New Rochelle Water Co. v. Public Service Commission

• Decision Date: 28 December 1972
• Parties: , 292 N.E.2d 767 In the Matter of NEW ROCHELLE WATER COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent. In the Matter of LONG ISLAND WATER CORPORATION, Appellant, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 617

340 N.Y.S.2d 617

31 N.Y.2d 397, 292 N.E.2d 767

In the Matter of NEW ROCHELLE WATER COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.

In the Matter of LONG ISLAND WATER CORPORATION, Appellant, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.

Court of Appeals of New York.

Dec. 28, 1972.

Arthur S. Friedman and Michael J. Golden, New York City, for New Rochelle Water Co. Frederick H. Lawrence, Norman Abell, and A. Jared Silverman, New York City, for Long Island Water Corp.

Peter H. Schiff and Joel Yohalem, Albany, for respondent.

JASEN, Judge.

These two appeals present the common question of whether the respondent, Public Service Commission (Commission), acted within its powers in denying appellants' request to apply permanent rate increases retroactively to permit the public utilities to recoup from consumers the difference in revenues between the final rates and lower temporary rates which the Commission put into effect after its suspended proposed rate increases filed by the utilities.

On May 19, 1970, the New Rochelle Water Company (hereinafter referred to as NRW) filed proposed rate increases with the Commission pursuant to article 4--B of the Public Service Law, Consol.Laws, c. 48, which specifically applies to the regulation of water companies. The revised rate schedule would have produced additional revenues of about $2,027,400, and yield a rate of return of approximately 8.95%. The prior rates produced a return of about 2.95%. Prior to the filed rate taking effect, the Commission suspended the proposed rate increases for 10 months pursuant to subdivision 10 of section 89--c of the Public Service Law.

On August 20, 1970, NRW requested temporary rate increases, and on September 30, 1970, the Commission granted temporary rates designed to produce a rate of return of 5.5% Resulting in an increase of the utility's revenues by $514,000 per year. The Commission issued its final determination on April 8, 1971, in which it approved permanent increased rates generating additional revenues of $1,067,900 per year and yielding a rate of return of 7.6%. NRW agrees that the permanent rates are fair and reasonable.

By this article 78 proceeding, NRW challenges that portion of the Commission's determination which denied retroactive application of the increased permanent rates for the period its proposed rate increases were suspended, and denied a revenue allowance for estimated future tax increases resulting from the construction of certain 'backbone' facilities which did not appear on the tax assessment rolls during the test period.

The Commission's hearing officer recommended that reparations, representing the difference between the revenue received under the temporary rates and that which would have been received under the increased permanent rates which he recommended, be granted to NRW pursuant to section 113 of the Public Service Law. The hearing officer did not recommend retroactive application of the final rates to the portion of the suspension period Prior to the time the temporary rates were allowed. In denying retroactive application of the final rates to any portion of the suspension period, the Commission stated, 'there is no basis in law for requiring reparations in the case of temporary increases during a suspension period. Since no extraordinary justification has been shown in this case, we do not deem the granting of reparations to be appropriate and the request of the company will be denied.' The Commission also denied NRW's request for a revenue allowance of $200,000 for estimated future real property and special franchise taxes resulting from construction of certain 'backbone' facilities which did not appear upon the tax assessment rolls during the test period, upon the ground that an allowance for estimated future taxes would be speculative and would precede the utility's liability for such taxes.

The Appellate Division, in unanimously affirming the Commission's determination, held that although the Commission possessed the discretionary power under section 113 of the Public Service Law, as amended in 1970 (L.1970, ch. 271), to order refunds to consumers and/or reparations to public utilities, whenever it grants a temporary rate increase pending determination of the final rate, its refusal to allow reparations to NRW was not arbitrary, capricious, or an abuse of discretion. The Appellate Division further held that NRW was not entitled to recoup the difference between the temporary and final rates under section 114 of the Public Service Law as that section applied only to revenue losses suffered by utilities during temporary rate Decreases, and did not apply to a temporary rate increase granted pending approval of proposed increased rates filed by the utility. Finally, the court held that there was substantial evidence to support the Commission's refusal to include a revenue allowance for estimated future tax increases in the final rates.

