New York Law Review

Tag: Public Utility Law

  • New York Telephone Co. v. Public Service Commission, 95 N.Y.2d 40 (2000): Ratepayer Benefit from Utility Asset Sales

    95 N.Y.2d 40 (2000)

    A public service commission can order a utility to pass on profits from the sale of an asset to ratepayers if the ratepayers funded the asset’s value, even if the asset was not part of the utility’s rate base.

    Summary

    New York Telephone Company (NYT) sold its share of Bellcore, a research and development company jointly owned by regional phone companies. The Public Service Commission (PSC) ordered NYT to credit its ratepayers with the intrastate portion of the profit from the sale, arguing that ratepayers had funded NYT’s investment in Bellcore through their phone bills. NYT challenged the order, arguing that the PSC lacked jurisdiction and that the sale involved a non-utility asset. The Court of Appeals held that the PSC acted rationally and within its authority, as ratepayers had effectively funded Bellcore’s value; therefore, they were entitled to a share of the profits.

    Facts

    Following the breakup of AT&T in 1984, NYNEX (NYT’s parent company) acquired an interest in Bellcore, a research and development company. NYT’s ratepayers indirectly funded Bellcore through payments for research and services included in their phone rates. In 1996, NYNEX decided to sell its interest in Bellcore. The PSC then ordered NYT to pass along the intrastate portion of the profits from the sale to its ratepayers.

    Procedural History

    The PSC ordered NYT to credit its ratepayers with the intrastate portion of the profit from the Bellcore sale. NYT filed an Article 78 proceeding to annul the PSC’s order. The Supreme Court upheld the PSC’s order. The Appellate Division reversed, holding that the PSC lacked jurisdiction. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the PSC has the authority to order NYT to pass on to ratepayers the profits from the sale of Bellcore, an asset not included in NYT’s rate base, on the grounds that ratepayers had funded NYT’s interest in Bellcore.

    Holding

    Yes, because the PSC’s determination that ratepayers funded NYT’s investment in Bellcore provided a rational basis for ordering the surcredit to ratepayers.

    Court’s Reasoning

    The Court of Appeals emphasized that the PSC’s rate-making determinations are entitled to deference unless they lack a rational basis or reasonable support in the record. The court rejected a rigid formula requiring ratepayers to bear the risk of loss on an asset before sharing in the gains from its sale. Instead, the court focused on whether the ratepayers had funded the asset’s value.

    The Court found that NYT’s customers had effectively funded Bellcore’s value through their telephone rates, which included charges for research and services provided by Bellcore and its predecessor, Bell Labs. The Court cited Matter of Rochester Tel. Corp. v. Public Serv. Commn., which upheld the imputation of royalties on transfers of intangible assets because “the ratepayers have borne the costs for creating value in * * * those assets.”

    The Court reasoned that because NYT’s customers bore the costs of creating the intrastate portion of Bellcore’s value, they were entitled to reap the corresponding share of NYT’s gains on the sale of Bellcore. The Court also noted that by fully funding Bellcore, NYT’s customers effectively eliminated the risk of loss on the investment and funded dividends to shareholders, including NYT. Therefore, the PSC’s order was a rational exercise of its rate-making authority.

  • New York Telephone Co. v. Public Service Commission, 56 N.Y.2d 213 (1982): Protecting Trade Secrets in Public Utility Rate Proceedings

    56 N.Y.2d 213 (1982)

    The Public Service Commission has the authority to issue orders protecting the confidentiality of trade secrets presented as evidence in rate-fixing proceedings, notwithstanding the statutory requirement that the Commission’s proceedings and records be public.

    Summary

    New York Telephone Company sought a protective order from the Public Service Commission (PSC) to prevent public disclosure of its “Migration Study,” which contained confidential commercial information (trade secrets) valuable to competitors, during rate revision hearings. The PSC denied the request, arguing that Public Service Law § 16(1) mandates that all proceedings and records be public. The Court of Appeals reversed, holding that the PSC has the authority and responsibility to protect trade secrets presented in its proceedings, balancing the public’s right to access information with the need to protect legitimate business interests. The case was remitted for a determination of whether the Migration Study constituted trade secrets and, if so, for the formulation of a protective order.

