Niagara Mohawk Power Corp. v. Public Service Com'n of State of N.Y.

• Decision Date: 20 December 1990
• Citation: 563 N.Y.S.2d 943,164 A.D.2d 502
• Parties: , 120 P.U.R.4th 158 In the Matter of NIAGARA MOHAWK POWER CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION OF The STATE OF NEW YORK et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 943

563 N.Y.S.2d 943

164 A.D.2d 502, 120 P.U.R.4th 158

In the Matter of NIAGARA MOHAWK POWER CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION OF The STATE OF NEW YORK et al Respondents.

Supreme Court, Appellate Division,

Third Department.

Dec. 20, 1990.

Swidler & Berlin (Carmen D. Legato and Paul Kaleta, of counsel), Washington, D.C., and Bower & Gardner (Kenneth L. Shapiro and Filip Tiffenberg, of counsel), Albany, for petitioner.

William J. Cowan (Lawrence G. Malone, of counsel), Albany, for Public Service Com'n, respondent.

Dickstein, Shapiro & Morin (Frederick M. Lowther, Beth L. Webb and Johannes W. Williams, of counsel), Washington, D.C., for JMC Selkirk, Inc., respondent.

Before MAHONEY, P.J., and CASEY, WEISS, LEVINE and MERCURE, JJ.

MAHONEY, Presiding Justice.

Respondent JMC Selkirk, Inc. (hereinafter Selkirk) decided to construct in two phases a natural gas-fired cogeneration facility at the site of a General Electric (hereinafter GE) factory in the Town of Bethlehem, Albany County, within petitioner's gas franchise area. Electricity and steam generated during the first phase will be sold to petitioner and GE. During the second phase, electricity will be sold to Consolidated Edison and steam probably will be sold to GE. Selkirk entered into long-term contracts to purchase high pressure natural gas for the facility. Because petitioner's existing pipeline system is inadequate to transport the type of product Selkirk purchased, the natural gas is to be transported through other existing pipelines to a point about 2.1 miles from the site of the facility. A new pipeline spur was needed to transport the natural gas to the facility.

After negotiations between petitioner and Selkirk over construction and operation of the pipeline spur were unsuccessful, Selkirk sought approval from respondent Public Service Commission (hereinafter the PSC) to construct the pipeline spur. Petitioner intervened and, although not contesting the need for the pipeline spur, sought ownership of and control over the pipeline spur, contending that Selkirk's ownership and control would result in millions of dollars of losses to its ratepayers. In the alternative, petitioner requested evidentiary hearings on ownership and control of the pipeline spur. The PSC directed that a hearing be held limited to the issues raised by petitioner. Following the hearing, the PSC granted Selkirk approval to construct the pipeline spur, finding that petitioner failed to substantiate its claim of harm to its ratepayers. After petitioner's request for a rehearing was denied, it commenced this proceeding to annul the PSC's determinations. Petitioner first contends that the PSC misapplied the "public interest" requirement of Public Service Law § 126(1)(g) by failing to make a comparative evaluation of the competing proposals and determining only that Selkirk's proposal is in the public interest. We disagree. The language of the statute has no comparative analysis component, stating only that approval for a project can be given if it "will serve the public interest, convenience, and necessity" (Public Service Law § 126[1][g]. Contrary to petitioner's contention, we did not impose any comparative analysis requirement in Matter of Columbia Gas of N.Y. v. Public Serv. Commn. of State of N.Y., 118 A.D.2d 305, 504 N.Y.S.2d 816; in any event, Columbia Gas involved an application considered pursuant to Public Service Law § 68 rather than Public Service Law § 126(1)(g), as here. Petitioner's reliance on another PSC proceeding which purports to impose the proof requirements of Public Service Law § 68 upon a case such as this one is without merit because, as previously noted, we have not required the comparative analysis approach as advocated by petitioner under Public Service Law § 68. The case of Matter of County of Orange v. Public Serv. Commn. of State of N.Y. 44 A.D.2d 103, 106, 353 N.Y.S.2d 916, mod. 37 N.Y.2d 762, 374 N.Y.S.2d 633, 337 N.E.2d 141, also relied on by petitioner, is distinguishable since it focused on the issue of minimum adverse environmental impact under Public Service Law § 126(1)(c), a finding not required herein (see, Public Service Law § 121-a[7].

