In re Multiple Intervenors

569 N.Y.S.2d 522 (N.Y. App. Div. May 9, 1991)

The court upholds a Public Service Commission (PSC) opinion permitting two utilities to recover in rates the direct costs of, lost revenues attributable to, and incentive payments for, consumer conservation programs. The court first holds that the PSC's rate-setting authority is not restricted to imposing charges directly related to the provision of electrical services. Courts have permitted rate charges and rate differentials that were based on a wide variety of factors not directly related to the provision of utility services or the quantity or quality thereof. The court next holds that Public Service Law § 5(2) authorizes the PSC to provide for recovery of lost profits from and incentive payments for its consumer conservation programs. The court holds that the PSC was not required to support its determination on the recoverability of program costs with substantial evidence in the record, because no hearing was required for this proceeding before the PSC. The court further holds that the petitioner failed to show the irrationality or arbitrariness of the PSC's determination or that the recoveries authorized by the PSC will conflict with any limitations on recoveries under the Home Insulation and Conservation Act. Finally, the court holds that petitioner is precluded from seeking judicial review of its objection to the PSC's use of the utilities' fuel adjustment clause for the rate recoveries, because the petitioner failed to raise that issue before the PSC.

Counsel for Appellant
Algird F. White Jr.
Couch, White, Brenner, Howard & Feigenbaum
540 Broadway, P.O. Box 22222, Albany NY 12201
(518)426-4600

Counsel for Respondent
William J. Cowan, Gen. Counsel; Lawrence G. Malone
New York State Public Service Commission
Agency Three, Empire State Plaza, Albany NY 12223
(518) 474-7080

Counsel for Intervenor
Stanley W. Widger Jr.
Nixon, Hargrave, Devans & Doyle
Clinton Sq., P.O. Box 1051, Rochester NY 14603
(716) 546-8000

Before MAHONEY, P.J., and MIKOLL, LEVINE, CREW and HARVEY, JJ.

MAHONEY, P.J., and MIKOLL, CREW and HARVEY, JJ., concur.

[21 ELR 21399]

LEVINE, Justice.

In this CPLR article 78 proceeding, petitioner, an unincorporated association of large-scale electricity customers of, among others, Niagara Mohawk Power Corporation (hereinafter NiMo) and intervenor Orange and Rockland Utilities, Inc. (hereinafter O & R) challenged the validity of Opinion No. 89-29, rendered by respondent, Public Service Commission (hereinafter the PSC), which authorizes certain recoveries to NiMo and O & R in subsequent rate proceedings related to their respective demand side management (hereinafter DSM) programs. DSM programs are campaigns and other measures which utilities undertake to encourage energy conservation by their customers, either by overall reductions in consumption of electricity or by reducing such consumption during peak demand hours. The PSC has been actively promoting adoption and implementation of DSM programs in various opinions and orders since 1984. In a July 1988 opinion and order, the PSC acknowledged the legitimate concerns of utilities that successful DSM programs, albeit beneficial to utility customers and society at large, will serve to reduce their revenues and profits. The PSC concluded that "the way to resolve [this dilemma] is through revised ratemaking, not through de-emphasis of conservation". To that end, the 1988 opinion and order directed electric utilities to submit [21 ELR 21400] rate-making proposals to the PSC with their DSM plans which, in effect, would reward utilities for achieving energy savings through their DSM programs.

The opinion of the PSC under review in this proceeding was rendered in response to the submission of proposals by NiMo and O & R pursuant to the previous PSC order, after interested parties were given an opportunity to appear and comment. The opinion permits NiMo and O & R to recover in rates (1) the prudently incurred direct costs of their DSM programs, (2) their net lost revenues attributable to the energy conservation achieved through the DSM programs, and (3) incentive payments consisting of a portion (20% for O & R, 10% for NiMo) of the dollar savings in reduced consumption of electricity caused by the DSM programs. Petitioner appeals from Supreme Court's dismissal of the petition.

Petitioner's first ground for reversal and invalidating Opinion 89-29 is that, in granting NiMo and O & R rate recovery for lost profits and incentive payments based upon reduced consumption of electricity, the PSC engaged in social policymaking without legislative authorization under the Public Service Law (citing Boreali v. Axelrod, 71 N.Y.2d 1, 523 N.Y.S.2d 464. 517 N.E.2d 1350). Petitioner's essential argument is that, under the Public Service Law, electric utility customers may only be charged and the PSC may only set rates for electrical services rendered (citing Public Service Law § 65[1]; § 66[16]). Moreover, a utility's expenditures are only recoverable if undertaken prudently to provide electric service. It follows, according to petitioner, that the PSC cannot authorize charges or base rates on the non-provision of electrical service, merely on the agency's own social policy favoring energy conservation. We disagree.

