Manila Electric Company

February 25, 1998 PSE CIRCULAR FOR BROKERS NO. 216-98 SUBJECT : Manila Electric Company Attached herewith is a copy of SEC Form 11-C filed by Manila Electric Company ("MER") with the Securities and Exchange Commission on February 23, 1998 regarding its Petition for Review (with application for a Temporary Restraining Order and/or Writ of Preliminary Injunction) filed before the Court of Appeals against the Energy and Regulatory Board. LLphil A copy of Meralco's Petition to the Court of Appeals is available for reference at the PSE Library. For your information. (SGD.) MA. ISABEL T. GARCIA Head, Listing and Disclosures Group SECURITIES AND EXCHANGE COMMISSION SEC FORM 11-C CURRENT REPORT UNDER SECTION 11 OF THE REVISED SECURITIES ACT (RSA) AND RSA RULE 11(a)-1(b)(3) THEREUNDER 1. Date of this Report February 23, 1998 2. SEC Identification Number PW-102 3. BIR Tax Identification Number 350-000-101-528 4. Name of Registrant as specified in its Charter Manila Electric Company 5. Country of Incorporation Philippines 6. Industry Classification (SEC use only) 7. Address Lopez Building, Ortigas Avenue, Pasig City 8. Telephone Numbers (632) 631-5571 and (632) 631-5572 9. Former name or former address Not applicable 10. Securities registered pursuant to Sections 4 and 8 of RSA: Title of Each Class Number of Shares of Common Stock Outstanding Class "A" 502,252,218 Class "B" 334,910,173 Total 837,162,391 ========= 11. Item Number reported 5 Item 5. LEGAL PROCEEDINGS TO WHICH MERALCO IS A PARTY On February 16, 1998, the Energy Regulatory Board (ERB) rendered a Decision, the dispositive portion of which states "WHEREFORE, premises considered, the Board hereby authorizes applicant Manila Electric Company to adopt and implement a rate adjustment in the average amount of P0.017 per kilowatthour, effective with respect to applicant's billing cycles beginning February 1994. Accordingly, the provisional relief in the amount of P0.184 per kilowatthour granted under the Board's Order dated January 28, 1994 is hereby superseded and modified and the excess average amount P0.167 per kilowatthour starting with the applicant's billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to applicant's customers or correspondingly credited in their favor for future consumption. For purposes of refund, applicant MERALCO is hereby directed to submit to this Board, within ten (10) days from receipt hereof, the following data: kilowatthour sales statistics on a per customer class from February 1994 to February 1998, bill frequency for 1997 and other pertinent data that are necessary to implement the directives contained in this Decision." On February 23, 1998, Meralco filed before the Court of Appeals CA-G.R. No. 46888 (ERB Case No. 93-118) A Petition for Review (with application for a Temporary Restraining Order and/or Writ of Preliminary Injunction) on the ground that said ERB decision is without legal and factual basis, and is contrary to law and jurisprudence, particularly prevailing decisions and ruling of the ERB itself. LLphil Copy of Meralco's Petition to the Court of Appeals is herewith attached. SIGNATURE Pursuant to the requirements of the Revised Securities Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MANILA ELECTRIC COMPANY Registrant (SGD.) ATILANO S. GUEVARRA, JR. Assistant Corporate Secretary MANILA ELECTRIC COMPANY, petitioner, vs. ENERGY REGULATORY BOARD, TRADE UNION CONGRESS OF PHILIPPINES, KILUSANG MAYO UNO LABOR CENTER-NCR, FEDERATION OF CONCERNED ORGANIZATIONS OF BALUT, BAGONG ALYANSANG MAKABAYAN, LAWYERS AGAINST MONOPOLY AND POVERTY, RAUL T. CONCEPCION, PHILIPPINE EXPORTERS CONFEDERATION, INC., GENARO LUALHATI, PHILIPPINE CONSUMERS FOUNDATION, INC., CESAR K. ESCOSA AND COMMISSION ON AUDIT, respondents. PETITION FOR REVIEW (with application for a Temporary Restraining Order and/or Writ of Preliminary Injunction) COMES NOW petitioner, by counsel and to this Honorable Court most respectfully states: That I NATURE OF THE PETITION This is a petition for review pursuant to Executive No. 172 as modified by Supreme Court Circular No. 1-91 and Rule 43 of the Revised Rules of Court of the Decision of respondent Energy Regulatory Board (ERB) dated February 16, 1998, in ERB Case No. 93-118 entitled "In Re: Application for Approval of Revision of Rate Schedules and Appraisal of Properties with Provisional Authority, Manila Electric Company, Applicant". Said decision is without legal and factual bases, and is contrary to law and jurisprudence, particularly prevailing decisions and rulings of the ERB itself. A certified true copy of the ERB Decision is hereto attached as Annex "A". II TIMELINESS OF THE PETITION A copy of the ERB Decision was received by the undersigned counsel on February 17, 1998. III THE PARTIES 1. Petitioner (MERALCO) is a corporation duly organized and existing under Philippine laws, and may be served with processes of this Court through the undersigned Law Firm. 2. Public respondent ERB is a quasi-judicial agency, with office address at the Pacific Center, San Miguel Avenue, Pasig City, where it may be served with processes of this Court. 3. Public respondent Commission on Audit (COA) is the governmental auditing agency, with office address at Don Mariano Marcos Avenue, Quezon City, where it may be served with processes of this Court. 4. The following private respondents are oppositors in ERB Case No. 93-118, who may be served with processes of this Court at their respective addresses: a. Trade Union Congress of the Philippines, Quezon Memorial Circle corner Maharlika Avenue, Diliman, Quezon City; b. Kilusang Mayo Uno Labor Center-NCR, Room 427 FEMII Building, Don Andres Soriano Avenue corner Cabildo Street Intramuros, Manila; c. Federation of Concerned Organizations of Balut, 234 Nepa Street, Balut, Tondo, Manila; d. Bagong Alyansang Makabayan, Suite 911, National Life Insurance Building, Ayala Avenue, Makati City; e. Lawyers against Monopoly and Poverty, Suite 6-D, 6th Floor, G.E. Antonino Building, T.M. Kalaw, Manila; f. Raul T. Concepcion c/o Bengzon Zarraga Narciso Cudala Pecson Bengson and Jimenez, 6th Floor, SOL Building, Amorsolo Street, Legaspi Village, Makati City; g. Philippine Exporters Confederation, Inc., the Ground Floor, Southside, Philippine International Convention Center, Roxas Boulevard, Manila; h. Genaro Lualhati, 106 Lapu-lapu (Tanguile), Parang, Marikina City; i. Philippine Consumers Foundation, Inc. and Jose Elpidio O. Isip, 1145-B Antipolo Street, Rizal Village, Makati City; and j. Cesar K. Escosa, P.O. Box AC-459 Cubao, Quezon City. IV STATEMENT OF FACTS AND OF THE CASE 1. On December 28, 1993, MERALCO filed with the ERB an Application for the approval of its revised rate schedules (Application), which reflects an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The application was docketed as ERB Case No. 93-118. The said rate schedules, as applied to the rate base of MERALCO for the test year 1993, will result in a rate of return equivalent to 10.5%, well within the 12% rate of return allowed in this jurisdiction. In the Application, MERALCO prayed for a provisional approval thereof pursuant to Section 16(c) of the Public Service Act and Section 8 of Executive Order No. 172. A certified true copy of the Application is hereto attached as Annex "B". 