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

Philippine Communications Satellite Corporation versus Alcuaz

The Case

This is a petition filed directly with the Supreme Court by the Philippine Communications Satellite Corporation, known as PHILCOMSAT, against Commissioner Jose Luis A. Alcuaz of the National Telecommunications Commission and the Commission itself. PHILCOMSAT asks the Court to annul and set aside the Commissioner's order of September 2, 1988, which provisionally reduced by fifteen percent the rates it may charge for certain lines of its international satellite communications services, with a reservation to impose further reductions later. The petition rests on three grounds: that the enabling law delegates rate-fixing power without a sufficient standard, that the order was issued without notice and hearing in violation of procedural due process, and that the reduction is unjust and confiscatory in violation of substantive due process. The case matters because it is presented as one of first impression on the regulation of the only entity rendering such satellite services in the country, and because it draws the line between the quasi-legislative and quasi-judicial exercise of the rate-fixing power.

Procedural History

This is an original action in the Supreme Court, not an appeal from any lower court. There are no proceedings before a trial court or the Court of Appeals in the record. The controversy began before the National Telecommunications Commission, where PHILCOMSAT filed an application for authority to continue operating its facilities, to continue providing its services, and to charge its current rates, and where it was granted a provisional authority for six months, later extended for another six months. On September 2, 1988, the respondent Commissioner issued the assailed order extending that provisional authority once more but directing a fifteen percent reduction of the authorized rates. PHILCOMSAT then came directly to the Supreme Court by petition to annul that order.

Facts

By virtue of Republic Act No. 5514, PHILCOMSAT was granted a franchise to establish, construct, maintain and operate in the Philippines stations and associated equipment and facilities for international satellite communications, and the authority to construct and operate the ground facilities needed to deliver telecommunications services from the satellite system and ground terminals. Pursuant to that franchise it built its earth stations: a provisional station at Pinugay, Rizal in 1967; a standard A antenna, Pinugay I, in 1968, linking the Philippines with the Pacific Ocean Region; a second standard A antenna, Pinugay II, in 1971, linking it with the Indian Ocean Region; a standard B antenna, Pinugay III, in 1983, as a spare; a television receive-only earth station at Clark Air Field in 1983 for the United States military bases; and in 1989 a third standard A station, Pinugay IV, to replace the obsolescent Pinugay I. By designation of the Republic, PHILCOMSAT is also the sole Philippine signatory to the agreements of the International Telecommunications Satellite Organization and the International Maritime Satellite Organization.

Since 1968 PHILCOMSAT has been leasing its satellite circuits to the international carriers, among them the Philippine Long Distance Telephone Company, Philippine Global Communications, Eastern Telecommunications Philippines, Globe Mackay Cable and Radio, and Capitol Wireless, enabling them to serve the public with overseas telephone, telex, facsimile, telegrams, high speed data and live television. Under Section 5 of Republic Act No. 5514 it was exempt from the jurisdiction of the then Public Service Commission, now the National Telecommunications Commission. Executive Order No. 196, issued on June 17, 1987, placed it under the jurisdiction, control and regulation of the Commission, including the fixing of rates.

Implementing that Executive Order, the Commission required PHILCOMSAT to apply for a certificate of public convenience and necessity and for authority to charge rates. On September 9, 1987 PHILCOMSAT filed its application, and on September 16, 1987 it was granted a provisional authority to continue operating, to render its services, and to charge its then current rates, valid for six months and later extended to September 16, 1988. The order now in controversy extended that provisional authority for another six months but directed a fifteen percent reduction of the authorized rates, on the ground that an initial evaluation by the Rates Regulation Division of the financial statements showed merit in a reduction, subject to further reductions. The order was issued without prior notice to PHILCOMSAT and without hearing.

Issues

• Whether or not Executive Orders Nos. 546 and 196 suffer from undue delegation of legislative power for failing to provide a sufficient standard for the exercise of the rate-fixing power.
• Whether or not the assailed order, issued without notice and hearing, violates procedural due process.
• Whether or not the fifteen percent rate reduction is unjust, unreasonable and confiscatory, and therefore violative of substantive due process.

Applicable Provisions

Section 16 of the Public Service Act, which the Court holds applicable to the National Telecommunications Commission, 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.

This provision supplies the statutory requirement of notice and hearing that the Commission failed to observe, and it applies because Executive Orders Nos. 546 and 196 contain no limiting, excepting or saving provisions to the contrary.

Ruling

On the first issue, the Court holds that there is no undue delegation. Delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature has prescribed the manner of its exercise. In the delegation of rate-fixing power, the only standard the legislature is required to prescribe is that the rate be reasonable and just, and even in the absence of an express requirement of reasonableness, that standard may be implied. Here the Commission is guided by the requirements of public safety, public interest, reasonable feasibility of maintaining effective competition, and reasonable rates, which conjointly more than satisfy the requirements of a valid delegation.

On the second issue, the Court rules for PHILCOMSAT. The rate-fixing power, when exercised on a particular person, is quasi-judicial, not quasi-legislative, and the valid exercise of a quasi-judicial function demands previous notice and hearing. The assailed order pertains exclusively to PHILCOMSAT and rests on a finding of fact, although patently superficial, drawn from an initial evaluation of its financial statements, without any explanation of what warranted the reduction and without opportunity to cross-examine the maker of the report. The Court rejects the argument that the order is merely interlocutory and therefore exempt, holding that a temporary rate-fixing order is not exempt from the statutory requirements of notice and hearing and of reasonableness, and that categorizing an order as temporary does not entail a different rule of statutory procedure.

On the third issue, the Court holds that the power to regulate is not the power to destroy useful and harmless enterprises, and that any regulation operating as an effective confiscation of private property is void as repugnant to due process and equal protection. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily; reasonableness comprehends rates not so low as to be confiscatory nor too high as to be oppressive. What is a just and reasonable rate is not a question of formula but of sound business judgment based upon the evidence. The assailed order merely declared, on the basis of the financial statements, that there was merit in a reduction, without elucidation of how the prescribed rates were reached.

Doctrine

First, a delegation of rate-fixing power is valid if the legislature prescribes that the rate be reasonable and just, and this standard may be implied even absent an express requirement. Second, where the rate-fixing order applies to a named person and rests on a finding of fact, the function is quasi-judicial and demands prior notice and hearing; where it applies generally to all enterprises of a given kind, it is legislative and notice and hearing are not required. Third, a temporary or provisional rate-fixing order is not exempt from the statutory requirements of notice and hearing and of reasonableness. Fourth, the regulatory power is not the power to destroy; a rate so low as to be confiscatory is void for violating due process.

Disposition

The Court granted the petition and annulled and set aside the assailed order of the respondent Commissioner for having been issued without notice and hearing and for being confiscatory.

Remember This

Memorize the line that the power to regulate is not the power to destroy, and that a rate-fixing order against a named utility is quasi-judicial and requires notice and hearing even when temporary. Examiners use this case to test the distinction between quasi-legislative and quasi-judicial rate-fixing, the standard for a valid delegation of rate-fixing power, and the requisites of procedural and substantive due process in utility regulation.