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EN BANC
G.R. No. L-32068 October 4, 1971
REPUBLIC OF !E P!ILIPPINE", petitioner,
vs.
!ON. ENRI#UE $E%IN&, !ON. GREGORIO
P&NG&NIB&N, !ON. 'O"UE L. C&%I&O,
!ON. FILO$ENO (IN&N&R, !ON. P&)
*EO PL&N&", + &oc+te Coo/er
o te Pbc "erce Coo/ +/5
$&NIL& ELECRIC CO$P&N, respondents.
G.R. No. L-32083 October 4, 1971
&$ELIO R. $UUC, etto/er,
vs.
$&NIL& ELECRIC CO$P&N +/5 !E
PUBLIC "ER*ICE CO$$I""ION,
reo/5e/t.
G.R. No. L-321 October 4, 1971
$&OR &NONIO '. *ILLEG&", or +/5 /
be+ o te Ct o $+/+ +/5 + oter $+/+ co/ceo/+re +r t+te5,
etto/er,
vs.
PUBLIC "ER*ICE CO$$I""ION, !ON.
ENRI#UE $E%IN&, + Coo/er,
GREGORIO C. P&NG&NIB&N, 'O"UE L.
C&%I&O, FILO$ENO C. (IN&N&R, +/5 P&)
*EO PL&N&", + &oc+te Coo/er
o te PUBLIC "ER*ICE CO$$I""ION, +/5
$&NIL& ELECRIC CO$P&N, reo/5e/t.
G.R. No. L-32374 October 4, 1971
REPUBLIC OF !E P!ILIPPINE", etto/er,
vs.
PUBLIC "ER*ICE CO$$I""ION +/5 $&NIL&
ELECRIC CO$P&N, reo/5e/t,
&$ELIO R. $UUC, +/5 LEON&R%O B&RO,
/tere/or.
G.R. No. L-32402 October 4, 1971
$&NIL& ELECRIC CO$P&N, etto/er,
vs.
PUBLIC "ER*ICE CO$$I""ION +/5
REPUBLIC OF !E P!ILIPPINE",
reo/5e/t.
G.R. No. L-32464 October 4, 1971
R&$ON &. GON)&LE), etto/er,
vs.
$&NIL& ELECRIC CO$P&N +/5 PUBLIC
"ER*ICE CO$$I""ION, reo/5e/t.
Office of the Solicitor General Felix Q. Antonio,
Assistant Solicitor General Ricardo L. Pronove,
Jr., Solicitor Bernardo P. Pardo and Solicitor
Pedro A. Ramirez for etitioner.
Porfirio !. del Pilar and Leonardo Baro for
resondent PS".
Jose L. Africa, Pastor S. del Rosario, Renato #.
$a%ada, &i'(erto #. $a%ada, "amilo ).
Q*iason and Francisco "arreon for resondent
+eraldo.
REE", '.B.L., J.:
On 7 May 1970, Manila Electric Company
(hereinater termed ME!A"CO# iled an
application $ith the %&'lic ervice Commission
see)in* approval o revised rate sched&les, $ith
increased char*es, claimin* that the loatin*
e+chan*e rate and economic conditions
res<in* thererom increased its operatin* and
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maintenance e+penses 'y more than 0-, and
li)e$ise increased the peso cost o servicin* its
orei*n de'ts, ca&sin* it to inc&r an operational
deicit and net loss o over one million pesos a
month. he proposed ne$ rates, applicant
contended, $o&ld *ive it a reasona'le ret&rn o
'elo$ 1/- o the present val&e o its properties
devoted to the p&'lic service, and implicated no
additional '&rden to small cons&mers (o 100
2 or less per month# constit&tin* aro&nd
3/- o petitioner4s c&stomers.
Em'odied in the aorementioned application $as
a motion 5or immediate provision approval o
proposed rates,5 $hich, over the opposition o
the petitioner !ep&'lic and others (6ille*as,
M&t&c, on8ale8 and Baro#, $as *ranted 'y the
respondent Commission in an order dated /0May 1970, 5at the ris) o the applicant,5 s&'ect
to ret&rn o the s&ms collected i, 5ater hearin*
on the merits, the application $as not o&nd
meritorio&s. 5A motion or reconsideration o said
order a&thori8in* the provisional increase in rate
char*es $as iled 'y the oppositors 'eore the
Commission in (anc '&t $as denied in its order
dated : ;&ne 1970. he oppositors iled petitions
or certiorari and prohi'ition $ith preliminary
in&nction to ann&l and set aside the t$o orders
aorementioned, $hich $ere *iven d&e co&rse
(.!. Nos. ", ":, "
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he anne+es in s&pport o the eneral A&ditin*
Oice $ere iled a e$ days later.
Ater hearin* on the merits o the petition, d&rin*
$hich respondent ME!A"CO add&ced its
evidence (mornin* and aternoon, /7 May, 1, /,
: Dmornin* only, 13, 1= Dmornin* only, 17, 1>,
19 and // and ;&ne and the oppositors on /: /
and /3 ;&ne 1970#, on :0 ;&ne 1970,
respondent Commission, thro&*h the 2onora'le
Commissioner Enri&e Medina, %residin*, and
the 2onora'le Associate Commissioners
re*orio C. %an*ani'an and ;os&e ". Cadiao,
Mem'ers, prom&l*ated a decision indin* the
proposed rates reasona'le and &stiied $ith
minor ad&stments, and the dispositive part o
$hich is as ollo$sF
?N 6?E O A"" 2E
O!EO?N, the %&'lic
ervice Commission here'y
AG2O!?HE and A%%!O6E
the proposed rate sched&les o
Meralco attached as Anne+es
5A5, 5A- in the
'illin*s &nder the revised rates
or every thirty (:0# centavos
chan*e in the e+chan*e rate
rom %=.00. ?n airness, s&ch
ad&stment sho&ld 'e &p$ard as
$ell as do$n$ard, dependin*
on $hether the e+chan*e rate
*oes &p or do$n.
he ollo$in* c&rrency
e+chan*e rate ad&stment shall,
thereore, apply '&t &sin* only
:.0- instead o :.>-.
hen the avera*e o the daily
G.. ollar sellin* rate o the
%hilippine national Ban) d&rin*
a calendar &arter is less or
more than =.00 pesos to one (1#
G.. dollar, a correspondin*ad&stment shall 'e made on all
'illin*s or the s&cceedin*
calendar &arter as comp&ted
&nder the !esidential Meter
(!M
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or the p&rpose o ins&rin* that
the a'ove ad&stment shall 'e
carried o&t properly, the
ecretary o the Commission is
here'y ordered to o'tain rom
the %hilippine National Ban) the
necessary inormation as to said
'an)4s daily G.. dollar sellin*
rates@ compile s&ch inormation@
comp&te the avera*e o s&ch
daily rate d&rin* a calendar
&arter@ and $ithin ive (3# days
ater the end o s&ch &arter,
iss&e a certiication o the
res<s o his comp&tation.
?n line $ith one o the conditions
stated in the Order o thisCommission dated /1 May
1970, the Commission here'y
orders the Meralco to reim'&rse
to or credit to the acco&nts o all
its 77,>1 residential
cons&mers $hatever amo&nts
or s&ms o money it has
collected or received rom said
cons&mers &nder the
provisional a&thority in e+cess
o the residential rates approved
and a&thori8ed in this decisionand attached hereto as Anne+
5A5.
he increase hereina'ove
A%%!O6E and AG2O!?HE
shall 'e eective rom the date
o this decision and Anne+es
5A5, 5A#.Oppositors M&t&cand on8ale8 li)e$ise appealed, and $ere
allo$ed to intervene in the case.
Meralco in t&rn iled a motion or reconsideration
prayin* that the dispositive portion o the %&'lic
ervice Commission decision providin* or a
rate ad&stment o :- in the 'illin*s or every
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thirty centavos (%0.:0# chan*e in the e+chan*e
rate (&p or do$n# o %=.00 to every dollar 'e
modiied to a more le+i'le sched&le, 'y allo$in*
a chan*e o
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provisional rates are 'y their nat&re temporary
and s&'ect to ad&stment in conormity $ith the
deinitive rates approved, and in the case at 'ar,
the %&'lic ervice Commission order o /0 May
1970 e+pressly so provided.
Oppositor 6ille*as contends that the %&'lic
ervice Commission co&ld not act on the
petition or provisional rates 'eca&se it
e+pressed no ca&se o action, there 'ein* in it
no statement o the val&e o the properties
devoted to the service to 'e &sed as 'ase rate.