    Facts

    New York Telephone Company (NYTel) was undergoing tariff revision hearings before the Public Service Commission (PSC). User parties sought to introduce NYTel’s “Migration Study” as evidence. The Migration Study contained detailed projections of customer transfers to newer phone systems, pricing plans, new product introduction schedules, and sales tactics. NYTel had provided the study to the user parties under a protective agreement. NYTel requested a protective order to prevent public disclosure of the Migration Study, arguing it contained confidential commercial information constituting trade secrets, the disclosure of which would harm the company by giving competitors an advantage.

    Procedural History

    The Administrative Law Judges initially denied admitting the Migration Study pending a PSC determination on the protective order. The PSC initially denied the protective order. NYTel sought a protective order from the PSC again, which was denied again. However, the PSC granted a temporary protective order, effective until September 30, 1980, to allow NYTel to seek judicial review. NYTel then commenced an Article 78 proceeding to annul the PSC’s denials. Special Term dismissed the proceeding. The Appellate Division affirmed, holding that Public Service Law § 16(1) barred the PSC from issuing protective orders. NYTel appealed to the Court of Appeals.

    Issue(s)

    Whether the Public Service Commission has the authority to issue orders protecting trade secrets from public disclosure when the information is admitted as evidence in rate-fixing proceedings, given the provisions of Public Service Law § 16(1) requiring public access to the Commission’s proceedings and records.

    Holding

    Yes, because Public Service Law § 16(1) does not prohibit the Commission from restricting public access to confidential trade secret information presented in its proceedings. The Commission has an affirmative responsibility to protect the utility’s interest in such trade secrets.

    Court’s Reasoning

    The Court of Appeals reasoned that Public Service Law § 16(1), requiring public records, does not explicitly prohibit the Commission from issuing protective orders for trade secrets. Analogizing to Judiciary Law § 4, which mandates public court sessions but does not prevent courts from excluding the public to protect trade secrets, the Court found no reason why the PSC should not have similar authority. The Court emphasized the importance of trade secret protection and its resultant public benefit, citing Kewanee Oil Co. v. Bicron Corp. The Court stated that numerous precedents exist for protecting trade secret information in litigation. The Court held that the PSC had an affirmative responsibility to protect trade secrets made available to participants in the proceeding. “To fail to do so would be arbitrary and capricious and erroneous as a matter of law, subject to being set aside in an article 78 proceeding.” The Court remitted the case to determine if the Migration Study data constituted trade secrets and, if so, to formulate an appropriate protective order.

  • City of New York v. Public Service Commission, 38 N.Y.2d 765 (1975): Anti-Discrimination Between Municipalities in Utility Rates

    City of New York v. Public Service Commission, 38 N.Y.2d 765 (1975)

    While the Public Service Law permits preferential treatment of municipalities as a class, it does not allow discrimination between municipalities.

    Summary

    The City of New York challenged a decision by the Public Service Commission (PSC) to eliminate non-obligatory discounts provided by a utility company to certain cities and villages. The PSC determined that these discounts constituted an undue preference, violating the Public Service Law. The Court of Appeals affirmed the PSC’s decision, holding that while the law allows preferential treatment for municipalities as a whole, it does not permit discriminatory practices among them. The court found substantial evidence supported the PSC’s finding of undue preference and upheld the gradual phasing out of the discounts. The Court also rejected the City’s argument that its municipal contracts exempted it from the PSC’s jurisdiction under the anti-discrimination provisions.

    Facts

    A utility company provided non-obligatory discounts to some cities and villages. After hearings, the Public Service Commission (PSC) determined these discounts constituted an undue preference under the Public Service Law (§ 91, subds 2, 3; § 92, subd 2). The PSC approved the company’s proposal to eliminate these discounts, except those required by contract, to rectify the inequity. To soften the impact, the PSC ordered a gradual phase-out of the discounts over five years, excluding municipalities that had not previously received the discounts.

