PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, PETITIONER, VS. JOSE LUIS A. ALCUAZ, AS NTC COMMISSIONER, AND NATIONAL TELECOMMUNICATIONS COMMISSION, RESPONDENTS.

This case is posed as one
of first impression in the sense that it involves the public utility services
of petitioner Philippine Communications Satellite Corporation (PHILCOMSAT, for
short) which is the only one rendering such services in the Philippines.

The petition before us
seeks to annul and set aside an Order^[1] 
issued by respondent Commissioner Jose Luis A. Alcuaz of the National Telecommunications
Commission (hereafter, NTC), dated September 2, 1988, which directs the
provisional reduction of the rates which may be charged by petitioner for
certain specified lines of its services by fifteen percent (15%) with the
reservation to make further reductions later, for being violative
of the constitutional prohibition against undue delegation of legislative power
and a denial of procedural, as well as substantive, due process of law.

The antecedental
facts as summarized by petitioner^[2] are not in dispute.  By virtue of Republic Act No. 5514,
PHILCOMSAT was granted “a franchise to establish, construct, maintain
and operate in the Philippines, at such places as the grantee may select,
station or stations and associated equipment and facilities for international
satellite communications.” Under this franchise, it was likewise granted
the authority to “construct and operate such ground
facilities as needed to deliver telecommunications services from the
communications satellite system and ground terminal or terminals.”

Pursuant to said
franchise, petitioner puts on record that it undertook the following activities
and established the following installations:

1.  In 1967, PHILCOMSAT
established its provisional earth station in Pinugay,
Rizal.

2.  In 1968, earth station
standard “A” antenna (Pinugay I) was
established.  Pinugay
I provided direct satellite communication links with the Pacific Ocean Region
(the United States,
Australia, Canada,
Hawaii, Guam,
Korea, Thailand,
China (PROC), New Zealand
and Brunei)
thru the Pacific Ocean INTELSAT satellite.

3.  In 1971, a second earth
station standard “A” antenna (Pinugay II)
was established.  Pinugay
II provided links with the Indian Ocean Region (major cities in Europe,
Middle East, Africa, and other
Asia Pacific countries operating within the region) thru the Indian Ocean
INTELSAT satellite.

4.  In 1983, a third earth
station standard “B” antenna (Pinugay III)
was established to temporarily assume the functions of Pinugay
I and then Pinugay II while they were being
refurbished.  Pinugay
III now serves as spare or reserved antenna for possible contingencies.

5.  In 1983, PHILCOMSAT
constructed and installed a standard “B” antenna at Clark Air Field, Pampanga as a television receive-only earth station which
provides the U.S. Military bases with a 24-hour television service.

6.  In 1989, petitioner
completed the installation of a third standard “A” earth station (Pinugay IV) to take over the links in Pinugay
I due to obsolescence. ^[3]

By designation of the
Republic of the Philippines, the petitioner is also the sole signatory for the
Philippines in the Agreement and the Operating Agreement relating to the
International Telecommunications Satellite Organization (INTELSAT) of 115
member nations, as well as in
the Convention and the Operating Agreement of the International Maritime
Satellite Organization (INMARSAT) of 53 member nations, which two global
commercial telecommunications satellite corporations were collectively
established by various states in line with the principles set forth in
Resolution 1721 (XVI) of the General Assembly of the United Nations.

Since 1968, the petitioner
has been leasing its satellite circuits to:

1. Philippine Long Distance Telephone Company;

2. Philippine Global Communications, Inc.;

3. Eastern Telecommunications Phils.,
Inc.;

4. Globe Mackay Cable and Radio Corp. ITT; and

5. Capitol Wireless, Inc.

or
their predecessors-in-interest.  The
satellite services thus provided by petitioner enable said international
carriers to serve the public with indispensable communication services, such as
overseas telephone, telex, facsimile, telegrams, high speed data, live
television in full color, and television standard conversion from European to
American or vice versa.

