Exclusive Franchises and Public Utilities: Constitutional Limits in the Philippines

The Constitution is clear: no franchise for the operation of a public utility may be exclusive in character. In Tawang Multi-Purpose Cooperative v. La Trinidad Water District (G.R. No. 166471, March 22, 2011), the Supreme Court En Banc applied this rule strictly, declaring Section 47 of Presidential Decree No. 198 unconstitutional. The ruling is a reminder that even a law designed to protect government-owned utilities cannot override an express constitutional prohibition.

The Facts of the Case

Tawang Multi-Purpose Cooperative (TMPC), a cooperative registered with the Cooperative Development Authority, sought to provide domestic water services in Barangay Tawang, La Trinidad, Benguet. In 2000, TMPC applied for a certificate of public convenience (CPC) with the National Water Resources Board (NWRB) to operate a waterworks system in the barangay.

La Trinidad Water District (LTWD), a local water utility created under PD No. 198, opposed the application. LTWD invoked Section 47 of PD No. 198, which granted water districts an "exclusive franchise" over water service within their districts. Under this provision, no other franchise could be granted within the district unless the water district's board of directors consented.

The NWRB granted TMPC's application, ruling that exclusive franchises are unconstitutional. On appeal, the Regional Trial Court reversed, holding that Section 47 was valid. The case reached the Supreme Court.

The Constitutional Prohibition on Exclusive Franchises

The Court traced the prohibition through three constitutions. The 1935 Constitution, the 1973 Constitution, and the 1987 Constitution all contain the same command: no franchise, certificate, or authorization for the operation of a public utility shall be exclusive in character.

The Court emphasized that this prohibition is absolute and admits no exception. When the law is clear, there is nothing for courts to do but apply it. The exact wording of the constitutional provisions is not reproduced in the library materials, but the Supreme Court's decision in this case confirms that the prohibition appears in all three constitutions.

Why Section 47 Was Unconstitutional

The Court applied a basic legal maxim: what cannot be done directly cannot be done indirectly. The President, Congress, and the courts cannot directly create exclusive franchises. Therefore, they cannot do so indirectly by delegating that power to others.

Section 47 of PD No. 198 allowed the board of directors of a water district and the Local Water Utilities Administration (LWUA) to create exclusive franchises. The provision stated that no franchise shall be granted to any other person or agency within the district unless the board consents. This gave the board and LWUA the discretion to create franchises that are exclusive in character—a power that even Congress itself cannot exercise.

The Court noted that the board of directors is not a legislative body but simply a management board. Neither the board nor the LWUA can be granted the power to create an exception to an absolute constitutional prohibition.

The Court also rejected arguments based on police power. Police power is the power to make laws not repugnant to the Constitution. It does not include the power to violate the Constitution. As the Court held, "any act, however noble its intentions, is void if it violates the Constitution."

The Effect of the Ruling

The Court declared Section 47 of PD No. 198 unconstitutional and reinstated the NWRB's decision granting TMPC's CPC. The ruling followed the earlier case of Metropolitan Cebu Water District v. Adala (G.R. No. 168914, July 4, 2007), which had already declared Section 47 void.

The decision confirms that water districts cannot claim exclusive rights over water service in their territories. Other qualified entities may apply for and receive certificates of public convenience to operate water systems, even within a water district's service area.

Practical Takeaways

• Exclusive franchises are unconstitutional. No franchise, certificate, or authorization for operating a public utility may be exclusive in character, under any circumstances.
• Delegation does not cure unconstitutionality. The government cannot do indirectly—through agencies, boards, or corporations—what the Constitution prohibits it from doing directly.
• Water districts have no monopoly. Local water districts cannot block other qualified providers from obtaining certificates of public convenience within their service areas.
• Police power has limits. The State's regulatory power cannot be used to justify a law that violates an express constitutional command.
• Constitutional supremacy prevails. Any law that conflicts with the Constitution, no matter how well-intentioned, is null and void.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.