    Procedural History

    The Public Service Commission made an initial determination. The City of New York challenged the PSC’s decision. The Appellate Division upheld the PSC’s decision. The Court of Appeals affirmed the Appellate Division’s ruling, thus upholding the PSC’s decision.

    Issue(s)

    1. Whether the Public Service Commission exceeded its authority in ordering the elimination of non-obligatory discounts to certain municipalities, arguing that it violated the Public Service Law?

    2. Whether subdivision 3 of section 92 of the Public Service Law exempts the utility’s contracts with municipalities from the Commission’s power to prevent undue preference?

    Holding

    1. No, because there was substantial evidence to support the finding of undue preference, and the gradual phase-out was within the PSC’s power to set just and reasonable rates and rectify discriminatory practices.

    2. No, because while this provision allows preferential treatment of municipalities as a class, it does not permit discrimination between municipalities.

    Court’s Reasoning

    The Court of Appeals affirmed based on the reasoning provided by the Appellate Division. The court emphasized that the PSC’s determination was supported by substantial evidence presented during the hearings. The court found that the PSC acted within its authority under Public Service Law § 97, subd 1, which empowers it to set just and reasonable rates and address unduly preferential practices.

    Regarding the jurisdictional challenge, the court addressed the appellant’s reliance on Public Service Law § 92, subd 3, which generally prohibits free or reduced service but exempts “state, municipal or federal contracts.” The court clarified that this exemption permits preferential treatment of municipalities as a class but does not allow for discrimination *between* municipalities. Citing Columbia Gas of N. Y. v New York State Elec. & Gas Corp., 28 NY2d 117, 126 and New York Tel. Co. v Siegel-Cooper Co., 202 NY 502, 513, the court stated, “As in Columbia Gas (supra) the exemption of governmental contracts is operative only within its specific provision and will not limit the commission’s power under the antidiscrimination sections of the Public Service Law.” This means that while municipalities can receive preferential treatment compared to other entities, the utility cannot discriminate among different municipalities. The court thus upheld the PSC’s authority to rectify discriminatory pricing practices even when contracts with municipalities were involved.

    Finally, the court determined that the PSC did not abuse its discretion in disallowing further discovery, given the city’s prior opportunity to examine the telephone company’s files and its untimely application for additional discovery.

  • Matter of New Rochelle Water Co. v. Public Serv. Comm., 29 N.Y.2d 400 (1972): Retroactive Rate Increases and Utility Reparations

    Matter of New Rochelle Water Co. v. Public Serv. Comm., 29 N.Y.2d 400 (1972)

    The Public Service Commission has discretionary power, but is not required, to grant reparations to public utility companies when a temporary rate increase allowed during a rate suspension period is less than the final approved rate increase.

    Summary

    New Rochelle Water Company (NRW) and Long Island Water Corporation (LIW) sought retroactive application of permanent rate increases to recoup revenues lost during periods when temporary, lower rates were in effect due to Commission suspensions of proposed rate hikes. The New York Court of Appeals held that while the Public Service Commission (PSC) has the discretionary authority under Public Service Law § 113 to order reparations to utilities when temporary rates are inadequate, it is not mandatory. The Court found that the PSC’s denial of reparations was not arbitrary or capricious, and that the utilities were not entitled to recoupment under § 114, which applies only to temporary rate decreases, not increases.

    Facts

    NRW filed proposed rate increases with the Public Service Commission (PSC). The PSC suspended the increases for 10 months. NRW requested, and was granted, temporary rate increases during the suspension, designed to produce a 5.5% rate of return. The PSC ultimately approved permanent increased rates generating additional revenue and yielding a 7.6% rate of return. LIW presented a similar situation, seeking reparations for the difference between temporary and final rates during a suspension period.

    Procedural History

    NRW and LIW filed Article 78 proceedings challenging the PSC’s denial of retroactive rate increases (reparations). The Appellate Division affirmed the PSC’s determination in both cases, holding that the PSC had discretionary power to order reparations, but was not obligated to do so. The utilities appealed to the New York Court of Appeals.

    Issue(s)

    Whether Public Service Law § 113 requires the Public Service Commission to grant reparations to public utility companies when a temporary rate increase, granted during a suspension period, is less than the final rate increase ultimately approved.