2. On January 28, 1994, the ERB issued an Order provisionally approving an 18.4 centavo increase in MERALCO's rates, which corresponds to a 10% return on MERALCO's rate base. In the said Order, the ERB set the Application for initial hearing on January 31 and February 1, 1994. Moreover, in the same Order, the ERB requested the COA to cause an audit and examination of MERALCO's books and other records, and to submit a report to the ERB upon completion of the audit. A certified true copy of the ERB Order of January 28, 1994 is hereto attached as Annex "C". 3. On February 19, 1997, the ERB received from the COA its Audit Report SAO No. 95-07 (COA Report ), and set the said report for hearing. The COA had two major recommendations, one) to disallow MERALCO's income tax payments as part of operating expenses and two) to adopt the actual number of month's use method in computing rate base, thus rejecting the average investment method used by MERALCO. A certified true copy of the COA Report is hereto attached as Annex "D". 4. MERALCO presented testimonial and documentary evidence in support of its exceptions and objections to the COA Report, and prayed that it be granted a period of twenty (20) days within which to file a Memorandum in support of its exceptions/objections to the COA Report. Initially, the ERB denied MERALCO's motion to be given an opportunity to file said Memorandum. MERALCO moved for reconsideration and for admission of the Memorandum attached thereto. Upon reconsideration, the ERB admitted the Memorandum, wherein MERALCO clearly showed that the COA's disallowance of income tax as part of operating expenses has no legal basis, and that it is proper to use the net average investment method, rather than the actual month's use, in computing rate base. A certified true copy of the Motion and Memorandum is hereto attached as Annex "E". 6. On February 16, 1998, the ERB rendered the Decision, subject of this petition, the dispositive portion of which states "WHEREFORE, premises considered, the Board hereby authorizes applicant Manila Electric Company to adopt and implement a rate adjustment in the average amount of P0.017 per kilowatthour, effective with respect to applicant's billing cycles beginning February 1994. Accordingly, the provisional relief in the amount of P0.184 per kilowatthour granted under the Board's Order dated January 28, 1994 is hereby superseded and modified and the excess average amount P0.167 per kilowatthour starting with the applicant's billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to applicant's customers or correspondingly credited in their favor for future consumption. For purposes of refund, applicant MERALCO is hereby directed to submit to this Board, within ten (10) days from receipt hereof, the following data: kilowatthour sales statistics on a per customer class from February 1994 to February 1998, bill frequency for 1997 and other pertinent data that are necessary to implement the directives contained in this Decision." (page 60) 7. Thus, this Petition for Review. STATEMENT OF THE ISSUES INVOLVED 1. In the determination of a fair rate of return, is income tax payment included as part of operating expenses? 2. In computing the rate base for rate of return determination, is the use by MERALCO of the average investment method proper? 3. Was MERALCO denied procedural due process by the display of bias and prejudice by the members of the ERB when they announced to the media the overcharging claimed by them, even while they were still deliberating on the case? 4. Assuming the outlandish doctrines adopted by the ERB legally acceptable, can they be given retroactive effect? ARGUMENT ERB DISREGARDED BASIC LEGAL PRINCIPLES The ERB disregarded certain basic principles in Public Utility Law, particularly in rate-making. These are: 1. A public utility is entitled to a fair return on the rate base or a return based on an income upon its property (Arkansas Power and Light Co. v. Arkansas Public Service Commission, 226 Ark. 225, 289 SW 2d 668; 14 PUR 3d. 38; Nichols and Welch, Ruling Principles of Utility Regulations, Rate of Return Supplement A, 1964 ed., 1). Rates which are not sufficient to yield a fair or reasonable return on the value of the property being used to render public service are confiscatory and their enforcement deprives the public utility of its property in violation of the Constitution. (43 Am Jur 643) 2. In determining the sufficiency of the return or rate of return, the sum required by the public utility to meet its operating expenses must be considered, including its income tax payments (73 C.J.S. 1072). 3. In computing the rate base for rate fixing purposes, the accepted rule is the averaging method, that is, the sum of the beginning and ending values divided by two (Meralco v. Public Service Commission, 18 SCRA 651, 669; Republic v. Medina, 41 SCRA 643, 660). This is the method used by MERALCO. LLphil IN DISALLOWING INCOME TAX AS PART OF OPERATING EXPENSES, THE ERB DISREGARDED JUDICIAL AND ADMINISTRATIVE RULINGS, INCLUDING ITS OWN DECISIONS . The ERB ruling on income tax is based on a PSC decision which was set aside by the Supreme Court . The ERB, in the questioned Decision, states "The Board concurs with COA's position that by its very nature, income tax should be borne by stockholders who are recipients of the income or profits realized from the operation of their business instead of passing over to the rate payers the burden of paying the income tax by allowing it as an operating expense. Likewise, the Board is of the opinion that the income tax being a direct tax on MERALCO, it therefore cannot shift the burden of paying the tax to its consumers. In the case of Manila Electric Company vs . Pedro Gil, in cases nos . 85890, and 89893 , the PSC has ruled that 'income tax paid by MERALCO on the income derived from its municipal plant operation has also been disallowed by GAO based on a decision of this Commission entered in Case No. 2981 of the Philippine Power and Development Company on June 15, 1955. We are convinced that the very nature of income tax, the same should be borne by the stockholders who are the recipient of income or profits realized from the operation of their business instead of passing over to the rate payers the burden of paying the income tax by allowing it as an operating expenses. Every tax payer who is required under the law to pay the income tax pays the tax himself and does not shift the burden to another. MERALCO should be no exception, or any other utility for that matter, in shifting the burden of paying the income tax which is rightfully a tax on the income of the stockholders that compose the company to customers that are already burdened in paying in the form of rates all reasonable operating expenses and a reasonable profit of public utilities, and who may have their own income tax to pay. In this case , we agree with the view of the New York State Public Service Commission cited by MERALCO in the treatment of income tax as income deduction rather than as an operating expenses.'" (pages 58-59, ERB Decision; emphasis supplied). Thus, in the case below, the ERB disallowed income tax, amounting to P2,135,639,000.00 (page 52, ERB Decision), as part of MERALCOs operating expenses. As could be gleaned from the foregoing, the ERB solely relied on the PSC Decision, as the COA does, except that, in the latter's utter confusion, it referred to the PSC decision as a Supreme Court decision. The COA, in its report said: "This Office adopted the view that income taxes should be shouldered by the company's stockholders who are the recipient of income realized from the operations of the business based on Supreme Court decision on PSC-MERALCO Case Nos . 