Consolidated Edison Co. of New York, Inc. v. Public Service Com'n

• Decision Date: 21 February 1985
• Citation: 107 A.D.2d 73,485 N.Y.S.2d 607
• Parties: In the Matter of CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., et al., Appellants, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 607

485 N.Y.S.2d 607

107 A.D.2d 73

In the Matter of CONSOLIDATED EDISON COMPANY OF NEW YORK,

INC., et al., Appellants, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.

Supreme Court, Appellate Division,

Third Department.

Feb. 21, 1985.

Joy Tannian, Peter Garam & Celeste A. Contrucci, New York City, for Consol. Edison Co. of New York, Inc., appellant.

Huber, Lawrence & Abell, New York City (Frederic H. Lawrence and Kenneth M. Jasinski, New York City, of counsel), for New York State Elec. & Gas Corp., appellant.

Kenneth D. Archer, Pearl River, for Orange and Rockland Utilities, Inc., appellant.

Nixon, Hargrave, Devans & Doyle, Rochester (Richard N. George, Rochester, of counsel), for Rochester Gas and Elec. Corp., appellant.

David E. Blabey, Albany (Timothy P. Sheehan, Albany, of counsel), for respondent.

Before MAIN, J.P., and WEISS, MIKOLL, YESAWICH and HARVEY, JJ.

WEISS, Justice.

On June 20, 1980, the United States Supreme Court held that when the Public Service Commission of the State of New York (PSC) prohibited utility companies from including inserts which expressed the views or opinions of the utility on controversial issues of public policy in envelopes containing service bills to customers, the PSC violated the 1st Amendment of the U.S. Constitution, as applied to the States through the 14th Amendment (Consolidated Edison Co. of N.Y. v. Public Serv. Comm. of N.Y., 447 U.S. 530, 100 S.Ct. 2326, 65 L.Ed.2d 319) (hereinafter Consolidated Edison ). The decision left unresolved the question of whether the use of the billing process by a utility management for dissemination of its views and opinions on political or ideological issues, or to promote its interests, amounted to a forced subsidy from ratepayers and, if so, whether there should be an allocation of the costs between shareholders and ratepayers to avoid such subsidization, as well as the methodology to be employed for such allocation (Consolidated Edison, supra, p. 543, n. 13, 100 S.Ct. p. 2336, n. 13; p. 544, 100 S.Ct. p. 2337 ).

A proceeding was commenced by the PSC on July 16, 1980 culminating in a March 23, 1983 order which determined that:

Each utility which mails bill inserts to its ratepayers must, if the bill inserts contain messages defined in Account 426.4 (for electric and gas utilities) or Account 323.1 (for telephone utilities) ¹, charge the account with 50% of the costs of the mailing. All revenues (including any tax effects) associated with costs charged pursuant to this order will be placed in a deferred account. The deferred amounts shall be deducted from the utility's revenue requirement in its next rate proceeding.

In effect, the PSC determined that the costs be borne on a 50-50 basis with shareholders and ratepayers sharing equally those costs including stamps, envelopes, processing costs, and the costs of assembling and updating ratepayers mailing lists. The formula for the cost of maintaining and updating the mailing lists was to be determined as follows: "each utility shall multiply the number of bills used for political messages divided by 12 (six if the company bills bi-monthly) times 50% of the cost of maintaining its billing list for such years". This sum would be allocated and deferred (added to Accounts 426.4 and 323.1).

Petitioners, electric and gas utilities, thereupon commenced a combined CPLR article 78 proceeding, seeking annulment and vacatur of the March 23, 1983 PSC order, and an action for declaratory judgment, declaring that said order is violative of the US Constitution, 1st, 5th and 14th Amendments and the NY Constitution, article I, §§ 6, 7, 8, and for judgment enjoining enforcement of said order. Special Term denied the relief sought in both the petition and verified complaint. Petitioners' direct appeal to the Court of Appeals was transferred to this court by the Court of Appeals, which noted that "direct appeal does not lie where it does not involve a statutory provision" (62 N.Y.2d 912, 913, 479 N.Y.S.2d 8, 467 N.E.2d 892).