&ice it to say that the 'ase rate assets o
applicant4s properties $ere esta'lished as o
19=3, in this Co&rt4s decision in Manila Electric
Co. vs. %&'lic ervice Commission
(" %hil. :>3, :>>, $here
;&d*e 6icente de 6era, 'ein* temporarily
assi*ned to the p&'lic ervice Commission, had
to ret&rn to his district, and or this reason the
Commission decided the case even 'eore the
e+piration o the period alloted or the illin* o
co&nsel4s memoranda. his Co&rt r&led that the
irre*&larity did not $arrant modiication or reversal o the %&'lic ervice Commission
decision. ?ndeed, it $o&ld have 'een more
anomalo&s to speed &p the proceedin*s i
Commissioner Medina4s retirement rom the
service had not 'een impendin* at all.
?t is $ell to note here that the trial and hearin*s
$ere not contin&o&s, and intervals o several
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days, sometimes o a $ee) or more, too) place.
he main o&tlines o the case or respondent
Meralco (the adverse eect o the loatin* rate
on the cost o operation# appeared rom the
testimony in chie o applicant4s $itness Antonio
O8aeta, $hose cross e+amination $as len*thy,
occ&pyin* over 1:0 pa*es o the transcript.
2earin*s $ere held mornin* and aternoon, '&t
only once did they proceed 'eyond 3 p.m., and
most aternoon sessions startin* at /F00 p.m.
ended at or earlier. No &nd&e restrictions $ere
placed on oppositors &ntil the %&'lic ervice
Commission, apparently reali8in* that its policy
to allo$ even individ&al cons&mers to cross
e+amine independently applicant4s $itnesses
$as &n$or)a'le and $o&ld lead only to
con&sion, decided to limit the n&m'er o cross
e+aminers. his lay $ithin the trier4s discretionand sho&ld not 'e interered $ith in the a'sence
o a'&se, $hich is not here sho$n. As pointed
o&t 'y rancisco (!&les o Co&rt# in his
commentary on !&le 1:/, ection >, 5it is
&ndesira'le or more than one attorney to cross
e+amine the same $itnesses, and the ri*ht may
'e denied $here the interests o the co<
deendants are identical.5
Oppositors
8/18/2019 123 Republic vs Medina
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(%hil. "on* istance elephone
Co. vs. Medina, "
;&ly 19=7, /0 C!A =39, =7=,
per anche8, ;.#
?t is inally &r*ed that only ive days elapsed
'et$een the time the case $as s&'mitted or
decision and the rendition o the &d*ment. or
itsel, this dat&m is inade&ate to s&pport
oppositor4s concl&sion o 'ias. he evidence
$as mainly doc&mentary, and the Meralco 'oo)s
o acco&nt had 'een relia'ly a&dited 'y
rep&ta'le private acco&ntants as $ell as 'y the
AO and the latter4s concl&sions $ere
em'odied in its report. Not only this, '&t the
case $as in act only an &pdatin* o the rate
'ase e+amined and passed &pon 'y the
Commission in 19=3, and airmed 'y the&preme Co&rt (v. 1> C!A =31#. he
dierence consisted in the eect o a notorio&s
and $ell as a test year ('eca&se the 19=9
i*&res $ere not yet a&dited $hen the hearin*s
$ere held in the %&'lic ervice Commission#,the
net val&e o ME!A"CO4s properties devoted to
p&'lic service, e+pressed in terms o present
cost ater ded&ctin* depreciation, $as
%91:,7,0>3.00 Addin* thereto a $or)in*
capital o t$o months operatin* e+penses,
e&ivalent to %/9,===,>7>.00 (i.e., 1= o total
operatin* e+penses or the year in the s&m o
%1=/,739,==1#, the Commission o&nd the rate
'ase (&pon $hich to comp&te the percenta*e o
reasona'le ret&rn# to 'e %9:,11:,9=:. ividin*
the operatin* income o %>7,313,91 'y the rate
'ase *ave are t&rn o 9./3-.
?n a&thori8in* an increase o rates, the %&'lic
ervice Commission proceeded on the 'asis
that the ME!A"CO as p&'lic &tility sho&ld
receive a reasona'le ret&rn on its investment,
e&ivalent to 1/- on the rate 'ase, the present
mar)et or replacement val&e o the properties
devoted to the service less depreciation, pl&s
operatin* capital e&ivalent to / months
operatin* income. ?n so doin*, the %&'lic
ervice Commission only ollo$ed the constant
doctrine o the case heretoore ad&dicated 'y
this Co&rt. aid the Commission in its decisionF
Accordin* to the evidence or
applicant, as o ecem'er :1,
19=>, Meralco4s *ross 'oo)
val&e $as %>70,0:0,0>9 and
%70:,=7=,:9> as o ecem'er
:1, 19=7. he avera*e *ross
'oo) val&e or 19=>, thereore,
$as %7>=,>3:,/:.00. or
p&rposes o rate 'ase
determination, ho$ever, thisCommission and o&r &preme
Co&rt have consistently r&les
that the controllin* standard in
determinin* the val&e o the
property $hich sho&ld 'e
incl&ded in its rate 'ase is the
present or mar)et val&e. he
cases &pholdin* this doctrine
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are n&mero&s, amon* them areF
Metropolitan ater istrict vs.
%&'lic ervice, Commission, 3>
%hil. :97, 00 (19::#@
M&nicipality o %a*sanan vs.
Cacho 2idal*o Electric, .!.
No. :=3 (19::#@ %hilippine
!ail$ays Co. vs. Ast&rias &*ar
Central, ?nc. 7/ %hil. 3(191#@
ort&nato . 2alili vs. ?ce Cold
tora*e o the %hilippines, 77
%hil. >/: (197#@ %hil. %o$er
evelopment Co., %C Case
No. /9>1 (1933#@ and Manila
Electric Co. vs. %&'lic ervice
Commission, .!. No. "
8/18/2019 123 Republic vs Medina
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either case, the *(lic o*ld
s*ffer there(- .
+++ +++ +++
? the ME!A"CO $ere not
constrained to 'orro$ or the
p&rpose o inancin* the
&nderta)in*s it proposes and is
re&ired 'y the circ&mstances
to p&rs&e, the rate o ret&rn or
its investments co&ld, in all
pro'a'ility, 'e red&ced. ?ndeed,
'eore it had decided to initiate
said &nderta)in*s, ME!A"CO
had, not only never increased its
rates K despite the act that
almost all other enterpriseshave raised their rates K '&t
also, vol&nteered to red*ce the
same.
4?t *oes $itho&t sayin* that the
rates o ret&rn are
&nderstanda'ly lo$er in the
Gnited tates $here there is a
comparative a'&ndance o
capital and it is, thereore,
relatively easier to raise &nds
locally, either 'y increasin* the
capitali8ation K $itho&t the
dan*er adverted to a'ove K or
thro&*h loans, &nder conditions
less onero&s than those &s&ally
o'tainin* in the %hilippines.4 K
+anila #lectric "oman- vs.
P*(lic Service "ommission,
G.R. 3o. L4567859 Ricardo
Rosal vs. +anila #lectric
"oman-, G.R. 3o. L456:6;9
Re*(lic of the Philiines vs.P*(lic Service "ommission,
G.R. 3o. L456:
C!A, ==># e noted that K
... Gpon the other hand, !icardo
!osal &r*es that the rates
sho&ld 'e o&nded &pon the
amo&nt o the investment made
'y ME!A"CO4s stoc)holders or
the 5historical cost5 orm&la. he
%C had adopted the present or
mar)et val&e theory, as the'asis or the comp&tation o the
earnin*s allo$a'le to and the
rate sched&le char*ea'le 'y the
ME!A"CO, as $ell as the
method o val&ation &sed and
the appraisal made 'y the
same, ater ma)in* thererom
some ded&ctions recommended
'y AO.
ith respect to the 5historicalcost5 orm&la &r*ed 'y !osal, it
sho&ld 'e noted that the present
or mar)et val&e theory adopted
'y the %C is in consonance
$ith the practice consistently
adhered to in this &risdiction
and &pheld in an &ninterr&pted
line o decisions o this Co&rt.
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And said decisions are 'orne
o&t 'y the $ei*ht o a&thority in
other &risdictions.
Oppositors then, as they do no$ in the case at
'ar, ar*&ed that the 2ope Nat&ral as decision
o the Gnited tates &preme Co&rt had
reected the present val&e theory as o'solete.
his contention $as e+amined in o&r previo&s
decision and o&nd incorrect.
?t is &r*ed that the present val&e
theory is no$ an o'solete
doctrine, it havin* 'een reected
'y the &preme Co&rt o the
Gnited tates in ederal %o$er
Commission vs. 2ope Nat&ral
as Co. (:/0 G.. 391, >> ".ed. :::#, in $hich the pr&dent
investment or modiied ori*inal
cost theory $as alle*edly
adopted. his assertion is
inacc&rate. ?n said case the
Co&rt did not reect the present
or air mar)et val&e theory. ?t
merely re&sed to interere $ith
the action ta)en 'y the ederal
%o$er Commission in applyin*
said pr&dent investment or
modiied ori*inal cost theory.
