Said the court:

... It sets in motion the disconnection of an electrical service of the customer by giving the notice, determining the expiration date thereof, and executing the disconnection. It, therefore, behooves the defendant MERALCO that before it disconnects a customer's electrical service, there should be sufficient evidence that the requirements for the disconnection had been duly complied with, otherwise, the poor consumer can be subjected to the whims and caprices of the defendant, by the mere pretension that the written notice had been duly served upon the customer. 3

We find no reversible error in the decision appealed from. One can not deny the vital role which a public utility such as MERALCO, having a monopoly of the supply of electrical power in Metro Manila and some nearby municipalities, plays in the life of people living in such areas. Electricity has become a necessity to most people in these areas justifying the exercise by the State of its regulatory power over the business of supplying electrical service to the public, in which petitioner MERALCO is engaged. Thus, the state may regulate, as it has done through Section 97 of the Revised Order No. 1 of the Public Service Commission, the conditions under which and the manner by which a public utility such as MERALCO may effect a disconnection of service to a delinquent customer. Among others, a prior written notice to the customer is required before disconnection of the service. Failure to give such prior notice amounts to a tort, as held by us in a similar case, 4 where we said:

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

Likewise, we find no merit in petitioners' contention that being in arrears in the payment of their bills, the private respondents are not entitled to moral damages

under the doctrine that "he who comes to court in demand of equity, must come with clean hands." We rejected this argument in the Manila Gas Corporation case, supra, wherein we held that respondents' default in the payment of his bills "cannot be utilized by petitioner to defeat or null the claim for damages. At most, this circumstance can be considered as a mitigating factor in ascertaining the amount of damages to which respondent ... is entitled."

Accordingly, we find no grave abuse of discretion committed by respondent court in affirming the trial court's decision. The petition is hereby DISMISSED for lack of merit.

SO ORDERED.

G.R. No. 145399 March 17, 2006

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

D E C I S I O N

GARCIA, J.:

Before us is this petition for review on certiorari to annul and set aside the decision1 dated September 22, 2000 of the Court of Appeals (CA) in CA G.R. SP No. 56946, which effectively affirmed the Orders of the Energy Regulatory Board2 (ERB) dated October 22, 1999 and December 27, 1999 in ERB Case No. 99-67.

The assailed CA decision upheld public respondent ERB’s exercise of jurisdiction over cases involving complaints for reconnection of electric service cut-off for alleged violation of Republic Act (R.A.) No. 7832, otherwise known as the "Anti-electricity and Electric Transmission Lines/Materials Pilferage Act of 1994," as well as ERB’s authority to issue a provisional order of reconnection.

The factual background:

On October 18, 1999, herein private respondent Edgar L. Ti, doing business under the name and style ELT Enterprise, filed a verified complaint3 before the ERB against petitioner Manila Electric Company (MERALCO). In it, Ti alleged inter alia that MERALCO unlawfully disconnected partially the electric service in his business establishment located at Little Baguio, San Juan, Metro Manila and seized three (3) of his electric meters on mere suspicion of meter tampering. Aggravating the situation, Ti adds, was the fact that the notice of disconnection was served at night, while the actual disconnection was not done in the presence of the owner of ELT Enterprise or his representative. The unauthorized disconnection, Ti claimed, has caused him great damage which, if not immediately addressed, would result to irreparable injury. He thus prayed that pending hearing of his complaint, docketed as ERB Case No. 99-67, electric service be restored in his establishment.

In an Order dated October 22, 1999,4 the ERB, by way of provisional relief, ordered the desired reconnection of electric service and, at the same, directed MERALCO to submit its comment on the complaint.

On October 29, 1999, MERALCO moved for a reconsideration of the aforementioned provisional reconnection order, alleging that an inspection conducted by its service inspectors accompanied by elements of the Philippine National Police found Ti to have tampered three (3) electric meters installed in his business premises by manipulating the dial pointers thereof. The fraudulent act of Ti, according to MERALCO, constituted a violation of R.A. No. 7832 legally warranting the immediate disconnection of the electric supply on his establishment, as provided under Section 45 in relation to Section 66 thereof. MERALCO further argued that the ERB is without jurisdiction to issue a provisional relief and order the restoration of electric service, that authority being vested only on regular courts.

On the same day, MERALCO instituted a criminal complaint against Ti for violation of R. A. No. 7832 before the Prosecutor’s Office of Rizal. The criminal complaint appears to be still pending resolution.

