Ynchausti Steamship Co. v. Public Utility Commissioner
Petitioner appealed to the Board of Appeal under
( 1922) Johns, J.
Plaintiff: Ynchausti Steamship Co. et al.
Respondent: The Public Utility Commissioner and the
Board of Appeals
Concept: Fixing of Rates, Wages, Prices
Brief facts: Petitioners requested the Public Utility
Commissioner to increase the freight rates above those
allowed by Order No. 16 of the Board of Rate
Regulation. The Commissioner denied its request based
on the value of the original cost of the vessel and their
costs of reproduction. Petitioners went to the SC to
question the propriety of the basis of Commissioners
decision, arguing that he shouldve used the present
value of the vessels which factor the depreciation costs
and the present conditions in order to fix the rate.
Doctrine: The present market value of the property is
the ultimate practical basis for determining the value
of the investment upon which to fix a rate which will
produce a fair return.
FACTS:
1. Petitioners are members of the Philippine
Shipowners Association and engaged in the
operation of vessels in the Philippines.
2. By reason of a decrease in the volume of business
handled by its members, it duly filed with the
Public Utility Comissioner a declaration that on and
after May 1, 1920, it would make a 10% increase in
shipping rates above those allowed under Order
No. 16 of the Board of Rate Regulation. The
increase was allowed and became effective by an
order of the Public Utility Commissioner.
3. On account of low wages, there was a general
strike of the seamen and officers operating the
vessels owned by the members of the association
and it became necessary to increase the wages
paid to them, thereby increasing the operation
expenses. Hence, the 10% increase previously
approved was insufficient to meet the increase of
the operating expenses.
4. On June 21, the association filed an amended
declaration with the Commissioner, praying for a
further increase of 10% on freight rates over those
established May 1, to the effect that from July 20, it
would make a 15% increase on the freight rates
fixed by Order No. 16.
5. The proposed 15% increase was suspended and a
hearing was ordered. The Commissioner approved
increases for some shipowners and denied to some
on the basis of the operating accounts submitted
by each owner.
6. Petitioner herein was among those whose request
for increase was denied.
o Evaluation of Commissioner on its account
was based on the original cost of the
vessel instead of its present value, and
5% per annum depreciation was allowed
upon the original value as opposed to the
cost of replacement.
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7.
Sec. 30 of the Public utility Act No. 2307. The Board
affirmed the decision of the Comissioner.
8. Petitioners went to SC for review and argue that:
o There is no evidence to reasonably support
the decision
o 5% depreciation is based on the original
cost of the ship and not on the
replacement
o Allowance of 10% per annum on the
investment is based on the original cost of
the ship and not on its present value
o That the average cost of repairs for the
past 5 years shouldnt be substituted for
the actual cost of such repairs
9. Attorney-General agrees that it is error to base the
reasonableness of the rates on the original cost.
However, it appears that Commissioner only had 2
data upon which to base a rate: original cost and
estimated cost. He couldnt accept estimated costs
because it was based on abnormal war prices and
no evidence of the reasonable value was
presented. Hence, he accepted the original cost. It
should be presumed that he was of the opinion that
the original cost represented the fair value of the
property.
ISSUE:
WON it was proper for the Commissioner to base the
rates on the original cost of the property as opposed to
its present value. (NO)
RATIO:
The present market value of the property is the
ultimate practical basis for determining the
value of the investment upon which to fix a rate
which will produce a fair return.
-As the net earnings rule, there are 4 theories of
ascertaining what constitutes a reasonable rate.
Discussion of the following theories was based on
Pond on Public Utilities and various American
jurisprudence:
1. Original Cost- the value of the original cost of the
property should only be considered for the purpose
of determining its present value.
2. Cost of Reproduction-the test would lead to
obviously incorrect results if the cost of reproduction
is not diminished by the depreciation which has
come from the age and use. (City of Knowxville vs
Knoxville Water Co)
3. Outstanding Capitlization- capitalization of the
earnings will not lead to correct results because it
implies a continuance of earnings, and a continuance
of earnings rests upon a franchise to operate.
(National Waterworks Co. v. Kansas City)
4. Present Value- this is the ultimate practical basis
for determining the value of the investment upon
which to fix a rate while will produce a fair return.
