Revised concept of ‘public utility’

After 85 years, the Public Service Act (or Commonwealth Act No. 146), the law that governs the operation of public utilities and services in the country, would soon be amended to put it in step with the needs of the times.

During all these years, the term “public service” has been equated with or synonymous to “public utility” or service offered by private businesses to the public for a fee.

Under our Constitution, only Filipino citizens or corporations that are 60-percent owned by Filipino citizens may be given a franchise or authority to operate a public utility.

But, for unknown reasons, the framers of the Constitution did not define the meaning and scope of public utility.

That omission has resulted in public utility being construed by government regulators, including the courts, as anything that has to do with or is related to public service.

As the two terms have been used interchangeably, the nationality requirement on who can own and operate them has been similarly applied. In the process, foreign investors have been discouraged from investing in businesses engaged in providing basic services to the public.

A bill pending in Congress, which President Duterte has certified as urgent, seeks to alter the framework in which public utilities have, by force of habit or tradition, been looked at for ages.

The bill defines a public utility as “a person that operates, manages and controls for public use any of the following: distribution of electricity, transmission of electricity, and water and sewerage pipelines systems.”

All other forms of public service, such as transportation and telecommunication, are excluded from that classification unless Congress decides otherwise in the future.

Distribution of electricity refers to the conveyance of electric power by a distribution utility through its distribution system, an activity that is presently being done, for example, by Meralco.

On the other hand, transmission of electricity refers to the conveyance of electricity through high voltage backbone systems. The National Grid Corp. of the Philippines, the successor to the defunct National Power Corporation, fits this bill.

For water and sewerage systems, think of Manila Water Co. and Maynilad Water Services, Inc. as examples of this form of public utility.

Although given special mention, the three public utilities shall remain covered by the requirement on Filipino ownership of their capital stock.

From the regulatory perspective, those three are considered or treated as “natural monopolies” because they require huge startup and operational costs and so, by economies of scale, they often dominate their target market.

Although there is no legal prohibition on enterprising businesspeople putting up competing companies, very few do that because of the business risks involved.

The net effect to businesses that are not included in the definition of a public utility is, they will no longer be constrained by the nationality requirement on ownership in soliciting and accepting foreign investments.

The nonpublic utility businesses can take on as much foreign investments as their capital stock permits or as their operations may need. Subject to existing regulations, they can be fully owned, managed and operated by foreigners.

Thus, for example, in the case of telecommunications, Globe Telecoms, PLDT Inc. and Dito Telecommunity Inc. can solicit and accept foreign investments over and beyond the existing 40-percent cap on foreign ownership to enable them to improve or expand their services.

The sponsors of the bill have expressed confidence the redefinition of the concept of public utility would encourage foreign investments in nonpublic utility businesses.

Whether that expectation would come to fruition when the bill becomes law would depend largely on the quality of the implementing rules and regulations the concerned government offices would promulgate.

Some of them may not be happy about losing the powers they have over public utility or public service companies. INQ

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