72 N.Y.2d 419 (1988)
A contract granting an affiliate total control over a utility’s directory business, including staff and systems, constitutes a ‘management contract’ under Public Service Law § 110(3), allowing the Public Service Commission (PSC) to disapprove it if not in the public interest.
Summary
New York Telephone Company (NYT) contracted with its affiliate, NYNEX IRC, to manage its directory business. The Public Service Commission (PSC) investigated and disapproved the contract (DPA), finding it not in the public interest under Public Service Law § 110(3). NYT challenged the PSC’s authority. The Court of Appeals held that the PSC had jurisdiction because the DPA was a ‘management contract,’ and that the PSC’s determination that the DPA was not in the public interest had a rational basis.
Facts
Prior to the Bell System restructuring, NYT managed its own directory operations, including White Page listings and Yellow Page advertising. After the restructuring, NYNEX created NYNEX IRC and transferred NYT’s directory staff to this new subsidiary. NYT and NYNEX IRC then entered into the Directory Publishing Agreement (DPA), giving NYNEX IRC control over NYT’s directory business for five years, with automatic renewals. NYNEX IRC paid NYT an annual fee based on 1983 advertising profits, adjusted for growth and inflation, retaining profits exceeding this amount.
Procedural History
The PSC initiated proceedings to investigate the DPA, concluding it had authority under Public Service Law § 110(3) and disapproving the DPA. NYT’s request for a rehearing was denied. NYT commenced a CPLR article 78 proceeding, which Supreme Court transferred to the Appellate Division. The Appellate Division reversed, holding the PSC lacked jurisdiction. The Court of Appeals granted the PSC’s motion for leave to appeal.
Issue(s)
Whether the Directory Publishing Agreement (DPA) between New York Telephone and NYNEX IRC constitutes a “management contract” under Public Service Law § 110(3), thereby granting the Public Service Commission (PSC) the authority to disapprove it if not in the public interest.
Holding
Yes, because the DPA grants NYNEX IRC total control over and responsibility for the management of New York Telephone Company’s directory business, and the PSC’s determination that the DPA is not in the public interest has a rational basis.
Court’s Reasoning
The Court rejected NYT’s narrow interpretation of ‘management contract,’ stating that it isn’t limited to contracts delegating total control over an entire business. The Court emphasized the legislative intent behind § 110(3): preventing utilities from insulating themselves from regulatory control through contractual devices to divert profits at the expense of ratepayers. The Court found that the DPA gave NYNEX IRC total control over NYT’s directory business, including staff, systems, and customer lists. NYNEX IRC assumed responsibility for providing directory services consistent with NYT’s policies. The payment structure, where NYT relinquished profits over a stipulated sum, was considered a payment for NYNEX IRC’s management services. The Court distinguished Matter of General Tel. Co. v. Lundy, clarifying that it didn’t preclude directory service contracts from being ‘management contracts’ under § 110(3); the key factor is the degree and nature of control delegated. The Court deferred to the PSC’s expertise in determining whether the DPA was in the public interest, finding substantial evidence to support the PSC’s findings that the base level earnings figure was understated, the growth and inflation factors were inaccurate, and the impact of competition was not properly considered. The Court stated, “Like the setting of utility rates, the question of whether a given contract is contrary to the public interest is a matter presenting ‘technical problems which have been left by the Legislature to the expertise of the PSC’.” Because the PSC’s determination had a rational basis and reasonable support in the record, it was upheld.