71 N.Y.2d 313 (1988)

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A state may, consistent with due process and without effecting an unconstitutional taking, compel a utility with excess capacity to transport non-owned gas through its pipelines, provided the utility receives reasonable compensation and the transportation does not burden the utility or its ratepayers.

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Summary

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Rochester Gas & Electric Corp. (RG&E) challenged the constitutionality of Public Service Law § 66-d(2), which allows the Public Service Commission (PSC) to require utilities to transport non-owned natural gas if they have excess capacity. The New York Court of Appeals upheld the law, finding it a valid exercise of the state’s police power that did not constitute an unconstitutional taking. The court reasoned that the law aimed to stimulate local gas production and increase competition without unduly burdening the utility, thus satisfying due process requirements and avoiding a taking of property without just compensation.

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Facts

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• New York State had significant untapped natural gas reserves because local producers lacked the means to transport their gas to customers.

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• Large interstate suppliers had leverage over utilities, using “take-or-pay” agreements that obligated utilities to pay for fixed quantities of gas regardless of whether they took the gas.

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• The New York Legislature enacted Public Service Law § 66-d(2) to address this issue, authorizing the PSC to order gas utilities with excess capacity to transport gas directly from local producers to consumers.

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• PSC Opinion No. 85-6 ordered RG&E to file a tariff for the transportation of non-owned gas.

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Procedural History

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• RG&E commenced an action challenging the constitutionality of Public Service Law § 66-d(2) and PSC Opinion No. 85-6.

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• The lower courts upheld the statute and opinion, finding them a valid exercise of the state’s police power and not an impermissible taking.

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• RG&E appealed to the New York Court of Appeals as of right.

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Issue(s)

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1. Whether Public Service Law § 66-d(2) and PSC Opinion No. 85-6 substantially interfere with RG&E’s right to conduct its business, violating its substantive due process rights.

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2. Whether Public Service Law § 66-d(2) and PSC Opinion No. 85-6 force RG&E to provide public access to its property, resulting in a taking without just compensation.

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Holding

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1. No, because the legislature can redefine corporate powers to promote the public interest, and RG&E is still providing gas to the community, consistent with its general duties.

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2. No, because the statute only requires transportation when the utility has excess capacity, receives reasonable compensation, and the transportation does not unduly burden the utility or its customers.

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Court’s Reasoning

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• Due Process Analysis: The court noted that legislative enactments are presumed valid and that economic legislation receives great deference. The statute had a reasonable relation to the state’s legitimate interests in developing local gas resources, fostering competition, and controlling gas costs.r
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  • RG&E’s argument that it was chartered only to transport its own gas was rejected, as gas corporations have a general duty to supply gas for public use.

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  • The court dismissed RG&E’s claim that the statute transformed it from a private to a common carrier, noting that this argument relied on outdated Lochner-era jurisprudence.

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  • As a public utility, RG&E is