Republic of the Philippines v.

Meralco

G.R. No. 141314

Facts:

 On December 23, 1993, MERALCO filed with the Energy Regulatory Board (ERB) an application for
the revision of its rates schedule to reflect an average increase in its distribution charge. ERB granted
a provisional increase of P0.184/kwh subject to the condition that should the COA thru its audit
report find MERALCO is entitled to a lesser increase, all excess amounts collected from the latter’s
customers shall either be refunded to them or correspondingly credited in their favor.

 Subsequently, ERB rendered its decision adopting the audit of the COA and authorized Meralco to
implement a rate adjustment of P0.017/kwh, but ordered the refund of the excess amount of
P0.167/kwh collected from the billing cycles of February 1994 to February 1997, holding that
income tax should not be treated as operating expense, and applying the net average investment
method in the computation of the rate base.

 On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the
rates by P0.167/kwh and the refund to Meralco’s customers. Motions for reconsideration were
denied. Hence, the petition before the Supreme Court.

Issue:

Whether or not the regulation of ERB as to the adjustment of rates of MERALCO is valid.

Ruling:

Yes. 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 are a valid exercise thereof.

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 regulation is to promote the common good. Submission to
regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is
continued, the same is subject to public regulation. In regulating rates charged by public utilities, the State
protects 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.

Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon
the value of the property performing the service and one that is reasonable to the public for the
services rendered. The fixing of just and reasonable rates involves a balancing of the investor and the
consumer interests.