Transportation Law

(pages 775-779)
(Chapter 21: Public Service Regulations)

Cities and municipalities no longer issue Certificiate of Public Convenience and Necessity
(CPCN) contemplated under the Public Service Act
Cities and municipalities: given delegated authorities to grant franchise to certain public
utilities including franchises of tricycle operators, ferries and wharves under the Local
Government Code.
In the case of Philippine Long Distance Telephone Company v. City of Davao (G.R. No. L-
23080, September 20, 1965), it was held that the power of a municipal corporation to
establish and maintain a public utility, is not under a specific and express provision of its
charter, but under the general welfare clause therein, should the same be deemed
conducive to the health, comfort, and convenience of the inhabitants.
o Under the present LGC, the power that is granted to cities and municipalities is
specific.
Public market
o A public service or utility
o Not one that falls under the jurisdiction of the Public Service Commission (PSC),
not being ejusdem generis with those public services enumerated in Section 13
(b) of the Public Service Act over which the PSC has jurisdiction

A public utility is required to obtain a certificate of public convenience before

commencing operations.
o Purpose: to prevent the public from being unjustly exploited
Basic rule regarding the issuance of certificates of public convenience: Sections 15 and
16(a) of the Public Service Act
o Regarding the issuance of a certificate of public convenience and necessity:
Section 16(b) of the Public Service Act
o Both now modified by the Constitution
Basic requirements: (must all concur)
(1) The applicant must be a citizen of the Philippines, or a corporation or co-
partnership, association or joint stock company constituted and organized under
the laws of the Philippines, 60% at least of the stock or paid-up capital of which
belongs entirely to citizens of the Philippines;
(2) The applicant must be financially capable of undertaking the proposed service and
meeting the responsibilities incident to its operations; and
 (3) The applicant must prove 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.
The regulatory agencys authority is broad in its scope as to factual matters
o such that where in a given set of facts it is authorized to grant a certificate of public
convenience, certain limitations imposed by it based on experience and not
merely arbitrary, the grant would not be interfered with by the Court, such
exercise of discretion being respected.
The fact that the applicant-operator had no corporate existence on the day the franchise
was granted in its name does not render the franchise invalid
o It is enough the organization is complete prior to the passage and acceptance of
the ordinance

Public interest, necessity, and convenience: overriding principle

Public convenience or necessity: something fitting or suited to the public need
When does public convenience and necessity exist?
o When the proposed facility or service meets a reasonable want of the public and
supply a need that the existing facilities do not adequately supply
o The existence or non-existence of public convenience and necessity: a question of
fact and must be established by evidence

There are policies that were used by the administrative body concerned in determining
who among a number of applicants is entitled to a certificate.
Controlling policy: public interest, convenience, and necessity
Other policies also applied:
(1) Prior operator rule
The PSC will not issue a certificate of public convenience to a second
operator if there is a first operator who is rendering sufficient, adequate
and satisfactory service, and who in all thing and respects is complying with
the rules and regulations of the Commission
Not absolute, for nobody has exclusive right to secure a franchise or a
certificate of public convenience
Requires for its application that the old operator offers to meet the
increase in the demand the moment it arises and not when another
operator, even a new one, had made the offer to serve the public needs.
(2) Prior applicant rule
Priority in the filing of the application for a certificate of public convenience
is, other conditions being equal, an important factor in determining the
rights of the public service companies
 (3) Third operator rule
A variation of the prior operator rule
Instead of one prior operator, there are two prior operators who are
rendering sufficient service
To the effect that where two operators are more than serving the public
there is no reason to permit a third operator to engage in competition with
them.
(4) Protection of investment rule
It is the duty of the government to protect the investment of the operators
of the public utilities
To protect operators from unfair, unjustified and ruinous competition
The duty of the regulatory agency is to protect investment of a public utility operator
refers only to operators of good standing
Not to operators who are unconcerned with the public interest and whose
investments have failed or deteriorated because of their own fault

Nature of Certificate of Public Convenience

May or may not be considered property depending on the perspective or viewpoint

Insofar as the State is concerned: neither a franchise nor a contract, confers no property
right, and is a mere license or privilege
o A common carrier that holds such certificate does not acquire a property right in
the route covered thereby
o Certificate does not confer any proprietary right or interest or franchise in the
public highways
o Revocation of certificate does not deprive him of any vested right
In a broad sense: may be considered property
o Under the Public Service Law, a certificate of public convenience can be sold by
the holder thereof because it has considerable material value and is considered as
valuable asset (Raymundo v. Luneta Motor Co., et al., 58 Phil. 889).
o With respect to other persons and other public utilities, a certificate of public
convenience as property, which represents the right and authority to operate its
facilities for public service cannot be taken or interfered with without due process
of law.

Imposition of Terms and Conditions

Under the Public Service Act, the PSC (and successor agencies) has the power:
o To specify and define the terms and conditions upon which the public utility shall
be operated
 o To make reasonable rules and regulations for its operations and the compensation
which the utility shall receive for its services to the public
o To enforce the provisions of the license or even revoke it, for any failure or neglect
to comply with any of its terms and provisions or to comply with rules or
regulations
Provisional Authority