Petitioners initially argue that the PSC order abridges their freedom of speech because it is a content-based restriction on noncommercial speech protected by the 1st Amendment, in that they are compelled to pay one half of the mailing costs when the message inserted into the bill packet espouses their views on controversial issues of public policy whereas there is no charge when a message deals with noncontroversial subjects. They argue that this practice is expressly prohibited by the Consolidated Edison case. We disagree. In our view, the order is not a content-based restriction, and thus need not provide a precisely drawn method of serving a compelling State interest. The order in no way restricts petitioners from utilizing bill packet inserts to disseminate their views on controversial subjects. It merely holds that when a utility bootstraps its message onto a vehicle fully paid for by the recipient customers, it should then share equally in the cost of that mailing. Moreover, proportionate allocation effects the PSC's prime function of "separatthose costs which should be borne by ratepayers from those which are properly chargeable to shareholders" (Rochester Gas & Elec. Corp. v. Public Serv. Comm. of State of N.Y., 51 N.Y.2d 823, 825, 433 N.Y.S.2d 420, 413 N.E.2d 359, appeal dismissed 450 U.S. 961, 101 S.Ct. 1475, 67 L.Ed.2d 610). Such determinations will not be set aside by this court absent a showing, not here present, that a rational basis in the record is lacking (see Matter of Cohalan v. Gioia, 88 A.D.2d 722, 723, 451 N.Y.S.2d 275).

Although utilities are clearly entitled to insert printed materials in the billing envelopes expressing their views on controversial public policy issues, no corresponding duty exists on the part of government or the ratepayers to bear the cost burdens necessary to realize that right (see Harris v. McRae, 448 U.S. 297, 317, n. 19, 100 S.Ct. 2671, 2688, n. 19, 65 L.Ed.2d 784). While petitioners readily acknowledge that they are responsible for incremental costs (additional postage due, cost of printing and inserting into bill envelopes) incurred by inclusion of their messages, they contend that any requirement that they pay one half of the amount of the basic costs (normal postage and bill insertion) results in impermissible taxation. It is clear that a public utility cannot include in its rate base the costs of political advertising and lobbying since customers derive no service-related benefits from such materials (Consolidated Edison, supra, 447 U.S. p. 550, 100 S.Ct. p. 2340 ). Since the benefits of disseminating such information inure to the utility's shareholders, so also should the costs (see Southwestern Elec. Power Co. v. Federal Power Comm., 5th Cir., 304 F.2d 29, cert denied sub nom. Alabama Power Co. v. Federal Power Comm., 371 U.S. 924, 83 S.Ct. 292, 9 L.Ed.2d 232).

Without the subject order, there is imposed upon ratepayers a subtle, indirect subsidization of the transmittal of management's controversial or political views. The PSC is empowered to consider the "nonutility" use of assets including a utility plant or the nonutility nature of company expenditures, or to take appropriate rate-making action to ensure that rate-payers are not compelled to pay for the cost of such activities or expenditures (see Rochester Gas & Elec. Co. v. Public Serv. Comm. of State of N.Y., supra, 51 N.Y.2d p. 825, 433 N.Y.S.2d 420, 413 N.E.2d 359; Matter of New York Tel. Co. v. Public Serv. Comm. of State of N.Y., 64 A.D.2d 232, 247-248, 410 N.Y.S.2d 124, lv. denied 46 N.Y.2d 710, 414 N.Y.S.2d 1028, 387 N.E.2d 1221; Matter of New York Water Serv. Corp. v. Public Serv. Comm. of State of N.Y., 12 A.D.2d 122, 128-129, 208 N.Y.S.2d 857, lv. denied 10 N.Y.2d 705, 219 N.Y.S.2d 1025, 176 N.E.2d 922). Petitioners contend that they should be entitled to a "free ride" when the cost of mailing a bill packet is not increased by the insertion of their informational literature. As noted by Justice Blackmun, "though the free ride may cost the ratepayers nothing additional by way of specific dollars, it still qualifies as forced support of the utility's speech" (Consolidated Edison, supra, 447 U.S. p. 552, 100 S.Ct. p. 2341 ). This court has previously reached a similar conclusion (Matter of Consolidated Edison Co. of N.Y. v. Public Serv. Comm. of State of N.Y., 63 A.D.2d 364, 367-368, 407 N.Y.S.2d 735, affd. 47 N.Y.2d 94, 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). Indeed the converse of petitioners' logic might just as easily be utilized to suggest that whenever petitioners insert literature expressing management's...