The Supreme Court upheld the constitutionality of Sections 10 and 17 of Republic Act No. 11212, allowing MORE Electric and Power Corporation to exercise eminent domain over Panay Electric Company’s distribution assets. This decision affirmed the legislature’s power to prioritize continuous electricity supply, even when it involves the expropriation of existing private assets for the same public purpose, emphasizing the distinct public interest during a franchise transition. This ruling clarifies the balance between public necessity and private property rights in the context of public utilities.

Power Struggle: Can a New Franchisee Expropriate an Existing Utility’s Assets?

In Iloilo City, a battle unfolded between MORE Electric and Power Corporation (MORE) and Panay Electric Company, Inc. (PECO), testing the limits of eminent domain and constitutional protections. At the heart of the dispute was Republic Act No. 11212, which granted MORE a franchise to operate in Iloilo City and authorized it to expropriate PECO’s existing distribution system. PECO, the incumbent utility with a franchise dating back to 1922, argued that this amounted to an unconstitutional corporate takeover. The legal question: Can a new franchisee use eminent domain to seize the assets of a prior operator, even if those assets are already dedicated to public use?

The central issue revolved around whether Sections 10 and 17 of R.A. No. 11212, which granted MORE the power of eminent domain, violated PECO’s rights to due process and equal protection. PECO contended that the law facilitated an unconstitutional corporate takeover by allowing MORE to expropriate assets already dedicated to public use. MORE, on the other hand, argued that expropriation was necessary to ensure the uninterrupted supply of electricity during the transition period between the old and new franchise holders.

The Regional Trial Court initially sided with PECO, declaring Sections 10 and 17 unconstitutional. The RTC reasoned that the law authorized expropriation without a genuine public necessity, serving instead as a tool for corporate greed. Furthermore, it found that the law violated equal protection by granting MORE unprecedented authority to exercise eminent domain even at the stage of establishing its services, an advantage not afforded to other distribution utilities.

However, the Supreme Court reversed this decision, declaring Sections 10 and 17 constitutional. The Court emphasized that the power of eminent domain is inherent in a sovereign state and is not exhausted by use. The Court recognized that the expropriation served a distinct and genuine public purpose: ensuring the continuous and uninterrupted supply of electricity to Iloilo City during the transition from PECO to MORE. This distinct purpose justified the taking, even though the property was already devoted to a related public use.

The Court also addressed concerns about equal protection, stating that MORE was uniquely situated compared to other distribution utilities. MORE faced the challenge of establishing its services in an area already burdened by an existing distribution system. The Court noted that the end-users in Iloilo City had effectively paid for the existing distribution system through their electricity charges, thus entitling them to its continued application to public use. These factors, the Court reasoned, justified the differential treatment afforded to MORE.

The decision in *MORE Electric and Power Corporation v. Panay Electric Company, Inc.* hinged on several key legal principles. The Court reiterated the four essential requirements for a valid exercise of eminent domain: a valid delegation of authority, a defined public use, a prior tender of a valid offer to the property owner, and payment of just compensation. The Court emphasized that although the legislature defines public use, the courts retain the power to review whether such use is genuine and public, applying the standards of due process and equal protection.

The Supreme Court’s decision also underscored the historical context of PECO’s franchise and the government’s reserved right to expropriate the distribution system. Previous legislative franchises governing the distribution system in Iloilo City had provisions allowing the government to exercise eminent domain for electricity distribution. The Court noted that PECO had never questioned the constitutionality of these provisions. This history supported the Court’s conclusion that PECO’s distribution system was not ordinary private property but was subject to the public interest of electricity distribution.

What is eminent domain?	Eminent domain is the inherent power of a sovereign state to take private property for public use, provided just compensation is given to the owner.
What were the constitutional issues in this case?	The primary issues were whether Sections 10 and 17 of R.A. No. 11212 violated PECO’s rights to due process and equal protection under the Philippine Constitution.
What was the RTC’s initial ruling?	The Regional Trial Court initially ruled that Sections 10 and 17 of R.A. No. 11212 were unconstitutional, characterizing them as an illegal corporate takeover.
How did the Supreme Court rule?	The Supreme Court reversed the RTC’s decision, declaring Sections 10 and 17 of R.A. No. 11212 constitutional, asserting that they served a genuine public purpose.
What was the public purpose cited by the Court?	The Court cited the protection of public interest by ensuring the uninterrupted supply of electricity during the transition from PECO to MORE as a distinct public purpose.
Why was MORE treated differently from other utilities?	MORE was considered uniquely situated because it was a new franchise holder entering an area with an existing distribution system, necessitating a different approach to ensure service continuity.
What is ‘just compensation’ in eminent domain cases?	Just compensation refers to the full and fair equivalent for the loss sustained by the owner whose property is expropriated, typically based on the property’s market value.
Did the Court consider the end-users’ interests?	Yes, the Court recognized that end-users had a stake in the uninterrupted operation of the distribution system, as they had been paying charges to enable PECO to recover its investments.

Ultimately, the Supreme Court’s decision clarified the extent to which the government can utilize eminent domain to facilitate the transition of public services, emphasizing the importance of uninterrupted service during such transitions, a perspective that balances public needs and private rights. This case serves as a landmark in understanding the parameters of eminent domain in the context of public utilities in the Philippines.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: MORE Electric and Power Corporation vs. Panay Electric Company, Inc., G.R. No. 248061, September 15, 2020