M&ch o the opposition to the appealed decision
sprin*s rom the improper insistence in val&in*
the stoc)holder4s e&ity at the par val&e o the
shares, entirely i*norin* the act that $hen the
present ilipino stoc)holders ac&ired the stoc)
o the American o$ned ME!A"CO company,
they did so at several times the par val&e. o
comp&te the e&ity o the stoc)holders at par
val&e o the shares is evidently &n&st and $o&ld
res< in i+in* the ret&rns o an &tility atconiscatory levels, partic&larly or recent
stoc)holders that ac&ired shares at a premi&m.
Meas&red a*ainst act&al cost, the divident
percenta*e does not appear a'normal.
he !ep&'lic and other oppositors also insist
that the AO did not have or $as not *iven
ade&ate time to chec) the acc&racy o the
i*&res s&'mitted 'y ME!A"CO@ and yet rom
/3 ;&ne 1970, $hen the AO report $as iled in
the %&'lic ervice Commission, do$n to the
time the case $as s&'mitted or decision in
;&ne, 1971, the oppositors have ailed to s&'mit
any concrete i*&res to sho$ error in the data
relied &pon 'y the Commission.
?t is ar*&ed that rom 19=3 to 19=9 o&t o
%1>1.:73 million reven&es, ME!A"CO only
retained in '&siness %>0.=>> million. his is
diic< to 'elieve considerin* the indin*s o the
Commission that or the same period
ME!A"CO4 constr&ction e+pendit&res
amo&nted to %77>,//7,0>/, $hich is more than
the reven&e rom the rate increase
(%1>1,:7,:#and its orei*n loans(%:1>,==1,>=9# added to*ether(%300,0:=,:0:#.
hese i*&res o the %&'lic ervice Commission
are no$here disp&ted.
As to the ar*&ment that the trendin* or repricin*
o ME!A"CO4s properties res<ed in inlated
val&es, the decision appealed rom (Brie or
%etitioner, pa*e 3:# correctly o'servedF
Atty. Ba&tista ar*&es that
Meralco has trended or re<
priced its properties three times
since 19=: res<in* in over
val&ation o its &tility plant in
service. 2e contends that the
dollar components o Meralco4s
property in service prior to 19=:
$ere already trended in 19=:,
then trended a*ain in 19=> and
then their dollar cost $as
m<iplied 'y = (%= to I1#.his
ar*&ment stems rom a
misapprehension o the p&rposeo the trendin* method $hich,
as has 'een stated
herein'eore, is to *ive
reco*nition to chan*in*
economic conditions and
variations in the p&rchasin*
po$er o the c&rrency 'et$een
the time o investment and the
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time o the rate 'ase
comp&tation. hile it is tr&e
that, in 19=:, the dollar portion
o po$er plants s&'stations, and
'&ildin*s $ere trended 'y &sin*
the trend actor applica'le or
the period rom date o
ac&isition o the e&ipment to
19=:, the e&ipment $as
merely 'ro&*ht to 19=:
replacement cost or 19=:
present val&e. o trend to 19=>
cost level, the 19=: dollar cost
$as m<iplied 'y the trend
actor applica'le or the period
'e*innin* rom 19=: to 19=> to
'rin* the dollar cost to 19=>
cost levels. he total o thedollar component trended as
a'ove stated to 19=> cost levels
$as then m<iplied 'y si+ on the
'asis o the e+chan*e rate o
%=.00 to G.. I1.00. he
contention, thereore, o Atty.
Ba&tista, is $itho&t merit.
he oppositors li)e$ise point o&t that the AO
report disallo$ed %10,=/1,>0: o ME!A"CO4s
yearly 19=> operatin* e+penses.
O this amo&nt, %3,077, 317 incl&des
advertisin*, lie ins&rance premi&ms, and other
rin*e 'eneits to employees, $hich certainly did
not *o to the stoc)holders o the company and
lar*ely contri'&ted to its tro&'le ree service and
la'or relations. O these items, the decision
&nder appeal o'served K
ith respect to the ;ollys
!ecreation Center $hich is a
place $ithin the compo&nd o Meralco $here employees
en*a*e in sports and athletics
activities, the Commission
'elieves that the same sho&ld
not have 'een disallo$ed
considerin* that this contri'&tes
to the eiciency o employees in
the perormance o their $or)
and thereore 'eneits perhaps
indirectly the p&'lic that they
service.
he Commission also notes that
AO has disallo$ed the
ollo$in* dis'&rsement as part
o Meralco4s operatin*
e+pensesF
(a# ro&p ?ns&rance premi&msF
('# ?nstit&tional Advertisin*@ and
(c# ranchise a+es.
ro&p ins&rance premi&ms are
those that are paid 'y Meralcoor the ins&rance policies o
Meralco4s employees. hose are
act&ally part o the salaries o
employees as the Commission
&nderstands it and since these
are considered as incl&ded in
the comp&tation o the salaries
o the employees, they are
proper operatin* e+penses.
?nstit&tional Advertisin*
e+penses have 'een allo$ed 'y
this Commission in the past as
proper operatin* e+penses. ?n
the case o Meralco it may
appear that there is no need to
advertise its '&siness
considerin* that there is no
competitor, yet the Commission
ta)es &dicial notice o the act
that all television pro*rams
sponsored 'y Meralco are those
that instr&ct the cons&mers onho$ to save on electricity and
ho$ to avoid accidents s&ch as
electrical ire 'y the improper
&se o electrical appliances and
connections. &ch 'ein* the
case, the Commission r&les that
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these instit&tional advertisin*
e+penses are allo$a'le.
ith respect to ranchise ta+es,
the AO representative, Mr.
%a'lo B&manla*, testiied that
these are ranchise ta+es that
have not 'een paid 'y Meralco
'eca&se they are 'ein*
disp&ted. 2e admits, ho$ever,
that in the past, AO has
allo$ed these as operatin*
e+penses and that this is the
irst time that AO has
disallo$ed contested ranchise
ta+es. his Commission has not
'een *iven any valid reasons or
the s&dden depart&re 'y theAO o its treatment o these
disp&ted ranchise ta+es and
thereore holds that the
disallo$ance is improper.
hese o'servations e ind correct. B&t even i
e disre*ard the entire %10,=/1,>0: operatin*
e+penses o'ected to 'y the AO, only 1 = o the
amo&nt (%1,770,::0#$o&ld have to 'e ded&cted
rom the / months $or)in* capital allo$ed 'y
the Commission (%/>,1:3,9# and considered
as ormin* the rate 'ase in addition to the val&e
o the property in service (%91:,7,0>3#.
hereore, ded&ctin* the %1,770.:00 rom the
$or)in* capital leaves %/=,:=3.1>@ and the
rate o ret&rn can 'e comp&ted as ollo$sF
%roperty in
service .......................................
.. %91:.7,0>3 (ecision, pa*e
1>#
/ months $or)in*capital ..............................
%/=,:=3,1>
!ate
'ase ...........................................
...... %9:9,>1/,/::
(as a*ainst the 'ase i+ed in the
decision at %91,3>/,3:#.
ividin* the operatin* income o %107,:/3,>73
'y this red&ced rate 'ase o %9:9,>1/,/::
yields a rate o ret&rn o 11.-, $ell $ithin the
1/- heretoore considered reasona'le in
previo&s decisions o the Commission and o
this &preme Co&rt.
?t is note$orthy that the AO comp&tation,
despite e+cl&in* the %10,=/1,>0: disallo$ed
rom ME!A"CO4s ann&al operatin* e+penses
and &sin* only the 'oo) val&e o the property in
service, $itho&t even trendin* property val&es or
considerin* normali8ation ad&stment o
e+penses, o&nd a rate o ret&rn amo&ntin* to
1/.1/- or 19=> and 11.>=- or 19=9. ince'oo) val&es are 'elo$ present val&es, that have
consistently r&n hi*her, the act&al rates o ret&rn
o ME!A"CO are even lo$er than those o&nd
in the AO report. he oppositors persistently
i*nore the dierence in the p&rchasin* val&e o
the pesos spent $hen the company plants $ere
ac&ired or constr&cted, and the lo$er peso
val&es o the &tilities4 c&rrent income in the years
19=>
8/18/2019 123 Republic vs Medina
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disp&ted or contradicted. he o'ection,
thereore, is devoid o merit.
By and lar*e, oppositors have not sho$n any
errors in the appealed decision important
eno&*h to $arrant reversal. ?t m&st 'e 'orne in
mind that rate i+in* involves a series o
technical operations into the details o $hich e
are ill rates on
the 'asis o a
so
8/18/2019 123 Republic vs Medina
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their act&al 'asis, can 'e thoro&*hly tested and
in&ired into, and thereater either adopted or
reected.