Under Section 5 of
Republic Act No. 5514, petitioner was exempt from the jurisdiction of the then Public Service Commission, now
respondent NTC.  However, pursuant to
Executive Order No. 196 issued on June 17, 1987, petitioner was placed under the
jurisdiction, control and regulation of respondent NTC, including all its
facilities and services and the fixing of rates.  Implementing said Executive Order No. 196,
respondents required petitioner to apply for the requisite certificate of
public convenience and necessity covering its facilities and the services it
renders, as well as the corresponding authority to charge rates therefor.

Consequently, under date
of September 9, 1987, petitioner filed with respondent NTC an application^[4] for authority to continue operating and
maintaining the same facilities it has been continuously operating and
maintaining since 1967, to continue providing the international satellite
communications services it has likewise been providing since 1967, and to
charge the current rates applied for in rendering such services.  Pending hearing, it also applied for a
provisional authority so that it can continue to operate and maintain the
above-mentioned facilities, provide the services and charge therefor
the aforesaid rates therein applied for.

On September 16, 1987,
petitioner was granted a provisional
authority to continue operating its existing facilities, to render the services
it was then offering, and to charge the rates it was then charging.  This authority was valid for six (6) months
from the date of said order.^[5]
When said provisional authority expired on March 17, 1988, it was extended for another six (6)
months, or up to September 16, 1988.

The NTC order now in controversy had further extended the
provisional authority of the petitioner for another six (6) months, counted
from September 16, 1988, but it directed the petitioner to charge modified
reduced rates through a reduction of fifteen percent (15%) on the present
authorized rates.  Respondent
Commissioner ordered said reduction on the following ground:

“The Commission in its on-going review of present service
rates takes note that after an initial evaluation by the Rates Regulation
Division of the Common Carriers Authorization Department of the financial
statements of applicant, there is merit in a REDUCTION in some of applicant’s
rates, subject to further reductions, should the Commission finds (sic) in its
further evaluation that more reduction should be effected either on the basis
of a provisional authorization or in the final consideration of the case.”^[6]

PHILCOMSAT assails the
above-quoted order for the following reasons:

1. The enabling act (Executive Order No. 546) of respondent NTC
empowering it to fix rates for public service communications does not provide
the necessary standards constitutionally required, hence there is an undue
delegation of legislative power, particularly the adjudicatory powers of NTC;

2. Assuming arguendo that
the rate-fixing power was properly and constitutionally conferred, the same was
exercised in an unconstitutional manner, hence it is ultra vires, in that (a) the
questioned order violates procedural due process for having been issued without
prior notice and hearing; and (b) the rate reduction it imposes is unjust,
unreasonable and confiscatory, thus constitutive of a violation of substantive
due process.

I.  Petitioner asseverates that
nowhere in the provisions of Executive Order No. 546, providing for the
creation of respondent NTC and granting its rate-fixing powers, nor of
Executive Order No. 196, placing petitioner under the jurisdiction of
respondent NTC, can it be inferred that respondent NTC is guided by any
standard in the exercise of its rate-fixing and adjudicatory powers.  While petitioner in its petition-in-chief
raised the issue of undue delegation of legislative power, it subsequently
clarified its said submission to mean that the order mandating a reduction of
certain rates is an undue delegation not of legislative but of quasi-judicial
power to respondent NTC, the exercise of which allegedly requires an express
conferment by the legislative body.

Whichever way it is presented,
petitioner is in effect
questioning the constitutionality of Executive Orders Nos. 546 and 196 on the
ground that the same do not fix a standard for the exercise of the power
therein conferred.

We hold otherwise.

Fundamental is the rule
that delegation of legislative power may be sustained only upon
the ground that some standard for its exercise is provided and that the legislature in making the delegation has prescribed the manner
of the exercise of the delegated power. 
Therefore, when the administrative agency concerned, respondent NTC in
this case, establishes a rate, its act must both be non-confiscatory and must
have been established in the manner prescribed by the legislature; otherwise,
in the absence of a fixed standard, the delegation of power becomes
unconstitutional.  In case of a delegation of the rate-fixing power,
the only standard which the legislature is required to prescribe for the
guidance of the administrative authority is that the rate be reasonable and
just.  However, it has been held that
even in the absence of an express requirement as to reasonableness, this
standard may be implied.^[7]

It becomes important then
to ascertain the nature of the power delegated to respondent NTC and the manner
required by the statute for the lawful exercise thereof.

