Rochester Gas and Elec. Corp. v. Public Service Commission

• Decision Date: 09 November 1978
• Citation: 410 N.Y.S.2d 142,64 A.D.2d 345
• Parties: ROCHESTER GAS AND ELECTRIC CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 142

410 N.Y.S.2d 142

64 A.D.2d 345

ROCHESTER GAS AND ELECTRIC CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION, Respondent.

Supreme Court, Appellate Division, Third Department.

Nov. 9, 1978.

Nixon, Hargrave, Devans & Doyle, Rochester (Richard N. George, Rochester, of counsel), for petitioner.

Peter H. Schiff, Albany (Sigrid J. Hammond, Albany, of counsel), for respondent.

Before KANE, J. P., and MAIN, LARKIN, MIKOLL and HERLIHY, JJ.

HERLIHY, Justice.

In this proceeding, Rochester Gas and Electric Corporation ("Rochester" or "the company") challenges the determination of the Public Service Commission (PSC), issued on November 1, 1977 and on January 20, 1978.

On December 3, 1976, Rochester filed proposed tariff revisions designed to increase electric revenues by about $20 million and gas revenues by $7 million. Public hearings on the proposed changes were conducted and following those hearings an Administrative Law Judge recommended the respective increases of $15,800,000 and $3,700,000 in electric and gas revenues. The PSC in its initial determination of November 1, 1977 reduced the proposed increases to the sums of $10,186,588 and $2,535,645 for electric and gas revenues. Further, the initial determination provided as follows:

We shall permit RG & E (Rochester) to file tariff revisions to be effective in February, 1978 to recover actual increased wage and salary expenses that will become effective at that time, but, since the increase is not subject to collective bargaining, in no event will we allow an amount greater than the 6% Increase estimated in this proceeding. We find this amount reasonable and the company can effectively preclude a higher increase from being paid. The company also will be required to provide evidence of labor productivity gains it expects to realize in the period during which the higher wage costs will be effective.

Rochester objected to the initial determination by seeking a rehearing on six issues. Three of the objections raised by Rochester are also the particular issues raised in this proceeding. One of these issues was phrased in part by Rochester in its objections as follows:

The Company must take strong exception to the Commission having limited the allowable 1978 wage increase on the stated basis that "the increase is not subject to collective bargaining". This rationale is arbitrary and capricious, without basis in fact or in law. It amounts to imposing a penalty upon both the Company and its employees for the fact that the Company is not unionized, and to an effort to coerce both the Company and its employees into becoming unionized. As such it constitutes an unpermitted interference with both the freedom of the Company's employees and the rights of Company management.

The PSC in its final determination, issued on January 20, 1978, denied a rehearing on any issue, but did revise its initial determination by allowing Rochester to include in its proposed rate filing an additional expense item of $120,000. On the question of wages, the PSC in this determination stated in part:

Our decision to follow this procedure in no way affects the freedom of the company management or its employees with respect to labor relations and was clearly not intended to coerce the company and its employees to become unionized as RG & E contends. To repeat, we simply authorized RG & E to file revised tariffs in February, 1978 to recover its actual higher wage expense anticipated to become effective at that time, up to a level of increase that the company itself estimated in this proceeding.

As to the other issues, the PSC in its initial determination and its subsequent refusal of a rehearing applied its "policy" or guideline as to certain forms of advertising generally described as informational, and accordingly limited the allowable portion of such expense to 0.1% Of gross revenues. Further, the PSC disallowed a portion of test year expenses incurred for the hiring of outside contractors.

Rochester in its petition, briefs, and arguments in the proceeding before this court generally contends that in its ruling on the question of anticipated wage increases, informational advertising expenses and the expense for outside contractors, the PSC has acted arbitrarily and capriciously, irrationally illegally, and/or dehors the facts established in the record.

I. The disallowance of wages in the present record and in particular the refusal to conduct a hearing on the reasonableness of the actual increase exceeding 6% Was without any rational basis in the record and is arbitrary and capricious.

The details of the controversy as to wages are set forth hereinabove. The attempt of the Commission to distinguish between utilities involved in collective bargaining and those whose employees are not union members has no rational basis as evidence of future wage increases. Furthermore, the classification of the industry as to unions for the purpose of a prophecy of future wage increases would tend to encourage the employees to form or join unions as an inducement for management to grant larger wage increments. The PSC by its intrusion into the internal affairs of the utility in this particular case exceeds its power under the Public Service Law even though it attempted to modify or rectify the obvious reference to collective bargaining in its determination of January 20, 1978.

Furthermore, the record contained evidence that an increase of more than 6% Was likely. The company pointed out that its 6% Estimate was not truly based upon a forecast of actual wages, rather it was the same inflation rate which it had used in its proposed adjustments to escalate other components of expense to a probable 1978 cost level. As such, the estimate did not provide for merit increases. In this vein, the company's 2,012 weekly employees were eligible for cost of living and merit increases, while the 632 monthly employees, although only entitled to merit increases, were granted raises equivalent to the total overall increase given weekly employees. Thus, there is evidence to indicate that a wage increase of more than 6% Was the only reasonable conclusion.

Under such circumstances a refusal to permit a hearing as to the reasonableness of the actual increase, when a rate increase may not take effect until there is such an actual increase in wages, is arbitrary. (See e. g., Matter of New York Tel. Co. v. Public Serv. Comm. of State of N.Y., --- A.D.2d ---, 410 N.Y.S.2d 124.) As pointed out by Rochester:

The law is well-settled that the Commission may not rely on a reckoning when actual experience is available and establishes that the predictions have been substantially incorrect (Matter of New York Tel. Co. v. Public Serv. Comm. of State of N.Y., 29 N.Y.2d 164, 169, 324 N.Y.S.2d 53, 55, 272 N.E.2d 554, 556).

In regard to the wage increase, it should be noted that what, if any, labor productivity gains are to be expected are properly required by the PSC to be considered in ascertaining the amount to be passed on to the consumer. The determination should be modified in accordance with the foregoing consideration of the wage increase.

II. In regard to the question of the amount of contractors' expenses to be allowed, it is noted that those expenses connected with the conversion of capital equipment in the gas distribution facilities as such need not be classified as incidental upkeep or operation of the business on an annual basis. There is no substantial foundation for the suggestion that the PSC erred in its treatment of this expenditure to the prejudice of the Petitioner, and, accordingly, the determination on this issue should be confirmed as within the expertise of the PSC.

III. Rochester alleges several errors and/or illegalities as to the refusal of the PSC to allow more than...