EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

~ Introduced by Representative Rufus B. Rodriguez

House Bill No. 4105
EXPLANATORY NOTE

Consumers often experience high prices and poor quality of basic services in the
Philippines, because only a few local players or oligarchs effectively control the market
Competition and foreign investment are inhibited, because limitations that should only apply
to the operation of a public utility are usually also applied to all public services. This situation
is caused by the ambiguity in the definition of public utility that is often used interchangeably
with public service under Commonwealth Act No. 146 or the Public Service Act. The key to
fixing this problem is to develop a clear statutory definition of a public utility by amending the
Public Service Act.

The Public Service Act is a law that was crafted in 1936 to govem public services in
the Philippines. Understandably, it no longer sufficiently addresses the changes in the
economic framework brought about by globalization and rapid technological innovation
Hence, there is a need to adjust the provisions of the law to bring it to the 21st century and
enable it to fulfil its purpose of truly serving the public.

Notwithstanding numerous amendments, this 80-year old law is still a good law in
terms of protecting the public interest, albeit outdated in certain aspects, particularly: 1) the
transfer of the functions of the Public Service Commission to various administrative
agencies; 2) the definition of public service, which is often used as a proxy for public utility, in
reference to the 1987 Constitution; 3) the appropriate mechanism for fixing rates based on
reasonable rate of return; and 4) the applicable penalties and fees for public services.

This bill proposes to further amend the Public Service Act to effect the necessary
changes in the antiquated provisions of the law to increase its relevance to contemporary
concerns, in the interest of providing the general public with more choices, better services,
and lower prices.

This legislative reform will significantly contribute to increasing competition, as well
as protecting the public interest. More competition among providers would result in lower
prices and improved quality of basic services in the Philippines creating a more competitive
economy towards a better quality of life for all

Rul . RODRIG!


EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

ive Rufus B. Rodriguez

Introduced by Repre:
House Bill No. 4105

AN ACT
PROVIDING FOR THE DEFINITION OF PUBLIC UTILITY, FURTHER AMENDING FOR
THE PURPOSE COMMONWEALTH ACT NO. 146, OTHERWISE KNOWN AS THE
“PUBLIC SERVICE ACT,” AS AMENDED

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

Section 1, Public Utility. Section 13 of Commonwealth Act No. 146, as amended, is
hereby further amended by adding a new paragraph to be designated as Section 13 (d) to
read as follows:

“Section 13. xxx

(D) |. PUBLIC UTILITY DEFINITION. -"PUBLIC UTILITY" REFERS
TO A PERSON THAT OPERATES, MANAGES AND CONTROLS FOR
PUBLIC USE ANY OF THE FOLLOWING:

(1) DISTRIBUTION OF ELECTRICITY (AS DEFINED BY

SECTION 4 (N) OF REPUBLIC ACT NO. 9136) SYSTEM;

(2) TRANSMISSION OF ELECTRICITY (AS DEFINED BY
SECTION 4 (CCC) OF REPUBLIC ACT NO. 9136)
SYSTEM;

(3) GAS OR PETROLEUM PIPELINE DISTRIBUTION
SYSTEM; AND,

(4) WATER PIPELINE DISTRIBUTION SYSTEM OR
SEWERAGE PIPELINE SYSTEM (AS DEFINED BY
REPUBLIC ACT NO6234, AS AMENDED, AND
PRESIDENTIAL DECREE NO. 198, AS AMENDED).

ll, AMENDMENT OF PUBLIC UTILITY DEFINITION. - NO OTHER
PERSON, BUSINESS OR SERVICE SHALL BE DEEMED A PUBLIC
UTILITY UNDER SECTION 13 (D) | UNLESS OTHERWISE
SUBSEQUENTLY PROVIDED BY LAW.

