May Congress delimit through legislation the constitutional coverage of ‘public utilities’

In its Article XII on National Economy and Patrimony, the 1987 Constitution provides in no uncertain terms that “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.” (Sec. 11, Art. XII, 1987 Constitution).

In essence, the constitutional provision on public utilities allows foreign equity ownership to be at a maximum of 40% of the capital stock of a domestic corporation or association engaged in public utility; it prohibits entirely all foreign individuals from engaging in activities, undertaking, business enterprises, or industries that are classified as “public utilities.”

Fr. Joaquin G. Bernas, S.J., observed that “[t]his Filipinization provision is one of the products of the spirit of nationalism which gripped the Constitutional Convention of 1935. It provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to ‘citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens.’ The provision is a recognition of the sensitive and vital position of public utilities both in the national economy and for national security.”

Our Supreme Court (SC) in Gamboa v. Teves, G.R. No. 176579, 28 June 2011, 652 SCRA 690 (2011), held that the issue of the extent of foreign equity participation in public utilities under “Sec. 11, Art. XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshold legal issue presented in this case.”

May Congress through a legislative enactment, i.e., RA No. 11659, de-limit or de-classify the coverage of the term “public utilities” to exclude activities, undertakings, business enterprises, or industries which have been pronounced by the SC as within the coverage of Sec. 11, Art. XII of the 1987 Constitution? This is the core question that is addressed in this article.

SC’s POWER

The long-standing principle in Philippine Constitutional Law is that the constitution is what the SC says it is.

Fr. Bernas wrote that “Constitutional law, as understood both in American and Philippine law, is not just the text of the constitution itself. It is ‘a body of rules resulting from the interpretation by a high court of cases in which the validity, in relation to the constitutional instrument, of some act of governmental power … has been challenged. This function, conveniently labeled ‘Judicial Review,’ involves the power and duty on the part of the [Supreme] Court of pronouncing void any such act which does not square with its own reading of the constitutional instrument …’”

The corollary principle in constitutional construction is that unless the constitution itself provides that certain items are within the power of Legislature to define by law, the Constitution is what the SC holds it to be — the SC is the final arbiter of the meaning and coverage of constitutional provisions.

When one dissects the text of Sec. 11, Art. XII of the 1987 Constitution, it gives no leeway for Congress to determine the coverage of enterprises that would fall within the coverage of “public utilities.”

This may mean that the final determination of whether an activity, undertaking, business enterprise or industry falls within the constitutional coverage of “public utilities” depends on how the SC has defined the meaning and coverage of the term in justiciable controversies brought within its jurisdiction as a constitutional court.

How has the SC interpreted the meaning and coverage of the term “public utilities” under what is now Sec. 11, Art. XII of the 1987 Constitution?

In addressing the question, it must be kept in mind that the statutory regulation of public utilities in general which formally began under Act No. 2307 on Dec. 19, 1913 — which created the Board of Public Utility Commission, later changed to Public Service Commission under Act No. 3316 — pre-dated the constitutional nationalization of public utilities, when it first appeared under Sec. 8, Art. XIV of the 1935 Constitution.

Consequently, when the Public Service Act was promulgated as Commonwealth Act No. 1169 on Nov. 7, 1936, to provide for a more comprehensive code on the regulation of public utilities, it was construed to be also the statutory implementation of Sec. 8, Art. XIV of the 1935 Constitution.

In other words, our SC had already evolved a doctrinal meaning and coverage of the term “public utilities” before the advent of the constitutional nationalization of public utilities under Sec. 8, Art. XIV of the 1935 Constitution.

In United States v. Tan Piaco, 40 Phil. 853, 856 (1920), the earliest decision rendered under Act No. 2307 to determine if the accused had operated vehicles as common carriers without authority from the Public Utility Commission as to render them criminally liable under said Act, the SC relied upon the statutory definition of public utilities under Sec. 14 of Act No. 2307, which in part read that “… The term ‘public utility’ is hereby defined to include every individual, copartnership, association, corporation or joint stock company, …. that now or hereafter may own, operate, manage, or control any common carrier, railroad, street railway, … engaged in the transportation of passengers, cargo, …. for public use.”