Pursuant to Executive
Orders Nos. 546 and 196, respondent NTC is empowered, among others, to
determine and prescribe rates pertinent to the operation of public service communications
which necessarily include the power to promulgate rules and regulations in
connection therewith.  And, under Section
15(g) of Executive Order No. 546, respondent NTC should be guided by the
requirements of public safety, public interest and reasonable feasibility of maintaining
effective competition of private entities in communications and broadcasting facilities.  Likewise, in Section 6(d) thereof, which
provides for the creation of the Ministry of Transportation and Communications
with control and supervision over respondent NTC, it is specifically provided
that the national economic viability of the entire network or components of the
communications systems contemplated therein should be maintained at reasonable rates.  We need not go into an in-depth analysis of
the pertinent provisions of the law in order to conclude that respondent NTC,
in the exercise of its rate-fixing power, is limited by the requirements of
public safety, public interest, reasonable feasibility and reasonable rates,
which conjointly more than satisfy the requirements of a valid delegation of legislative power.

II.  On another tack,
petitioner submits that the questioned order violates procedural due process
because it was issued motu proprio, without notice to petitioner and
without the benefit of a hearing. 
Petitioner laments that said order was based merely on an “initial
evaluation,” which is a unilateral evaluation, but had petitioner been
given an opportunity to present its side before the order in question was
issued, the confiscatory nature of the rate reduction and the consequent
deterioration of the public service could have been shown and demonstrated to
respondents.  Petitioner argues that the
function involved in the rate fixing-power of NTC is adjudicatory and hence
quasi-judicial, not quasi-legislative; thus, notice and hearing are necessary
and the absence thereof results in a violation of due process.

Respondents admit that
the application of a policy like the fixing of rates as exercised by
administrative bodies is quasi-judicial rather than quasi-legislative; that where
the function of the administrative agency is legislative, notice and hearing
are not required, but where an order applies to a named person, as in the
instant case, the function involved is adjudicatory.^[8] Nonetheless,
they insist that under the facts obtaining the order in question need not be
preceded by a hearing, not because it
was issued pursuant to
respondent NTC’s legislative function but because the
assailed order is merely interlocutory, it being an incident in the ongoing
proceedings on petitioner’s application for a certificate of public
convenience; and that petitioner is not the only primary source of data or
information since respondent is currently engaged in a continuing review of the rates charged.

We find merit in
petitioner’s contention.

In Vigan
Electric Light Co., Inc. vs. Public Service Commission,^[9] we made a categorical classification as to
when the rate-fixing power of administrative bodies is quasi-judicial and when
it is legislative, thus:

“Moreover, although the rule-making power and even the power
to fix rates – when such rules and/or rates are meant to apply to all
enterprises of a given kind throughout the Philippines
– may partake of a legislative character, such is not the nature of the order
complained of.  Indeed, the same applies
exclusively to petitioner herein.  What
is more, it is predicated upon the finding of fact – based upon a report
submitted by the General Auditing Office – that petitioner is making a profit
of more than 12% of its invested capital, which is denied by petitioner.  Obviously, the latter 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 the respondent.  In other words, in making said finding of
fact, respondent performed a function partaking of a quasi-judicial character,
the valid exercise of which demands previous notice and hearing.”

