77 N.Y.2d 611 (1991)
The Public Service Commission (PSC) lacks the authority to impute income derived from sources outside a utility’s authorized service area when calculating rate-year projections, as it effectively compels the utility to expand its services.
Summary
Crescent Estates Water Company sought to increase its rates, excluding projected revenues from a planned service expansion. The PSC, despite denying approval for the expansion due to unresolved issues, imputed the expected revenue, arguing Crescent imprudently failed to expand. The Court of Appeals held that the PSC lacked authority to impute revenues from outside Crescent’s authorized service area, as this effectively forces the company to expand. The court emphasized that while the PSC can assess the prudence of a utility’s actions impacting ratepayers, it cannot compel expansion beyond its approved territory.
Facts
Crescent Estates Water Company, serving 1,650 customers, sought PSC approval for main extension agreements to serve 110 new homes outside its service area. These agreements involved developers constructing the mains and paying Crescent a $2,000 hook-up fee per unit. The PSC disapproved the agreements because Crescent lacked DEC approval and the hook-up fees were deemed unreasonable. Despite disapproval, the PSC hinted that a failure to expand prudently would be a factor in setting rates. Later, Crescent tried to exclude $11,124 in projected revenue from these new customers from its revenue projections, arguing the expansion was not approved.
Procedural History
Crescent initially filed tariff revisions, which the PSC suspended pending investigation. After the PSC disapproved the main extension agreements, Crescent attempted to exclude the projected revenue from the rate-case proceeding. The ALJ rejected this attempt, and the PSC’s final order included the revenue imputation. Crescent challenged the PSC’s determination in an Article 78 proceeding, which was transferred to the Appellate Division. The Appellate Division modified the PSC’s determination, annulling the revenue imputation. The PSC appealed to the Court of Appeals.
Issue(s)
Whether the Public Service Commission has the authority to impute to a water-works corporation’s operating revenue forecast income expected from serving homeowners residing outside the corporation’s approved service area, when that expansion has not been approved?
Holding
No, because the Public Service Commission lacks the power to compel a water-works corporation to expand and provide service to customers beyond its approved service area, and the imputation of revenues effectively coerces such an expansion.
Court’s Reasoning
The Court of Appeals held that while the PSC has broad authority to regulate rates and assess the prudence of a utility’s actions, it cannot compel a utility to expand beyond its authorized service area. The court distinguished this case from others where revenue imputations were upheld because those cases involved sales or activities within the utility’s existing service area. The Court emphasized that the PSC’s ratemaking power is not unlimited and does not extend to imputing revenue from sources outside the utility’s territory, as this effectively forces the company to expand to achieve the projected income and a reasonable return on investment. The court noted that, in this case, the approved rate of return of 15% could only be achieved if the disputed revenue was actually received; otherwise, Crescent’s rate of return would be significantly lower. The dissent argued that the Commission’s action was a proper exercise of its authority to protect ratepayers from the consequences of the company’s imprudent management decisions and was not an attempt to compel expansion.