New definition of public utility

After a 10-month wait, the implementing rules and regulations (IRR) of Republic Act No. 11659, the law that redefines the meaning and scope of public utility services, are now in place.

The law amended the 85-year-old Public Service Act, which was the foundation of the 1987 Constitution’s provision that limits the operation of public utilities to Filipino citizens or organizations that are 60-percent owned by Filipinos.

Henceforth, the term “public utility” shall apply only to persons or entities that operate, manage or control the following services: (a) distribution of electricity (b) transmission of electricity, (c) petroleum and petroleum products pipeline transmission systems, (d) water and wastewater pipeline systems, (e) seaports and (f) public utilities vehicles.

The length of time it took to prepare the 43-page IRR is understandable because it involved 21 government offices and the modification of seven laws on the supervision of businesses engaged in public-oriented services.

The IRR also streamlined the processes and procedures that the government offices concerned should observe in the performance of their regulatory functions. Some of the “errors” that those offices had committed in the past in that area were straightened out.

Note that electricity, petroleum and water have a significant and direct impact on the daily life of majority of Filipinos, while seaports and public utility vehicles are their common means of transportation.

The IRR state that no business shall be considered a public utility unless that status is specifically provided for by law or the president, upon the recommendation of the National Economic and Development Authority that classifies a particular public service as a public utility.

The criteria for that recommendation include, among others, that the service or commodity being supplied or distributed is of public consequence, or the service or commodity is a natural monopoly that has to be regulated when required by the common good.

A natural monopoly exists when the service or commodity can be supplied by a single entity at a lower cost than two or more entities.

In what may considered as an admonition against regulatory overreach that some agencies are prone to engage in, the IRR states that they “shall not impose any nationality requirement on the public service not classified as a public utility.”

Notably, the IRR gave special mention to telecommunications services as a critical infrastructure, or a service that is so vital to the country that the incapacity or destruction of its systems or assets would have a detrimental effect on national security.

No other public service can be given that status unless declared by the president.

Since national security is at stake, the president may, upon the recommendation of the proper government agencies, suspend or prohibit any proposed merger, acquisition transaction or any investment that may effectively result in the grant of control, directly or indirectly, over that infrastructure to a foreigner or foreign corporation.

This means foreign investments in critical infrastructure, whether made individually or through various corporate investment schemes, or cumulative voting process, cannot avail of or enjoy voting rights that would enable them to manage or operate the business through their chosen executives or proxy.

In the enforcement of that prohibition, the “grandfather rule” on stock ownership (or examining the true ownership trail) may come into play.

The manner by which the national security review shall be conducted and the factors that have to be taken into consideration in making that recommendation are meticulously spelled out that it leaves no doubt about the seriousness of the government’s desire to make national security a top priority in the operation of critical infrastructure.

With the IRR now in force and effect, the ball is in the court of the government agencies concerned to make sure they are scrupulously implemented with the end in view of accomplishing the objectives of Republic Act No. 11659.

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