"i)e$ise, the Co&rt does not 'elieve that it
sho&ld no$ in&ire into the merits o
ME!A"CO4s appeal (.!. No. "
8/18/2019 123 Republic vs Medina
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reservation that the manner 'y $hich the
maority, impelled 'y the pec&liar act&al milie&,
has disposed o these cases, sho&ld properly 'e
re*arded as adhoc .
hese is yet another matter &pon $hich ? dier
$ith the maority. ?t is indeed a sal&tary doctrine,
implied in the maority opinion a'ly penned 'y
Mr. ;&stice ;. B. ". !eyes, that the olicitor
eneral, in representation o the cons&min*
p&'lic, may, at any time he seems necessary,
petition the %&'lic ervice Commission or a
reversion o the rates i+ed 'y this re*&latory
a*ency, since there is no res /*dicata in rate<
ma)in* ad&dication. No$here, ho$ever, in the
said opinion is there a reco*nition in aected
private parties in *eneral the ri*ht to see) a
revision o rates. he dispositive portion o thesaid opinion, as ? constr&e it, reserved the ri*ht
to see) a revision only to the parties in these
cases and only in reerence thereto. ? this is so,
then ? say that this Co&rt has &nd&ly constricted
the covera*e o the doctrine. or my part, ?
$o&ld e+pand the doctrine e+plicitly to a&thori8e
the mayor and the m&nicipal or city co&ncil o a
m&nicipality or city directly aected 'y a
previo&s ad&dication to initiate action or rate
revision. ?n s&ch an event, the olicitor may as),
and sho&ld 'e allo$ed, to intervene. ? $o&ld not
leave the representation o the cons&min* p&'lice+cl&sively to the olicitor eneral, or a n&m'er
o reasons, the 'asic o $hich are that (1# the
olicitor eneral is not necessarily 'etter
sit&ated than m&nicipal or city oicials to
determine the need and the time or a re<
e+amination o previo&sly ad&dicated rates, and
(/# it &ndo&'tedly can happen that e+ercise 'y
the olicitor eneral o his initiative may, or one
reason or another, 'e slo$ in comin* (i it comes
at all#, and, $hen it comes, it ee'le and
thereore in eect&al.
At all events, 'eca&se ? 'elieve that $hat
<imately is important in p&'lic &tility
ad&dication is the end res<, hold no 'rie
a*ainst the end disposition o these cases
arrived at 'y the maority, $hich in may
considered vie$ is morally &st.
his limited conc&rrence sho&ld end here. B&t
'eca&se these cases have posed a sharp
controversy on $hat actors sho&ld 'e
considered in the determination o the rate 'ase
and in the comp&tation o the rate o ret&rn on
investment, ? am compelled to *o arther and
*ive e+pression to my o$n st&dy and
perspective on $hat the determinants sho&ld 'e.
? re*ard the po$er o the tate to re*&late the
level o ret&rn that '&sinesses 5cloted $ith a
p&'lic interest5 may *enerate rom those $ho
ma)e &se o their properties and services as
'ein* &ndamentally a master o la$. ?t is
thereore relevant to ass&me that in the ever<
rec&rrin* contest o determinin* the precise
constit&tional 'o&ndaries o that po$er, the
administrative implementation o rate7= in +*nn vs. llinois. 1 he G.. &preme
Co&rt, in stri)in* do$n the contention that an?llinois stat&te $hich prescri'ed a ma+im&m on
the amo&nt o char*es that *rain elevator
operators may demand rom the p&'lic violated
the d&e process cla&se o the G.. Constit&tion,
saidF
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8/18/2019 123 Republic vs Medina
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... "oo)in* then, to the common
la$, rom $hence came the ri*ht
$hich the Constit&tion protects,
$e ind that $hen private
property is 5aected $ith a
p&'lic interest, it ceases to 'e
/*ris rivati only.5 his $as said
'y "ord Chie ;&stice 2alemore
than t$o h&ndred years a*o, in
his treatise )e Porti(*s Maris, 1
2ar*. "a$ racts, 7>, and has
'een accepted $itho&t o'ection
as an essential element in the
la$ o property eversince....
hen, thereore, one devotes
his property to a &se in $hich
the p&'lic has an interest, he, in
eect, *rants to the p&'lic aninterest in that &se, and m&st
s&'mit to 'e controlled 'y the
p&'lic or the common *ood, to
the e+tent o the interest he has
th&s created. 2e may $ithdra$
his *rant 'y discontin&in* the
&se@ '&t, so lon* as he
maintains the &se, he m&st
s&'mit to the control.
"e*islative po$er over these '&sinesses in the
matter o price9, the G.. &preme Co&rt in
Rea'an vs. Farmers1 Loan C $r*st "o. 2 said
that.
...$hile it is not the province o
the co&rts to enter &pon the
merely administrative d&ty o
ramin* a tari o rates or
carria*e, it is $ithin the scope o
&dicial po$er and a part o
&dicial d&ty to restrain anythin*
$hich, in the orm o a
re*&lation o rates, operates to
deny to the o$ners o property
invested in the '&siness o
transportation that e&al
protection $hich is the
constit&tional ri*ht o all o$ners
o other property. here is
nothin* ne$ or stran*e in this.
his ass&mption 'y the G.. &preme Co&rt o the <imate responsi'ility to ad&d*e $hat is a
constit&tionally permissi'le str&ct&re or level o
rates or p&'lic &tilities nat&rally called or the
settin* &p o an accepta'le and s&icient
standard. he Co&rt held in Rea'an that the
rates sho&ld 'e reasona'le. 3 B&t $hat is a
reasona'le rate5 By $hat method or 'asis can
this 'e determined so that the dollar amo&nt that
is arrived at may 'e said to 'e reasona'leP
?n the leadin* case o Sm-th vs. Ames, 4 the
G.. &preme Co&rt too) occasion to en&merate
the 'ases &pon $hich the reasona'le rate may
'e calc&lated. ?t saidF
e hold, ho$ever, that the
'asis o all calc&lations as to the
reasona'leness o rates to 'e
char*ed 'y a corporation
maintainin* a hi*h$ay &nder
le*islative sanction m&st 'e the
air val&e o the property 'ein*
&sed 'y it or the convenience o the p&'lic. And, in order to
ascertain that val&e, the ori*inal
cost o constr&ction, the amo&nt
e+pended in permanent
improvements, the amo&nt and
mar)et val&e o its 'onds and
stoc), the present as compared
$ith the ori*inal cost o
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8/18/2019 123 Republic vs Medina
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constr&ction, the pro'a'le
earnin* capacity o the property
&nder partic&lar rates prescri'ed
'y stat&te, and the s&m re&ired
to meet operatin* e+penses, are
all matters or consideration,
and are to 'e *iven s&ch $ei*ht
as may 'e &st and ri*ht in each
case. e do not say that there
mi*ht not 'e other matters to 'e
re*arded in estimatin* the val&e
o the property.
hat the company is entitled to
as) is a air ret&rn &pon the
val&e o that $hich it employs
or the p&'lic convenience...
he ore*oin* opinion, i constr&ed as layin*
do$n a speciic orm&la 'y $hich to &antiy
n&merically a reasona'le rate, can 'e said to
have entirely ailed to accomplish its p&rpose. ?n
spite o its 'ein* all thin*s to all men, ho$ever, it
did serve one la&da'le end, or it did indicate
&ite plainly that a reasona'le rate is a rate that
*ives a air ret&rn on the air val&e o the
property 'ein* &sed or p&'lic convenience.
he 5air val&e5 r&le has &ndo&'tedly its o$n
share o practical diic<ies $hich the Co&rt
itsel $as &ite ran) to reco*ni8e. ?n the so<
called +innesota Rate "ases decided in 191/,
the Co&rt saidF
he ascertainment o that val&e
is not controlled 'y artiicial
r&les. ?t is not a matter o
orm&las, '&t there m&st 'e
reasona'le &d*ment, havin* its
'asis in a proper consideration
o all relevant acts...
Any realistic appreciation o all the relevant acts
in a val&ation pro'lem, ho$ever, m&st have to
'e*in $ith the premise that val&es are
necessarily dated val&es. ?n the choice o the
partic&lar space
8/18/2019 123 Republic vs Medina
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are o dierent a*es $ith
dierent e+pectations o lie. B&t
it is clear that some s&'stantial
allo$ance or depreciation o&*ht
to have 'een made
?n a s&'se&ent case, 9 the Co&rt held that
accr&ed depreciation sho&ld 'e a ded&ction
a*ainst the c&rrent val&e o the i+ed assets
rather than their act&al cost, as is &s&ally
ollo$ed in acco&ntin* proced&re. his r&lin*
$as adhered to in the %hilippines in the case o
Encha*sti Steamshi "o. vs. P*(lic tilit-
"ommission. 10
Another pro'lem that $as elevated to the G..