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

On December 27, 1999, the ERB issued an Order8 denying MERALCO’s motion for reconsideration, thereby virtually reiterating the reconnection directive contained in its earlier Order of October 22, 1999.9 Partly wrote the ERB in its December 27, 1999 Order:

[Petitioner MERALCO’s] contention that this Board has no jurisdiction over the subject matter of the instant complaint, which is the restoration of the partial shutdown of the electric service to complainant’s building, cannot be upheld. The law gives consumers who have a cause of grievance against any public utility, such as herein [petitioner] MERALCO, a complete, speedy and adequate remedy. That is the purpose of Commonwealth Act No. 146, as amended, creating the Public Service Commission, this Board’s predecessor office, and prescribing its duties and powers, and the reason why it was enacted ….10 (Words in bracket added.)

Dissatisfied, MERALCO went to the CA on a petition for certiorari, thereat docketed as CA-G.R. SP No. 56946, assailing as having been issued without jurisdiction or with grave abuse of discretion, the ERB’s orders dated October 22, 1999 and December 27, 1999.

Eventually, the CA, in a Decision dated September 22, 2000,11 veritably rejected MERALCO’s imputation of lack of jurisdiction or grave abuse of discretion on the part of the ERB and, accordingly, affirmed the latter’s twin assailed orders and dismissed MERALCO’s recourse thereto. Partly says the CA in its decision:

The agency charged with regulatory and adjudicatory functions covering the energy sector is the Energy Regulatory Board created under E.O. No. 172 dated May 8, 1987. The nucleus of the ERB was the Board of Energy established by P.D. No. 1206 dated October 6, 1977, which had the power to regulate and fix power rates to be charged by electric companies and to issue certificates of public convenience for the operation of electric power utilities and services. 12

xxx xxx xxx

xxx. E.O. No. 172, dated June 5, 1987, saw the further need to create an independent body which gave birth to the present ERB. The aim of course is to achieve a more coherent and effective policy formulation, coordination, implementation and monitoring within the energy sector, and to consolidate in one body all the regulatory and adjudicatory functions covering the energy sector.13

xxx xxx xxx

There should be no debate then about ERB’s possessing jurisdiction to regulate and adjudicate matters relating to its functions as highlighted above. The law clearly

http://www.lawphil.net/judjuris/juri2006/mar2006/gr_145399_2006.html#fnt13













affords any customer, like private respondent, a plain, complete and adequate remedy for any grievance against a public utility, and the ERB not only has the right, but the duty as well, to grant relief in proper cases. Relevant provisions of the Public Service Act have been substantially carried over in statutes creating independent specialized agencies, like ERB, with regulatory and adjudicatory powers.14

Hence, petitioner MERALCO’s present recourse, on the following grounds:

A.

THE CONCLUSION OF THE [CA] THAT THE PUBLIC RESPONDENT HAS JURISDICTION TO HEAR CONTROVERSIES BETWEEN PRIVATE RESPONDENT AND PETITIONER ARISING FROM VIOLATION OF THE SERVICE CONTRACT AND CASES FALLING UNDER R.A. 7832 IS CONTRARY TO EXISTING LAW.

B.

THE [CA] ERRONEOUSLY CONCLUDED THAT PUBLIC RESPONDENT HAS AUTHORITY TO ISSUE PROVISIONAL REMEDY IN THE NATURE OF WRIT OF PRELIMINARY MANDATORY INJUNCTION. ASSUMING ARGUENDO THAT IT HAS THE POWER, IT VIOLATED R.A. 7832 WHEN IT ORDERED THE RECONNECTION OF SERVICE WITHOUT THE REQUISITE BOND.15

The pivotal issue before the Court turns on whether or not public respondent ERB has jurisdiction to order the reconnection of electric service in cases arising from alleged violation of R. A. No. 7832.

Petitioner MERALCO urges the resolution of the issue in the negative on the rationale that there is no provision in Executive Order (E.O.) No. 172, series of 1987, the ERB charter, granting that agency adjudicative jurisdiction over violations of R. A. No. 7832, let alone order the restoration of a disconnected electric service. Such jurisdiction, as petitioner insisted all along, is vested with the regular courts.

The Court disagrees.

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

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

1. The first regulatory body, the Board of Rate Regulation (BRR), was created by virtue of Act No. 1779.18 Its regulatory mandate under Section 5 of the law was limited to fixing or regulating rates of every public service corporation.