THE PHILIPPINE COMPETITION COMMISSION (PCC), IN
CONSULTATION WITH THE NATIONAL ECONOMIC AND DEVELOPMENT
AUTHORITY (NEDA) SECRETARIAT, WILL RECOMMEND TO CONGRESS
THE CLASSIFICATION OF A PERSON, BUSINESS OR SERVICE AS A
PUBLIC UTILITY ON THE BASIS OF THE FOLLOWING CRITERIA:

(1) THE PERSON PERFORMS A PUBLIC SERVICE;

(2) THE BUSINESS OR SERVICE REGULARLY SUPPLIES

AND DIRECTLY TRANSMITS AND DISTRIBUTES TO
THE PUBLIC THROUGH A NETWORK A COMMODITY
OR SERVICE OF PUBLIC CONSEQUENCE;

(3) THE BUSINESS OR SERVICE, IS NECESSARY TO THE
PUBLIC AND, IF A NATURAL MONOPOLY, NEEDS TO
BE REGULATED WHEN THE COMMON GOOD SO
REQUIRES;


(4) THE BUSINESS OR SERVICE IS NECESSARY FOR THE
MAINTENANCE OF LIFE AND OCCUPATION OF
RESIDENTS; AND,

(5) THE BUSINESS OR SERVICE IS OBLIGATED TO
PROVIDE ADEQUATE SERVICE TO THE PUBLIC ON
DEMAND.”

Sec. 2. Certificate of Authority. Section 15 of Commonwealth Act No. 148, as amended,
is hereby further amended to read as follows:

“Section 15. With the exception of those enumerated in the preceding
section, no public service shall operate in the Philippines without possessing
a valid and subsisting FRANCHISE, certificate, OR ANY OTHER
APPROPRIATE FORM OF AUTHORIZATION FOR THE OPERATION OF A
PUBLIC SERVICE [from the Public Service Commission known as "certificate
of public convenience,” or "certificate of public convenience and necessity,"]
as the case may be, to the effect that the operation of said service and the
authorization to do business will promote the public interests in a proper and
suitable manner.

The [Commission] ADMINISTRATIVE AGENCY may prescribe as a
condition for the issuance of the certificate provided in the preceding
paragraph that the service can be acquired by the Republic of the Philippines
or any instrumentality thereof upon payment of the cost price of its CAPITAL
STOCK, OR useful equipment, less reasonable depreciation; and likewise,
that the certificate shall be valid only for a definite period of time; and that the
violation of any of these conditions shall produce the immediate cancellation
of the certificate without the necessity of any express action on the part of the
[Commission] ADMINISTRATIVE AGENCY.

ae

Sec. 3. Proceedings Upon Notice and Hearing. ~ Section 16 of Commonwealth Act No.
146, as amended, are hereby further amended to read as follows:

“Section 16. Proceedings of the [Commission] ADMINISTRATIVE
AGENCY, upon notice and hearing. - The [Commission] ADMINISTRATIVE
AGENCY 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.

(a) To issue certificates [which shall be known as certificates of public
convenience,] authorizing the operation of public service within the
Philippines whenever the [Commission] ADMINISTRATIVE AGENCY finds
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.
[Provided, That thereafter, certificates of public convenience and certificates
of public convenience and necessity will be granted only to citizens of the
Philippines or of the United States or to corporations, co-partnerships,
associations or joint-stock companies constituted and organized under the
laws of the Philippines; Provided, That sixty per centum of the stock or paid-
up capital of any such corporations, co-partnership, association or joint-stock
company must belong entirely to citizens of the Philippines or of the United
States: Provided, further, That no such certificates shall be issued for a period
of more than fifty years.]

Xxx

(c) To fix and determine MAXIMUM individual or joint rates, tolls,
charges, classifications, REVENUES, 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 WHEN THE


PUBLIC INTEREST SO REQUIRES: Provided, That the [Commission]
ADMINISTRATIVE AGENCY 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.