85889 , 85890, 89893 dated December 27, 1957." (Emphasis ours). Anyone reading this, will no doubt get the impression that the COA's view finds support in a "Supreme Court decision" affirming the PSC ruling. Records however indubitably show that this is not so. When the then Public Service Commission (PSC) rendered its decision in PSC Case Nos. 85889, 85890 and 89893 entitled "Manila Electric Company, Applicant; Dr. Pedro Gil, Petitioner," the MERALCO questioned it before the Supreme Court in "Manila Electric Company vs. Public Service Commission (Nos. L-13638-40, June 20, 1964; 11 SCRA 317). The following is a narration of the antecedent facts of that case, as made by the Supreme Court: "On March 10, 1955, the Manila Electric Company (Meralco for short), filed two applications with the Public Service Commission (Commission for short), one, for revision and reduction of its rates for commercial and other non-residential customers for general lighting, heating and/or power purposes (P.S.C. Case No. 85889) and the other for revision and reduction of its residential meter rate, schedule RM-3, (P.S.C. Case No. 85890). These applications were approved by the Commission in a decision rendered on September 24, 1955. On August 24, 1955, the Meralco filed another application for revision and reduction of its general power rate, Schedule GP-2 (P.S.C. Case No. 89293)., which was provisionally approved on August 31, 1955. Previous to these applications, Meralco filed seven (7) other applications for revision and reduction rates. On June 9, 1954, upon petition of Dr. Pedro Gil, the Commission requested the Auditor General to cause an audit and examination of Meralco's books of accounts. The General Auditing Office (GAO, for short) examined and audited the books and under date of May 11, 1956, it presented a report which was submitted to the Commission on May 28, 1956 (Annex Illegible of petition). On May 30, 1956, the Commission, thru Commissioner Feliciano Ocampo, reset the hearing of case Nos. 85889, 85890 and 89893, for June 22, 1956 "for the purpose of considering such further revision of applicant's rates as may be found reasonable." On said date, the parties appeared and Atty. Venancio L. de Peralta, Technical Assistant and Chief of the Finance and Rate Division of the Commission, who was duly authorized to receive the evidence of the parties, announced that the hearing was an "informal hearing", and its purpose was to hear any remarks or statements of the parties and to define the issues "so that at the hearing we know exactly what are disputed at this informal hearing". Dr. Pedro Gil submitted the 3 cases on the report of the GAO dated May 11, 1956 and on a letter dated June 7, 1956 he sent to the Commission, in which he asked the Commission, inter alia , to allow the Meralco "a rate of return of only 8% on its invested capital" (Annex "E", Petition). The Solicitor General submitted the case on the same report and letter of Dr. Gil and on a letter-report (4 pages) addressed by the Deputy Auditor General to the Commission on November 21, 1955. Other parties made common cause with Dr. Gil." (at 318-319, emphasis supplied) The respondents therein insisted that the court sustain the GAO Report, arguing xxx xxx xxx that the petitioner's objections to the GAO report are essentially legal and not factual in nature and deals merely with the application of rate-making and accounting principles; that the report of the GAO dated May 11, 1956 is admissible in evidence and the auditors who prepared it were not asked by petitioner to be cross-examined, as in fact, according to respondents, there was not even need to presenting them in evidence, as said reports formed part of the official records of the Commission (citing certain cases and CA No. 325); that no amount of oral testimonies could have changed the figures and matters appearing in the report of the GAO and the answer of the petitioner and their respective contentions., and that it is only when the Commission exercises its judicial functions that "proper notice and hearing" is required (Sec. 16, Public Service Act), but not when it exercises its legislative functions (Sec. 17, same Act)." The Supreme Court found "We have gone over the merits and demerits of the essays and beautiful theories advanced by the respondents, as stated above, but the cold fact remains, after a panoramic perusal of the record and circumstances surrounding these cases, that the petitioner had not been given its day in court." and then set aside the PSC decision thus: "WHEREFORE, we set aside the decision of the respondent Public Service Commission of December 27, ( Illegible portion in PSE file ) and the order of March 3, 1958, and remand the records of the above entitled case to the Commission for further proceedings, and to render judgment accordingly." A subsequent Supreme Court decision shows that ". . . on October 8, 1964, the PSC caused the three (3) cases (PSC Case Nos. 85889, 85890 and 89893) to be set for hearing on November 16, 1964. Earlier, or on October 15, 1964, the MERALCO had, however, moved to withdraw its aforementioned petitions for review of rates. After due hearing, this motion was granted on November 10, 1964." (Manila Electric Company vs. Public Service Commission and other related cases, 18 SCRA 651 , at 655)." As such, the PSC decision invoked by the ERB never regained any force and effect, and would have quietly reposed in oblivion, were it not for the COA's, and the ERB's misplaced adherence to it at this time. MERALCO could only wonder how the COA could say that its view on income tax "treatment of public utilities is based on a Supreme Court decision, and how the ERB could sustain the COA's view. If COA made this gross misrepresentation before this Honorable Court, it would have merited strong disciplinary action. If a quasi-judicial body, like the ERB, cited in main support of its decision, a ruling of an administrative agency that had been set aside by the Supreme Court, it also deserved castigation from this Honorable Court. Both the COA and the ERB should explain this act of irresponsibility , because they gave false hopes not only to the customers of MERALCO but to the customers of all other public utilities (electric, transportation, shipping, telephone, etc.). The prevailing rule is that income tax is allowed as part of operating expense 1. The very PSC decision in PSC Case Nos. 85889, 85890 and 89893 relied upon in the COA Report and the ERB Decision in support of their stand that the income tax shall be borne by the stockholders, repudiates that posture