Memorandum of Law of Respondant-Defendant NYSPSC In Support of Verified Answer and Motion to Dismiss January 13, 2023

On November 14, 2022 a Special Proceedings - CPLR Article 78 case was filed by Central Hudson Gas & Electric Corporation, Consolidated Edison Company Of New York, Inc., Keyspan Gas East Corporation D B A National Grid, National Fuel Gas Distribution Corporation, New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation D B A National Grid, Orange And Rockland Utilities, Inc., Rochester Gas And Electric Corporation, The Brooklyn Union Gas Company D B A National Grid Ny, represented by Levine, Gabriella Regina, Pinchuk, Anna V, Rosborough, Robert Stevenson, against State Of New York Public Service Commission, represented by Graham, John Calvin, in the jurisdiction of Albany County.

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FILED: ALBANY COUNTY CLERK 01/13/2023 02:14 PM INDEX NO. 908545-22
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ALBANY

In the Matter of

CENTRAL HUDSON GAS & ELECTRIC
CORPORATION, CONSOLIDATED
EDISON COMPANY OF NEW YORK,
Index No. 908545-22
INC., et al.,
Petitioners-Plaintiffs,
– against –
STATE OF NEW YORK PUBLIC
SERVICE COMMISSION,
Respondent-Defendant.

MEMORANDUM OF LAW OF RESPONDANT -DEFENDANT
NEW YORK STATE PUBLIC SERVICE COMMISSION
IN SUPPORT OF VERIFIED ANSWER AND
MOTION TO DISMISS, OR IN THE ALTERNATIVE, FOR SUMMARY
JUDGMENT
__________________________________________________________________
ROBERT ROSENTHAL
General Counsel
JOHN SIPOS
Deputy General Counsel & Solicitor
Public Service Commission
of the State of New York
Three Empire State Plaza
JOHN C. GRAHAM Albany, New York 12223
Assistant Counsel
Of Counsel
(518) 474-7687
John.Graham@dps.ny.gov

Dated: Albany, New York
January 13, 2023

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TABLE OF CONTENTS
Page No.

TABLE OF AUTHORITIES .....................................................................iii

PRELIMINARY STATEMENT ................................................................. 1

PROCEDURAL CONSIDERATIONS....................................................... 7

STATEMENT OF FACTS ......................................................................... 9

Statutory and regulatory background ...................................................... 9

Powers of the Commission ............................................................... 9

Prior Legislative limits on Commission discretion ....................... 12

Section 73 ....................................................................................... 13

Commission proceeding to implement Section 73 ......................... 16

ARGUMENT ........................................................................................... 18

I. THE JOINT UTILITIES’ CLAIMS ARE NOT RIPE FOR
JUDICIAL REVIEW ...................................................................... 18

II. THE COMMISSION’S IMPLEMENTATION OF PSL § 73 IS
CONSISTENT WITH LEGISLATIVE INTENT ........................... 22

A. The Joint Utilities wrongly characterize the cost recovery
prohibition as a waivable requirement ..................................... 22

B. The waiver provision should be viewed in light of the
Legislature’s overarching purpose of preventing long-term
widespread service outages ....................................................... 24

C. The Joint Utilities’ justification for their view of the waiver
provision is illogical ................................................................... 28

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III. THE COMMISSION HAS NOT INFRINGED UPON THE JOINT
UTILITIES’ CONSTITUTIONAL RIGHTS .................................. 30

A. The Commission has not deprived the Joint Utilities of any
constitutionally protected property interests. .......................... 30

B. Even if the Joint Utilities had a protectible property interest,
the statute’s procedures satisfy due process ............................. 35

C. The statute’s denial of cost recovery is not a constitutionally
prohibited taking ....................................................................... 38

The Joint Utilities’ taking claim is not ripe .............................. 38

In any event, the taking claim lacks merit ............................... 40

CONCLUSION ........................................................................................ 44

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TABLE OF AUTHORITIES

Page No.

