G.R. No. 119310 - Esguerra vs. Court of Appeals

The case involves the petitioners Philippine Long Distance Telephone Company (PLDT) and Manila Electric Company (Meralco) challenging the method of computing supervision and/or regulation fees under Section 40(e) of the Public Service Act, as amended by Section 5 of Republic Act 3792.
Section 40(e) authorizes the collection of fees at the rate of twenty centavos for every one hundred pesos or fraction thereof. The computation is, in principle, based on:

For stock corporations: the capital stock subscribed or paid.
For non-stock corporations: the capital invested or, alternatively, the property and equipment, whichever is higher.

The Court’s prior decision (August 31, 1970) had already set a framework for computing these fees and affirmed the position of the Public Service Commission (PSC), later succeeded by the Specialized Regulatory Boards (SRB).

The Supreme Court modified its earlier decision by holding that when the alternative basis (“property and equipment”) is used, the computation should be done net of depreciation.
The petitioners filed a second motion for reconsideration asserting that the amendment did not change the original computation basis for stock corporations; that is, fees should still be computed solely on the capital stock subscribed or paid.
The SRB, in its submissions, argued that:

Section 40(e) is intended as a regulatory fee for supervision and regulation—not a tax measure aimed at generating revenue.
Interpreting the amendment as a tax measure would lead to results that are confiscatory and contrary to public interest, given the excessive burden it would impose.

A stipulation of facts was submitted by both parties setting forth detailed evidence including:

The computed fees based on the gross value of properties and equipment in service for the years 1964 to 1974.
A comparison with fees actually collected on the basis of outstanding capital stock.
The significant disparity in amounts if the alternative basis (“property and equipment”) were employed.
The accumulation of surplus funds (e.g., over P28 million as of June 30, 1974) from fees collected under the existing method.

How fees would have differed considerably if based on the gross value of properties and equipment (even when net of depreciation) versus the outstanding capital stock.
The extreme impact on the petitioners, with projected increases that could be as high as 10 times over prior collections if the alternative basis were applied.

The two petitioners contributed approximately 15% of the total fees collected from over 14,637 public utility operators.
Such a disproportionate contribution did not correlate with the level of supervision or regulatory service rendered.

The statute expressly states the fee is for the “reimbursement of expenses incurred by the Commission in the supervision of other public services and/or in the regulation or fixing of their rates.”
The legislative intent, as underscored by the explanatory notes accompanying RA 3792, was:

To double the applicable fee rate (from ten centavos to twenty centavos) without altering the underlying basis for computation for stock corporations.
To avoid imposing an undue and confiscatory burden that might discourage the expansion or improvement of facilities by public utilities.

Earlier decisions treated the fees as regulatory fees.
The “in lieu of” provisions in the franchise agreements for companies like Meralco and PLDT support their classification as regulatory in nature.

The amendment did not alter the traditional computation base (capital stock subscribed or paid) for stock corporations.
Adopting the alternative computation (property and equipment) would be inequitable and contrary to the original legislative intent.

Interpreting the fees as a tax measure would have self-defeating and adverse consequences on public interest.
The statutory language and accompanying legislative history make it clear that the fees are for reimbursement purposes related to regulation and supervision.
There exists ample evidence under the current scheme (based on capital stock) to finance the necessary administrative operations without resorting to the alternative computation.

Whether the amended Section 40(e) of the Public Service Act should allow the computation of the supervisory fees based on the property and equipment (net of depreciation) as an alternative to the capital stock subscribed or paid for stock corporations.

Whether the fees imposed under Section 40(e), as amended by RA 3792, constitute a tax measure or represent regulatory/supervisory fees intended to reimburse the Commission’s expenses.

Whether employing the alternative computation based on the property and equipment (even when net of depreciation) would result in excessive (confiscatory) fees, thereby impeding the expansion and improvement of public utilities.

Whether there exists a reasonable relation between the fee amounts collected and the actual costs incurred in the supervision and regulation of public services.