because the last sentence of the pertinent paragraph says: "In this case, we agree with the view of the New York State Public Service Commission cited by MERALCO in the treatment of income tax as income deduction rather than as operating expense ." (ERB Decision, p. 59, Annex "A", p. 7 this Petition). Both the ERB and the COA, by the very nature of their respective functions, are presumed to possess a high degree of competence in the field accounting. In this instance, one with just a nodding acquaintance with accounting would know that whether income tax is treated as an operating expense or as an "income deduction", the result is the same. 2. Notably, the COA itself entertained doubts as to the correctness of its position, vis-a-vis, the income tax issue. It said: "However, the ERB has jurisprudence in two cases (Case No. 89-416 dated June 1, 1992 for the First Philippine Industrial Corporation and Case No. 91-70 for the Cotabato Light and Power Co., Inc.) considering income taxes as operating expenses/expenses recoverable from consumers. . . . (COA Report). As a clear indication of its uncertainly, the COA even prepared two sets of computations of MERALCO's return on rate base (RORB) for the ERB to choose from, one allowing income tax as an operating expense, and another, disallowing such income tax as operating expense. 3. Particular note must also be taken of the fact that in 1990, MERALCO itself filed an application for rate adjustment before the Board, which was docketed as ERB Case No. 90-386. As shown by the Normalized Income Statement of MERALCO, which was adduced in evidence in said case as an exhibit, the Provision for Income Tax was included as part of operating expenses. Significantly, neither the COA, in a similar report to the ERB (SAO Report No. 91-31), nor the ERB, in its decision in the case, disallowed income tax as an expense. Hereto attached are a certified copy of the Normalized Income Statement of MERALCO as Annex "F", a certified copy of the COA Report (SAO Report No. 91-31) as Annex "G" and a certified copy of the ERB Decision in Case No. 90-386 as Annex "H". 4. Prior to the decision in question, the ERB has consistently allowed public utilities to include the income tax payments as part of their operating expenses. Various ERB decisions and orders attest to this, among which are those involving Cotabato Light and Power Co., Inc. (ERB Case No. 91-70, May 8, 1992), the First Philippine Industrial Corporation (ERB Case No. 89-416, June 1, 1992), Davao Light and Power Co., Inc. (ERB Case No. 92-105, October 4, 1995) and, as late as nine months ago, San Fernando Electric Light and Power Co., Inc. (ERB Case No. 97-11, June 2, 1997). In the Cotabato Light and Power Co ., Inc . case (supra) the ERB said: "In Galveston Elec . Co . v . Galveston , 258, U.S. 388, 399 (1922) and later, in Georgia Ry , & Power Co . v . Railroad Comm . of Georgia , 262 U.S. 625, 632-33 (1923), the Supreme Court of the United States decided that taxes of any and all kinds were operating costs rather than reductions of investors' returns. Speaking for the majority, Mr. Justice Brandeis said: 'In calculating whether the five-cent fare will yield a proper return, it is necessary to deduct from gross revenue the expenses and charges; and all taxes which would be payable if a fair return were earned are appropriate deductions. There is no difference in this respect between state and federal taxes or between income taxes and others ." (Emphasis supplied).' In practice, all kinds of taxes income, property, franchise, sales, and miscellaneous taxes are classified as reasonable costs of service and included in the rates paid by customers . They are accepted and acknowledged to be valid operating expenses before determining the amount of return or profit left over for the utility owners/operators. This means that utility taxes, as well as other utility operating expenses, are deductible from revenues prior to determined, the fair return to the allowed, which thus becomes the final step before actually fixing rates." (at pages 6-7, emphasis supplied) A certified true copy of the decision in ERB Case No. 91-70 is hereto attached as Annex "I". In the Davao Light and Power Co ., Inc . case (supra) the ERB said: "Likewise, the Board made a thorough analysis of the applicant's 1993 financial operation based on the records of the case, COA Report 93-18 and the Board's data. Normalization adjustments were effected to reflect in full the impact of the P0.25 increase." Again, the 35% provision for income tax of P54,401,867 . 00 was treated as operating expense . The value of the land and the generating set disallowed by COA were likewise not considered by the Board." (at page 13) A certified copy of decision in this case is hereto attached as Annex "J". In the San Fernando Electric Light and Power Co ., Inc . case (supra), the ERB said: "All kinds of taxes incurred by electric utilities are accepted and acknowledged as reasonable operating expenses and thus, can be recovered through the basic rates or recovery formula. This means that taxes as well as other operating expenses are deductible from revenues prior to determining the fair return for a particular period or the fair return to be allowed in case there is an application for rate adjustment and before finally fixing the rate." (at page 2) A certified copy the ERB order dated June 2, 1947 is hereto attached as Annex "K". It may be noted that one Board member (Hon. Melinda L. Ocampo), who signed this decision, allowing income tax as an operating expense, likewise signed the Decision in question. 5. The ERB in Cotabato Light and Power Co . , Inc . (supra) cited Galveston Electric Co . v . Galveston , 258 U.S. 388, 399 (1922) and Georgia Ry & Power Co . v . Railroad Commission of Georgia , 262 U.S. 625, 632-33 (1923), wherein the U.S. Supreme Court held that taxes of any and all kinds were operating costs. In Galveston : "In calculating whether the five-cent fare will yield a proper return, it is necessary to deduct from gross revenue the expenses and charges; and all taxes which would be payable if a fair return were earned are appropriate deductions. There is no difference in this respect between state and federal taxes or between, income taxes and others ." (Emphasis supplied). In Georgia Railway : "One objection relates to the Federal corporate income tax (10 percent) assumed to be $45,364. The commission treated the tax as a proper operating charge. The court disallowed it, and thus increased its estimate of probable net income. In this the court erred. Galveston Electric Co. v. Galveston, supra." 6. Prior to Executive Order No. 72, MERALCO had been paying all franchise taxes based on its gross income from operation. The franchise tax paid by MERALCO is called a commutative tax because it is "in lieu of all other taxes," and therefore includes all other taxes on its operation, including the income tax (Vicksburg Bank v. Worsel, 62 Miss. 47, 21A Words and Phrases 188). MERALCO therefore has been paying ever since income tax on its operation, only it is in the form of a franchise tax and it was computed on the basis of its gross income. From the beginning and for almost 100 years, MERALCO has been including the income tax payments, albeit in the form of franchise tax, as part of its operating expense. The COA, the PSC and the ERB never objected to nor disallowed this practice (see also, Republic vs. Medina, supra, where it was held that disallowance of franchise tax is improper). 