Rochester Telephone Corp. v. Public Service Commission of State of N.Y.

• Decision Date: 04 March 1982
• Citation: 87 A.D.2d 672,448 N.Y.S.2d 827
• Parties: In the Matter of ROCHESTER TELEPHONE CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 827

448 N.Y.S.2d 827

87 A.D.2d 672

In the Matter of ROCHESTER TELEPHONE CORPORATION, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Respondent.

Supreme Court, Appellate Division,

Third Department.

March 4, 1982.

Nixon, Hargrave, Devans & Doyle, Rochester (Michael T. Tomaino, Rochester, of counsel), for petitioner.

David E. Blabey, Albany (Sam Laniado, Albany, of counsel), for respondent.

Before SWEENEY, J. P., and MAIN, CASEY, MIKOLL and WEISS, JJ.

MEMORANDUM DECISION.

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 ordered petitioner to reduce subscribers' bills in an amount equal to certain refunds petitioner received from the Internal Revenue Service.

In June, 1973, the Internal Revenue Service issued final regulations implementing new depreciation deduction rules retroactive to tax year 1971 which allowed for greater amounts of depreciation expense to be deducted for Federal income tax purposes in the early years of service of certain property, including telephone plants (U.S.Code, tit. 26, § 167, subd. Treas.Reg., § 1.167 At this time petitioner had already filed its tax returns for the years 1971 and 1972 based upon the previous depreciation deduction rules and chose to take the additional deductions retroactively from 1971. In 1973, petitioner received a refund check and a credit against 1973 taxes for its overpayment of estimated taxes for the year 1972. The refund for the 1971 tax year was held in abeyance pending an audit of petitioner's tax returns for the years 1971 through 1973.

Petitioner applied to increase rates in 1974 and respondent ordered petitioner in that case to report the tax refunds promptly upon receipt thereof and to place any refunds in a suspense account. On August 11, 1978, petitioner initiated a general rate case. Thereafter, respondent granted petitioner's request to withdraw its new proposed tariffs but continued the case for the limited purpose of determining whether, to what extent and in what manner the tax refunds should be made to petitioner's customers. In 1978, petitioner also received the tax refund for the 1971 tax year less certain deficiencies unrelated to the new depreciation deduction rules. Following hearings, respondent ordered petitioner, pursuant to section 113 (subd. 2) of the Public Service Law, to flow-through to its customers $1,702,000 in tax refunds, representing refunds it received as a result of the new depreciation deduction rules, as well as $1,450,000 representing the associated tax deductions petitioner would be permitted to claim when the flow-through is made. The present article 78 proceeding was then commenced to review respondent's determination.

It is urged by petitioner that respondent's determination is not supported by substantial evidence. More specifically, petitioner contends that prior to its rate case in 1974 it had not received any general rate relief since 1959 and, therefore, the tax years in question, 1971 and 1972, never formed the basis of setting its rates. Accordingly, it is argued that there was a lack of substantial evidence to support a finding that the higher taxes paid in 1971 and 1972 under the old depreciation deduction rules were reflected in the rates charged by petitioner. We disagree. On the present record, respondent could reasonably conclude that petitioner fixed its costs in the years in question based on the more restricted...