This rule was further
explained in the subsequent case of The Central Bank
of the Philippines vs. Cloribel,
et al.^[10] to wit:

“It is also clear from the authorities that where the function
of the administrative body is legislative, notice of hearing is not required by
due process of law (See Oppenheimer, Administrative Law, 2 Md. L.R. 185, 204,
supra, where it is said: ‘If the nature of the administrative agency is
essentially legislative, the requirements of notice and hearing are not
necessary.  The validity of a rule of
future action which affects a group, if vested rights of liberty or property
are not involved, is not determined according to the same rules which apply in
the case of the direct application of a policy to a specific individual’) x x x It is
said in 73 C.J.S. Public Administrative Bodies and Procedure, sec. 130, pages
452 and 453: ‘Aside from statute, the necessity of notice and hearing in an
administrative proceeding depends on the character of the proceeding and the
circumstances involved.  In so far as
generalization is possible in view of the great variety of administrative
proceedings, it may be stated as a general rule that notice and hearing are not
essential to the validity of administrative action where the administrative
body acts in the exercise of executive, administrative, or legislative functions;
but where a public administrative body acts in a judicial or quasi-judicial
matter, and its acts are particular and immediate rather than general and
prospective, the person whose rights or property may be affected by the action
is entitled to notice and hearing.'”^[11]

The order in question
which was issued by respondent Alcuaz no doubt
contains all the attributes of a quasi-judicial
adjudication.  Foremost is the fact that
said order pertains exclusively to petitioner and to no other.  Further, it is premised on a finding of fact,
although patently superficial, that there is merit in a reduction of some of
the rates charged – based on an initial evaluation of petitioner’s financial
statements – without affording petitioner
the benefit of an explanation as to what particular aspect or aspects of the
financial statements warranted a corresponding rate reduction.  No rationalization was offered nor
were the attending contingencies, if any, discussed, which prompted respondents
to impose as much as a fifteen percent (15%) rate reduction.  It is not far-fetched to assume that
petitioner could be in a better position to rationalize its rates vis-a-vis the viability of its business requirements.  The rates it charges result from an
exhaustive and detailed study it conducts of the multi-faceted intricacies
attendant to a public service undertaking of such nature and magnitude.  We are, therefore, inclined to lend greater
credence to petitioner’s ratiocination that an immediate reduction in its rates
would adversely affect its operations
and the quality of its service to the public considering the maintenance
requirements, the projects it still has to undertake and the financial outlay
involved.  Notably, petitioner was not
even afforded the opportunity to cross-examine the inspector who issued the
report on which respondent NTC based its questioned order.

At any rate, there
remains the categorical admission made by respondent NTC that the questioned
order was issued pursuant to its quasi-judicial
functions.  It, however, insists that
notice and hearing are not necessary since the assailed order is merely
incidental to the entire proceedings and, therefore, temporary in nature.  This postulate is bereft of merit.

While respondents may fix
a temporary rate pending final determination of the application of petitioner,
such rate-fixing order, temporary though it may be, is not exempt from the
statutory procedural requirements of notice and hearing, as well as the requirement of reasonableness. 
Assuming that such power is vested in NTC, it may not exercise the same
in an arbitrary and confiscatory manner. 
Categorizing such an order as temporary in nature does not perforce
entail the applicability of a different rule of statutory procedure than would
otherwise be applied to any other order on the same matter unless otherwise
provided by the applicable law.  In the
case at bar, the applicable statutory provision is Section 16(c) of the Public
Service Act which provides:

“Section 16. 
Proceedings of the Commission, upon notice and hearing.  – The Commission 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:

x x
x

(c) To fix and determine individual or joint rates, x x x which shall be imposed,
observed and followed thereafter by any public service; x x
x.”

There is no reason to assume that the aforesaid provision does
not apply to respondent NTC, there being no
limiting, excepting, or saving provisions to the contrary in Executive
Orders Nos. 546 and 196.

It is thus clear that
with regard to rate-fixing, respondent has no authority to make such order
without first giving petitioner a hearing, whether the order be temporary or
permanent, and it is immaterial whether the same is made upon a complaint, a
summary investigation, or upon the commission’s own motion as in the present
case.  That such a hearing is required is
evident in respondents’ order of September 16, 1987 in NTC Case No. 87-94 which
granted PHILCOMSAT a provisional
authority “to continue operating its existing facilities, to render the
services it presently offers, and to
charge the rates as reduced by them” under the condition
that “(s)ubject to hearing and the final consideration
of the merit of this application, the Commission may modify, revise or amend
the rates x x x.”^[12]

While it may be true that for purposes of rate-fixing respondents
may have other sources of information or data, still, since a hearing is
essential, respondent NTC should act solely on the basis of the evidence before
it and not on knowledge or information otherwise acquired by it but which is
not offered in evidence or, even if
so adduced, petitioner was given no opportunity to controvert.