7. When Executive Order No. 72 required public utilities with commutative franchise taxes to pay the regular corporate income tax under the Internal Revenue Code, and an additional burden was imposed on utility companies, what justification is there to depart from the settled doctrine that taxes of all forms, including income taxes, shall form part of operating expenses? 8. If, as the COA and ERB would have it, income tax is to be shouldered by the stockholders of the utility rather than absorbed by operations, then the two agencies would have effectively reduced the 12% rate, which no less than the Supreme Court has deemed fair and reasonable. 9. Legal authorities agree on the principle that income taxes are part of the operating expenses of a public utility. Oscar Pond commented: "As the court in the case of Contra Costa Water Company vs. Oakland, California, 165 Fed. 518, decided in 1704, said: 'The complainant undoubtedly has the right to receive from water rates an income which will enable it to pay its actual operating expenses, its taxes , its interest on its bonds or other indebtedness so far as that indebtedness represents money properly expanded in or upon its property, and to pay a reasonable dividend on its stock so far as the stock requests. Money actually received and so invested, and in addition thereto to receive a sum sufficient to cover the annual depreciation of its plant.'" (2 Public Utilities, 1073; emphasis supplied). To Richard J. Pierce, Jr. and Ernest Gellhorn, the raging controversy in Public Utility Law is not whether income tax should be charged as operating expense but rather the treatment of accelerated depreciation in computing the income tax to be charged to operation, thus: "When regulated firms first began to use accelerated depreciation for tax purposes, some regulatory agencies responded by requiring the firms to 'flow through' the tax advantages of accelerated depreciation in their rates. Under flow through, only the actual taxes paid by a firm are included in the firm's operating expenses . Thus , the tax advantages of accelerated depreciation accrue to the firm's customers rather than to the firm. Other regulatory agencies allowed firms to 'normalize' their annual tax liabilities in their operating expenses for rate making purposes. Under normalization, a firm's taxes are included in its operating expenses as if the firm were using straight line depreciation for tax purposes even though the firm actually uses accelerated depreciation . As a result, the firm, rather than its customers, obtains the tax advantages of accelerated depreciation when normalization is permitted." (Regulated Industries, 148-149, emphasis supplied). Corpus Juris Secundum says: "Taxes of whatever kind or nature to which the utility is subject in the performance of its duties, including taxes on real and personal property, state taxes on earnings, and federal income taxes , are to be considered as part of its operating expenses . . ." (73 C.J.S. 1072; emphasis supplied). Corpus Juris says: "Taxes to which the utility is subject in the performance of its public duties, including taxes on real and personal property, state taxes on earnings, and federal income taxes, are to be considered as part of its operating expenses." (51 CJ 25) American Courts agree that state taxes on earnings are part of operating expense (Brooklyn Union Gas Co. v. Prendergast, 7 F. (2d) 628. See Consolidated Gas Co. v. Newton, 267 Fed. 231 [mod on other grounds 258 U.S. 165, 42 SCT 264, 66 L. ed. 538] (where such tax was included in operating expenses). American Courts agree that federal income taxes are part of operating expense (Georgia R., etc., Co. v. Georgia R. Commn., 262 U.S. 625, 43 SCt 680, 67 L. ed. 1144 [aff 278 Fed. 242]; Galveston Electric Co. v. Galveston, 258 U.S. 388, 42 SCt 351, 66 L. ed. 678; Consolidated Gas Co. v. Newton, 267 Fed. 231 [mod on other grounds 258 U.S. 165, 42 SCt 264, 66 1. ed. 538]; Albany Municipal Gas Co. v. Public Serv. Commn. 113 Misc. 748, 183 NYS 900, 186 NYS 541; Oklahoma Natural Gas Co. v. State Corp. Commn., 90 Okl. 84, 216 P 917; Bangor Water Co. v. State Public Serv. Commn., 82 Pa. Super. 48. To same effect Petersburg Gas Co. v. Petersburg, 132 Va. 82, 110 SE 533, 20 ALR 542). 10. When the ERB and the COA said that income tax should be borne by the stockholders of the public utility and not the customers, they miserably confused the income tax on the income of the operation of the public utility from the income tax on the income of stockholders from their investment in the public utility or the dividends. For sure, the income tax on the dividends should be borne by the stockholders, but not the income of the public utility from its operation. It is a basic principle of Corporation Law, as to need no citation of authorities, that the personality of a corporation is distinct from that of its stockholders. IN REJECTING THE AVERAGE INVESTMENT METHOD, THE COA AND THE ERB CONTRAVENED SUPREME COURT DECISIONS . MERALCO has consistently followed what is known as the average investment method for the computation of the property and equipment in service component of its rate base; this simply calls for the addition of the beginning and the ending values of the property and equipment in service, with the sum divided by two. In its Report (Annex "D") the COA itself said that " (t)here is no objection on the use of the average investment method for the computation of the rate base , but this Office preferred to use the actual number of months the property is in service or not in service to reflect the real status of the property." As such, despite its expressed non-objection to the use of the average investment method, the COA nevertheless completely rejected the same and insisted on its method; as a result, it made a proportionate disallowance from MERALCO's rate base in the staggering amount of P4,224,093,038.65. cdlex As it were, the ERB agreed in toto with recommended disallowance (page 42, ERB Decision). LLjur In two leading cases on utility ratemaking, Manila Electric Company vs . Public Service Commission , (18 SCRA 651) and Republic vs . Medina (41 SCRA 643), the Supreme Court found occasion to pass upon, among others, the rate base computation of MERALCO. In the Manila Electric Company vs . Public Service Commission (supra), both the PSC, and the GAO (the predecessor of the COA), never questioned MERALCO'S use of the average investment method; on the contrary, the PSC itself adopted this method in computing MERALCO's rate base . What was placed in issue then was the appraisal method used. The Supreme Court said: "The revised schedule of rates of the MERALCO was determined by the PSC as follows: A. Utility plant net value P415,427,353.00 1. Average according to MERALCO P438,024,000 B. Plus working capital (according to GAO 10,739,132.00 C. Average base rate P426,166,485.00 D. Multiplied by percentage of fair return 12% E. Fair return on present value P51,139,978.20 F. Plus Franchise tax 1,438,216.00 G. Plus Operating Expenses 80,555,436.00 H. Plus depreciation 5,562,527.00 I. Allowance revenue P138,696,157.00 1. PSC computation is P138,366,702 J. Deduct Actual Operating revenue 111,850,743 This represents P26,515,959 1. 