2. In 1913, Act No. 230719 created the Board of Public Utility Commissioners (BPUC) to take over the functions of the BRR. By express provision of Act

No. 2307, the BPUC was vested with jurisdiction, supervision and control over all public utilities and their properties and franchises.

3. On November 7, 1936, Commonwealth Act (C.A.) No. 146, or the Public Service Act (PSA), was passed creating the Public Service Commission (PSC) to replace the BPUC. Like the BPUC, the PSC was expressly granted jurisdiction, supervision and control over public services, with the concomitant authority of calling on the public force to exercise its power, to wit:

SEC. 13. Except as otherwise provided herein, the Commission shall have general supervision and regulation of,jurisdiction and control over, all public utilities, and also over their property, property rights, equipment, facilities and franchises so far as may be necessary for the purpose of carrying out the provisions of this Act, and in the exercise of its authority it shall have the necessary powers and the aid of the public force xxx xxx xxx. (Emphasis supplied)

Section 14 of C.A. No. 146 defines the term "public service" or "public utility" as including "every individual, copartnership, association, corporation or joint-stock company, . . . that now or hereafter may own, operate, manage or control within the Philippines, for hire or compensation, any common carrier, xxx xxx, electric light, heat, power, xxx xxx, when owned, operated and managed for public use or service within the Philippines xxx xxx." Under the succeeding Section 17(a), the PSC has the power even without prior hearing –

(a) To investigate, upon its own initiative, or upon complaint in writing, any matter concerning any public service as regards matters under its jurisdiction; to require any public service to furnish safe, adequate and proper service as the public interest may require and warrant, to enforce compliance with any standard, rule, regulation, order or other requirement of this Act or of the Commission, xxx.

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

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

5. On May 8, 1987, then President Corazon C. Aquino issued E.O. No. 172 reconstituting the BOE into the ERB, transferring the former’s functions and powers under P.D. No. 1206 to the latter23 and consolidating in and entrusting on the ERB "all the regulatory and adjudicatory functions covering the energy sector."24 Section 14 of E.O. No. 172 states that "(T)he applicable provisions of [C.A.] No. 146, as amended, otherwise known as the ‘Public Service Act’; xxx and [P.D.] No. 1206, as amended, creating the Department of Energy, shall continue to have full force and effect, except insofar as inconsistent with this Order."25

Given the foregoing consideration, it is valid to say that certain provisions of the PSA (C.A. No. 146, as amended) have been carried over in the executive order, i.e., E.O. No. 172, creating the ERB. Foremost of these relate to the transfer to the ERB of the jurisdiction and control heretofore pertaining to and exercised by the PSC over













electric, light and power corporations owned, operated and/or managed for public use or service. And as Section 17(a) of C.A. No. 146, as amended, supra, provides, this jurisdiction and control includes the power to investigate any matter concerning any public service and to require any public utility or public service corporation to furnish adequate and proper service. Any suggestion that the transfer of PSC’s functions and powers to the ERB is inconsistent with E.O. No. 172 must be rejected, the principal objective of the said issuance being precisely to reinforce the powers of the ERB as the sole regulatory body over the energy sector.26

Needless to stress, petitioner MERALCO, being an electric service provider, is under the regulatory jurisdiction and supervision of the ERB.

What remains to be determined then is whether or not, based on the allegations in private respondent Ti’s complaint in ERB Case No. 99-67, the ERB’s jurisdiction, supervision and/or control over petitioner MERALCO is/are duly invoked.

The pertinent allegations in the complaint are, as follows:

3. [Respondent Ti] is the owner of ELT Center … a consumer of electric light and power for its 8-storey building supplied by [Meralco] … since his operation in October 1998 to the present.

4. That … [Meralco] through its authorized inspectors, agents or representatives swooped down on …the ELT Building and proceeded by force, … to disconnect the electric service of [respondent Ti] and in the process seized three (3) electric meters …. The claim of the raiding team that the tampering on the electric meters confiscated was done "in flagrante delicto" is a pure fabrication …. without any factual basis. This unfortunate incident occurred on October 13 and 14, 1999 between the unholy hours of 11:30 pm – 1:30 am ….

5. That the Notices of Disconnection dated October 13, 1999 were served at the unholy hours of the night … when there was nobody in the premises to acknowledge receipt of the same. The three (3) disconnection notices dated October 13, 1999 were served only on the security guard on duty …. xxx

xxx xxx xxx

11. A public service corporation like [Meralco] should not resort to unlawful acts in ferreting out electric pilferers like what was done in the instant case ….