FEDERAL CASES

Bd. of Regents of State Colleges v. Roth,
408 U.S. 564 (1972) ........................................................................... 32, 34

Cleveland Bd. of Educ. v. Loudermill,
470 U.S. 532 (1985) ................................................................................. 30

Connolly v. Pension Ben. Guar. Corp.,
475 U.S. 211 (1986) ................................................................................. 40

Duquesne Light Co. v. Barasch,
488 U.S. 299 (1989) ................................................................................. 39

Federal Power Commission v. Hope Natural Gas Co.,
320 U.S. 591 (1944) ................................................................................. 39

Hodel v.
Virginia Surface Min. and Reclamation Ass’n., Inc.,
452 U.S. 264 (1981) ........................................................................... 21, 36

Keystone Bituminous Coal Ass’n v.
DeBenedictis,
480 U.S. 470 (1987) ................................................................................. 36

Kittay v. Giuliani,
112 F.Supp.2d 342 (S.D.N.Y. 2000) ....................................................... 36

Oberlander v. Perales,
740 F.2d 116, (2d Cir. 1984) .................................................................... 30

RR Village Ass’n., Inc. v. Denver Sewer Corp.,
826 F.2d 1197, (2d Cir. 1987) ............................................................ 32, 34

iii

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STATE CASES

Bower Assoc. v. Town of Pleasant Val.,
2 N.Y.3d 617 (2004) ........................................................................... 30, 32

Brill v. City of New York,
2 N.Y.3d 648 (2004) ................................................................................ 8-9

Matter of Burrows v.
Bd. of Assessors for Town of Chatham,
98 A.D.2d 250 (3d Dep’t 1983) ................................................................ 25

Cathedral of Incarnation in Diocese of Long Is. v.
Garden City Co.,
265 A.D.2d 286 (2d Dep’t 1999) .............................................................. 32

Church of St. Paul & St. Andrew v. Barwick,
67 N.Y.2d 510 (1986) ......................................................................... 19, 21

Matter of Consolidated Edison Co. of N. Y. v.
Public Serv. Commn. of State of N.Y.,
66 N.Y.2d 369 (1985) ......................................................................... 11, 33

Matter of Gazza v.
New York State Dept. of Envtl. Conservation,
89 N.Y.2d 603 (1997) ............................................................................... 35

Matter of Kaur v. New York State Urban Dev. Corp.,
15 N.Y.3d 235 (2010) ............................................................................... 36

Matter of Medicon Diagnostic Laboratories, Inc. v.
Perales,
74 N.Y.2d 539 (1989) .......................................................................... 30-31

National Assn. of Ind. Insurers v. State of N.Y
207 A.D.2d 191 (2d Dep’t 1994) .............................................................. 39

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Matter of National Fuel Gas Distrib. Corp. v.
Public Serv. Commn. of State of N.Y.,
71 A.D.3d 62 (3d Dep’t 2009) .................................................................. 20

Matter of New York State Council of Retail Merchants v.
Public Serv. Commn. of State of N.Y.,
45 N.Y.2d 661 (1978) ......................................................................... 11, 33

Matter of New York State Inspection,
Sec. & Law Enforcement Empls., Dist. Council 82,
AFSCME, AFL-CIO v. Cuomo,
64 N.Y.2d 233 (1984) ............................................................................ 8,19

Matter of New York Water Service Corp. v.
Public Serv. Commn. of State of N.Y.,
72 A.D.2d 841 (3d Dep’t 1979) ........................................................... 36-37

Matter of Niagara Mohawk Power Corp. v.
Public Serv. Commn. of State of N.Y.,
69 N.Y.2d 365 (1987) ............................................................................... 10

People v. Mobil Oil Corp.,
48 N.Y.2d 192 (1979) ............................................................................... 25

Matter of Ranco Sand and Stone Corp. v.
Vecchio,
27 N.Y.3d 92 (2016) ................................................................................. 19

Rochester Gas and Elec. Corp. v.
Public Serv. Commn. of State of N.Y.,
71 N.Y.2d 313 (1988) .................................................................... 40-41, 42

Matter of Rochester Gas & Elec. Corp. v.
Public Serv. Commn. of State of N.Y.,
135 A.D.2d 4 (3d Dep’t 1987) ............................................................ 11, 33

Matter of Rochester Gas & Elec. Corp. v.