Valuation should be made contemporaneous with the
fixing of the rate,
o There must be a fair return upon the
reasonable value of the property at the
time it is being used for the public (Willcox
v. Consolidated Gas Co)
Des Moines Water Co v. City of Des Moines: In
order to determine the rate of return upon which the
reasonable value of the property at the time it is
being used by the public, it becomes necessary to
ascertain what value that is
o The value of the the property is to be
determined as of the time when the inquiry
is made regarding the rates.
-A public utility should have a fair and reasonable
return upon its property which is used by the public
and under modern authorities, the rate is based
upon the physical valuation of the property,
because in effect the property is both used and
consumed by the public.
-When a public utility enters public service, it is no
longer a free agent and it becomes subject to
reasonable rules and regulations by the public
once property becomes public utility, it amounts to
an actual taking and appropriation.
o Private property cannot be taken for
public use without just compensation
being assessed and tendered.
o But, where the taking is not full, final, or
complete, but is in the nature only of a
continuous daily taking and
appropriation, it must follow that there
will be a fluctuation in the market value
of the property during the period of the
service, which as to the vessel, would
change with the cost of labor and
material necessary for its construction.
o In fixing the rate, it wouldnt be fair to
the public to base it upon a peak cost,
and for the same reason, it wouldnt be
fair to the owner of the property to place
it upon a minimum cost.
o A just rate must be founded upon
conditions which are fair and reasonable
both to the owner and the public.
-The vessel here is deemed taken and condemned
by the public at the time of the filing of the
petition, and the rate should go up and down as
the physical valuation of the vessel goes up and
down, and the purpose of the hearing is to place a
physical valuation upon the vessel and base a
reasonable rate upon that valuation.
-Hence, the original cost of the vessel is not the
basis of the valuation and is not important, except
in so far as it may enable to Commissioner to
determine the present value of the vessel.
-The original cost of the vessel Venus was P115k,
while its estimate cost of reproduction was
P409,446.03. The original cost of Vizcaya was
P120k while its estimate cost of reproduction was
P533, 318. 73. The differences of these figures are
strong evidence of the existence of abnormal
conditions (only 18 months after peace was
declared after the World War). Hence, these values
cannot be used to determine the rate which would
be fixed because it would be unfair to both the
public and the owner.
-Although it may be true that petitioner wasnt able
to submit evidence to the Commissioner regarding
the present value of the vessels under normal
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conditioners, such failure wouldnt justify the act of
the Commissioner of basing it on its original costs.
This was a prejudicial and legal error. He should
have required them to furnish further proof.
-Having said that, the rate to be imposed based on
the value of the property rests in the discretion of
the Commissioner and the court isnt in the
position to interfere with such decision.
DISPOSITIVE: Petition GRANTED. Order of the
Commissioner reverse and case is remanded with
directions to the Commissioner to require and take
proof of the present value of the vessel. With that
value, he must fix a reasonable return on the
investment and also the depreciation percentage.
Vigan Electric Light Co.,Inc. v. Public Service
Commission (1964) Concepcion, J.
Plaintiff: Vigan Electric Light Company, Inc.
Respondent: The Public Service Commission
Concept: Fixing of Rates, Wages, Prices
Brief Facts: The PSC issued an order which decreased
the rates imposed by Vigan Electric upon the finding
that it made a profit in excess of 12% of its invested
capital. Said order was issued without prior notice and
hearing. It claims that it issued the order pursuant to
its delegated legislative authority therefore, such
notice and hearing arent required. Vigan Electric
questions its validity.
Doctrine: A modification of such rates cannot be
made, over Vigan Electrics objection, without such
notice and hearing, considering that the factual basis
of the action taken by PSC is assailed. Said order,
having been issued without previous notice and
hearing, is violative of the due process clause and is
therefore null and void.
FACTS:
1. On June 19, 1948, RA 316 was approved, granting
Vigan Electric Light Company a franchise to
construct, maintain, and operate an electric light
heat and/or power plant for the purpose of
generating and distributing light, heat, and/or
power, for sale in the municipalities of Ilocos Sur.
2. Accordingly, it secured a certificate of public
convenience from the Public Service Commission
(PSC) to render light, heat, and/or power services
in the said province on May 31, 1950.
3. On May 22, 1957, it entered into a contract for the
purchase of electric power and energy from the
National power Corporation for its resale.
