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Rochester Gas and Electric Corp. v. Public Service Commission of

January 29, 1985

ROCHESTER GAS AND ELECTRIC CORPORATION, PLAINTIFF-APPELLANT,
v.
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, DEFENDANT-APPELLEE



Appeal from a judgment entered in the United States District Court for the Western District of New York, Telesca, J., dismissing appellant's complaint pursuant to Fed. R. Civ. P. 12(b)(6). The district court held that a regulatory practice of the New York Public Service Commission violated neither the Supremacy Clause nor the Commerce Clause of the U.S. Constitution. Affirmed.

Author: Meskill

Before: FEINBERG, Chief Judge, MANSFIELD and MESKILL, Circuit Judges.

MESKILL, Circuit Judge:

Appellant Rochester Gas and Electric Corporation (RG&E) appeals from a final judgment of the United States District Court for the Western District of New York, Telesca, J., dismissing RG&E's complaint pursuant to Fed. R. Civ. P. 12(b)(6). In its complaint, RG&E seeks a declaratory judgment that the New York Public Service Commission's (PSC) policy of including an estimate of RG&E's wholesale electric sales in RG&E's revenue base violates the Supremacy Clause, art. VI, cl. 2, and Commerce Clause, art. I, ยง 8, cl. 3, of the United States Constitution. The district court granted PSC's motion to dismiss, concluding that PSC's policy neither infringes on exclusive federal jurisdiction nor burdens interstate commerce. On appeal, RG&E challenges both conclusions. For the reasons that follow, we affirm.

BACKGROUND

RG&E is a New York corporation engaged in the generation, transmission, distribution and sale of electricity in a nine county area surrounding Rochester, New York. PSC is an administrative agency of the State of New York, authorized, inter alia, to establish the intrastate rates charged by regulated gas and electric utilities. N.Y. Pub. Serv. Law, Art. 4. The great majority of RG&E's revenue is derived from retail sales, which are intrastate and thus subject to regulation by PSC. In addition, RG&E makes sales of electricity for resale, also called wholesale or incidental sales. These sales are considered interstate and are subject to regulation by the Federal Energy Regulatory Commission (FERC).*fn1

The facts giving rise to the present dispute between RG&E and PSC are undisputed and relatively uncomplicated. On August 27, 1982 RG&E filed proposed tariff changes with PSC. PSC suspended the proposed changes and conducted eleven days of hearings on the changes over a four month period. On July 18, 1983 PSC issued its decision which authorized a $7,805,000 increase in electric rates.

In reaching its decision, PSC used a "fully forecasted" rate year as its ratemaking method. Under this method, PSC forecasts the utility's expenditures and its revenues absent a rate increase for a twelve month rate year. Based on the projected expenditures and revenues, PSC adjusts the utility's rates so that if all goes as planned the utility will earn its authorized rate of return.

Using this method, PSC concluded that RG&E needed $470,603,000 in total revenue to earn its authorized rate of return. In determining the retail rates necessary to achieve this figure, PSC imputed $36,662,000 in revenues from estimated incidental sales into RG&E's revenue base. In explaining the imputation of incidental sales, PSC stated:

And, of course, we are not setting rates for those sales but merely reflecting a reasonable profit on a portion of those sales in rates which we do set. . . .The Federal Power Act has indeed preempted state regulation of sales for electricity in interstate commerce . . . but [it] in no way prohibits our action here, where we are not regulating those sales but simply contemplating their being made.

Pub. Serv. Comm'n Op. No. 83-13 (July 18, 1983), reprinted in J. App. at 89, 98-99. After factoring in the $36 million in incidental sales, PSC concluded that RG&E's revenues would fall short of the $740 million revenue figure by $7.8 million and adjusted RG&E's retail rates accordingly.

RG&E sought a rehearing from PSC, claiming, as it had previously, that the imputation policy violates the Supremacy and Commerce Clauses. In rejecting RG&E's claims, PSC stated:

Both the sections of the statute and the cases relied on by the company stand for the proposition that we lack authority to set rates for sales of electricity in interstate commerce -- a proposition we do not deny. They do not, however, address the reflection of profits on those sales in the retail rates over which we do have jurisdiction. And as we said in Opinion No. 83-13, we have not regulated the sales at issue here but merely contemplated their being made. . . . The company's analysis notwithstanding, there is a distinction between, on the one hand, ordering sales for resale and, on the other, reflecting in jurisdictional rates the profits from a reasonably forecast level of those sales. Our use of a forecast test period requires us to do the latter as part of our effort to project expenses and revenues in the rate year, and including a reasonable level of sales for resale in the forecast in no way constitutes an order that the sales be made. Thus, the company has not shown that the Federal Power Act is so broad that it applies to our actions here.

Pub. Serv. Comm'n Order Granting in Part and Denying in Part Petitions for Rehearing, reprinted in J. App. at ...


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