&preme Co&rt or resol&tion in connection $ith
its avora'le attit&de to$ard the 5reprod&ctioncost ne$5 theory $as $hether the p&'lic &tility
sho&ld 'e priced on the 'asis o avera*e prices
or spot prices. he critical importance o an
ade&ate and reasona'le 'asis or i+in* the
prices o p&'lic &til ity assets &nder the
reprod&ction cost calc&lation standard cannot 'e
overemphasi8ed since the prices o commodities
in the mar)et are in a contin&o&s state o l&+,
inl&enced as they are not only 'y social and
political t&r'&leness '&t also 'y the e+pectations
o '&yers and s&ppliers. h&s, one a&thority on
p&'lic &tility re*&lation, $ritin* in 19/>,
o'servedF
Gntil very recently the most
avored 'asis or the
determination o &nit costs has
'een a ive
8/18/2019 123 Republic vs Medina
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8/18/2019 123 Republic vs Medina
21/40
he 5reprod&ction cost ne$5 concept $as also
critici8ed 'y the G.. ?nterstate Commerce
Commission in these $ordsF 14
ynthetic estimates o cost o
reprod&ction 'ased &pon
statistics sho$in* price and
$a*e chan*ed do not ma)e
allo$ance or improved methods
o assem'ly and constr&ction.
As $ill hereinater 'e more &lly
indicated, $e o&nd in e+as
Midland !ailroad, s*ra, at
pa*e 10, that the increase in
the cost o la'or and materials
'et$een 1900 and 191 $as
lar*ely oset 'y improvement in
the art o constr&ction. 2o$ ar there may have 'een a similar
oset, so ar as costs in the
period rom 19/0./-.
Ass&min* an >0- pay
8/18/2019 123 Republic vs Medina
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%roponents o the 5reprod&ction cost ne$5
theory ar*&e, ho$ever, that the intrinsic val&e o
the peso as a res< o inlation has *reatly
depreciated and thereore p&'lic &tility o$ners
sho&ld 'e *iven a correspondin* increase in
proits. ?t is pointed o&t, or e+ample, that it
prices rose rom an inde+ o 100 in 19=0 to //3
in 19=7, this means that in 19=7 the peso
'o&*ht less than hal as m&ch. ?, thereore, had
invested %1,000 in 19=0 and received =- o
%=0 or it a year, that investment sho&ld 'e
val&ed in 19=7 at %/,/30 and earn %1:3. ?n this
sit&ation the %1:3 in 19=7 $o&ld then have the
same p&rchasin* po$er as %=0 in 19=0.
o this ar*&ment, opponents o the theory
co&nter, ho$ever, that this line o reasonin*
$o&ld 'e valid only i (a# investments *enerallyare so re$arded d&rin* periods o declinin*
p&rchasin* po$er@ and ('# the increased pesos
o ret&rn *o e&ally to the sec&rity holders.
E+perience has sho$n, &nort&nately, that these
ass&mptions do not occ&r in act. Gtility 'onds,
notes, and preerred stoc)s have speciic yields
$hich are i+ed o'li*ations re*ardless o the
l&ct&ations in the p&rchasin* po$er o money.
h&s, i one is a holder o a ten
8/18/2019 123 Republic vs Medina
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co&rts. ?t $o&ld, $hen once
made in respect to any &tility, 'e
i+ed, or all time, s&'ect only to
increases to represent additions
to plant, ater allo$ance or the
depreciation incl&ded in the
ann&al operatin* char*es...
... $enty
8/18/2019 123 Republic vs Medina
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to raise the money necessary
or the proper dischar*e o its
p&'lic d&ties.
O'vio&sly, the &se o these tests in practice
re&ires pra*matic ad&stments and rational
processes *enerally accepted in the ield o
inance, economics and acco&ntin*. his
concl&sion inds ample s&pport in the act that
as early as 191, the G.. ?nterstate Commerce
Commission already imposed a &niorm system
o acco&ntin* or electric rail$ay companies.
his $as ollo$s in 19/= 'y another &niorm
system o acco&ntin* prescri'ed or telephone
companies and steam railroad systems. 2 he
ederal %o$er Commission, &nder the ederal
%o$er Act, has also done the same. 26
A 'rie ill&stration o ho$, in partic&lar, the
ederal %o$er Commission has approached the
pro'lem o rate re*&lation, $as descri'ed in one
la$ o&rnal as ollo$sF 27
he revised re*&lations or
electric &tilities and licenses
re&ire a &ll cost
8/18/2019 123 Republic vs Medina
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re*&latory 'ody is allo$ed $ide discretion in the
choice o methods rationally related to the
achievement o this end.
he val&e o this )ind o approach is $ell<
reco*ni8ed 'y the G.. &preme Co&rt. ?n
Federal Poer "ommission vs. !oe 3at*ral
Gas "o., that Co&rt saidF 28
Gnder the stat&tory standard o
5&st and reasona'le5 it is the
res< reached not the method
employed $hich is controllin*. ?t
is not the theory '&t the impact
o the rate order $hich co&nts. ?
the total eect o the rate order
cannot 'e said to 'e &n&st and
&nreasona'le, &dicial in&iry&nder the Act is at an end. he
act that the method employed
to reach that res< may contain
inirmities is not then important.
Moreover, the Commission4s
order does not 'ecome s&spect
'y reason o the act that it is
challen*ed. ?t is the prod&ct o
e+pert &d*ment $hich carries a
pres&mption o validity. And he
$ho $o&ld &pset the rate order
&nder the Act carries the heavy
'&rden o ma)in* a convincin*
sho$in* that it is invalid
'eca&se it is &n&st and
&nreasona'le in its
conse&ences.
!ate controversies in many cases, ho$ever,
have not ended in the re*&latory commissions.
And there is no do&'t that they $on4t. 2ence, the
reco*nition in a re*&latory a*ency o ample
discretion in the choice o s&ch rationalprocesses as mi*ht 'e appropriate to the
sol&tion o its hi*hly complicated and practical
diic<ies, s&**ests that it sho&ld indicate &lly
and care&lly, in every case, the method or
methods it has employed, the p&rposes $hich
*&ided its action, and the reasons that made the
method or methods chosen and the p&rposes
p&rs&ed relevant &nder the acts o the case. 29
?n this $ay, the Co&rt4s eval&ation o the
Commission4s orders $o&ld 'e more acc&rate,
eicacio&s and sensi'le. or, ater all, the
Co&rt4s responsi'ility, as held in n Re Permian
Basin Area Rate
"ases, 30 5is not to s&pplant the Commission4s
'alance o those interests $hich are more nearly
to its li)in*, '&t instead ass&re itsel that the
Commission has *iven reasoned consideration
to each o the pertinent actors.
Apart rom the &estion o $hether or not the
Co&rt sho&ld actively intervene in the
Commission4s choice o an appropriate method
'y $hich to meas&re the rate 'ase and the rate
o ret&rn, American co&rts have also dealt $ith
the pro'lem o $hether certain properties o the
&tility company sho&ld 'e incl&ded in the rate'ase or val&ation p&rposes.
One s&ch item pertains to those constr&cted o&r
o retained earnin*s. ?n Board of P*(lic tilit-
"ommissioners vs. 3e Eor? $elehone "o., 31
the G.. &preme Co&rt e+pressed the vie$ that
property constr&cted o&t o s&rpl&s earnin*s
'elon*s to the &tility and is entitled to yield a air
ret&rn rom the rates char*ed the cons&mers as
&lly and completely as i it had 'een &rnished
'y the investors rom o&tside so&rces. ?n this
case, the Ne$ ;ersey Commission o&nd that
the company in previo&s years had earned and
set aside or depreciation amo&nts lar*ely in
e+cess o the act&al depreciation accr&in*, and
held that the company co&ld not claim an
increase o rates &ntil this e+cess in the
depreciation reserve had 'een e+ha&sted in
ma)in* &p c&rrent operatin* deicits. ?n
reversin* the r&lin* o the Commission, the
Co&rt saidF
...Constit&tional protectiona*ainst coniscation does not
depend on the so&rce o the
money &sed to p&rchase the
property. ?t is eno&*h that it is
&sed to render the service. he
c&stomers are entitled to
demand service and the
company m&st comply. he
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8/18/2019 123 Republic vs Medina
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company is entitled to &st
compensation and, to have the
service, the c&stomers m&st pay
or it. he relation 'et$een the
company and its c&stomers is
not that o partners, a*ent and
principal, or tr&stee and
'eneiciary. he reven&e paid
'y the c&stomers or service
'elon*s to the company...
he Co&rt also &stiied its decision on the
*ro&nd that rates $hich in the past $ere
&nchallen*ed, or, i challen*ed, $ere approved
'y the a&thorities, sho&ld 'e ass&med to have
'een reasona'le, or, at most, not so
&nreasona'le as to *ive the p&'lic a ri*ht o
action a*ainst the &tility company to recover anypart o the char*es paid. Conse&ently,
$hatever has 'een collected &nder previo&sly
approved rates 'ecame the property o the
company $hich it is ree to &se as any other
type o private property.