THE MAXIMUM RATE OF RETURN SHALL BE EQUAL TO THE
POST-TAX WEIGHTED AVERAGE COST OF CAPITAL FOR THE SAME
OR COMPARABLE BUSINESSES COMPUTED USING ESTABLISHED
METHODOLOGIES SUCH AS THE CAPITAL ASSET PRICING MODEL.
INCOME TAX SHALL BE ALLOWED AS A CASH OUTFLOW FOR RATE-
DETERMINATION PURPOSES. THIS PROVISION SHALL NOT BAR THE
APPLICATION OF PERFORMANCE-BASED RATE REGULATION SHOULD
THE ADMINISTRATIVE AGENCY REGULATING SUCH PUBLIC SERVICE
DEEM IT EFFICIENT AND IN THE PUBLIC INTEREST.

THE PHILIPPINE COMPETITION COMMISSION (PCC) IS HEREBY
MANDATED TO CONDUCT REGULAR STUDIES ON WHETHER
DEREGULATION IS WARRANTED IN A SECTOR AND SUBMIT ITS
RECOMMENDATION TO CONGRESS.

oo

Sec. 4. Proceedings Without Hearing. — Section 17 of Commonwealth Act No. 146, as
amended, is hereby further amended to read as follows:

“Section. 17. Proceedings of [Commission] ADMINISTRATIVE
AGENCY without previous hearing. — The [Commission] ADMINISTRATIVE
AGENCY shall have power without previous hearing, subject to established
limitations and exception and saving provisions to the contrary:

20x.

(b) To require any public service to pay the actual expenses incurred
by the [Commission] ADMINISTRATIVE AGENCY in any investigation if it
shall be found in the same that any rate, toll, charge, schedule, regulation,
practice, act or service thereof is in violation of any provision of this Act or any
certificate, order, rule, regulation or requirement issued or established by the
[Commission] ADMINISTRATIVE AGENCY. The [Commission]
ADMINISTRATIVE AGENCY may also assess against any public service
REASONABLE costs [not to exceed twenty-five pesos] with reference to such
investigation.

xx."

Sec. 5. Acts Requiring Approval. — Section 20 of Commonwealth Act No. 146, as
amended, is hereby further amended to read as follows
“Section 20. Acts requiring the approval of the [Commission]
ADMINISTRATIVE AGENCY. — Subject to established limitations and exceptions and
saving provisions to the contrary, it shall be unlawful for any public service or for the
owner, lessee or operator thereof, without the approval and authorization of the
[Commission] ADMINISTRATIVE AGENCY previously had —
Xxx
(i) To sell, alienate or in any manner transfer shares of its capital stock
to any alien if the result of that sale, alienation, or transfer in itself or in
connection with another previous sale shall be the reduction to less than sixty
per centum of the capital stock belonging to Philippine citizens IN THE
OPERATION, MANAGEMENT AND CONTROL OF A PUBLIC UTILITY AS


REQUIRED BY THE CONSTITUTION. Such sale, alienation or transfer shall
be void and of no effect and shall be sufficient cause for ordering the
cancellation of the certificate.

Xxx."

Sec. 6. Penalties for Violations. — Section 21 of Commonwealth Act No. 146, as amended,
is hereby further amended to read as follows

“Section 21. Every public service violating or failing to comply with
the terms and conditions of any certificate or any orders, decisions or
regulations of the [Commission] ADMINISTRATIVE AGENCY shall be
subject to DISGORGEMENT OF PROFITS, TREBLE DAMAGES, a fine OF
UP TO FIVE MILLION PESOS, DIVESTMENT, OR ALL OR ANY
COMBINATION THEREOF [of not exceeding two hundred pesos] per day
for every day during which such default or violation continues; and the
[Commission] ADMINISTRATIVE AGENCY is hereby authorized and
empowered to impose such fine, after due notice and hearing. THE FINE OF
UP TO FIVE MILLION PESOS SHALL BE INCREASED EVERY FIVE (5)
YEARS UPON CERTIFICATION BY NEDA ON THE COMPUTATION OF
THE COST OF MONEY BASED ON THE CUMULATIVE 360-DAY
TREASURY BILL RATE.