The SC in Tan Piaco used the enumeration under Sec. 14 of Act No. 2307 to determine what constitutes “public utility” and in addition required the showing of “public use” in ruling that “Under the provisions of said section, two things are necessary: (a) The individual, copartnership … must be a public utility; and (b) the business in which such individual copartnership … is engaged must be for public use. So long as the individual or copartnership … is engaged in a purely private enterprise, without attempting to render service to all who may apply, he can in no sense be considered a public utility for public use.”

In effect, Tan Piaco provided that under statutory law on public utilities as being subject to the jurisdiction of public utility commission, there are two essential elements: first, the activity, undertaking, business enterprise or industry must be fixed by law as a public utility; and second, such activity, undertaking, business enterprise or industry is for public use.

The Court held that “If the use is merely optional with the owner, or the public benefit is merely accidental, it is not a public use, authorizing the exercise of the jurisdiction of the public utility commission. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or only by permission.”

In Iloilo Ice and Cold Storage Company v. Public Utility Board, 44 Phil. 551, 555-556 (1923), where the issue was whether an ice and cold storage business that catered only to limited clientele and refused its services to others, could be classified as a “public utility” within the supervision of the Public Utility Board, the SC noted that the “original public utility law, Act No. 2307, in its sec. 14, in speaking of the jurisdiction of the Board of Public Utility Commissioners, and in defining the term ‘public utility,’ failed to include ice, refrigeration, and cold storage plants … [which] deficiency was, however, remedied by Act No. 2694, enacted in 1917, which amended sec. 14 of Act No. 2307…”

The Court then concluded that because of such amendment “the term ‘public utility,’ in this jurisdiction, [covers] corporation, or joint stock company that now or hereafter may own, operate, manage, or control, within the Philippine Islands, any ice, refrigeration, cold storage system, plant, or equipment, for public use.”

The Court then held that the respondent could not be subject to the jurisdiction of the Public Utility Board because the second essential element of “public use” was not present.

In his concurring opinion in Iloilo Ice and Cold Storage Company, Justice Ostrand referred to a distinction between a “common law” (i.e., judge-made law or doctrine) from statutory provision of what constitutes a public utility, thus: “I concur in the result on the ground that an ice plant is not a public utility by common law, but is only made so by statute; that in the present case the [ice] plant existed in approximately its present form and as, in a then legal sense, a private enterprise, before the statute making such plants public utilities was enacted …”

The implication of the Tan Piaco and Iloilo Ice and Cold Storage Company rulings was that the classification of activities, undertakings, business enterprises, or industries as “public utilities” to be under the supervision and control of public utility boards would essentially be an exercise of legislative prerogative, since regulatory agencies can only exercise such powers and functions within the parameters of the laws creating them.

As one scholar has observed: “The legislature is vested with police power so that it may pass laws that would effect a well-ordered society and promote the general welfare. And in the area of business concerns and enterprises engaged in public utilities, which usually affect the lives of many, the legislature has created franchising and regulatory bodies to limit, oversee and rationalize their operations. …”

In other words, prior to the constitutional nationalization provisions on public utilities, the SC had determined the coverage of the term “public utilities” based on how the Legislature, in the exercise of its police power over the regulation of business affected with public interests, has determined them to be covered thereby.

We now address the next issue: When the constitutional writers incorporated Sec. 8, Art. XIV into the 1935 Constitution limiting the operation of public utilities to Filipinos and to domestic corporations with at least 60% Filipino equity, did they intend the term “public utilities” to have the same coverage under Sec. 14 of Act No. 2307, as vetted by the SC?

This article re f lects the personal opinion of the author and does not reflect the of fi cial stand of the Management Association of the Philippines or MAP.

Atty. Cesar L. Villanueva is co-chair for Governance of the MAP ESG Committee, the chair of the Institute of Corporate Directors, the first chair of the Governance Commission for GOCCs, a former dean of the Ateneo Law School, and a founding partner of Villanueva Gabionza & Dy Law Offices.