23.71 % of actual revenue rates 2. 6.22% of invested capital (according to MERALCO) The main target of attack in this computation is its first item, namely the net value of MERALCO's utility plants, which was fixed by the PSC at P415,427,353.00. The appraisal thereof by the MERALCO was P420,275,000 . 00 at the beginning of 1963 and P455,772,000 . 00, at the end of the year, or an average of P438,024,000 . 00 for the whole year . Upon the other hand, the Republic relies upon the GAO report fixing the value of said utility plants at P340,471,251.00. The difference between the MERALCO's appraisal and that made by GAO is due mainly to the method used by each in determining the present or market value of said plants. The MERALCO appraiser applied what is known as the "trending method." In its decision of March 15, 1965, the PSC described this method, as follows: xxx xxx xxx Upon the other hand, the GAO fixed the value of MERALCO's utility plants by ascertaining the cost of production per kilowatt and multiplying the same by the total capacity of said plants, less the corresponding depreciation. In the language of the decision appealed from: xxx xxx xxx We find no cogent reason to disturb either the facts upon which the foregoing conclusions of the PSC are premised or the conclusions drawn from said facts, both being, by and large, supported by the records." (at 669-673, emphasis supplied). Relevantly, the determination of utility plant net value was based on averaging , P420,275,000 at the beginning of 1963, and P455,772,000 at the end of the year, " or an average of P438,024,000 ". Similarly, in Republic vs . Medina (supra), the average investment method was employed by MERALCO. As the Supreme Court held "The Commission found from the evidence that, taking as a basis the audited operation figures for 1968 as a test year (because the 1969 figures were not yet audited when the hearing were held in the Public Service Commission), the net value of MERALCO's properties devoted to public service, expressed in terms of present cost after deducting depreciation, was P913,447,085.00. Adding thereto a working capital of two months operating expenses, equivalent to P29,666,878.00 (i.e. 1/6 of total operating expenses for the year in the sum of P162,759,661), the Commission found the rate base (upon which to compute the percentage of reasonable return) to be P943,113,963. Dividing the operating income of P87,515,491 by the rate base gave a return of 9.25%. In authorizing an increase of rates, the Public Service Commission proceeded on the basis that the MERALCO as public utility should receive a reasonable return on its investment, equivalent to 12% on the rate base, the present market or replacement value of the properties devoted to the service less depreciation, plus operating capital equivalent to 2 months operating income. In so doing, the Public Service Commission only followed the constant doctrine of the cases heretofore adjudicated by this Court. Said the Commission in its decision: 'According to the evidence for applicant, as of December 31, 1968 . MERALCO's gross book value was P870,030,089 and P703,676,398 as of December 31, 1967 . The average gross book value for 1968, therefore, was P786,853,243 . 00 . For purposes of rate base determination, however, this Commission and our Supreme Court have consistently ruled that the controlling standard in determining the value of the property which should be included in its rate base is the present or market value. The cases upholding this doctrine are numerous, among them are: Metropolitan Water District vs. Public Service Commission, 58 Phil. 397, 400 (1933); Municipality of Pagsanjan vs. Cacho & Hidalgo Electric, G.R. No. 36544 (1933); Philippine Railways Co. vs. Asturias Sugar Central, Inc., 72 Phil. 454 (1941); Fortunato F. Halili vs. Ice & Cold Storage of the Philippines, 77 Phil. 823 (1947); Phil. Power Development Co., PSC Case No. 2981 (1955); and Manila Electric Co. vs. Public Service Commission. G.R. No. L-24762 (November 14, 1966).' (at 659-660, emphasis supplied). THE 1957 PSC DECISION SUSTAINED THE AVERAGE INVESTMENT METHOD It is worth noting that, even in the 1957 PSC decision (which the Supreme Court set aside but the ERB and COA are now using to justify their radical change in treatment of income tax), it was the GAO (the COA predecessor) which insisted on the use of the average investment method in computing MERALCO's rate base. The PSC decision states, thus "The exclusion of P11,209,573.97 from the rate base is the result of the use by GAO of the net average investment rate base instead of a year-end rate base. In other words, if a property costing P200,000 is put in service on July 1 of the year GAO considers only one-half of it or P100,000 as entitled to a rate of return. On a year-end rate base, the full amount of P200,000 will be included in the rate base. We have always observed in the determination of just and reasonable rates of electric and telephone utilities the use of the net average investment rate base, that is, we consider the actual property and equipment that are necessary, useful and actually used in rendering public service. And to complement this rate base, we likewise consider the actual revenues realized and the operating expenses incurred during the test period. We find this method to be a reasonable basis under ordinary or normal conditions. However, a year-end rate base may be justified if operating costs and expenses will more than absorb any increase in revenue, or will be grossly disproportionate to operating revenues that may result from the installation or use of a new property or equipment. Our review find support in the decision of the District of Columbia Commission in the case of Potomac Electric Power Co. ([1955] 8 R 3d 76) cited by MERALCO, and we quoted a portion of which to wit: 'In normal times and under stable conditions the amount of revenue required to produce a fair rate of return can generally be calculated accurately and equitably upon the average and on the year-end balances of the test year. On the other hand, where a utility is in the throes of unusual growth and confronted at the same time with constantly increasing investment and operating costs, conventional notions of rate making must be adjusted to the circumstances and this is especially true where net earnings fail to keep pace with heavy additions made and to be made in plant investment . . .' (pages 16-17, emphasis supplied) A copy of the decision is hereto attached as Annex "L" (MERALCO tried to secure the certification of the ERB, but was unable to do so). As can be clearly seen, the COA, and the ERB, only picked out from the PSC decision the portion that supports their position and incompletely at that (on income tax), and ignored another portion of the same decision, since it runs counter to their position on the averaging