The PENALTIES AND fines so imposed shall be paid to the
Govemment of the Philippines through the [Commission] ADMINISTRATIVE
AGENCY, and failure to pay the PENALTY OR fine in any case within the
same specified in the order or decision of the [Commission]
ADMINISTRATIVE AGENCY shal be deemed good and sutncient reason tor
the suspension of the cer QubIC Service Unt payment shal oe
made. Payment may also be enforced by appropriate action brought in
court of competent jurisdiction. The remedy provided in this section shall not
be a bar to, or affect any other remedy provided in this Act but shall be
cumulative and additional to such remedy or remedies.”

Sec. 7. Administrative Cost Recovery Mechanism. — Section 40 of Commonwealth Act
No. 146, as amended, is hereby further amended to read as follows:

“Section 40. The [Commission] ADMINISTRATIVE AGENCY is
authorized and ordered to charge and collect from any public service or
applicant, as the case may be, [the following]-REASONABLE fees as
reimbursement of its expenses in the authorization, supervision and/or
regulation of public services[], AND TO IMPOSE APPROPRIATE
PENALTIES AND FINES AS PROVIDED BY LAW.”

Sec. 8. Recognition of Administrative Agencies. — All references to the Public Service
Commission in Commonwealth Act No. 146, as amended, shall mean any administrative
agencies to which the powers and duties of the Public Service Commission were transferred
in accordance with their respective charters and related statutes.

Sec. 9. Interpretation. — This Act shall be subject to the regulatory powers of the State to
promote public interest in Article IX-C, Section 4 and Article XII, Section 17 of the
Constitution. A person, business or service classified as a public utility prior to the effectivity
of this Act and declassified as such under this Act shall be considered a public service and a
business affected with public interest for the purpose of Article XII, Section 17 of the
Constitution. Such person, business or service shall continue to be subject to regulation by
relevant administrative agencies under existing laws.

Sec. 10. Operation of a Public Service. — The power to grant any franchise, certificate, or
any other form of authorization for the operation of a public service belongs to Congress,


unless otherwise provided by law to an administrative agency. No franchise, certificate, or
authorization granted for the operation of a public service shall be (a) for a period longer
than fifty years, and (b) granted except under the condition that is shall be subject to
amendment, alteration, or repeal by Congress when the public interest so requires.

Sec. 11. General Law. - Commonwealth Act No. 148, as amended, shall be construed as a
general law that shall apply suppletorily to special laws or existing sector-specific laws
governing public services, except for Section 13 (d) of Commonwealth Act No. 146, as
amended, as further amended by Section 2 of this Act

Sec. 12. Comprehensive Baseline Survey. - The PCC shall commission the University of
the Philippines Law Center (UPLC) or such other institutions to conduct a comprehensive
baseline survey of the regulatory governance and regulatory substance of public services
within six (6) months from the effectivity of this Act.

Sec. 13. Performance Audit. - Administrative agencies must ensure the annual conduct of
performance audit by an independent evaluation team to ensure cost-norms and the quality
of services provided to the public and the ability of manpower and system resources of the
public service provider to immediately respond to emergency cases. Metrics for various
types of services must be established to sustain reliability, security, and safety of the public.

Sec. 14. Rules and Regulations. — Administrative agencies under Section 8 of this Act
shall, in coordination with the UPLC, promulgate rules and regulations to implement the
provisions of this Act

Sec. 15. Repealing Clause. ~ All laws, decrees, orders, rules and regulations or other
issuances or parts thereof, including Commonwealth Act No. 146 or the Public Service Act,
as amended, inconsistent with the provisions of this Act are hereby repealed or modified

accordingly.
Sec. 16. Separability Clause. - if any portion or provision of this Act is declared
unconstitutional, the remainder of this Act or any provision not affected thereby shall remain
in force and effect.

Sec. 17. Effectivity. — This Act shall take effect after fifteen (15) days following the
completion of its publication either in the Official Gazette or in a newspaper of general
circulation in the Philippines.

Approved,

6