We further find that the PSC did not err in failing to hold a full evidentiary hearing. Public Service Law § 121-a(5) permits the PSC to limit the record of the proceeding in a case such as this by not holding a hearing. In the absence of any requirement for a full evidentiary hearing, we find no merit to petitioner's claim.

Petitioner also argues that the PSC's determination is unsupported by substantial evidence, arbitrary and capricious and without rational basis. Since a hearing was not required, even though held, the appropriate standard upon review is whether the determination is arbitrary and capricious (see, Matter of Christopher v. Phillips, 160 A.D.2d 1165, 554 N.Y.S.2d 370 [1990], lv. denied 76 N.Y.2d 706, 560 N.Y.S.2d 988, 561 N.E.2d 888). Contrary to petitioner's claim, there does not seem to be any policy preference for utility ownership of cogeneration facilities. Indeed, production of energy from cogeneration facilities is a stated goal of the Legislature (see, Public Service Law § 66-c[1] and utilities can be required to purchase cogenerated electricity (see, id.). From this perspective, the PSC's determination in favor of Selkirk's ownership of the pipeline spur seems reasonable and not arbitrary and capricious. Furthermore, there was evidence of economic advantages if Selkirk was to own and operate the pipeline spur, which also supports the PSC's determination. Finally, the fact that petitioner has been granted hearings on other cogeneration projects does not make the determination here arbitrary and capricious, for these other projects seem to involve different factual situations, such as large numbers of potential customers being served by nonutilities. Since Selkirk's approval is conditioned on the pipeline spur serving only its cogeneration facility, there is a reasonable basis upon which to differentiate the cases. For all these reasons, it strikes us that the PSC's determination is not arbitrary and capricious and must be confirmed. We likewise see no reason to intervene in the PSC's denial of reconsideration.

Determinations confirmed, and petition dismissed, without costs.

CASEY, LEVINE and MERCURE, JJ., concur.

WEISS, J., dissents and votes to annul in an opinion.

WEISS, Justice (dissenting).

I respectfully dissent.

At issue here is the construction, ownership and operation of a proposed 2.1-mile, 12-inch diameter high pressure gas distribution spur from the gas transmission line to the industrial park complex where the plant of respondent JMC Selkirk, Inc. (hereinafter Selkirk) is located. Petitioner stood ready to provide Selkirk the requisite distribution/transportation service by building and operating the necessary capital improvements to their distribution system. However, when Selkirk and petitioner were unable to agree on the gas transportation rate to be charged, Selkirk concluded that it could save money and decided to build and operate its own distribution pipeline.

Regulated utility rates are based upon average system costs for the common benefit of public utility customers regardless of location within the distribution system. Thus, all ratepayers benefit; access costs for a distant customer which would otherwise be prohibitive are offset by the lower costs to nearby customers. Combined, these costs justify the creation of the distribution system in the first instance. Petitioner's profits remain the same, with the difference between actual cost and average cost inuring to the system's ratepayers as a whole. Seeking to avoid this contribution to system costs, Selkirk filed its application with respondent Public Service Commission (hereinafter the PSC) for authority to construct, own and operate the gas distribution spur itself. Petitioner intervened in the proceedings, seeking to have PSC approval for the construction of the pipeline spur conditioned upon its ownership and operation of the spur.

The PSC directed that a limited hearing be held for the purpose of providing petitioner an opportunity to explain its position, substantiate its claim of harm and demonstrate why evidentiary hearings were required. In the referral order, the PSC noted that it had found that gas transportation contracts for other cogenerating plants had been approved upon the basis that utility ratepayers would benefit from the provision of such service by the public utility. In December 1989, the PSC issued an order granting Selkirk a certificate of environmental compatibility and public need and rejected petitioner's request...