12. [Meralco] should be reminded of its responsibility as a public service corporation which is clothed with public interest not to resort to oppression and abuse of authority which do not speak well of a giant corporation ….27

It is fairly clear from the foregoing that the ERB can properly take cognizance of respondent Ti’s complaint for reconnection of electric service in ERB Case No. 99-67, touching as it does on the obligation of a public utility to supply adequate electricity and proper service to the consuming public. It bears to reiterate that the ERB, by force of the aforecited Sections 13 and 17(a) of C.A. No 146, as amended, in relation to Section 14 of E.O. No. 172, has jurisdiction, control and supervision over all public services, their franchises and properties, with power to investigate any matter respecting its jurisdiction and to require any public service to furnish safe, adequate and proper service as the public interest may require. To us, the power of control

and supervision over public utilities would otherwise be a meaningless delegation were the ERB is precluded from requiring a public utility to reconnect pending the determination of propriety of the disconnection. For sure, respondent Ti’s complaint prayed for no other relief than the immediate restoration in his business establishment of electric light and power service, to wit:

WHEREFORE premises considered, it is respectfully prayed of this Honorable Board to order respondent Meralco to restore the partial shutdown of electric light and power service that it unlawfully cut-off from the business establishment of herein complainant, pending notice and hearing, and that the order granting provisional relief should be issued immediately upon the filing of this complaint … to prevent any further serious and irreparable damage and injury to herein complainant.

That after, notice and hearing, the provisional relief herein Granted should be made PERMANENT.28

There can be no quibbling that the ERB may investigate and ascertain the propriety of the disconnection due to an alleged violation of R. A. No. 7832. Necessarily, in the course of such investigation, the ERB may, if factually and legally justified, order the electric service provider, petitioner MERALCO in this instance, to reconnect the consumer’s, private respondent’s in this case, power supply and resume service. Compelling the complaining consumer to still go to court to secure, if proper, a reconnection order, as petitioner’s line of argument urges, would be reading into R. A. No. 7832 something not written therein.

In any event, Section 929 of R. A. No. 7832 speaks of restraining orders or writs of injunction against the exercise by an electric provider of its right and authority "to disconnect" electric service. Here, the provisional relief granted by the ERB in its challenged Order of October 22, 1999 is for reconnection precisely because petitioner MERALCO had already disconnected the power supply to Ti’s premises.

In this connection, it is significant to note that under Section 6 itself of R. A. No. 7832, the right and authority of a private electric utility to immediately disconnect an electric service upon written notice or warning to a customer may be done "without the need of a court or administrative order." We quote the pertinent provision of Section 6:

SEC. 6. Disconnection of Electric Service. – The private electric utility or rural electric cooperative concerned shall have the right and authority to disconnect immediately the electric service after serving a written notice or warning to that effect, without the need of a court or administrative order, and deny restoration of the same, when the owner of the house or establishment concerned or someone acting in his behalf shall have been caught in flagrante delicto doing any of the acts enumerated in Section 4(a) hereof, or when any of the circumstances so enumerated shall have been discovered for the second time: xxx (Emphasis supplied).

Inferentially, the express mention of an "administrative order" under the aforequoted provision negates MERALCO’s principal submission that only the regular courts may issue orders in matters involving violations of R. A. No. 7832. And more specifically in the subject of disconnection, the legislature thereby implicitly recognized the participation of an administrative body although a public utility need not secure a prior order, whether from the court or from the former, in order to effect a disconnection. Had the intention of Congress been to vest exclusively on the regular courts cases involving violation of R. A. No. 7832, there is simply no sense for it to include the term "administrative order" in Section 6.





The above conclusion is no more than being faithful to the rule that every part of a statute should be given effect, a statute being enacted as an integrated measure and not as a hodgepodge of conflicting provisions.30 In line with this rule, it behooves courts to adopt a construction that will give effect to every part of the statute, its every word, if at all possible.31

The criminal aspect of the alleged violation of R. A. No. 7832 is of course a different matter. A circumspect look at E.O. No. 172 yields no indication that the ERB’s jurisdiction extends to adjudication of criminal complaints for infringement of R. A. No. 7832.