?t is diic< to disa*ree $ith the approach ta)en
'y the American co&rt $ith respect to property
'&ilt o&t o s&rpl&s proits. 2o$ever, it $o&ld
seem that $here its application in speciic
instances $o&ld $or) hardship on the
cons&mers, there is one $ay o&t. And this is the
do$n$ard ad&stment o the rate o ret&rn. his
sol&tion appears most e&ita'le in a case $here
sec&rity holders re*&larly receive a reasona'le
amo&nt o dividents &nder e+istin* rates, and, in
addition thereto, the company has 'een a'le to
p&t &p 'etterments and improvements.
Another type o property $hich has *iven rise to
complicated pro'lems in the process o
determinin* $hich items sho&ld 'e incl&ded in
the inventory or val&ation p&rposes, is thatac&ired 'y the company $itho&t cost or only or
a minimal cost, and str&ct&res '&ilt thro&*h
company &nds '&t over $hich $hen completed
it can claim no title. or instance, a provincial
*overnment may donate lands or ri*hts o $ay
to a railroad company to speed &p the
development o the transportation system $ithin
the province, or the m&nicipal or city *overnment
may re&ire that an electric company in layin*
do$n its mains or &nder*ro&nd t&nnels sho&ld
reconstract and pave the streets aected 'y
s&ch constr&ctions. he 'asic &estion is,
thereore, oten as)ed $hether property so
ac&ired $itho&t cost and those '&ilt 'y the
&tility over $hich it ac&ires no title sho&ld 'e
allo$ed to 'e capitali8ed a*ainst the cons&mers.
As developed in American case
8/18/2019 123 Republic vs Medina
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considered in determinin*
reasona'le rates. Act&al title
and possession are not al$ays
concl&sive. he determination o
a reasona'le rate is an
e&ita'le process and e&ity $ill
demand that certain property to
$hich the company has no title
sho&ld 'e incl&ded and certain
property to $hich the company
has title sho&ld 'e e+cl&ded....
A lot $o&ld depend, thereore, &pon the p&rpose
or $hich a contri'&tion $as *iven in resolvin*
the vario&s disa*reements that may 'e
enco&ntered in this partic&lar aspect o rate<
'ase determination.
here is yet another class o &tility property
a'o&t $hich men o dierent pers&asions may
'e e+pected to entertain diver*ent vie$s in the
orm&lation o speciic *ro&nd r&les or p&rposes
o rate
8/18/2019 123 Republic vs Medina
28/40
C&"RO, J., conc&rrin*F
My conc&rrence is limited to the res< reached
'y the maority o my 'rethren 'eca&se o
mis*ivin*s ? entertain $ith respect to a n&m'er
o adective aspects o the cases at 'ar.
? am hard p&t to a*ree that there $as no
&nseemly haste $ith $hich the hearin*s 'elo$
$ere cond&cted and terminated. he na**in*
impression that a'ides $ith me ater a
conscientio&s per&sal o the proceedin*s 'elo$
is that Commissioner Enri&e Medina $as
racin* a*ainst time to terminate the hearin*s,
'eca&se he had set, as the deadline or the
handin* do$n o the decision (o the division o
the Commission $hich he headed#, the day
'eore the date o his comp&lsory retirementrom p&'lic service. his &nseemly haste cannot
command the approval o people($hether
la$yers or persons &nschooled in the la$#$ho
have an innate love or orderliness. E+pedition is
no do&'t desira'le in the disposition o cases,
'&t it m&st nonetheless al$ays o'serve d*e
rocess, $hich o co&rse 'asically means ormal
opport&nity aorded to all parties to 'e f*ll-
heard. hen d&e process is impaired 'eca&se
o inordinate haste, perceptive o'serves $o&ld
dra$ the implication that le*al, processes have
'een eroded. And there $o&ld 'e dar), al'eit
veiled or circ&mloc&tory, imp&tations o
maleasance, noneasance or miseasance, or a
com'ination o t$o or all o these. eli'erate
speed is to 'e commended@ inordinate haste
deserves only condemnation.
? li)e$ise vie$ $ith some de*ree o concern an
innovation in p&'lic &tility ad&dication that in
eect has received the sanction o the maority
here. his Co&rt has proceeded to decide the
cases at 'ar despite its a$areness that a motionor reconsideration o the decision a *o is
pendin* 'eore the %&'lic ervice Commission
en (anc , $hich motion co&ld not or some len*th
o time 'e resolved 'eca&se o the lac) o
&or&m in that 'ody.
!eali8in*, ho$ever, that the demands o moral
&stice indicate need or positive or$ard action
on the part o this Co&rt, ? cannot, in conscience,
completely disa*ree $ith the position ta)en 'y
the maority that this Co&rt can and sho&ld *o
ahead, peremptorily s$eepin* a$ay proced&ral
road loc)s, to decide these cases in order the
'etter to s&'serve the p&'lic interest.
Nevertheless, ? $ant to place on record my
reservation that the manner 'y $hich the
maority, impelled 'y the pec&liar act&al milie&,
has disposed o these cases, sho&ld properly 'e
re*arded as adhoc .
hese is yet another matter &pon $hich ? dier
$ith the maority. ?t is indeed a sal&tary doctrine,
implied in the maority opinion a'ly penned 'y
Mr. ;&stice ;. B. ". !eyes, that the olicitor eneral, in representation o the cons&min*
p&'lic, may, at any time he seems necessary,
petition the %&'lic ervice Commission or a
reversion o the rates i+ed 'y this re*&latory
a*ency, since there is no res /*dicata in rate<
ma)in* ad&dication. No$here, ho$ever, in the
said opinion is there a reco*nition in aected
private parties in *eneral the ri*ht to see) a
revision o rates. he dispositive portion o the
said opinion, as ? constr&e it, reserved the ri*ht
to see) a revision only to the parties in these
cases and only in reerence thereto. ? this is so,then ? say that this Co&rt has &nd&ly constricted
the covera*e o the doctrine. or my part, ?
$o&ld e+pand the doctrine e+plicitly to a&thori8e
the mayor and the m&nicipal or city co&ncil o a
m&nicipality or city directly aected 'y a
previo&s ad&dication to initiate action or rate
revision. ?n s&ch an event, the olicitor may as),
and sho&ld 'e allo$ed, to intervene. ? $o&ld not
leave the representation o the cons&min* p&'lic
e+cl&sively to the olicitor eneral, or a n&m'er
o reasons, the 'asic o $hich are that (1# theolicitor eneral is not necessarily 'etter
sit&ated than m&nicipal or city oicials to
determine the need and the time or a re<
e+amination o previo&sly ad&dicated rates, and
(/# it &ndo&'tedly can happen that e+ercise 'y
the olicitor eneral o his initiative may, or one
reason or another, 'e slo$ in comin* (i it comes
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at all#, and, $hen it comes, it ee'le and
thereore in eect&al.
At all events, 'eca&se ? 'elieve that $hat
<imately is important in p&'lic &tility
ad&dication is the end res<, hold no 'rie
a*ainst the end disposition o these cases
arrived at 'y the maority, $hich in may
considered vie$ is morally &st.
his limited conc&rrence sho&ld end here. B&t
'eca&se these cases have posed a sharp
controversy on $hat actors sho&ld 'e
considered in the determination o the rate 'ase
and in the comp&tation o the rate o ret&rn on
investment, ? am compelled to *o arther and
*ive e+pression to my o$n st&dy and
perspective on $hat the determinants sho&ld 'e.
? re*ard the po$er o the tate to re*&late the
level o ret&rn that '&sinesses 5cloted $ith a
p&'lic interest5 may *enerate rom those $ho
ma)e &se o their properties and services as
'ein* &ndamentally a master o la$. ?t is
thereore relevant to ass&me that in the ever<
rec&rrin* contest o determinin* the precise
constit&tional 'o&ndaries o that po$er, the
administrative implementation o rate7= in +*nn vs. llinois. 1 he G.. &preme
Co&rt, in stri)in* do$n the contention that an
?llinois stat&te $hich prescri'ed a ma+im&m on
the amo&nt o char*es that *rain elevator
operators may demand rom the p&'lic violated
the d&e process cla&se o the G.. Constit&tion,
saidF
... "oo)in* then, to the common
la$, rom $hence came the ri*ht
$hich the Constit&tion protects,
$e ind that $hen private
property is 5aected $ith a
p&'lic interest, it ceases to 'e
/*ris rivati only.5 his $as said
'y "ord Chie ;&stice 2alemore
than t$o h&ndred years a*o, inhis treatise )e Porti(*s Maris, 1
2ar*. "a$ racts, 7>, and has
'een accepted $itho&t o'ection
as an essential element in the
la$ o property eversince....
hen, thereore, one devotes
his property to a &se in $hich
the p&'lic has an interest, he, in
eect, *rants to the p&'lic an
interest in that &se, and m&st
s&'mit to 'e controlled 'y the
p&'lic or the common *ood, tothe e+tent o the interest he has
th&s created. 2e may $ithdra$
his *rant 'y discontin&in* the
&se@ '&t, so lon* as he
maintains the &se, he m&st
s&'mit to the control.
