New York Law Review

Tag: Matter of New York State Council of Retail Merchants, Inc.

  • Matter of New York State Council of Retail Merchants, Inc. v. Public Service Commission, 45 N.Y.2d 661 (1978): Rational Basis for Phased Implementation of Time-of-Day Electricity Pricing

    Matter of New York State Council of Retail Merchants, Inc. v. Public Service Commission, 45 N.Y.2d 661 (1978)

    A public service commission’s decision to implement a new electricity rate structure gradually, starting with a specific class of consumers, is permissible if based on a rational justification, even if not solely cost-justified, provided the classification is reasonable under the circumstances.

    Summary

    The New York State Council of Retail Merchants challenged the Public Service Commission’s (PSC) approval of Long Island Lighting Company’s (LILCO) time-of-day electricity pricing for large commercial and industrial customers. The PSC initiated a case directing LILCO to propose time-of-day pricing, leading to the ‘Service Classification 2 — Multiple Rating Period’ (SC2-MRP) rate. The commission approved SC2-MRP, aiming for efficient resource use, but implemented it selectively due to high metering costs. The Court of Appeals reversed the Appellate Division’s annulment, holding that the selective implementation had a rational basis and was permissible, as the commission has expertise in weighing rate-fixing factors.

    Facts

    LILCO filed for a general rate increase, prompting the PSC to order the company to propose time-of-day electricity pricing. LILCO proposed SC2-MRP, supported by a marginal cost study. The PSC found marginal costs a reasonable basis for rate structures, but advocated gradual implementation. LILCO selected its largest commercial and industrial consumers (peak demand exceeding 750 kilowatts) for the initial phase. The PSC approved SC2-MRP, citing the need to address escalating construction and fuel costs. This was a novel approach to rate fixing in New York State.

    Procedural History

    The Public Service Commission approved LILCO’s proposed SC2-MRP rate. The Council of Retail Merchants’ request for a rehearing was denied. The Council then initiated an Article 78 proceeding, which was transferred to the Appellate Division. The Appellate Division annulled the commission’s determination. The Court of Appeals reversed the Appellate Division’s judgment and confirmed the commission’s order.

    Issue(s)

    1. Whether the Public Service Commission’s approval of LILCO’s time-of-day rate structure for a specific class of consumers constitutes unlawful inter-class price discrimination under Public Service Law § 65(2) and (3)?

    2. Whether the commission’s adoption and calculation of the SC2-MRP rate is supported by substantial evidence in the record?

    Holding

    1. No, because the phased implementation was based on a rational justification and the chosen classification of consumers was reasonable under the circumstances, justifying the commission’s decision.

    2. Yes, because the commission’s determination in approving LILCO’s SC2-MRP rate proposal represents a rational and reasonable step towards time-of-day pricing for electricity and finds substantial support in the record.

    Court’s Reasoning

    The Court reasoned that the Public Service Law (§ 66(14) and § 65(5)) expressly authorizes service classifications based on quantity and time of usage. While classifications necessitate differentiation, the key is whether undue discrimination occurs. Selective implementation was justifiable due to the high costs of wide-scale metering and the need for detailed consumer education. The selection of large commercial and industrial consumers was rational because they already had necessary meters and offered potential for usage responsiveness. The court emphasized deference to the commission’s expertise in balancing rate-fixing factors. The Court cited Erznoznik v. City of Jacksonville, 422 U.S. 205, 215; Dandridge v. Williams, 397 U.S. 471, 486-487; and Williamson v. Lee Optical Co., 348 U.S. 483, 489, noting equal protection analysis recognizes gradual progression. Regarding SC2-MRP, the court deferred to the commission’s expertise in complex, technical matters. It found sufficient evidence supporting the marginal cost study underlying the rate, rejecting challenges to the use of long-run marginal capacity costs and projected costs of future gas turbines. The court stated, “It is only when it can be shown that the exercise of judgment was without any rational basis or without any reasonable support in the record that the determination of the commission may be set aside.”