Case Name: Staten Island Edison Corporation, Appellant, v. Milo R. Maltbie et al., Individually and Constituting the Public Service Commission of the State of New York and State Division of the Department of Public Service of the State of New York, Respondents, and City of New York, Intervener, Defendant-Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1943-11-10
Citations: 267 A.D. 72
Docket Number: 
Parties: Staten Island Edison Corporation, Appellant, v. Milo R. Maltbie et al., Individually and Constituting the Public Service Commission of the State of New York and State Division of the Department of Public Service of the State of New York, Respondents, and City of New York, Intervener, Defendant-Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 267
Pages: 72–79

Head Matter:
Staten Island Edison Corporation, Appellant, v. Milo R. Maltbie et al., Individually and Constituting the Public Service Commission of the State of New York and State Division of the Department of Public Service of the State of New York, Respondents, and City of New York, Intervener, Defendant-Respondent.
Third Department,
November 10, 1943.
Naylon, Aronson and Foster, attorneys (Edmund B. Naylon, Samuel E. Aronowitz, Boyal F. Shepard and George Foster, Jr., of counsel), for appellant.
Gay H. Brown, Counsel to Public Service Commission (George H. Kenny and Sherman C. Ward of counsel), for respondents.
Ignatius M. Wilkinson, Corporation Counsel (Harry Hertzoff and Herman Horowitz of counsel), for intervener, respondent.

Opinion:
Crafser, J.
The plaintiff appeals from two orders entered at Special Term upon the decision of Mr. Justice Beegan: (1) dismissing the complaint for failure to state facts sufficient to constitute a cause of action and for lack of jurisdiction of the subject matter, and (2) denied plaintiff's application for a temporary injunction order. Plaintiff has also moved the court for a stay during the pendency of the appeals.
The primary question before the court is the question of the sufficiency of the complaint. The complaint purports to allege four causes of action, each of these incorporates as a part thereof the order of the Public Service Commission dated May 27,1943, a copy of which is annexéd to the complaint and marked Exhibit A and the essential parts of which are as follows:
" This Commission having by an order adopted on November 10,1936, as amended by an order adopted on November 10,1937, instituted an investigation to determine, among other things, whether the rates, charges or classifications of service of Staten Island Edison Corporation were unjust, unreasonable, unjustly discriminatory or unduly preferential and if so deter mined, to fix the just and reasonable rates, charges and classifications of service for the said corporation, and public hearings after due notice having been held and the Commission having determined that the public interest requires a change in certain of the rates and charges of Staten Island Edison Corporation as immediate, reasonable temporary rates to be charged by the said company pending the final determination of this proceeding and having further determined that the temporary rates herein fixed and prescribed are sufficient to provide a return of not less than 5 per cent, upon .the original cost less accrued depreciation of the physical property of the said corporation used and useful in the public service, it is Ordered :
" 1. That the following rates and charges be and they hereby are fixed, determined and prescribed as temporary rates to be charged by Staten Island Edison Corporation pending the final determination of this proceeding.
' ' A. The total charges made to every residential, commercial and industrial consumer for electric service as computed under the rates and charges set forth in Service Classifications Nos. 1, 2 and 4 of its tariff P. S. C. No. 5 — Electricity, shall be reduced ' by 8 per cent."
This order was made in accordance with section 114 of the Public Service Law.
The declared object of section 114 of the Public Service Law is " to facilitate prompt action by the commission in proceedings involving the reasonableness of the rates of any public utility and to avoid delay in any such rate proceeding." To accomplish this object the Commission is authorized to require any utility ' ' to establish, provide and maintain continuing property records," which will list all the physical property actually used in the public service, and show currently the original cost of the property and the reserves accumulated to provide for the retirement or replacement of the physical property.
The foregoing authorization enables the Commission to- require utilities to keep the records and accounts therein enumerated whenever the same are deemed necessary or useful to facilitate prompt action in any rate proceeding where reasonableness of rates is involved. The subsequent provisions aim solely to facilitate prompt action and to avoid delay in fixing temporary rates pending the final determination of a rate proceeding. The provisions read as follows:
1 " The commission may, in any such proceeding, brought either on its own motion or upon complaint, upon notice and after hearing, if it be of opinion that the public interest so re quires, immediately fix, determine and prescribe temporary rates to be charged by said utility company pending the final determination of said rate proceeding. Said temporary rates-so fixed, determined and prescribed shall be sufficient to provide a return of not less than five per centum upon the original cost, less accrued depreciation, of the physical property of said pub* lie utility company used and useful in the public service, and if the duly verified reports of said utility company to the commission do not show the original cost, less accrued depreciation, of said property, the commission may estimate said cost less depreciation and fix, determine and prescribe rates as hereinbefore provided.
' ' Temporary rates so fixed, determined and prescribed under this section shall be effective until the rates to be charged, received and collected by said utility company shall finally have been fixed, determined and prescribed. The commission is hereby authorized in any proceeding in which temporary rates are fixed, determined and prescribed under this section, to consider the effect of such rates in fixing, determining and prescribing rates to be thereafter charged and collected by said public utility company on final determination of the rate proceeding."
