Court Opinion

ID: 5486590
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:15:10.519663+00
Date Added: 2024-06-11T08:33:41.519402
License: Public Domain

Chief Judge Lippman (dissenting).
The Public Service Commission (PSC) found that National Fuel’s allocation of the insurance settlement proceeds based on the premiums paid by each of its subsidiaries “was unjust and unreasonable at the time it was made” and that the proceeds should have been apportioned, instead, based upon the potential liabilities each subsidiary faced for certain environmental remediation expenses. Since there is substantial evidence to support the PSC’s conclusion, I would reverse.
Among the general powers accorded to the PSC by statute is the authority to evaluate proposed utility rate changes and to set just and reasonable rates (see Public Service Law § 66 [12] [f]; § 72). “Indeed, it has been recognized that when it comes to setting rates for [gas and electric] service the Commission has been granted ‘the very broadest of powers,’ the Legislature mandating only that the rates fixed be ‘just and reasonable’ ” (Matter of Niagara Mohawk Power Corp. v Public Serv. Commn. of State of N.Y., 69 NY2d 365, 369 [1987] [citations omitted]). The burden of proving that any proposed rate change is just and reasonable rests with the utility (see Public Service Law § 66 [12] [i]).
Our review of PSC determinations involving ratesetting has always been deferential. We have emphasized that the standard of review is meant to be flexible and that the determinations *372“ ‘may not be set aside unless they are without rational basis or without reasonable support in the record’ ” (Matter of New York Tel. Co. v Public Serv. Commn. of State of N.Y., 95 NY2d 40, 48 [2000], quoting Matter of Rochester Tel. Corp. v Public Serv. Commn. of State of N.Y., 87 NY2d 17, 29 [1995]). It is well settled that “substantial evidence consists of proof within the whole record of such quality and quantity as to generate conviction in and persuade a fair and detached fact finder that, from that proof as a premise, a conclusion or ultimate fact may be extracted reasonably—probatively and logically” (300 Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176, 181 [1978]). Such deference is appropriate since ratesetting “presents ‘problems of a highly technical nature,’ ” which are well within the particular expertise of the PSC (see New York Tel. Co., 95 NY2d at 48, quoting Matter of Abrams v Public Serv. Commn. of State of N.Y., 67 NY2d 205, 211-212 [1986]).
The determination of whether a utility acted prudently is made by assessing whether its actions were reasonable under the circumstances existing at the time they were made, without the benefit of hindsight (see Matter of Long Is. Light Co. v Public Serv. Commn. of State of N.Y., 134 AD2d 135, 143-144 [3d Dept 1987]). Significantly, “the PSC’s broad rate-making powers . . . are sufficient to allow it generally to assess the prudence of a utility’s actions as those actions impact upon the ratepayers. Indeed, a specific function of the rate-making power is to protect the utility’s ratepayers” (Matter of Crescent Estates Water Co. v Public Serv. Commn. of State of N.Y., 77 NY2d 611, 617 [1991]). Through this power, the Commission ensures that unreasonable or excessive rates are not inflicted upon the utility’s customers (see e.g. Matter of General Tel. Co. of Upstate N.Y. v Lundy, 17 NY2d 373, 381 n 3 [1966]).
Even assuming that our traditional deference to the PSC is skewed toward the utility for the purpose of prudence determinations (see majority op at 368-369), the PSC has provided a rational basis for its determination that National Fuel acted imprudently.
The PSC order notes that, at the time the insurance proceeds were distributed, National Fuel was aware of the projected liability for environmental remediation faced by its subsidiaries, including that NFG Distribution’s potential liability accounted for 64% of the total estimated liability. Instead, only 46% of the proceeds were allocated to NFG Distribution based on its proportionate share of the premiums paid for the subject general liability insurance policies. By use of this allocation method, *373a portion of the settlement proceeds was distributed to National Fuel’s nonregulated affiliated companies. The PSC concluded that National Fuel should have taken into account the available estimates of potential environmental liability for each subsidiary that were available at the time the proceeds were allocated and that the appropriate distribution should have been made in proportion to that prospective liability. The PSC therefore determined that the 46% allocation to NFG Distribution was “unjust and unreasonable.”
A review of the record as a whole provides ample basis for the PSC’s conclusion. PSC’s expert testified that the allocation of proceeds on the basis of insurance premiums paid was “not accurate and [made] no sense.” He concluded that the settlements were reached on the basis of projected environmental liabilities and “had no relation to the amount of insurance premiums paid.” PSC’s expert relied, in part, on the answers to interrogatories that were provided by National Fuel. It was clear from this evidence that National Fuel sought coverage for its environmental liabilities under its general liability insurance policies. After those carriers initially denied the claims, National Fuel retained environmental consultants to estimate the potential environmental site investigation and remediation costs. The attorney who represented National Fuel in the settlement negotiations submitted an affidavit, affirming that the environmental report was prepared “explicitly for insurance settlement negotiation purposes only, in order to identify actual and potential environmental risks” and that counsel used the report “to present settlement demands” to the insurance companies. Although the insurers asserted that the policies did not apply to environmental liability, they ultimately settled.
The evidence in the record therefore establishes that the insurance proceeds were pursued and obtained for the specific purpose of dealing with potential environmental liability. Given that the policies at issue were general, and not environmental, liability policies, the proportion of premiums paid by the various entities was completely unrelated to the settlement proceeds. The IES report was at least related to the subject of the settlement—environmental liability. The methodology the majority embraces as beyond the reach of the PSC has no demonstrated relationship to that issue, the settlement negotiations or the settlement proceeds. We simply are not confronted with a choice of two prudent methodologies.
The idea of dividing insurance proceeds among insureds in proportion to premiums is strange at best. The reason for *374buying insurance is to protect against unforeseen losses, not to get a return on premiums paid. The “premiums paid” methodology, as applied in this case, gives “protection” against environmental liabilities to companies that suffered no environmental loss, including some that may never have had any environmental risk. If a utility had negotiated such an allocation at arm’s length with independent coinsureds, the agreement would raise a serious question of prudence. Here, where the allocation of insurance proceeds was among affiliated companies, whose management had an obvious interest in maximizing the burden on the ratepayers in order to minimize cost to the shareholders, the PSC was all the more justified in looking at that allocation with a skeptical eye.
In these circumstances, the PSC clearly had a rational basis to conclude that the allocation of proceeds to National Fuel’s subsidiaries based on premiums paid was imprudent. There is substantial evidence to support the PSC’s determination and therefore the Appellate Division judgment should be reversed.
Judges Ciparick, Read and Jones concur with Judge Graffeo; Chief Judge Lippman dissents and votes to reverse in a separate opinion in which Judges Smith and Pigott concur.
Judgment affirmed, with costs.