The companion appeal of Long Island Water Corporation (LIW) presents a similar factual pattern. LIW commenced an article 78 proceeding to review a determination of the Commission which granted a permanent rate increase of $1,630,376 and denied reparations. The new rates increased the original rate of return from 3.49% To 6.95%. As in the NRW case, the Commission suspended the proposed increased rate schedule filed by LIW for 10 months, and granted a temporary rate increase predicated upon a 5.5% Rate of return. The Commission denied reparations to LIW for the period the proposed rate increases were suspended upon the ground that section 113 of the Public Service Law did not authorize reparations during the 10-month period that it is permitted to suspend proposed rate increases pursuant to section 89--c of the same law. The Appellate Division confirmed the determination, and dismissed the petition upon the authority of its decision in the companion case involving NRW. (Matter of New Rochelle Water Co. v. Public Serv. Comm., 38 A.D.2d 375, 329 N.Y.S.2d 509.)

Subdivision 10 of section 89--c of the Public Service Law establishes the statutory power of the Commission to suspend proposed new rates for the maximum period of 10 months, and provides that the prior rates remain in effect during the suspension period unless the Commission authorizes a temporary rate pursuant to section 89--j of the same statute.

Whenever the Commission enters into a hearing concerning the propriety of a proposed rate increase filed by a public utility company And allows a temporary rate increase, the provisions of section 113 of the Public Service Law pertaining to reparations become applicable.

At issue on these appeals is whether section 113 of the Public Service Law requires the Commission to grant reparations ¹ to public utility companies where a temporary rate increase granted by the Commission during the suspension period is less than the final rate increase.

As enacted in 1930 (L.1930, ch. 790), section 113 provided that, as to newly filed rate increases which went Into effect while the Commission was conducting hearings concerning the propriety of such increased rates, the Commission could direct refunds, with interest, of any part of such increase found to be excessive to the persons who paid the increased rates. However, the statute restricted refunds to the two-year period prior to the establishment of the final rate. Section 113, as originally enacted, did not apply to proposed increased rates which were suspended by the Commission prior to their taking effect. Thus, refunds were not required in the event that temporary rates established during the suspension period were higher than the final rate. As so enacted, section 113 did not authorize the Commission to grant reparations to utilities where the Commission suspended a proposed rate increase prior to its taking effect and established a temporary rate which was less than the final rate. Indeed, as enacted in 1930, section 113 did not authorize reparations to public utilities under any circumstances.

Section 113 was substantially amended by chapter 271 of the Laws of 1970 ² to provide for refunds to consumers not only when a proposed rate is in effect pending the final rate determination by the Commission, but also when a proposed rate increase is suspended and a temporary rate increase is granted by the Commission. The 1970 amendment also, for the first time in any part of the Public Service Law, provided that where temporary rates authorized by the Commission are inadequate, the Commission 'may by order authorize appropriate reparation to the company'. (Public Service Law, § 113 (emphasis supplied).)

The Appellate Division held that the use of the word 'may' in section 113, in relation to reparations and refunds, gave the Commission the discretionary authority to order reparations and refunds where appropriate.

We agree with their interpretation. It should be abundantly clear from the context in which the word 'may' appears in the 1970 amendment to section 113 that it is used as a permissive verb with regard to both reparations and refunds. (See McKinney's Cons.Laws of N.Y., Book 1, Statutes, § 177.) Indeed, the Commission has consistently interpreted the verb 'may' in the 1970 amendment to section 113 as giving it the discretionary power to order refunds to consumers whenever the temporary rates were excessive. There is nothing in the legislative history to the 1970 amendment to indicate that the Legislature ascribed any different meaning to the verb 'may' when it used the verb in the same amendment in connection with reparations. The statute clearly states that the Commission possesses the authority to allow reparations to the utility if, in the discretion of the Commission, the temporary rate is inadequate and such order would be appropriate. Thus, we hold that the Legislature, by the 1970 amendment to section 113, created...