Again, the order requires
the new reduced rates to be made effecive on a
specified date.  It becomes a final
legislative act as to the period during which it has to remain in force pending
the final determination of the case.^[13]
An order of respondent NTC prescribing reduced rates, even for a temporary period, could be unjust, unreasonable or
even confiscatory, especially if the rates are unreasonably low, since the
utility permanently loses its just revenue during the prescribed period.  In fact, such order is in effect final
insofar as the revenue during the period covered by the order is
concerned.  Upon a showing, therefore,
that the order requiring a reduced rate is confiscatory, and will unduly
deprive petitioner of a reasonable
return upon its property, a declaration of its nullity becomes indubitable,
which brings us to the issue on substantive due process.

III. Petitioner contends that the rate reduction is confiscatory
in that its implementation would virtually result in a cessation of its
operations and eventual closure of business. 
On the other hand, respondents assert that since petitioner is operating
its communications satellite facilities through a legislative franchise, as
such grantee it has no vested right therein. 
What it has is merely a privilege or license which may be revoked at
will by the State at any time without necessarily violating any vested property
right of herein petitioner.  While
petitioner concedes this thesis of respondent, it counters that the withdrawal
of such privilege should nevertheless be neither whimsical nor arbitrary, but
it must be fair and reasonable.

There is no question that petitioner is a mere grantee of a
legislative franchise which is subject to amendment, alteration, or repeal by
Congress when the common good so requires.^[14]
Apparently, therefore, such grant cannot be unilaterally revoked absent a showing that the termination of the
operation of said utility is required by the common good.

The rule is that the power of the State to regulate the conduct
and business of public utilities is limited by the consideration that it is not
the owner of the property of the utility, or clothed with the general power of
management incident to ownership, since the private right of ownership to such
property remains and is not to be destroyed by the regulatory power.  The power to regulate is not the power to
destroy useful and harmless enterprises, but is the power to protect, foster,
promote, preserve, and control with due regard for the interests, first and
foremost, of the public, then of the utility and of its patrons.  Any regulation, therefore, which operates as
an effective confiscation of private property
or constitutes an arbitrary or unreasonable infringement of property rights is
void, because it is repugnant to the constitutional guaranties of due process
and equal protection of the laws.^[15]

Hence, the inherent power
and authority of the State, or its authorized agent, to regulate the rates
charged by public utilities should be subject always to the requirement that
the rates so fixed shall be reasonable and just.  A commission has no power to fix rates which
are unreasonable or to regulate them arbitrarily.  This basic requirement of reasonableness comprehends
such rates which must not be so low as to be confiscatory, or too high as to be
oppressive.^[16]

What is a just and
reasonable rate is not a question
of formula but of sound business judgment based upon the evidence;^[17] it is a question of fact calling for the exercise
of discretion, good sense, and a fair, enlightened and independent judgment.^[18] In determining whether a rate is
confiscatory, it is essential also to consider the given
situation, requirements and opportunities of the utility.  A method often employed in determining
reasonableness is the fair return upon the value of the property to the public
utility.  Competition is also a very
important factor in determining the reasonableness of rates since a carrier is
allowed to make such rates as are necessary to meet competition.^[19]

A cursory perusal of the
assailed order reveals that the rate reduction is solely and primarily based on
the initial evaluation made on the financial statements of petitioner, contrary
to respondent NTC’s allegation that it has several
other sources of information without, however, divulging such sources.  Furthermore, it did not as much as make an attempt to elaborate on how
it arrived at the prescribed rates.  It just perfunctorily declared that based on
the financial statements, there is merit for a rate reduction without any
elucidation on what implications and conclusions were necessarily inferred by
it from said statements.  Nor did it
deign to explain how the data reflected in the financial statements influenced
its decision to impose a rate reduction.

