New York Law Review

Tag: Astoria Gas Turbine Power

  • Astoria Gas Turbine Power, LLC v. Tax Commission, 7 N.Y.3d 451 (2006): Differentiating Public Utilities from Competitive Entities for Tax Classification

    7 N.Y.3d 451 (2006)

    For real property tax classification purposes, an entity is not considered a public utility subject to strict state supervision if it operates in a deregulated market and is not assured a reasonable rate of return.

    Summary

    Astoria Gas Turbine Power, LLC (AGTP) challenged the classification of its power plant equipment as class-three “utility real property” under RPTL 1802(1), arguing it should be class-four general commercial property. The classification hinges on whether AGTP is subject to supervision by the state Department of Public Service. AGTP acquired the turbines from Con Ed during deregulation. The Court of Appeals held that because AGTP operates in a deregulated wholesale market, where the Public Service Commission (PSC) does not set its rates and its regulation is light, it is not subject to the same level of supervision as a traditional utility. Therefore, its property should be classified as class-four.

    Facts

    Consolidated Edison Company of New York (Con Ed) divested its Astoria Gas Turbines to AGTP’s parent company in 1999 as part of electric utility deregulation efforts. For the 2001-2002 tax year, the Department of Finance of the City of New York (DOF) classified the equipment as class-three “utility real property.” AGTP argued the equipment should be classified as class-four, general commercial property, leading to this legal challenge.

    Procedural History

    AGTP brought an RPTL article 7 proceeding against DOF and the Tax Commission of the City of New York. Supreme Court ruled in favor of the City, upholding the class-three classification. The Appellate Division reversed, granting AGTP’s motion and directing the City to reclassify the equipment as class-four. The City appealed to the Court of Appeals.

    Issue(s)

    Whether AGTP is subject to the supervision of the state Department of Public Service such that its power plant equipment should be classified as class-three “utility real property” under RPTL 1802(1) and 1801(c), or whether it should be classified as class-four general commercial property.

    Holding

    No, because AGTP operates in a deregulated wholesale market and is not subject to the same level of supervision as a traditional public utility, its equipment should be classified as class-four property.

    Court’s Reasoning

    The Court reasoned that the classification depends on the nature of the enterprise, not the nature of the property itself. Traditional public utilities receive certain economic advantages in exchange for strict regulation by the PSC, including a guaranteed reasonable rate of return and governmental franchises. However, AGTP operates in a deregulated market where the PSC’s regulation is limited to “matters such as enforcement, investigation, safety, reliability and system improvement.” Most importantly, the PSC does not establish rates in AGTP’s wholesale electricity generation market. The court contrasted this light regulation with the “intense rate supervision imposed upon traditional electric utilities by the PSC.” The court emphasized that, unlike a traditional utility, AGTP is “at the mercy of volatile competitive market forces based on supply and demand” and possesses no governmental franchises. The Court concluded that classifying AGTP as a public utility would be inconsistent with the Legislature’s initiative to deregulate the electric utility industry. Therefore, because AGTP is not subject to the same level of supervision as a traditional public utility, its equipment should be classified as class-four property. As the Appellate Division noted, the PSC’s authority does “not involve the intense rate supervision imposed upon traditional electric utilities by the PSC.”