First, petitioner's narrow view of the PSC's rate-setting authority as being restricted to imposing only charges directly related to the provision of electrical service is simply not supported by the case law. Petitioner's contention that rate recovery must be based upon the production, sale or distribution of electricity is, for example, inconsistent with Matter of Abrams v. Public Serv. Commn. of State of N.Y., 67 N.Y.2d 205, 501 N.Y.S.2d 777, 492 N.E.2d 1193, where the Court of Appeals upheld rate recovery of the cost of a utility's pump storage facility despite the facility having been abandoned before ever contributing to the production of electricity. The courts have permitted rate charges and rate differentials that were based upon a wide variety of factors not directly related to the provision of utility services or the quantity or quality thereof (see, e.g., Matter of New York State Council of Retail Merchants v. Public Serv. Commn. of State of N.Y., 45 N.Y.2d 661, 665, 412 N.Y.S.2d 358, 384 N.E.2d 1282 [for energy conservation]; Matter of MCI Telecommunications Corp. v. Public Serv. Commn. of State of N.Y., 108 A.D.2d 289, 297, 488 N.Y.S.2d 840 [for preservation of competition among telephone utilities]; Matter of Burstein v. Public Serv. Commn. of State of N.Y., 97 A.D.2d 900, 901-902, 470 N.Y.S.2d 698 [incentive rate for avoidance of plant construction cost overruns]; Matter of Cohalan v. Gioia, 88 A.D.2d 722, 723, 451 N.Y.S.2d 275 [rates partially based upon economic impact on the service area]).

Similarly unavailing is petitioner's contention that the PSC, in providing for recovery of lost profits and incentive payments for DSM programs, adopted its own social policy vision without the benefit of any legislative direction. The most notable legislative charge for the PSC to promote energy conservation is Public Service Law § 5(2), directing the PSC to "encourage all persons and corporations subject to its jurisdiction to formulate and carry out longrange programs * * * for the performance of their public service responsibilities with economy, efficiency, and care for * * * the conservation of natural resources" (emphasis supplied). There could hardly be a more explicit mandate. "Conservation of resources has become an avowed legislative policy embodied in the [PSC's] enabling act" (Matter of Consolidated Edison Co. of N.Y. v. Public Serv. Commn. of State of N.Y., 47 N.Y.2d 94, 103, 417 N.Y.S.2d 30, 390 N.E.2d 749, revd. on other grounds 447 U.S. 530, 100 S. Ct. 2326, 65 L. Ed. 2d 319). Since the Legislature and not the PSC has, thus, chosen the end to be accomplished, has given the PSC broad discretion to choose the means of achieving the legislative objective, and the PSC's choice of rate-making incentives for effective DSM energy conservation programs embodied in Opinion 89-29 clearly bears a reasonable relationship to the purpose of the enabling legislation, the challenge to the PSC determination withstands any objections based upon Boreali v. Axelrod (supra) (see, Matter of New York State Health Facilities Assn. v. Axelrod, 77 N.Y.2d 340, 348-350, 568 N.Y.S.2d 1, 5-6, 569 N.E.2d 860, 864-865; Matter of Citizens for an Orderly Energy Policy v. Cuomo, 159 A.D.2d 141, 157-159, 559 N.Y.S.2d 381, lv. granted 77 N.Y.2d 804, 568 N.Y.S.2d 912, 571 N.E.2d 82).

Petitioner's remaining points do not require extended discussion. No hearing was required for this proceeding before the PSC (see, Matter of Burstein v. Public Serv. Commn. of State of N.Y., supra, 97 A.D.2d at 901, 470 N.Y.S.2d 698). Therefore, it was not incumbent upon the PSC to support its determination by pointing to substantial evidence in the record that the costs of the approved DSM programs of NiMo and O & R are prudently incurred before determining that they will generally be recoverable. Rather, the appropriate test is whether the determination was arbitrary and capricious and lacked a rational basis (see, Matter of Christopher v. Phillips, 160 A.D.2d 1165, 1167, 554 N.Y.S.2d 370, lv. denied 76 N.Y.2d 706, 560 N.Y.S.2d 988, 561 N.E.2d 888). Under the PSC's DSM-related orders and opinions, the prudence of DSM expenditures by any utility will be reviewed when submitted as part of the utility's biennial DSM program. Under Opinion No. 89-29, the recovery of DSM program costs will be made through each utility's fuel adjustment clause. Thus, the PSC will have the right to make retroactive adjustments of the rates if the expenditure in question is found not to have been prudently incurred (see, Matter of Niagara Mohawk Power Corp. v. Public Serv. Commn. of State of N.Y., 69 N.Y.2d 365, 372-373, 514 N.Y.S.2d 694, 507 N.E.2d 287). In the absence of anything in the record demonstrating that the DSM programs will not be cost-effective in achieving energy conservation, petitioner has failed to sustain its burden of showing the irrationality or arbitrariness of the PSC's determination (see, New York State Council of Retail Merchants v. Public Serv. Commn. of State of N.Y., 45 N.Y.2d 661, 673-674, 412 N.Y.S.2d 358, 384 N.E.2d 1282, supra). Likewise, petitioner has failed to show that the recoveries authorized by Opinion No. 89-29 will conflict with any limitations on recoveries for the particular kinds of energy conservation measures provided under the Home Insulation and Conservation Act (Public Service Law art. VII-A).

Finally, petitioner's objection to the propriety of the use of the fuel adjustment clause for the rate recovery provided under Opinion No. 89-29 (see, 16 NYCRR 136.55-136.58) was not raised before the PSC. Hence, petitioner is precluded from seeking judicial review of that issue (see, Young Men's Christion Assn. v. Rocheater Pure Waters Dist., 37 N.Y.2d 371, 375, 372 N.Y.S.2d 633, 334 N.E.2d 586).

For all the foregoing reasons, Supreme Court's dismissal of the petition should be affirmed.

Judgment affirmed, with one bill of costs.