G.R. No.

141314, April 9, 2003,

Republic of the Philippines, by ERB, petitioner, v. Manila Electric Company, respondent
Puno

Facts:
 This case pertains to the MERALCO filed a Motion for Reconsideration, arguing against the deduction of
income tax from revenues for rate determination and the application of the "net average investment method"
for property valuation

 At first, the MERALCO filed with ERB an application for revised rates on its distribution charge.

 Eventually granted by ERB with conditions for a possible refund if an overcharge was determined.

 The COA conducted an audit and recommended that:

 income taxes paid by MERALCO should not be included in operating expenses,
 and net average investment method for property valuation.

 Thereafter, The ERB adopted these recommendations

 MERALCO argues that the deduction of all kinds of taxes is based on the American Jurisprudence.

 Hence, an appeal filed before the Supreme Court.

Issue on Police Power:

Whether or not the ERB adoption of COA’s recommendation is aligned to protect the public interest or general
welfare.

Supreme Court Ruling:

Yes, the ERB's adoption of the COA's recommendations aligns with protecting the public interest or general
welfare by ensuring that MERALCO's rates are fair, justifiable, and based on accurately reported financial data.

The Supreme Court denied MERALCO's Motion for Reconsideration with finality. It upheld the ERB's decision to
exclude income taxes from operating expenses and endorsed the use of the "net average investment method"
for property valuation.

Based on the COA’s audit, even if the income tax is to be included as an operation expense, the MERALCO would
still achieve a return within the 12% rate allowed.

This approach guarantees that MERALCO earns a reasonable return without overcharging customers

The Supreme Court reasoned that the regulatory body's decisions, based on technical expertise, were supported
by substantial evidence and were in line with protecting the public interest.

Lastly, the Supreme Court was not convinced by Meralco's argument for the use of tax deduction on public utility
based on American jurisprudence. These regulatory practices are not automatically binding in the Philippines'
jurisdiction