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Public Serv. Commn. of State of N.Y.,
117 A.D.2d 156 (3d Dep’t, 1986)................................................. 11, 12, 33

Matter of Rolling Meadows Water Corp. v.
Public Serv. Commn. of the State of N.Y.,
177 A.D.3d 1230 (3d Dep’t 2019)............................................................. 12

Matter of Rosenberg v.
New York State Off. of Parks, Recreation and Historic Preserv.,
94 A.D.3d 1006 (2d Dep’t 2012) ................................................................ 7

Russell v. Town of Pittsford,
94 A.D.2d 410 (4th Dep’t 1983) ................................................................. 8

Matter of Spring Val. Water Co. v.
Public Serv. Commn. of State of N.Y.,
176 A.D.2d 95 (3d Dep’t 1992) .......................................................... 39, 40

Matter of Wal-mart Stores v. Campbell,
238 A.D.2d 831 (3d Dep’t 1997).............................................................. 20

Walton v. New York State Dept. of Correctional Servs.,
8 N.Y.3d 186 (2007) ................................................................................... 8

STATE STATUTES AND REGULATIONS

CPLR Article 78
CPLR § 3211(a)(2) ............................................................................ 8

McKinney’s Statutes § 111 ................................................................. 24-25

McKinney’s Statutes § 97 ........................................................................ 25

McKinney’s Statutes § 98 ........................................................................ 27

Public Service Law (PSL)
PSL Article 1

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PSL § 3.............................................................................................. 9
PSL § 4(1) ......................................................................................... 9
PSL § 25.......................................................................................... 13
PSL § 25(6) ................................................................................ 12-13
PSL § 25-a ...................................................................................... 13
PSL § 25-a(9) .................................................................................. 13

PSL Article 4
PSL § 65(1) .................................................................................. 9,42
PSL §66(2) ........................................................................................ 9
PSL § 66(5) ........................................................................... 9, 10, 31
PSL § 66(12)(b) .......................................................................... 10,31
PSL § 66(12)(c) ............................................................................... 31
PSL § 66(12)(f) ................................................................................ 31
PSL § 66(21) ................................................................................... 16
PSL § 66(29). .............................................................................. 2, 13
PSL § 66(29)(g) ......................................................................... 28, 42
PSL § 71.......................................................................................... 10
PSL § 72.......................................................................................... 31
PSL § 73.................................................................................. passim
PSL § 73(1) ............................................................................. passim
PSL § 73(2) ............................................................................. passim
PSL § 73(3) ............................................................................. passim
PSL § 73(3)(a-f)............................................................................... 16
PSL § 73(3)(a-g) .............................................................................. 37
PSL § 73(3)(g) ................................................................................. 16
PSL § 73(4) ..................................................................................... 17

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PRELIMINARY STATEMENT
Petitioners-Plaintiffs Central Hudson Gas & Electric Corporation,

Consolidated Edison Company of New York, Inc., National Fuel Gas

Distribution Corporation, New York State Electric & Gas Corporation,

The Brooklyn Union Gas Company d/b/a National Grid NY, KeySpan

Gas East Corporation d/b/a National Grid, Niagara Mohawk Power

Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc.,

and Rochester Gas and Electric Corporation (together, “Joint Utilities”)

have commenced the instant hybrid Article 78 proceeding and

declaratory judgment action to challenge an order of Defendant-

Respondent New York State Public Service Commission

(“Commission”). That order, issued July 14, 2022 and entitled “Order

Implementing Public Service Law Section 73” (“Implementation

Order”), was the consummation of an administrative proceeding

wherein the Commission solicited public comments on a proposal to

implement one of two newly-enacted amendments to the Public Service

Law (PSL). The Commission submits this Memorandum of Law in

support of its Verified Answer and its motion for an order dismissing

the Verified Petition and Complaint in its entirety for lack of subject

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matter jurisdiction, because none of the Joint Utilities’ claims are ripe

for judicial review. In the alternative, the Commission seeks an order

denying the Joint Utilities’ requested Article 78 relief and granting

summary judgment in favor of the Commission as to the Joint Utilities’

declaratory judgment claims.