method. IN A PREVIOUS ERB DECISION, THE COA AND THE ERB SUSTAINED MERALCO'S USE OF THE AVERAGE INVESTMENT . Finally, in the rate application of MERALCO immediately prior to the one at issue, ERB Case No. 90-386, MERALCO also used the average investment method, as shown by the Normalized Income Statement (Annex "F"), As can be seen in COA's SAO Report 91-31 (Annex "G"), it did not question the averaging method followed by MERALCO. More importantly, the ERB, in its decision on that application, implicitly sustained MERALCO's use of the average investment method. In sum, the average investment method of rate base computation has gained the acceptance and recognition by the GAO, by the PSC, by the Supreme Court and, more importantly, even by the COA and ERB themselves. It thus comes as a complete surprise, nay shock, to MERALCO that the COA and ERB have now disallowed the amount of OVER FOUR BILLION PESOS from the former's rate base through a very clearly unfair "change in the rules of the game". It bears stressing that with this disallowance, and the change in income tax treatment, the ERB was able to support its disposition to compel MERALCO to reduce its rates, and refund past collections, corresponding to 16.7 centavos per kwh which, as the ERB has announced to the media before and after its decision, runs to BILLIONS OF PESOS. COA'S "PREFERRED" METHOD IS IMPRACTICABLE As above discussed, the COA completely rejected the averaging method, the accepted method, and stubbornly insisted on using its own "preferred" method of computing rate base, to which the ERB concurred. Under this COA "preferred" method, a piece of property becomes part of the rate base, and hence entitled to return, only starting from the time it is placed in actual service. This method has one basic flaw, i.e., it assumes an ideal situation where a utility, like MERALCO, is able to record in its books within any given month the value of all properties it actually placed in service during that month. Just like any other ideal situation, this is hardly possible. MERALCO's franchise area covers not only the Metro Manila area, but also the nearby provinces of Rizal, Cavite and parts of Bulacan, Batangas, Laguna and Quezon. Given this wide area, the sheer quantity of properties and equipment that MERALCO has to continuously put into service in that franchise area every month and, more importantly, the paper work that must be accomplished before the same properties and equipment could be recorded in its books, it should be easy to understand that it takes three to six months (often longer) before an asset placed in service is recorded in the books. When the ERB acknowledged in the questioned Decision that "MERALCO, in the other hand, claimed that the exclusion made is based on the wrong premise that the date an asset is placed in service exactly coincides with the date the same asset is recorded as such in MERALCO's books. This is, however, not the case. It takes 3 to 6 months, on the average, before the assets were placed in service and are recorded in the books. The company, therefore, uses the simple average method in accounting of the plant and equipment in service as it will even out the irregular timing of placing an asset in service during the year ." (at pages 41-42, emphasis supplied). it seemingly comprehended the reason why the COA's "preferred" method is not practicable to apply, particularly in MERALCO's case. And yet, inexplicably (other than the reference to Section 608-E [7], Vol. III National Accounting and Auditing Manual, which it implies to have the effect of overturning previous GAO, PSC and Supreme Court rulings), it ruled otherwise "The Board believes that the use of the proportionate value is more reasonable in determining the assets entitled to return. Thus, MERALCO should address the issue of delayed recording." (at page 42). If the PSC and the Supreme Court, in the earlier cases cited above, found the average investment method as acceptable, at a time when MERALCO's franchise area was much smaller and, correspondingly, less property and equipment were being placed in service, the COA's and ERB's rejection of the said method at this time certainly defies all forms of logic. Its admonition to MERALCO to "address the issue of delayed recording" bolsters the fact even the ERB accepts that the over FOUR BILLION PESOS disallowance in rate base is the result of recording lag; indeed, if its belief is that the COA "preferred" method is the more reasonable method, as the regulator, it might have taken steps to determine, from MERALCO's records (which it has the power to look into under the law) the acquisition date of each additional asset put in service during the period in audit, rather than the lame "MERALCO should address the issue of delayed recording". Be that as it may, this case will go down in the history of utility rate regulation as probably the only one where an electric utility was subjected to a return reduction and refund in BILLIONS OF PESOS because its recording of assets in service is delayed. EVEN ASSUMING, ARGUENDO, THAT THE DISALLOWANCES ARE JUSTIFIED, THE ERB DECISION COULD NOT BE APPLIED RETROACTIVELY As discussed above, the ERB radically changed the rules of the game, so to speak, and on this basis, ordered MERALCO to reduce its rates and to refund part of its past collections (both of which translate to BILLIONS OF PESOS). When the ERB provisionally approved the present rates of MERALCO in January, 1994, it was only following the prevailing rules on income tax and rate base computation. To now completely change these rules, and apply the same retroactively, is a clear violation of the long established principle in utility regulation that rate making is prospective. The function of ratemaking is purely legislative in character, whether it is exercised directly by the legislative itself or by some subordinate administrative body to whom the power of fixing rates has been delegated. (64 Am Jur 2d, s. 89, p. 618; Arizona Grocery Co. v. Atchison, et al. 284 U.S. 370). Being legislative in character, rates operate prospectively rather than retroactively. (Pacific Teleph. v. PUC, 58 PUR 3d 240). Even if the rates are subsequently found to be unreasonable or excessive, refunds are not allowed because of: (a) the rule against, retroactive rate making; and, (b) the principle that the amounts collected become the property of the utility, of which it cannot be deprived by either legislative or judicial action without violating the constitutional right of due process. (64 Am Jur 2d. s. 79, p. 609; Straube v. Bolwing Green Gas Co., 360 Mo. 132, 227SW2d666, 18 ALR 2d 1335). Moreover, with respect to the rate base disallowance made by COA, even assuming its propriety, it could obviously apply only to the test year used by the COA, i.e., February 1994 to January 1995. A reading of the dispositive portion of the decision indicates that the ERB did not take this into account. COA's position is that the properties in question were not in service during the whole twelve-month period thus, the proportional disallowance. Following this reasoning of COA then, the disallowance would have ceased to have a reason since the properties