On the other hand,
petitioner may likely suffer a severe drawback, with the consequent detriment
to the public service, should the order of respondent NTC turn out to be
unreasonable and improvident.  The
business in which petitioner is engaged is unique in that its machinery and equipment
have always to be taken in relation to the equipment
on the other end of the transmission arrangement.  Any lack, aging, acquisition, rehabilitation,
or refurbishment of machinery and equipment
necessarily entails a major adjustment or innovation on the business of
petitioner.  As pointed out by
petitioner, any change in the sending end abroad has to be matched with the
corresponding change in the receiving end in the Philippines. 
Conversely, any change in the receiving end abroad has to be
matched with the corresponding change in the sending end in the Philippines.  An
inability on the part of petitioner to meet the variegations demanded by
technology could result in a deterioration or total failure of the service of
satellite communications.

At present, petitioner is engaged in several projects aimed at
refurbishing, rehabilitating, and renewing its machinery and equipment in order
to keep up with the continuing changes of the times and to maintain its
facilities at a competitive
level with the technological advances abroad. 
These projected undertakings were formulated on the premise that rates
are maintained at their present or at reasonable levels.  Hence, an undue reduction thereof may
practically lead to a cessation of its business.  While we concede the primacy of the public
interest in an adequate and efficient service, the same is not necessarily to
be equated with reduced rates. 
Reasonableness in the rates assumes that the same is fair to both the
public utility and the consumer.

Consequently, we hold that the challenged order, particularly on
the issue of rates provided therein, being violative
of the due process clause is void and should be nullified.  Respondents should now proceed, as they
should heretofore have done, with the hearing and determination of petitioner’s
pending application for a certificate of public convenience and necessity and
in which proceeding the subject of rates involved in the present controversy, as well as other matters involved in
said application, may be duly adjudicated with reasonable dispatch and with due
observance of our pronouncements herein.

WHEREFORE, the
writ prayed for is GRANTED and
the order of respondents, dated September
2, 1988, in NTC Case No. 87-­94 is hereby SET ASIDE.  The temporary
restraining order issued under our resolution of September 13, 1988, as
specifically directed against the aforesaid order of respondents on the matter
of existing rates on petitioner’s present authorized services, is hereby made
permanent.

SO ORDERED.

Fernan, C.J., Narvasa,
Melencio-Herrera, Cruz, Paras,
Feliciano, Gancayco, Bidin,
Sarmiento, Cortes, Griño-Aquino,
and Medialdea,
JJ., concur.

Gutierrez, Jr., J., see
concurring opinion.

Padilla, J., no part in the
deliberations.

^[1]
Annex A, Petition; Rollo, 37.

^[2]
Rollo, 6-11, 137-139, 148-150.

^[3]
Ibid., 149.

^[4]
Annex C, Petition; Rollo, 48.

^[5]
Annex B, id.; ibid., 41.

^[6]
Rollo, 37.

^[7]
42 Am. Jur. 357-358.

^[8]
Memorandum for Private Respondents, 9-10; Rollo,
181-182.

^[9]
10 SCRA 46 (1964).

^[10]
44 SCRA 307 (1972).

^[11]
Citing Albert vs. Public Service Commission, 120 A. 2d. 346, 350-351.

^[12]
Rollo, 44.

^[13]
William A. Prendergast, et al. vs. New York Tel. Co., 67 L. Ed. 853,
858.

^[14]
Sec. 11, Art. XII,1987 Constitution.

^[15]
73 C.J.S. 1005.

^[16]
Op. cit., 1010.

^[17]
State Public Utilities Commission ex rel. City
of Springfield vs.
Springfield Gas & Electric Co., 125 N.E. 891.

^[18]
73 C.J.S. 1010.

^[19]
Manila Railroad Co. vs. A.L. Ammen
Transportation Co., Inc., 48 Phil. 900 (1926).

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