Francisco vs.

Toll Regulatory Board

FACTS:
By virtue of PD 1112, issued by President Marcos on 1977, the Toll Regulatory
Board (TRB) was created and was invested with the power to enter contracts for the
construction and regulation of tollways.
On the same day, PD 1113 was issued granting to the Phil. National Construction
Corp. (PNCC) for a period of 30 years, a franchise to construct NLEX and SLEX, and
subsequently a Toll Operation Agreement (TOA) was signed by TRB and PNCC.
Then came the 1987 Constitution with its franchise provision of a maximum of 50
years.
On 1995, President Ramos approved the assignment of PNCC's usufructuary rights
as franchise holder to a JV company formed by PNCC and other private
corporations, for the purpose of the extension and modernization of the NLEX. The
Manila North Tollways Corporation (MNTC) was formed for this purpose.
On 1998, the TRB, PNCC, and MNTC executed the MNTC STOA (Supplemental Toll
Operation Agreement) which states that:
o
o
o

MNTC was authorized to subcontract the operation of the project provided that the
majority of the outstanding shares of the contractor shall be owned by MNTC.
The STOA is to be effective for 30 years.
The lenders (Asian Dev. Bank and World Bank) of MNTC, as project concessionaire,
are granted the unrestricted rights to appoint a substitute entity to replace MNTC in
case MNTC default before prepayment of the loans, and the option to extend the
concession or franchise for a period not exceeding 50 years coinciding with the full
payment of the loans.

ISSUE:
Whether the MNTC STOA is unconstitutional
RULING:
YES. In this case, the MNTC STOA has an original stipulated period of 30 years
which can be extended (maximum extension is 50 years) if it is necessary to fully
repay the loans made by MNTC to the lenders.
o

This is a clear violation of the 50 year franchise threshold set by the

Constitution, thus, such is stipulation is void.

The lenders cannot unilaterally extend the concession period.

TRB may amend, modify, alter or revoke the authority/franchise whenever

the public interest requires. The power to determine whether or not to continue
or extend the authority granted to a concessionaire to operate and maintain a
tollway is vested to the TRB. However, it cannot do so for an accumulated period
exceeding 50 years. Otherwise, it would violate the proscription under Article XII,
Section 11 of 1987 Constitution.

Republic vs. MERALCO

FACTS:
MERALCO filed with the Energy Regulatory Board (ERB) an application for an
increase of its rate to P0.21 kwh.
The ERB granted a provisional increase of P0.184 kwh
Upon audit, COA recommended not to include income taxes paid by MERALCO as
part of its operating expenses for purposes of rate determination.
As a result, ERB ordered MERALCO to lower its rate to P0.017 per kwh and to
refund all excess amounts collected from customers during the previous rate, or to
credit it for future consumption. (SC Decision)
ISSUE:
What is the basis for the regulation of public utilities such as MERALCO?
RULING:
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

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 purpose of regulation is to:
o

promote the common good

protect the public against arbitrary and excessive rates while

maintaining the efficiency and quality of services rendered

However, the power to regulate rates does not give the State the right to prescribe
rates which are so low as to deprive the public utility of a reasonable return on
investment.
o However, what is a just and reasonable rate cannot be fixed by any immutable
method or formula. Hence, no public utility has a vested right to any
particular method of valuation

Income tax should not be treated as operating expense as this should be borne by the
stockholders who are recipients of the profits realized from the operation of the
business, hence, should not be passed on to the consumers