    Holding

    No, because the 1970 amendment to Public Service Law § 113 grants the Public Service Commission the discretionary power to order reparations when proposed rate increases are suspended and temporary rate increases are inadequate, but does not mandate it.

    Court’s Reasoning

    The Court of Appeals analyzed the legislative history of Public Service Law §§ 113 and 114. It determined that § 113, as amended in 1970, gives the PSC discretionary authority to order reparations. The use of “may” in the statute indicates a permissive, not mandatory, power. The Court distinguished § 114, which mandates recoupment for temporary rate decreases imposed by the PSC, finding that it was enacted to address constitutional concerns related to confiscatory rate reductions, citing Prendergast v. New York Tel. Co., 262 U.S. 43. The Court emphasized that suspending a proposed rate increase merely preserves the status quo. Quoting Hope Natural Gas Co. v. Federal Power Comm., 196 F.2d 803, the Court stated that a utility’s loss during rate investigation is a “necessary incident of rate regulation so long as the period of suspension does not ‘overpass the bounds of reason.’” The Court rejected the utilities’ claims of a denial of equal protection, finding a reasonable classification based on due process requirements. The Court concluded that the Commission acted within its statutory authority and that its refusal to authorize reparations was not arbitrary or capricious.

  • Matter of General Telephone Co. of Upstate New York, Inc. v. Lundy, 17 N.Y.2d 373 (1966): Authority to Scrutinize Affiliate Transactions in Rate-Making

    Matter of General Telephone Co. of Upstate New York, Inc. v. Lundy, 17 N.Y.2d 373 (1966)

    A public service commission, in determining just and reasonable rates for a utility, has the implied authority to scrutinize transactions between the utility and its affiliates to ensure that costs passed on to ratepayers are not inflated, even without explicit statutory authority to regulate all affiliate contracts.

    Summary

    General Telephone Co. of Upstate New York, a subsidiary of GT&E, challenged a Public Service Commission order that disallowed certain rate increases. The Commission determined that General Telephone was being overcharged by its affiliated suppliers, also GT&E subsidiaries, and excluded these overcharges from the rate base and operating expenses. The New York Court of Appeals upheld the Commission’s decision, finding that the power to review affiliated transactions is implied in the Commission’s rate-making authority, despite the absence of explicit statutory authorization. The court reasoned that the Commission has a duty to protect ratepayers from excessive charges resulting from non-arm’s length transactions between affiliated entities.

    Facts

    General Telephone Co. of Upstate New York (GTC), a subsidiary of General Telephone and Electronics Corporation (GT&E), filed for rate increases with the Public Service Commission (PSC). The PSC conducted hearings and approved some increases but disallowed others. The PSC determined that GTC was being overcharged for goods and services by other GT&E subsidiaries. These subsidiaries included Automatic Electric Company (AE), General Telephone Directory Company, and Leich Electric Company (Leich). AE was a major manufacturer of specialized telephone equipment, with a significant portion of its sales to GT&E affiliates. Leich supplied standard telephone supplies, mostly to GT&E affiliates. The Directory Company specialized in yellow page advertising and telephone directories, with a majority of its business from affiliates. The PSC found the prices charged by these affiliates to GTC were excessive.

    Procedural History

    GTC filed an Article 78 proceeding to challenge the PSC’s order. The case was transferred to the Appellate Division, which confirmed the PSC’s determination. GTC appealed to the New York Court of Appeals based on constitutional grounds, arguing that the PSC should have credited the full amounts paid to its affiliated suppliers.

    Issue(s)

    1. Whether the Public Service Commission has the authority to investigate the reasonableness of prices charged to a utility by its affiliated suppliers when setting rates, even in the absence of explicit statutory authorization to regulate all contracts between affiliates.

    2. Whether it was an error to determine the telephone company was being overcharged, because it paid no more, and sometimes less, than independent telephone companies.

    3. Whether the Commission erred in using the “historical book value” of the affiliate in determining the net returns on investment, rather than the “acquisition cost.”