would have been already completely in service after January 1995. LLjur MERALCO DISPUTES OTHER DISALLOWANCES BY THE ERB There was a number of other relatively minor, value-wise, disallowances made by the COA; some were accepted by the ERB, others were not. It will be noted that, with respect to almost all these disallowances, the ERB took pains in explaining the respective positions of the COA, and MERALCO, and its resolution of the issues involved (except on the issue of income tax, where the ERB Decision did not explain why it insists on relying on a PSC Decision that the Supreme Court set aside). Insofar as the COA disallowances accepted by the ERB are concerned, MERALCO reiterates the same exceptions and objections as set forth in the ERB Decision itself. MERALCO DENIED DUE PROCESS Due process requires an impartial tribunal (Jordan v. Massachusetts, 225 U.S. 167). A fair trial by an unbiased and non-partisan trier of facts is of the essence of the adjudicatory process. An administrative decision cannot stand if either the bearing officials are infected with legal bias. One type of legal bias is prejudice. A decision tainted with prejudice must be set aside (Schwartz, Administrative Law, 303; Cooper, The Lawyers and Administrative Agencies, 252; Davis, Administrative Law, 352-354). Even while admitting that the ERB was still in the process of deliberating on the merits of petitioner's case, some members of the ERB were already announcing in the tri-media that petitioner has been overcharging its customers. ALLEGATIONS IN SUPPORT OF APPLICATION FOR A TEMPORARY RESTRAINING ORDER OR WRIT OF PRELIMINARY INJUNCTION 1. MERALCO hereby reiterates the allegations contained in the preceding paragraphs and incorporates the same herein by way of reference. 2. As clearly shown in the foregoing discussion, the decision of the ERB is completely erroneous and unjustified, and implementation thereof, particularly the reduction in the provisional relief in the amount of P0.184 per kilowatthour to P0.017 per kilowatthour effective after February 1998, and the refund of the average amount of P0.167 per kilowatthour starting with MERALCO billing cycles beginning February 1994 until its billing cycles beginning February 1998, will cause serious and irreparable damage and injury not only to the MERALCO but ultimately to the electric consumers within the former's service area. a.) The refund ordered by the ERB translates to P11.3 BILLION. This amount is just slightly bigger than MERALCO's 1998 budget for operating expenses and capital expenditures which total about P10.2 BILLION PESOS. b.) On the other hand, the rate reduction directed by the ERB will reduce MERALCO's cash collections for 1998 by about P3.4 BILLION. c.) Under MERALCO's loan agreements with two international financial institutions, it becomes in default thereunder if its rate of return (which is computed based on income tax being treated as operating expense) falls below 8% and, because of cross-default provisions, it will likewise be in default under its other loan agreements. With the rate reduction and refund, MERALCO's return will be less than 8%. d.) Even if MERALCO decides to borrow, with the resulting depressed financial situation of MERALCO, more particularly its default status, and the present difficulties being experienced by the financial sector, it is doubtful whether MERALCO could find a willing lender to fund its resulting cash deficiencies. 3. MERALCO is entitled to the relief demanded and part of such relief consists in restraining the ERB, its officers and such other persons acting in its behalf or pursuant to its instructions and orders, from implementing the Decision dated February 16, 1998. 4. Unless a temporary restraining order and/or a writ of preliminary injunction is issued by this Honorable Court, MERALCO and the general public will suffer grave and irreparable injury in that: (i) it will not be able to implement any of the much-needed capital expenditures for the improvement of the electric distribution system in its franchise areas; as a result, the condition of the MERALCO's electric distribution system will deteriorate in no time, and the MERALCO's customers themselves will suffer grave and irreparable damage in the form of substandard service; (ii) MERALCO's rate of return will go very much lower than the 12% rate of return allowed by law, resulting in an unconstitutional deprivation of property without due process of law; and (iii) the repercussions of said decision will cause havoc to the entire economy. PRAYER WHEREFORE, MERALCO respectfully prays that this Honorable Court: 1. Issue a restraining order forthwith upon the filing of this Petition enjoining, restraining and prohibiting public respondent ERB from implementing the questioned Decision, and thereafter 2. Issue a writ of preliminary injunction enjoining, restraining and prohibiting public respondent ERB from implementing the questioned Decision; 3. Render judgment setting aside the questioned Decision, insofar as it reduced MERALCO rates by an average of P0.167 per kilowatthour, effective after February 1998 and ordering it to refund by the same amount all its customers starting with the billing cycles beginning February 1994 until its billing cycles beginning February 1998. Other reliefs as may be warranted, are likewise respectfully prayed for. Pasig City for Manila, February 20, 1998. QUIASON MAKALINTAL BAROT TORRES & IBARRA Counsel for the Petitioner 2nd Floor, Benpres Building Exchange Road cor. Meralco Ave. Pasig City By: (SGD.) CAMILO D. QUIASON PTR NO. 8547243; 1/13/98 PASIG CITY IBP LIFE MEMBER and (SGD.) MANUEL L.M. TORRES PTR NO. 8547246;1/13/98 PASIG CITY IBP NO. 451746;1/12/98 QUEZON CITY VERIFICATION I, DANIEL D . TAGAZA , of legal age, Filipino and with office address at the Lopez Building, Ortigas Avenue, Pasig, Metro Manila, after being duly sworn to, hereby depose and state, that 1. I am the First Vice-President and Comptroller of MERALCO, the petitioner in the above-entitled case; 2. I have caused the preparation of the foregoing Petition and that I have read the same; 3. The allegations contained herein are true and correct of my knowledge and belief. 4. Petitioner has not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; to the best of my knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency; and that, if I should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency, I undertake to promptly inform this Honorable Court within five (5) days therefrom. (SGD.) DANIEL D. TAGAZA SUBSCRIBED AND SWORN to before me this 20th day of February, 1998 at Pasig City, Metro Manila, affiant exhibited to me his Comm. Tax Certificate No. 2356225 issued at Pasig City on February 5, 1997. Doc. No. 351 Page No. 71 Book No. VI Series of 1998. EXPLANATION Due to the fact that the two previous days prior to Monday, February 23, 1998 were non-working days and considering the volume of pleadings, motions and other correspondence filed or sent by the Firm daily, counsel is constrained to cause the service of the copies of the foregoing Petition on the Energy Regulatory Board, and the adverse parties by registered mail instead of personal service. (SGD.) MANUEL L.M. TORRES