"e*islative po$er over these '&sinesses in the
matter o price9, the G.. &preme Co&rt in
Rea'an vs. Farmers1 Loan C $r*st "o.2
saidthat.
...$hile it is not the province o
the co&rts to enter &pon the
merely administrative d&ty o
ramin* a tari o rates or
carria*e, it is $ithin the scope o
&dicial po$er and a part o
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8/18/2019 123 Republic vs Medina
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&dicial d&ty to restrain anythin*
$hich, in the orm o a
re*&lation o rates, operates to
deny to the o$ners o property
invested in the '&siness o
transportation that e&al
protection $hich is the
constit&tional ri*ht o all o$ners
o other property. here is
nothin* ne$ or stran*e in this.
his ass&mption 'y the G.. &preme Co&rt o
the <imate responsi'ility to ad&d*e $hat is a
constit&tionally permissi'le str&ct&re or level o
rates or p&'lic &tilities nat&rally called or the
settin* &p o an accepta'le and s&icient
standard. he Co&rt held in Rea'an that the
rates sho&ld 'e reasona'le. 3
B&t $hat is areasona'le rate5 By $hat method or 'asis can
this 'e determined so that the dollar amo&nt that
is arrived at may 'e said to 'e reasona'leP
?n the leadin* case o Sm-th vs. Ames, 4 the
G.. &preme Co&rt too) occasion to en&merate
the 'ases &pon $hich the reasona'le rate may
'e calc&lated. ?t saidF
e hold, ho$ever, that the
'asis o all calc&lations as to the
reasona'leness o rates to 'e
char*ed 'y a corporation
maintainin* a hi*h$ay &nder
le*islative sanction m&st 'e the
air val&e o the property 'ein*
&sed 'y it or the convenience o
the p&'lic. And, in order to
ascertain that val&e, the ori*inal
cost o constr&ction, the amo&nt
e+pended in permanent
improvements, the amo&nt and
mar)et val&e o its 'onds andstoc), the present as compared
$ith the ori*inal cost o
constr&ction, the pro'a'le
earnin* capacity o the property
&nder partic&lar rates prescri'ed
'y stat&te, and the s&m re&ired
to meet operatin* e+penses, are
all matters or consideration,
and are to 'e *iven s&ch $ei*ht
as may 'e &st and ri*ht in each
case. e do not say that there
mi*ht not 'e other matters to 'e
re*arded in estimatin* the val&e
o the property.
hat the company is entitled to
as) is a air ret&rn &pon the
val&e o that $hich it employs
or the p&'lic convenience...
he ore*oin* opinion, i constr&ed as layin*
do$n a speciic orm&la 'y $hich to &antiy
n&merically a reasona'le rate, can 'e said to
have entirely ailed to accomplish its p&rpose. ?n
spite o its 'ein* all thin*s to all men, ho$ever, it
did serve one la&da'le end, or it did indicate&ite plainly that a reasona'le rate is a rate that
*ives a air ret&rn on the air val&e o the
property 'ein* &sed or p&'lic convenience.
he 5air val&e5 r&le has &ndo&'tedly its o$n
share o practical diic<ies $hich the Co&rt
itsel $as &ite ran) to reco*ni8e. ?n the so<
called +innesota Rate "ases decided in 191/,
the Co&rt saidF
he ascertainment o that val&e
is not controlled 'y artiicial
r&les. ?t is not a matter o
orm&las, '&t there m&st 'e
reasona'le &d*ment, havin* its
'asis in a proper consideration
o all relevant acts...
Any realistic appreciation o all the relevant acts
in a val&ation pro'lem, ho$ever, m&st have to
'e*in $ith the premise that val&es are
necessarily dated val&es. ?n the choice o the
partic&lar space
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8/18/2019 123 Republic vs Medina
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$hich have seemed to 'e
entirely o&t o line $ith present
conditions. o the co&rts,
&ndo&'tedly $ith rel&ctance,
have 'een orced to t&rn a$ay
rom a'normal present
conditions and the o'solete
acts o the past, to spec&lation
on $hat the &t&re is *oin* to
'e... 11
he &se o 5spot prices,5 $ith a reasona'le
allo$ance or &t&re price chan*es, $as so&*ht
to 'e &stiied in one case, as ollo$sF 12
?t is impossi'le to ascertain $hat
$ill amo&nt to a air ret&rn &pon
property devoted to p&'licservice $itho&t *ivin*
consideration to the cost o
la'or, s&pplies, etc., at the time
the investi*ation is made. An
honest and intelli*ent orecast o
pro'a'le &t&re val&es made
&pon a vie$ o all the relevant
circ&mstances, is essential. ?
the hi*hly important element o
present costs is $holly
disre*arded s&ch a orecast
'ecomes impossi'le. Estimates
o tomorro$ cannot i*nore the
prices o today.
;&stice Brandeis, in a dissentin* opinion $ritten
in another case 13 $here spot reprod&ction cost
$as &sed instead o the avera*e price o a &tility
company4s assets or a ten
8/18/2019 123 Republic vs Medina
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price level had 'e*&n to rise,
improved machinery and ne$
devices tended or some years
to red&ce constr&ction costs...
he en*ineer spo)e in i*&res
K a lan*&a*e implyin*
certit&de. 2is estimates seemed
to 'e ree o the inirmities $hich
have stamped as &ntr&st$orthy
the opinion evidence o e+perts
common in condemnation
cases. h&s, or some time,
replacement cost, on the 'asis
o the prices prevailin* at the
date o the val&ation, $as oten
adopted 'y state commissions
as the standard or i+in* the
rate 'ase. B&t *rad&ally it cameto 'e reali8ed that the
deiniteness o the en*ineer4s
calc&lations $as del&sive@ that
they rested &pon shitin*
theories@ and that their
estimates varied so $idely as to
intensiy, rather than to allay,
do&'ts. hen the price levels
had risen lar*ely, and estimates
o replacement cost indicated
val&es m&ch *reater than the
act&al cost o installation, manycommissions re&sed to
consider val&a'le $hat one
declared to 'e ass&mptions
'ased on thin*s that never
happened and estimates
re&irin* the proection o the
en*ineer4s ima*ination into the
&t&re and methods o
constr&ction and installation that
have never 'een and never $ill
'e adopted 'y sane men
he 5reprod&ction cost ne$5 concept $as also
critici8ed 'y the G.. ?nterstate Commerce
Commission in these $ordsF 14
ynthetic estimates o cost o
reprod&ction 'ased &pon
statistics sho$in* price and
$a*e chan*ed do not ma)e
allo$ance or improved methods
o assem'ly and constr&ction.
As $ill hereinater 'e more &lly
indicated, $e o&nd in e+as
Midland !ailroad, s*ra, at
pa*e 10, that the increase in
the cost o la'or and materials
'et$een 1900 and 191 $as
lar*ely oset 'y improvement in
the art o constr&ction. 2o$ ar
there may have 'een a similar
oset, so ar as costs in the
period rom 19/0
8/18/2019 123 Republic vs Medina
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-
Bonds ........................................
................. %300,000
3- %reerred
toc) .........................................
/30,000
Common
toc) .........................................
....... /30,000 %1,000,000
Gpon the a'ove ass&mptions, i the company is
allo$ed and earns a =- ret&rn on its assets
'ased on ori*inal cost, it $ill have %=0,000 $ith
$hich to pay %/0,000 o 'ond interest and
%1/,300 o preerred dividents, leavin* %/7,300
or common stoc) K a ret&rn o 11-. ? >0- o
this amo&nt $ere paid o&t in common dividents,
the yield on the common stoc) $o&ld 'e >.>-.
"et &s no$ ass&me that the company4s rate
'ase is increased 'y :0- to lend si*niicance to
reprod&ction cost or trended ori*inal cost &nder
the e+istin* price levels. ? the same ret&rn o =-
$ere applied to this ne$ rate 'ase, the company
$ill have %7>,000 in net income. ed&ctin*
a*ain the 'ond interest payment o %/0,000 and
the preerred dividend o %1/,300, there $o&ld
'e availa'le or common stoc) the s&m o
%3,300, a ret&rn e&ivalents to 1>./-.
Ass&min* an >0- pay
8/18/2019 123 Republic vs Medina
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%o$er Commission has also, in several cases,
interpreted the Nat&ral as Act 19 as a&thori8in*
it to &tili8e the ori*inal cost o prod&ction and
transmission properties o *as companies as the
rate 'ase. ?ts interpretation o the Act has 'een,
in act, sanctioned 'y the G.. &preme Co&rt
as early as 19 in Federal Poer "ommission
vs. !oe 3at*ral Gas "o. (:/0 G.. 391 D19#.