The statutory amendments were enacted together as Senate Bill

4824-A, which became effective on April 21, 2022. The amendments

were prompted by the Legislature’s concern over prolonged service

outages and their negative impact on utility customers. Part A of the

bill requires combination gas and electric utilities to prepare plans to

improve the reliability of their systems and to reduce outage times

associated with extreme weather events.1 Part B, codified as PSL § 73,

is the provision at issue in the instant matter. It requires utility

companies to compensate residential and small business customers who

experience widespread service outages lasting 72 hours or more.

Compensation is to be provided for food and prescription medicine

spoilage resulting from such outages. It also precludes the Commission

1 Part A has been codified as PSL § 66(29).

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from allowing a utility to recover the cost of such compensation, through

a future adjustment to its rates, from the entirety of its customer base.

Pursuant to the Legislature’s directive to promulgate procedures,

standards, methodologies and rules, and to define certain statutory

terms, the Commission issued a proposal prepared by technical staff of

the New York State Department of Public Service and solicited public

comment on that proposal. After considering comments submitted by

the Joint Utilities and others, the Commission issued the

Implementation Order.

The Joint Utilities take issue with only one aspect of the

Implementation Order. The Commission determined that the waiver

provision of PSL § 73 applies only to the requirement that utilities pay

compensation to customers affected by lengthy storm-related service

outages. It does not apply to the statutory directive that precludes the

Commission from allowing the utility to pass along the costs of that

compensation to the rest of its customers through future rate increases.

The Joint Utilities, as their First Cause of Action, assert that this

aspect of the Implementation Order contravenes the plain statutory

language. They argue that because the waiver provision appears after

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the compensation requirement and the cost recovery preclusion, each of

those components must be waivable. As their Second Cause of Action,

they argue in the alternative that if this Court were to affirm the

Implementation Order, then PSL § 73 itself is unconstitutional because

it denies them due process by depriving them of an opportunity to

petition for waivers of the cost recovery prohibition and takes their

property without just compensation.

As a threshold matter, none of the Joint Utilities’ claims are ripe

for judicial review for two reasons. First, they have an administrative

step available that can eliminate the harm they allege. They can

petition for compensation waivers which, if granted, would obviate any

reason to seek cost recovery prohibition waivers. Second, their due

process and taking claims are not ripe because constitutional claims in

the ratemaking context can only be evaluated against the total effect of

the rate, rather than on individual factors that go into the calculation of

the rate. Rate recovery of storm compensation costs is not

instantaneous. Rather, it can only occur through administrative rate

proceedings held before the Commission. Thus, the Joint Utilities’

constitutional claims are not ripe because the Commission has not had

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an opportunity to deny recovery of storm compensation costs in their

rates.

Even if the Joint Utilities’ claims were ripe, they fail because the

Commission rationally viewed PSL § 73 in its proper context and in

light of the legislation’s overarching purpose. Viewing Parts A and B

together, it is clear that the Legislature intends to incentivize utilities

to make needed improvements to their infrastructure to prevent long-

term outages from occurring in the first instance. The compensation

requirement reinforces that incentive through negative consequences.

Allowing utilities to evade those consequences by passing compensation

costs along to their ratepayers, however, would negate the incentive.

The Commission, then, properly recognized the cost recovery

prohibition as non-waivable.

The Joint Utilities’ primary argument is that the structure of PSL

§ 73 indicates that the Legislature intended that both the compensation

requirement and the cost recovery prohibition be waivable. Their view,

however, is overly simplistic. The Commission correctly recognized that

the cost recovery prohibition, unlike the compensation requirement, is

unconditionally prohibitory. It is a directive to the Commission, not to

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utilities. It would be odd for the Legislature to allow an agency to waive

a directive to itself. Moreover, as only a utility can petition for a

waiver, it would be even more odd if the Commission could only self-

waive a directive upon a utility’s behest. Under close scrutiny, then, the

Joint Utilities’ so-called plain language argument makes no sense.