    Holding

    1. Yes, because the power to conduct such an inquiry and ascertain whether the prices were excessive may be fairly implied from the rate-making powers already granted by the Legislature to the Commission.

    2. No, because there is no constitutional requirement that prevailing market prices must be accepted as the standard for testing the reasonableness of operating costs.

    3. No, because the Public Service Law places the burden on the telephone company to show that the proposed rate change is just and reasonable, and the telephone company’s own expert witness provided data based on historical book value.

    Court’s Reasoning

    The Court reasoned that the PSC’s authority to determine “just and reasonable” telephone rates (Public Service Law, § 91, subd. 1; § 97, subd. 1) necessarily implies the power to scrutinize transactions between a utility and its affiliates. The Court cited Chicago & Grand Trunk Ry. Co. v. Wellman, 143 U.S. 339, 346, stating that the rate-making power cannot be “subservient to the discretion of [a utility] which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call operating expenses.” The Court emphasized the Commission’s duty to closely scrutinize transactions between affiliates, especially when those expenses arise out of dealings between affiliates. The court emphasized that in the absence of arms-length bargaining the commission must protect the utility’s rate payers.

    The Court rejected the argument that the prevailing market prices should be accepted as the standard, given the control GT&E had over its subsidiaries, stating “little, if any, weight can be accorded to price comparison.” The court stated, “comparative prices fixed in the * * * independent telephone market * * * as [a valid test] of the reasonableness of these affiliated transactions.”

    The Court dismissed the argument that the commission should have used “acquisition cost” instead of “historical book value” to determine the net returns on investment, stating that the petitioner failed to introduce comparable data. The Court stated, “In order to determine whether profits are fair rather than excessive, the commission must ascertain what similar enterprises are earning on a similar basis.”

    The Court held that there was no denial of equal protection because the Commission lacked the power to order a reduction in the prices charged by these suppliers to independent companies. If the same prices were charged to independent telephone companies, they could not be excluded from the rate base of independent companies. The court reasoned that it would be unfair to penalize a utility for a state of affairs over which it has no control, which would violate due process.

  • City of New York v. Public Serv. Comm., 19 N.Y.2d 242 (1967): Right to Examine Data in Rate Increase Cases

    City of New York v. Public Serv. Comm., 19 N.Y.2d 242 (1967)

    Parties in rate increase proceedings have the right to access factual material that played a part in the rate decision, ensuring a plenary inquiry into the basis for proposed tariff increases.

    Summary

    The City of New York and the Housing Authority challenged a 5% increase in electric tariffs granted to Consolidated Edison by the Public Service Commission (PSC). The Court of Appeals found that while the PSC’s initial justification for the increase was supported by evidence, the PSC erred in denying the City and the Housing Authority access to the underlying data supporting the rate decision. The Court emphasized the right of adverse parties to fully examine the basis of proposed tariff increases and remitted the case to the PSC to allow for these inquiries, with the approved tariffs remaining in effect pending further review.

    Facts

    Consolidated Edison Company sought and received a 5% increase in its electric tariffs from the Public Service Commission. The City of New York, representing its citizens, and the Housing Authority, a major consumer of electricity, were parties in the rate proceeding. Both the City and the Housing Authority requested access to the factual data used to support the company’s exhibits and the basis for fixing the company’s required bank balance, which impacted the rate base. The PSC denied these requests.

    Procedural History

    The Public Service Commission approved the 5% increase in electric tariffs. The City of New York and the Housing Authority appealed this decision. The Appellate Division affirmed the PSC’s decision. The City and Housing Authority then appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the Public Service Commission erred in denying the City of New York, as a party in the interest of its citizens, access to the underlying data supporting Consolidated Edison’s exhibits in evidence during the rate increase proceeding.
    2. Whether the Public Service Commission erred in denying the Housing Authority, as a large consumer of electricity, access to the bank’s basis for fixing Consolidated Edison’s required balance, which was reflected in part of the rate base.