Certain public utilities may be allowed to operate pending the issuance of a CPC by
acquiring a Provisional Authority (PA)
Definition: (as stated in GMA Network, Inc. v. National Telecommunications Commission,
G.R. No. 196112, February 26, 2014)
o Refers to an authority given to an entity qualified to operate a public utility for a
limited period during the pendency of its application for, or before the issuance of
its Certificate of Public Convenience (CPC).
o It has a general scope because it is akin to a provisional CPC in that it gives a public
utility provider power to operate as such and be bound by the laws and rules
governing public utilities, pending the issuance of its actual CPC.
Necessarily, a public utility that is granted a provisional authority is already allowed to
operate.
Lifetime of such: limited
May be revoked by the agency at any time in accordance with law and subject to the final
action on the main application for a CPC.
Final outcome of the application rests within the exclusive prerogative of the concerned
administrative agency
Example:
o One being issued by the Maritime Industry Authority in domestic shipping
Issuance of a PA may be warranted under any of the following instances:
o Operation in unserved or underserved routes, as may be determined by MARINA
o Operation of ships complying with international standards
o Operation of ships under EO 909 and its IRR and other similar laws/rules and
regulations
o Other analogous circumstances as may be determined by the MARINA
administrator upon the recommendation of Franchising Services or concerned
Maritime Regional Offices
In connection with commercial air transport service, from the policy of our public service
law, which sanctions the issuance of temporary or provisional permits or certificates of
public convenience and necessity, before the submission of a case for decision on the
merits.
Distinguished from Temporary Permits:
 o Temporary permit: a document containing the call sign, authorized power,
frequency/channel, class station, hours of operation, points of communication
and equipment particulars granted to an authorized public utility
o Scope: more specific than a PA
Contains details and specifications under which a public utility should
operate pursuant to a previously updated PA
o Operational validity flows only from a previously updated PA
o There should be an effective PA before a temporary permit is issued
Instances when CPC is not required

Under the Public Service Act:

(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and lighters;
(c) Airships within the Philippines except as regards the fixing of their maximum rates on
freight and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National Government
or by any government-owned or controlled corporation, except with respect to the
fixing of rates.
Note: Airlines are now under the Civil Aeronautics Board with respect to the economic
aspect of civil aviation. Radio companies are under the National Telecommunications
Commission.
Transfer of Certificate

The applicable statute may deny or grant to operator the right to transfer a franchise
Under Section 20(g) of the Public Service Act, the PSC has the power and authority to
approve a sale or transfer of a certificate of public convenience if:
(1) There are just and reasonable grounds for making the transfer; and
(2) The sale or transfer is not detrimental to the public interest.
Requires approval of the PSC in order that a franchise or any privilege pertaining thereto,
may be sold or leased without infringing the certificate issued to the grantee.
o Since a franchise is personal in nature, any transfer or lease thereof should be
notified to the PSC so that the latter may take proper safeguards to protect the
interest of the public.
o Before approval: there should be a public hearing with notice
o If property covered by the franchise is transferred, or leased to another without
obtaining the requisite approval, the transfer is not binding against PSC and the
grantee continues to be responsible under the franchise in relation to the PSC and
to the public.
 o While law provides that nothing shall be construed to prevent the transaction
from being negotiated or completed before its approval or to prevent the sale,
alienation, or lease by any public service of any of its property in the ordinary
course of its business, it does not mean that the transfer is but a mere formality
which does not affect the effectivity of the transfer or lease of the property
belonging to a public utility.
Only means that even if the approval has not been obtained, the transfer
or lease is valid and binding between the parties although not effective
against the public and the PSC.
Registered Owner Rule applies if the transfer of the franchise was not approved by the
regulating agency.
o However, this does not deprive the transferee of the right to recover from the
registered owner any damage that the transferee may have incurred since the
transfer or lease is valid and binding between the parties.
Transfer is prohibited: if for illegal purpose
The fact that the question of the validity of the transfer, or the title or ownership over the
franchise, is pending determination in the courts, does not deprive the regulatory agency
of the power to approve or transfer provisionally where these conditions set by the law
are satisfied, in order to protect the public interest.
Section 20(g) of the Public Service Act also covers the following transactions:
(1) Sale or any alienation
(2) Mortgage
(3) Encumbrance
(4) Lease
(5) Merger or consolidation
Not only the CPC but also its property or privileges, or rights or any part thereof
Requirement before public utilities mortgage their properties: obtain the necessary
approval of the Public Utility Commission
o Purpose: to determine if mortgage is injurious or beneficial to the public interests
Revocation or Cancellation of Certificate

Since the holding of such is just a privilege: may be revoked by the administrative agency
concerned
Condition of every franchise: subject to amendment, alteration, or repeal when the
common good so requires
SC sustained the cancellation in the following instances:
(1) Where the holder is a mere dummy
(2) Where the operator ceased operations and placed his vehicles on storage
(3) Where the operator totally abandoned the service
 Such privilege is forfeited when the grantee fails to comply with his commitments behind
which lies the paramount interest of the public, for public necessity cannot be made to
wait, nor sacrificed for private convenience
Can be cancelled on the ground of misrepresentation
Cancellation is not justified: if there is no showing of willful and contumacious violation
of the law and rules.
Mere failure to operate temporarily: NOT a ground for cancellation
o Especially as when the suspension of the service was directly caused by
circumstances beyond the operators control
The regulatory agency (like PSC) cannot make an ex parte revocation without giving the
operators previous notice and opportunity to explain their side
o The absence of notice or hearing required by the law before suspension,
revocation or cancellation of any certificate of public convenience is a defect that
can be cured by the hearing held on the MR filed by the operator
Alternative Penalty

A fine under Section 21 of the Public Service Act provides that:

o A public utility operator violating or failing to comply with the terms and
conditions of any certificate or any orders, decisions or regulations of the PSC shall
be subject to a fine; and the Commission is hereby authorized and empowered to
impose such fine, after due notice and hearing.
o 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.
Imposition of a fine may only be one of the remedies that the PSC may resort to, in its
discretion.

The NTC has no power to cancel certificated of public convenience that it issued to the
holders of duly issued legislative franchises in the broadcast industry.