Niagara Mohawk Power Corp. v. Public Service Com'n

• Decision Date: 06 March 1986
• Parties: In the Matter of NIAGARA MOHAWK POWER CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 477

499 N.Y.S.2d 477

118 A.D.2d 908

In the Matter of NIAGARA MOHAWK POWER CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent.

Supreme Court, Appellate Division Third Department.

March 6, 1986.

Le Boeuf, Lamb, Leiby & MacRae (Leon A. Allen, Jr., of counsel), New York City, for petitioner.

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

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

MIKOLL, Justice.

Proceeding pursuant to CPLR article 78 (transferred to this court by order of the Supreme Court at Special Term, entered in Albany County) to review a determination of respondent which, inter alia, ordered petitioner to refund excessive fuel adjustment charges.

In an opinion issued September 19, 1983, respondent concluded that, based upon hearing evidence, petitioner had been imprudent in certain of its decisions and practices in the past and that the cost of this imprudence had been passed on to petitioner's customers through rate adjustments made under fuel adjustment clauses (FACs). However, because respondent felt that petitioner was not put on notice that the hearing record would be used as the basis for a prudence determination rather than as evidence of the effect of a full-recovery FAC on its operations, petitioner was afforded an opportunity to respond in limited further hearings to any proposal to adjust for previous "overrecovery" of fuel costs. Respondent delineated five charges of imprudent activity on petitioner's part which were to be addressed in the course of these further hearings:

1. The prolonged power outage at petitioner's Dunkirk Unit No. 3 in 1980;

2. The prolonged power outage at petitioner's Dunkirk Unit No. 3 in 1981;

3. Certain of petitioner's equipment procurement practices at its Oswego Unit Nos. 5 and 6;

4. The degradation in heat rates at petitioner's coal and oil-fired generating units at Oswego from 1977 to 1981 and the reasonableness of petitioner's response to those problems; and

5. The reasonableness of petitioner's response to boiler tube leaks at its coal-fired generating units at Huntley and Dunkirk from 1977 to 1981.

A hearing on these "prudence matters" was held in January 1984 before two Administrative Law Judges (ALJs). The ALJs concluded in their recommended decision that petitioner was imprudent in regard to the first two matters and stated that petitioner should refund to its customers $1.013 million in excessive fuel charges. Thereafter, respondent reviewed this decision and modified it by concluding that petitioner had been imprudent not only in matters no. 1 and 2, but also in matter no. 4, insofar as it related to petitioner's coal-fired units, as well as in its handling of matter no. 5. Respondent directed that petitioner refund $32.5 million in excessive fuel charges (later revised to $31.9 million because of errors in calculation) to its customers. Petitioner instituted this CPLR article 78 proceeding to review both respondent's finding of imprudence as to matters no. 1, 4 and 5 and its ordered refunds. The proceeding was transferred to this court.

By way of background, it should be noted that utilities recover costs incurred for fuel in two ways: first, they set forth base rates in tariffs, which respondent reviews and approves pursuant to Public Service Law § 66(12); and second, they make monthly adjustments in customers' bills through FACs according to a formula previously approved by respondent. A FAC:

* * * is a provision designed to reflect monthly increases above or decreases below the "base cost" for fuel used by the utility. It operates by means of a formula, included in each company's filed rate schedule, which determines a monthly rate adjustment to the charge for each kilowatt hour of electricity used by a consumer (Matter of Consumer Protection Bd. of State of N.Y. v Public Serv. Comm., 85 AD2d 321, 322, appeal dismissed 57 NY2d 673 [454 N.Y.S.2d 1034, 439 N.E.2d 1248] [upholding the legality of FACs employed by electric utilities] ).

By their automatic nature, FACs allow a dollar-for-dollar recovery of actual fuel costs to the utility. However, FAC charges, once collected in a year, are "rolled into" base rates, i.e., become part of the base rate for the succeeding year. Petitioner collected more than $729 million through FACs in the years 1977 to 1982.