    Holding

    1. Yes, because the City, as an adverse party, has the right to a plenary inquiry into the facts on which the proposed tariff increase was based.
    2. Yes, because the Housing Authority, as an adverse party, has the right to a plenary inquiry into the facts on which the proposed tariff increase was based; specifically, the bank’s basis for fixing the company’s required balance was a proper subject of inquiry.

    Court’s Reasoning

    The Court of Appeals held that the Public Service Commission was unduly restrictive in denying the City of New York and the Housing Authority access to factual material that played a part in the rate decision. The Court emphasized that as adverse parties to Consolidated Edison, both the City and the Housing Authority were entitled to a plenary inquiry into the facts underlying the proposed tariff increase. The Court rejected the PSC’s justifications for denying access, stating that the commission’s staff checking the data or the company complying with record-keeping procedures was insufficient to deny the parties their right to examine the underlying data. Regarding the Housing Authority’s request, the Court found that the bank’s basis for fixing the company’s required balance was a proper subject of inquiry because it directly affected the rate base. The Court stated: “These parties were adversaries to the company before the commission and the right of plenary inquiry ought to have been afforded them into the facts on which the proposed increase in tariffs was to be based.” The Court remitted the case to the PSC to allow for these inquiries, but stipulated that the approved tariffs should remain in effect, subject to adjustment if the additional proof warranted a different rate.

  • Whitmyer v. New York, 186 N.Y. 25 (1906): Water Company’s Duty to Provide Adequate Supply

    Whitmyer v. New York, 186 N.Y. 25 (1906)

    A water company, as a quasi-public corporation, has an implied contractual duty to provide an adequate water supply to its customers, and cannot terminate service for non-payment when the company itself is in breach of that duty by failing to provide sufficient water.

    Summary

    Whitmyer sued the City of Kingston’s water provider, alleging insufficient water supply and seeking to prevent the company from shutting off his water service due to non-payment. The court found that the company had failed to provide an adequate water supply, breaching its implied contractual duty. The court held that a water company cannot terminate service for non-payment when it is in default of its contractual obligations to provide sufficient water. The court reasoned that allowing the company to do so would be unjust, as it would allow them to be the judge in their own case.

    Facts

    The plaintiff, Whitmyer, was a resident of Kingston, supplied with water by the defendant water company. The water company was incorporated to supply Kingston and its inhabitants with water. Prior to the lawsuit, the water supply to Whitmyer’s house had decreased in quantity and pressure, failing at times due to an increased number of consumers. This insufficient supply sometimes did not meet the plaintiff’s family’s needs, and the plaintiff had no other water source.

    Procedural History

    The trial court ruled in favor of the defendant, dismissing the complaint and vacating a preliminary injunction that prevented the water company from shutting off the water supply. The Appellate Division affirmed the trial court’s decision without opinion. Whitmyer appealed to the New York Court of Appeals.

    Issue(s)

    Whether a water company, failing to furnish a sufficient supply of water, can shut off the water from a customer’s house when the customer refuses to pay the bill.

    Holding

    No, because a water company, as a quasi-public corporation, has an implied contractual duty to provide an adequate water supply to its customers, and cannot terminate service for non-payment when the company itself is in breach of that duty.

    Court’s Reasoning

    The Court of Appeals determined that an implied contract existed between Whitmyer and the water company. The court emphasized that the water company was a quasi-public corporation with a duty to supply water to the city and its inhabitants. By connecting Whitmyer’s house to the water mains and providing water for years, the company entered into an implied agreement to provide water if Whitmyer paid the rates. The court stated, “The duties imposed upon a corporation raise an implied promise of performance.” The court distinguished the case from prior cases where companies shut off service due to non-payment, because in those cases, the companies had fully performed their contractual obligations. Here, the company was in default by failing to provide a sufficient water supply. The court reasoned that allowing the company to terminate service while it was in breach of contract would be unjust. “On the other hand, if the company is in default of its contract, express or implied, it would shock the sense of justice if it were to sit as a judge in its own case by cutting off the customer from his contract privileges. In such a situation the rights of the parties must be determined by the courts.” The Court of Appeals reversed the lower courts’ judgments and reinstated the injunction preventing the water company from shutting off the water supply, ordering a new trial.