Moreover, an over$helmin* maority o the
tates in the Gnited tates have li)e$ise
re&sed to adopt the reprod&ction cost orm&la
or p&rposes o rate
8/18/2019 123 Republic vs Medina
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e no$ come to the pro'lem o determinin* the
correct rate o ret&rn $hich sho&ld 'e applied to
the rate 'ase. "eadin* co&rt decisions in the
Gnited tates have apparently provided three
primary tests or determinin* or meas&rin* the
rate o ret&rn, namely, (1# cost o attractin*
capital@ (/# maintenance o the inte*rity o
investment or preventin* the li*ht o capital@ and
(:# compara'le earnin*s or compara'le ris)s. 23
One o the earliest statements o reco*nition o
these tests 'y the G.. &preme Co&rt is o&nd
in Bl*efield &ater &or?s "o. vs. P*(lic Service
"ommission, $here the Co&rt heldF 24
hat ann&al rate $ill constit&te
&st compensation depends on
many circ&mstances and m&st
'e determined 'y the e+erciseo a air and enli*htened
&d*ment, havin* re*ard to all
relevant acts. A p&'lic &tility is
entitled to s&ch rates as $ill
permit it to earn a ret&rn on the
val&e o the property $hich it
employs or the convenience o
the p&'lic e&al to that *enerally
'ein* made at the same time
and in the same *eneral part o
the co&ntry on investments in
other '&siness &nderta)in*s$hich are attended 'y
correspondin* ris)s and
&ncertainties@ '&t it has no
constit&tional ri*hts to proits
s&ch as are reali8ed or
anticipated in hi*hly proita'le
enterprises or spec&lative
vent&res. he ret&rn sho&ld 'e
reasona'ly s&icient to ass&re
conidence in the inancial
so&ndness o the &tility andsho&ld 'e ade&ate, &nder
eicient and economical
mana*ement, to maintain and
s&pport its credit and ena'le it
to raise the money necessary
or the proper dischar*e o its
p&'lic d&ties.
O'vio&sly, the &se o these tests in practice
re&ires pra*matic ad&stments and rational
processes *enerally accepted in the ield o
inance, economics and acco&ntin*. his
concl&sion inds ample s&pport in the act that
as early as 191, the G.. ?nterstate Commerce
Commission already imposed a &niorm system
o acco&ntin* or electric rail$ay companies.
his $as ollo$s in 19/= 'y another &niorm
system o acco&ntin* prescri'ed or telephone
companies and steam railroad systems. 2 he
ederal %o$er Commission, &nder the ederal
%o$er Act, has also done the same. 26
A 'rie ill&stration o ho$, in partic&lar, the
ederal %o$er Commission has approached the
pro'lem o rate re*&lation, $as descri'ed in one
la$ o&rnal as ollo$sF27
he revised re*&lations or
electric &tilities and licenses
re&ire a &ll cost
8/18/2019 123 Republic vs Medina
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capital, and ret&rns e+perienced
'y the company on the common
stoc) o&tstandin* over the
precedin* 3 years K incl&din*
(a# earnin*s oerin* price ratios
and ('# earnin*s and divident
price ratios.
(/# ?ncome ta+es comp&ted on
the 'asis o the rate o ret&rn
claimed, to*ether $ith the 'asis
on $hich income ta+es are
assi*ned amon* the
&risdictional '&siness, other
&tility department and non
8/18/2019 123 Republic vs Medina
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Basin Area Rate
"ases, 30 5is not to s&pplant the Commission4s
'alance o those interests $hich are more nearly
to its li)in*, '&t instead ass&re itsel that the
Commission has *iven reasoned consideration
to each o the pertinent actors.
Apart rom the &estion o $hether or not the
Co&rt sho&ld actively intervene in the
Commission4s choice o an appropriate method
'y $hich to meas&re the rate 'ase and the rate
o ret&rn, American co&rts have also dealt $ith
the pro'lem o $hether certain properties o the
&tility company sho&ld 'e incl&ded in the rate
'ase or val&ation p&rposes.
One s&ch item pertains to those constr&cted o&r
o retained earnin*s. ?n Board of P*(lic tilit- "ommissioners vs. 3e Eor? $elehone "o., 31
the G.. &preme Co&rt e+pressed the vie$ that
property constr&cted o&t o s&rpl&s earnin*s
'elon*s to the &tility and is entitled to yield a air
ret&rn rom the rates char*ed the cons&mers as
&lly and completely as i it had 'een &rnished
'y the investors rom o&tside so&rces. ?n this
case, the Ne$ ;ersey Commission o&nd that
the company in previo&s years had earned and
set aside or depreciation amo&nts lar*ely in
e+cess o the act&al depreciation accr&in*, and
held that the company co&ld not claim an
increase o rates &ntil this e+cess in the
depreciation reserve had 'een e+ha&sted in
ma)in* &p c&rrent operatin* deicits. ?n
reversin* the r&lin* o the Commission, the
Co&rt saidF
...Constit&tional protection
a*ainst coniscation does not
depend on the so&rce o the
money &sed to p&rchase the
property. ?t is eno&*h that it is&sed to render the service. he
c&stomers are entitled to
demand service and the
company m&st comply. he
company is entitled to &st
compensation and, to have the
service, the c&stomers m&st pay
or it. he relation 'et$een the
company and its c&stomers is
not that o partners, a*ent and
principal, or tr&stee and
'eneiciary. he reven&e paid
'y the c&stomers or service
'elon*s to the company...
he Co&rt also &stiied its decision on the
*ro&nd that rates $hich in the past $ere
&nchallen*ed, or, i challen*ed, $ere approved
'y the a&thorities, sho&ld 'e ass&med to have
'een reasona'le, or, at most, not so
&nreasona'le as to *ive the p&'lic a ri*ht o
action a*ainst the &tility company to recover any
part o the char*es paid. Conse&ently,
$hatever has 'een collected &nder previo&sly
approved rates 'ecame the property o the
company $hich it is ree to &se as any other type o private property.
?t is diic< to disa*ree $ith the approach ta)en
'y the American co&rt $ith respect to property
'&ilt o&t o s&rpl&s proits. 2o$ever, it $o&ld
seem that $here its application in speciic
instances $o&ld $or) hardship on the
cons&mers, there is one $ay o&t. And this is the
do$n$ard ad&stment o the rate o ret&rn. his
sol&tion appears most e&ita'le in a case $here
sec&rity holders re*&larly receive a reasona'le
amo&nt o dividents &nder e+istin* rates, and, in
addition thereto, the company has 'een a'le to
p&t &p 'etterments and improvements.
Another type o property $hich has *iven rise to
complicated pro'lems in the process o
determinin* $hich items sho&ld 'e incl&ded in
the inventory or val&ation p&rposes, is that
ac&ired 'y the company $itho&t cost or only or
a minimal cost, and str&ct&res '&ilt thro&*h
company &nds '&t over $hich $hen completed
it can claim no title. or instance, a provincial*overnment may donate lands or ri*hts o $ay
to a railroad company to speed &p the
development o the transportation system $ithin
the province, or the m&nicipal or city *overnment
may re&ire that an electric company in layin*
do$n its mains or &nder*ro&nd t&nnels sho&ld
reconstract and pave the streets aected 'y
s&ch constr&ctions. he 'asic &estion is,
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8/18/2019 123 Republic vs Medina
39/40
thereore, oten as)ed $hether property so
ac&ired $itho&t cost and those '&ilt 'y the
&tility over $hich it ac&ires no title sho&ld 'e
allo$ed to 'e capitali8ed a*ainst the cons&mers.
As developed in American case
8/18/2019 123 Republic vs Medina
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service at the time o the investi*ation or rate<
revision p&rposes, since $hether an item o
property is act&ally 'ein* &sed or is 'ein*
reasona'ly held or operations is essentially and
primarily a act&al &estion. ?t involves (in the
very least# the e+ercise o reasoned &d*ment
and a realistic appraisal o val&es on the part o
o&r re*&latory a*ency.
?n the American e+perience, m&ch o the
con&sion and &ncertainty not only on this
aspect o &tility re*&lation, '&t on almost every
step o the re*&latory process, has 'een
eliminated thro&*h the enactment o &niorm
systems o acco&ntin* or classiication o &tility
property K somethin* $hich o&r o$n re*&latory
a*ency mi*ht $ell ollo$ and possi'ly improve
&pon. &ch standards are not, o co&rse, strictly'indin* &pon appraisers, commissions and
co&rts, '&t they do tend to 'rin* order o&t o
chaos. Close adherence to s&ch standards
$here they prod&ce no ar'itrary res< $ill not
li)ely provo)e reproach rom this Co&rt. 37
e do not e+cept to ollo$ and o'serve
American techni&es and principles all the $ay@
dierences do e+ist 'et$een o&r respective
&risdictions. B&t i $e maintain constant to&ch
$ith the *ro$th and development o p&'lic &tility
principles and practices in the Gnited tates, it is
mainly 'eca&se o o&r contin&in* &est or that
$hich, not 'ein* circ&mscri'ed 'y any political
'o&ndary or not 'ein* indi*eno&s to any
partic&lar le*al system, $ill provide one *ood
$or)a'le orm&la K to*ether $ith and amon*
many K or )eepin* o&r %hilippine society in
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