Even if the Joint Utilities’ constitutional claims were ripe, a

requisite constitutionally-protectible property interest is lacking.

Contrary to their apparent assumption, if the Legislature had not

precluded the Commission from allowing storm compensation to be

recoverable in future rates, the Commission would retain discretion to

allow such cost recovery. There is no legally cognizable property

interest in funds that are not absolutely guaranteed, but instead are

merely discretionary.

In any event, those constitutional claims would fail on their

merits. Given that utilities have opportunities to petition for waivers of

the compensation requirement, they will have all of the process that

they are due. Furthermore, their taking claim fails because, among

other things, the Legislature has not interfered with the Joint Utilities’

investment-backed expectations and an unconditional property right.

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As they are heavily regulated businesses operating in the public

interest, and because modern society increasingly depends upon a

consistently reliable supply of electric power, utilities should recognize

their correspondingly increasing responsibility to avoid downtime and

lengthy service outages for their customers.

PROCEDURAL CONSIDERATIONS

In a hybrid Article 78 proceeding and declaratory judgment action,

courts may not employ Article 78 procedures to adjudicate declaratory

judgment claims. This is because “[i]n a hybrid proceeding and action,

separate procedural rules apply to those causes of action which are

asserted pursuant to CPLR article 78, on one hand, and those which

seek to recover damages and declaratory relief, on the other hand.”

Matter of Rosenberg v. New York State Off. of Parks, Recreation and

Historic Preserv., 94 A.D.3d 1006 (2d Dep’t 2012). It is therefore

necessary for the Commission to move for dismissal or, in the

alternative, for summary judgment to dispose of the declaratory

judgment claims alleged herein. Id.

The Joint Utilities’ First Cause of Action alleges an Article 78

cause of action, inasmuch as they argue therein that the

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Implementation Order is arbitrary and capricious. Their Second Cause

of Action alleges that, in the alternative, PSL § 73 violates various

Constitutional provisions. Such a claim is not amenable to Article 78

relief and has been set forth in the Verified Petition and Complaint as a

declaratory judgment claim. See Walton v. New York State Dept. of

Correctional Servs., 8 N.Y.3d 186, 194 (2007)(recognizing that a

challenge to the validity of legislation may not be brought under Article

78).

Non-ripeness for judicial review is a species of nonjusticiability,

which implicates the Court’s subject matter jurisdiction. Matter of New

York State Inspection, Sec. and Law Enforcement Employees, Dist.

Council 82, AFSCME, AFL-CIO v. Cuomo, 64 N.Y.2d 233, 241 n.3

(1984). Because none of the Joint Utilities’ claims are ripe, this

proceeding/action should be dismissed in its entirety for lack of subject

matter jurisdiction. CPLR § 3211(a)(2).

Summary judgment in a declaratory judgment action is proper

where, as here, the record facts are not in dispute. Russell v. Town of

Pittsford, 94 A.D.2d 410, 412 (4th Dep’t 1983). Given that the Joint

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Utilities’ claims involve only questions of law, summary judgment is

appropriate. Brill v. City of New York, 2 N.Y.3d 648, 650-651 (2004).

The Commission therefore requests an order dismissing the

Verified Petition and Complaint in its entirety for lack of subject matter

jurisdiction. In the alternative, this Court should deny the Article 78

relief sought in the First Cause of Action and grant summary judgment

in favor of the Commission denying the declaratory relief sought in the

Second Cause of Action and/or declaring that PSL § 73 is

constitutionally valid.

STATEMENT OF FACTS
Statutory and regulatory background

Powers of the Commission

The Commission is the decision-making body within the New York

State Department of Public Service. PSL §§ 3, 4(1). The New York

State Legislature has delegated to the Commission all of the powers

and duties prescribed in the Public Service Law. PSL § 4(1). Those

powers and duties include ensuring that electric and gas corporations,

such as the Utilities, provide adequate utility service to their customers

at just and reasonable rates. PSL §§ 65(1), 66(2), 66(5).