4. 5 years later, PSC advised Vigan Electric of a
conference to be held for the purpose of revising
its authorized rates. Thereafter, Vigan Electric
received a letter of PSC, informing it of an alleged
letter-petition of Congressman Floro Crisolog and
107 alleged residents of Vigan, Ilocos Sur and
asked it to comment on these charges. The said
letter charged the ff:
o That the sale of 2000 electric meters in the
black market by Vigan Electric to Avegon
Co. is anomalous and illegal. Said meters
 were imported from Japan by Vigan Electric
in behalf of its consumers. Vigan Electric
has commercialized these privileges which
properly belong to the people.
o That the electric meters in Vigan had been
installed in bad faith and they registered
excessive rates much more than the actual
consumption.
5. Vigan Electric denied all of these allegations.
6. Afterwards, it received a communication from the
General Auditing Office of PSC, notifying it that a
Cesar Damole had been instructed to make an
audit and examination of the books and other
records of account of Vigan Electric under the
provisions of Commonwealth Act 325 and in
accordance with the request of the PSC.
7. PSC issued a subpoena duces tecum requiring
Vigan Electric to produce, during a conference
scheduled for April 10, 1962, certain books of
account and financial statements.
o Vigan Electric moved to quash the
subpoena but wasnt acted upon in the said
conference.
o The next conference was postponed to May
21, 1962 but was subsequently cancelled.
The Motion to Quash was granted.
8. On May 17, PSC issued an ordered which contained
the following findings:
o From the audit report of the General
Auditing Office, it was found that based on
the total invested capital of Vigan Electric,
it was entitled to the return of about P118,
132.55 and its net operating income of
P53,692.34 which is the basis for the rates,
represents 45.45% of its invested capital.
o That in order to earn 12% per annum which
is the allowable rate of return, it should
have a computed revenue by rates of
P182, 012.78.
o Since it earned an actual revenue of P221,
529.17, it had an excess of revenue of P39,
516.39 which is 17.84% if the actual
revenue and 33.45% of the invested
capital.
o In other words, the present rates of Vigan
Electric may be reduced by 18%. Since its
net operating profit is in excess of the
allowable return of 12% on its invested
capital, in consonance with Sec. 3 of RA
3043, the reduction of 18% of its current
rates was ordered.
o Minimum charge: P4.90/month for
connection of 200 watts or less plus P0.01
per watt per month for connection in
excess of 200 watts.
9. Vigan Electric instituted the present action for
certiorari to annul the order on the grounds
that since its inception on 1962, it was never
able to give and never made a single dividend
to its stockholders because from 1949-1961, it
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suffered a loss of P113, 351.521; that PSC had
never furnished it a copy of the letter-petition;
that it objected to the reduction of the rates
without a hearing, alleging that its rates could
be reduced only if proven by evidence validly
adduced to be excessive; that the order had
been issued without notice and hearing.
10. By way of defense, PSC alleged that the order
was issued under its delegated legislative
authority, the exercise of which doesnt require
previous notice and hearing.
ISSUE:
WON the order of the PSC which reduced the rates of
Vigan Electric by 18% and which was issued without
conducting a hearing was valid. (NO)
RATIO:
PSC issued the said order under its delegated
quasi-judicial authority hence, a previous notice
and hearing are required for it to be valid.
-Although the rule-making power and the power to
fix rates (when such rules are meant to apply to all
enterprises of a given throughout the Philippines)
may partake of a legislative character, such isnt
the nature of the order complained of.
-It applies only the Vigan Electric exclusively and is
predicated upon a finding of fact that it is making a
profit of more than 12% of its invested capital,
which it denies.
-Vigan Electric is entitled to cross-examine the
maker of said report, and to introduce evidence to
disprove the contents thereof and/or explain or
complement the same, as well as to refute the
conclusion drawn therefrom by PSC.
-In making the finding of fact, PSC performed a
function partaking of a quasi-judicial character, the
valid exercise of which demands previous notice
and hearing as required by Sections 16 (c) and 20
(a) of Commonwealth Act 146.
o Sec 16 (c): Commission may in its
discretion, approve rates proposed by
public services provisionally and without
necessity of hearing; but it shall call a
hearing thereon within 30 days thereafter,
upon publication and notice.
o Sec 20 (a): Commission shall approve only
those that are just and reasonable only
upon reasonable notice to the public
services and other parties concerned,
giving them a reasonable opportunity to be
heard.
-A modification of such rates cannot be made, over
Vigan Electrics objection, without such notice and
hearing, considering that the factual basis of the
action taken by PSC is assailed.
-Said order, having been issued without previous
notice and hearing, is violative of the due process
clause and is therefore null and void.
Dispositive: Petition GRANTED.