Petitioner's first contention, that respondent acted outside its authority when it directed petitioner to refund excessive fuel charges before June 21, 1981, the effective date of the Laws of 1981 (ch. 304, § 1), amending Public Service Law § 66(12), is well taken. Express statutory authority is required before respondent may lawfully order refunds. Public Service Law § 66(12) did not contain such express authority prior to its June 21, 1981 amendment.

Respondent, like other agencies, has only those powers expressly delegated to it by the Legislature (Matter of Consolidated Edison Co. of N.Y. v. Public Serv. Comm. of State of N.Y., 47 N.Y.2d 94, 102, 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, revd. on remand on other grounds 51 N.Y.2d 816, 433 N.Y.S.2d 426, 413 N.E.2d 365; Matter of Village of Boonville v. Maltbie, 272 N.Y. 40, 47, 4 N.E.2d 209). However, it may exercise powers incidental to its express powers (Kovarsky v. Brooklyn Gas Co., 279 N.Y. 304, 18 N.E.2d 287; Matter of Niagara Mohawk Power Corp. v. Public Serv. Comm. of State of N.Y., 54 A.D.2d 255, 256, 388 N.Y.S.2d 157) or necessarily implied from such powers (Matter of Niagara Mohawk Power Corp. v. Public Serv Comm. of State of N.Y., supra ). Where a statute is clear and explicit in its language, an omission in the statute may not be supplied by construction (Eastern Paralyzed Veterans Assn. v. Metropolitan Transp. Auth., 79 A.D.2d 516, 517, 433 N.Y.S.2d 461, appeal dismissed 52 N.Y.2d 895, 437 N.Y.S.2d 305, 418 N.E.2d 1324; McKinney's Cons Laws of NY, Book 1, Statutes § 74). This court has consistently held, in construing various sections of the Public Service Law, that respondent could not order refunds without express statutory language (see, e.g., Matter of Rochester Tel. Corp. v. Public Serv. Comm., 87 A.D.2d 672, 673, 448 N.Y.S.2d 827 affd. 58 N.Y.2d 874, 460 N.Y.S.2d 492, 447 N.E.2d 40; Matter of Long Is. Light Co. v. Public Serv. Comm. of State of N.Y., 80 A.D.2d 977, 438 N.Y.S.2d 606, lv. denied 54 N.Y.2d 601, 442 N.Y.S.2d 1027, 425 N.E.2d 901; Matter of Niagara Mohawk Power Corp. v. Public Serv. Comm. of State of N.Y., supra ).

We reject respondent's assertion that it had implied authority, prior to June 21, 1981, to allow refunds by means of the 1974 amendment to Public Service Law § 66(12), which empowered respondent to hold hearings concerning the propriety of any increased rate or charge for fuel cost (L.1974, ch. 863, § 1, eff. June 10, 1974). Public Service Law §§ 4, 5, 65 and 66 give respondent broad powers, but these powers have been held insufficient to order refunds. Nor is respondent's authority to hold hearings enough to imply the power to order refunds.

We find unpersuasive respondent's contention that, because in the past it construed the statute to authorize it to order refunds, it now has the power to do so. An agency's creation of rules and/or regulations without a statutory predicate, expressed or implied, cannot be used to supply the statutory deficiency and is no more than "boot-strapping" (see, Matter of Bates v. Toia, 45 N.Y.2d 460, 465, 410 N.Y.S.2d 265, 382 N.E.2d 1128). Respondent's argument that legislative history indicates it has the implied authority to order refunds is also found wanting. The history is inconclusive.

Respondent's further claim that the automatic operation feature of FACs indicates that it has the implied authority to order refunds is also rejected. Petitioner has a recognized property right in FAC recovery, and respondent has the opportunity to review that recovery since FACs are "rolled over" into the base rate each year. Moreover, review of FAC costs are not so different in character from review of other costs involved in rate-making so as to make FAC review unique, as respondent asserts. An after-the-fact assessment of reasonableness...