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Generally, when a utility incurs unanticipated expenses in the

course of providing service to its customers, the utility cannot

immediately increase its rates to recover those expenses. Rates may

not be changed except through a Commission ratemaking proceeding

initiated by the utility’s request, PSL § 66(12)(b), upon complaint of

certain constituencies, PSL § 71, or on its own motion, PSL § 66(5).2

Rates are set prospectively, based on projected expenses and

revenues. In determining projected expenses, the Commission is not

bound to incorporate each and every one of a utility’s past expenses. As

the Court of Appeals eloquently stated, “the rate-making process is a

forum for determining, among other things, whether the utility’s

operating expenses were prudently and reasonably incurred in the past

such that they may properly be used as a basis for projection of

operating expenses in the upcoming rate year.” Matter of Niagara

Mohawk Power Corp. v. Public Serv. Commn. of State of N.Y., 69 N.Y.2d

365, 370 (1987).

2 The Commission also can simply allow a utility’s proposed rate increase to take
effect by operation of law on thirty days’ notice. PSL § 66(12)(b). It rarely – if ever
– allows that, however.

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Commission ratemaking, therefore, does not guarantee that utility

expenses will be recoverable from ratepayers in future rate proceedings.

As the Court of Appeals has recognized, “a prime function of the

[C]ommission, as a regulatory body, is to separate those costs which

should be borne by ratepayers from those which are properly chargeable

to shareholders.” Matter of Consolidated Edison Co. of New York, Inc.

v. Public Serv. Commn. of State of N.Y., 66 N.Y.2d 369, 372 (1985)

(internal citations omitted); appeal dismissed 475 U.S. 1114 (1986).

Determining the costs to be borne by ratepayers, moreover, “presents

‘problems of a highly technical nature, the solutions to which in general

have been left by the Legislature to the expertise of [the Commission].’”

Matter of Rochester Gas & Elec. Corp. v. Public Serv. Commn. of State of

N.Y., 135 A.D.2d 4, 8 (3d Dep’t 1987) (quoting Matter of New York State

Council of Retail Merchants v. Public Serv. Commn of State of N.Y., 45

N.Y.2d 661, 672 (1978)). Indeed, the Appellate Division has stated that

the Commission’s ratemaking powers are so broad that “it is not too

much to say that in this respect [the Commission] is the alter ego of the

Legislature.” Matter of Rochester Gas & Elec. Corp. v. Public Serv.

Commn. of State of N.Y., 117 A.D.2d 156, 160 (3d Dep’t 1986).

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It has been held that, in general, the Commission has discretion to

disallow the inclusion of excessive expenses in utility rates. Matter of

Rolling Meadows Water Corp. v. Public Serv. Commn. of the State of

N.Y., 177 A.D.3d 1230, 1231 (3d Dep’t 2019). Notably, the

Commission’s discretion to disallow expenses related to facility outages

has been recognized. Matter of Rochester Gas and Elec. Corp. v. Public

Serv. Commn. of State of N.Y., 117 A.D.2d 156 (3d Dep’t 1986).

Prior Legislative limits on Commission discretion

The inclusion of a cost recovery prohibition in PSL § 73 is not the

first time that the Legislature has precluded the Commission from

passing a specific utility expense along to ratepayers. Section 25 of the

PSL, which enables the Commission to seek monetary penalties against

utilities for violations of the PSL or Commission orders, includes the

following provision:

Any payment made by a public utility company, corporation
or person and the officers, agents and employees thereof as a
result of an action as provided in section twenty-four of this
article and the cost of litigation and investigation related to
any such action shall not be included by the commission in
revenue requirements used to establish rates and charges.

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PSL § 25(6). Likewise, PSL § 25-a, which provides for civil penalties for

violations of the PSL or Commission regulations or orders, states that:

Any payment made by a combination gas and electric
corporation or the officers thereof as a result of an
assessment as provided in this section, and the cost of
litigation and investigation related to any such assessment,
shall not be recoverabl

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Memorandum of Law of Respondant-Defendant NYSPSC In Support of Verified Answer and Motion to Dismiss

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Memorandum of Law of Respondant-Defendant NYSPSC In Support of Verified Answer and Motion to Dismiss

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