While a complaint for reconnection of a customer’s electric service is inter-related to the criminal action for violation of R. A. No. 7832, the determination of the propriety of the reconnection remains distinct and independent from the criminal action. The dominant and primordial objective of a criminal prosecution is the punishment of the offender, while a complaint for reconnection is intended merely to address a consumer’s grievance against an electric service provider with respect to the generation, transmission and supply of electric service. In fact, any determination or ruling in the reconnection case is without prejudice to the criminal liability which may be imposed in the criminal action. There is absolutely no conflict between the exercise by the ERB of its power to entertain a complaint for reconnection of electric service and the regular court’s jurisdiction to entertain and act on a criminal action against private respondent Ti for violation of R. A. No. 7832. The reason therefor is not hard to discern: a criminal action affects the social order while an action for reconnection of electric service pertains to the public utility’s obligation to provide public service which partakes of the nature of a civil action and affects private rights.32

It is petitioner’s posture that it is not within the ERB’s power to grant a provisional relief. Hence, its argument that the ERB gravely abused its discretion when it ordered MERALCO to immediately reconnect Ti’s electric service pending hearing of the main action in ERB Case No. 99-67.

Again, the Court disagrees.

Petitioner has evidently lost sight of Section 8 of E.O. No. 172 which explicitly vests on the ERB, as an incident to its principal functions, the authority to grant provisional relief, thus:

SEC. 8. Authority to Grant Provisional Relief. — The [Energy Regulatory] Board may, upon the filing of an application, petition or complaint or at any stage thereafter and without prior hearing, on the basis of supporting papers duly verified or authenticated, grant provisional relief on motion of a party in the case or on its own initiative, without prejudice to a final decision after hearing, should the Board find that the pleadings, together with such affidavits, documents and other evidence which may be submitted in support of the motion, substantially support the provisional order: …. (Emphasis and words in bracket supplied.)

Furthermore, Section 2, Rule 13 of the Rules of Practice and Procedure Governing Hearings Before the ERB,33provides as follows:

Section 2. Provisional relief. – Upon the filing of an application, petition or complaint, or at any stage thereafter, the Board may grant on motion of the pleader or on its own initiative, the relief prayed for without prejudice to a final decision after

completion of the hearing should the Board find that the pleading, together with the affidavits and supporting documents attached thereto and such additional evidence as may have been presented, substantially support the provisional order; Provided: That the Board may, motu proprio, continue to issue orders or grant relief in the exercise of its powers of general supervision under existing laws. (Emphasis supplied.)

As hereinabove explained, the ERB is endowed with the authority to hear and adjudicate complaints for reconnection of electric service and to grant provisional or ancillary relief during the pendency of the main action. At bottom then, the ERB did no more than to exercise its legal mandate when it ordered petitioner MERALCO to immediately restore the electric service at respondent Ti’s business establishment pending hearing of the main case. The Court finds the ERB’s provisional action to be both factually and legally justified. Hence, the imputation of grave abuse of discretion on its part is without leg to stand on.

Lastly, petitioner contends that the ERB’s Order of October 22, 1999, directing the reconnection of electric service at the business premises of respondent Ti is in the nature of a writ of preliminary mandatory injunction which the ERB has no legal basis to issue. Petitioner cites in this regard Section 9 of R. A. No. 7832 which reads:

SEC. 9. Restriction on the Issuance of Restraining Orders or Writs of Injunction. – No writ of injunction or restraining order shall be issued by any court against any private electric utility or rural electric cooperative exercising the right and authority to disconnect electric service as provided in this Act, unless there is prima facie evidence that the disconnection was made with evident bad faith or grave abuse of authority. (Emphasis supplied)

The Court remains unconvinced.

Administrative agencies, such as the ERB, are not considered courts; they are neither part of the judicial system nor are they deemed judicial tribunals.34 The prohibition against the issuance of restraining order or writs of injunction does not thus apply to ERB as the term "court" contemplated in the aforequoted provision refers to a regular court belonging to the judicial department.

Parenthetically, Section 14 of R. A. No. 7832 authorizes the ERB to issue the necessary implementing rules and regulations to ensure the efficient and effective implementation of its provisions. Pursuant to such authority, the ERB, as aptly observed by the CA, has approved, upon MERALCO’s behest, the "Terms and Conditions of Service" which apply to and govern all service connections in all places within its franchise area. Specifically, the "Terms and Conditions of Service" provides the customer an understanding of the limitations attendant to his use of the electric service by MERALCO and further sets forth the rights and responsibilities of both the customer and MERALCO under the electric service. These rules, to borrow from the assailed decision of the CA, clearly afford any customer, like private respondent Ti, a plain and adequate remedy for any grievance against a public utility.

WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of Appeals dated September 22, 2000 is AFFIRMED.

Costs against petitioner.

SO ORDERED.






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