The four alleged causes of action may be summarized briefly as follows:
First Cause of Action. It is alleged that the " fair value " of plaintiff's property used and useful in the public service, as of December 31, 1942, is in excess of $15,914,272; that plaintiff's actual earnings for the year 1942 resulted in a return of three and thirty-three one-hundredths per cent upon such " fair value that the company reduced its rates on May 27, 1942, and, if said reduction had been in effect during the entire year 1942, plaintiff's revenues would have been $40,000 or $45,000 less than it actually received; and that the rates prescribed.by the Commission's order will result in a further reduction of annual revenue of $230,000. It is alleged that the reasonable rate of return for Staten Island Edison Corporation on its property is six and twenty-five one-hundredths per cent and that the rates prescribed by the Commission are confiscatory and unconstitutional.
Second cause of action. The Commission is here charged with arbitrarily and erroneously disregarding evidence of the £ £ essential elements of valuation properly present ' ' in the proceeding before it££ and required by law to be considered by it," such as reproduction cost, going value £ ' and other material and relevant factors." It is claimed that the effect of prescribing rates " upon a rate base established in the manner stated " is confiscatory and unconstitutional.
Third cause of action. Here it is alleged that section 114 of the Public Service Law is unconstitutional " in that, among other things, said statute appears to authorize the fixation of rates to be charged by plaintiff and corporations similarly situated, upon the basis of the original cost, less accrued depreciation, of the physical property of the corporation used and useful in the public service without giving effect to essential elements of valuation required to be considered, to wit, evidence of reproduction cost, going value, working capital and other material and relevant factors entering into the rate making process."
Fourth cause of action. This is based upon allegations of noncompliance by the Commission with the provisions of section 114 of the Public Service Law, and of arbitrary and capricious action on the part of the Commission in prescribing the temporary rates pursuant thereto.
In the fifth paragraph of the plaintiff's complaint it says that the original cost of the physical property of the plaintiff used and useful in the public service as of December 31, 1942, was $15,023,934. It alleges that the depreciation is $2,637,455 resulting in an original cost less depreciation of $12,386,479. It also alleges that the net earnings received in 1942 were $530,651.53. It adds to the original cost less depreciation of $12,386,479 working capital of $664,272, resulting in a figure of $13,050,751 and it alleges that the earnings 1942 represented four and seven one-hundredths per cent on $13,050,751. It has added in to make up the figure $13,050,751 the sum of $664,272 for working capital which is not allowable under section 114.
If the issue of confiscation were involved the plaintiff would be entitled under the decisions of the Supreme Court of the United States to an independent review by the court of the facts involved upon such issue and might urge that it could only maintain such review in an equity action.
In Matter of Bronx Gas & Electric Co. v. Maltbie (271 N. Y. 364) it is said: ' ' The Commission fixes a temporary rate pending the hearing. It is based upon the elements stated, which are not all of those required to fix a permanent rate. As before stated, this would be impossible, if we must consider in fixing a temporary rate all the elements required for the final rate: no temporary rate could ever be fixed. This also is self evident. Therefore, to meet these conditions the temporary rate is fixed, within reasonable limits, upon figures which can be with some exactness obtained from the books of the company, showing original cost or investment; and if finally, when the proceeding ends, the temporary rate is proved to have been too low, the utility must be permitted and authorized to charge enough for its service to make up the loss. The consumer must pay what he should have paid, and the only way to do it is to fix a rate high enough to make up this loss.
11 Anyhow, this is no concern of the company, for its complaint here is that because of the temporary rate it will suffer loss. If the loss is made up to it in the final rate the objection is obviated. That the Commission is authorized, in fact compelled, to make up this loss, if any, through the final rate, is the meaning and must be the meaning of these words in section 114: 1 The commission is hereby authorized in any proceeding in which temporary rates are fixed, to consider the effect of such rates in fixing, rates on final determination V £ Experience ' — how much better this is than expert testimony, whether dealing in history or prophecy.
" This section, as we have said, forces the Public Service Commission to consider the returns from the temporary rate and to establish the permanent rate, or the final rate, accordingly; that is, if the temporary rate has proved to be too low the final rate must make it up to the company."
There can be no question of confiscation in this case. Section 114 of the Public Service Commission, under the holding in Bronx Gas & Electric Co. v. Maltbie (supra) makes it mandatory upon the Public Service Commission in fixing their final rate to examine the results to the company of the temporary rate and if the company has suffered a loss to fix the permanent rate high enough so that loss can be returned to the company. Therefore the question of confiscation cannot arise until the final rates have been established.
The appellant on page 28 of its brief says:£ ' It is conceded on all sides that a deficiency comprising the difference between the revenues from a rate fixed under the statute and .from a final rate sufficient to provide a fair return may be taken- up under the recoupment clause and is therefore not enjoinable."
The Bronx Gas & Electric Co. v. Maltbie case (supra) holds absolutely that section 114 of the Public Service Law is constitutional and that any loss suffered by the company under the temporary rate must be made up to the company in the fixing of the final rate and therefore the question of confiscation cannot be present until the fixing of the final rate.
The orders and judgment appealed from should be in all respects affirmed and the appellant's motion for a stay pending the appeals should be denied, with fifty dollars costs and disbursements.