Appendix — Central Hudson Gas & Electric Corp. v. Public Service Commission
Supreme Court brief1979
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IN THE OCT & i979 i
Supreme Court of the Anite
OCTOBER TERM, 1979
No. foe At ae 55
CENTRAL HUDSON GAs & ELECTRIC CORPORATION
Appellant,
Vv.
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Appellee.
ON APPEAL FROM THE COURT OF APPEALS
OF THE STATE OF NEW YORK
APPENDIX TO JURISDICTIONAL STATEMENT
TELFORD TAYLOR
60 E. 42nd Street
New York, New York 10017
Tel. (212) 661-0930
Counsel for Appellant
OFC ounsel:
WALTER A. BosseERT, JR.
DAVISON W. GRANT
GOULD & WILKIE
One Wall Street
New York, New York 10005
Tel. (212) 344-5680
TAYLOR, FERENCZ & SIMON
60 E. 42nd Street
New York, New York 10017
Tel. (212) 661-0930
October, 1979
———————————————————————————————
TABLE OF CONTENTS
Appendix A (Opinion of the Court of Appeals of the State of
New York, May 1, 1979) ........ ee Dea a Mek eew
Appendix B (Opinion of the New York Supreme Court, Ap-
pellate Division, Third Judicial Department, July 27, 1978)
Appendix C (Opinion of the New York Supreme Court,
Albany County, February 17, 1978) .................
Appendix D (Opinions of the Public Service Commission of
the State of New York)
Appendix D-1—Notice of Proposal to Issue Order Re-
stricting Certain Uses of Electrical
Energy, December 5, 1973 .........
Appendix D-2—Statement of Policy on Advertising and
Promotional Practices of Public Utili-
ties, February 25, 1977 ...........
Appendix D-3—Order Denying Petitions for Rehearing,
dk Se Paper eer rereara
Appendix E (Petition to the New York Supreme Court,
Albany County, November 10, 1977) ................
Appendix F (Judgment and Order of the Court of Appeals of
the State of New York)
Appendix F-1—Judgment, May 1, 1979 ............
Appendix F-2—Order Denying Rehearing, July 9, 1979
Appendix G (Notice of Appeal to the Supreme Court of the
United States, August 22, 1979) ...
Appendix H (Public Service Law of the State of New York
Senne ees eee, Gay COP & OD) .. oe a e..
Appendix I (Notice of Proposed Policy Statement and Re-
quest for Comments on Advertising by Public Utilities and
Electric Promotion Practices of the Public Service Com-
mission of the State of New York, July 28, 1976) .......
Appendix J (Selections from Opinion of United States District
Court, Eastern District of New York, March 30, 1979) ..
Appendix K (Extracts of United States Congressional Com-
I re ce ce ann toe kw Ge wR 8
—Public Utility Regulatory Policies Act, Conference
Committee Report, H.R. Rep., Report No. 95-1750,
95th Cong., 2nd Sess. 77 (1978)
—National Energy Act, Committee on Interstate and
Foreign Commerce Report, H.R. Rep. No. 95-496,
Part IV, 95th Cong., 1st Sess. 138-40 (1977)
PAGE
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Appendix A
Opinion of the Court of Appeals of the
State of New York, May 1,1979 -
OPINION
STATE OF NEW YORK
COURT OF APPEALS
No. 150
In the Matter of
CONSOLIDATED EDISON COMPANY OF NEW York, INC.,
Appellant,
vs.
PuBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,
Appellant,
VS.
PuBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent.
No. 151
In the Matter of
CENTRAL HuDSON Gas & ELECTRIC CORPORATION,
Appellant,
vs.
PuBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent.
(150) (151) JosEpH D. BLock & PETER GarRaM. NY City
for appellant in (150).
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Appendix A
TELFORD TAYLOR, WALTER A. BOSSERT, JR. and DAVISON
W. Grant, NY City, for appellant in (151).
Howarp J. READ and Peter H. ScuiFF, Albany for re-
spondent in each matter.
Cooke, Ch. J.:
We determine here whether the Public Service Commission
exceeded its statutory authority or impinged upon First Amend-
ment rights by restricting certain advertising and promotional
practices of public utilities. For the reasons outlined, we hold
that the Public Service Commission was within its authority in
imposing the restrictions, and that petitioners’ expressional rights
_ were not unconstitutionally impaired.
I
Respondent, New York Public Service Commission, exer-
cises regulatory and supervisory powers over public utilities
licensed to operate in the State (see Public Service Law, §§ 5,
66). In 1973 the Commission, reacting to the Arab oil embargo,
prohibited electric corporations “from promoting the use of
electricity through the use of advertising, subsidy payments
* * * or employee incentives”. Although the immediate crisis
created by the embargo dissipated, no repeal of the promotional
ban was effected by the Commission. Then, in July of 1976,
the Commission issued a “Notice of Proposed Policy Statement
and Request for Comments on Advertising by Public Utilities
and Electric Promotion Practices”. Petitioners, Central Hudson
Gas & Electric Corporation and Consolidated Edison Company
of New York, Inc., as well as other interested parties, responded
to the notice, arguing for relaxation of the promotional ban on
both policy and constitutional grounds.
After reviewing the comments received and conducting its
evaluation of the problem, the Commission rendered a decision
on February 25, 1977 entitled “Statement of Policy on Advertis-
ing and Promotional Practices of Public Utilities”. In its state-
ment, the Commission concluded “that the existing ban on pro-
motion of electricity sales should be continued”. Its reasoning
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Appendix A
for continuation of the prohibition was succinctly stated: “[C]on-
servation of energy resources remains our highest priority * * *,
It is reasonable to believe that a continued proscription of promo-
tion of electric sales will result in some dampening of unnecessary
growth so that society’s total energy requirements will be some-
what lower than they would have been had electric utilities been
allowed to promote sales.”
That same day, the Commission released an order addressing
the topic of utility bill inserts. By that order, the Commission
directed all utilities subject to its jurisdiction to “discontinue the
practice of utilizing material inserted in bills rendered to cus-
tomers as a mechanism for the dissemination of the utility’s
position on controversial matters of public policy”. This restric-
tion, too, was partially explained in the Commission’s policy
statement: “We believe that using bill inserts to proclaim a
utility’s viewpoint on controversial issues * * * is tantamount
to taking advantage of a captive audience, since the consumer
cannot avoid receiving the utilitys message.”
Dissatisfied with the decision, Central Hudson and Con
Edison petitioned for a rehearing, which was denied by the
Commission on July 14, 1977. Central Hudson then commenced
an article 78 proceeding challenging the advertising and insert
bans. Con Edison instituted a separate proceeding in which it
objected to only the billing insert measure. Special Term, in
brief opinions, ruled that while the Commission had power to
impose the promotional advertising restriction, it lacked author-
ity to prohobit the use of bill inserts. On appeal, the Appellate
Division modified, sustaining both branches of the Commission’s
determination. .
II
At the outset, petitioners challenge the Commission’s statu-
tory authority to regulate the content of billing envelopes and
the promotional advertising practices of public utilities. It is, of
course, a fundamental postulate of administrative law that the
Public Service Commission, like other agencies, is possessed of
only those powers expressly delegated by the Legislature, together
4a
Appendix A
with those powers required by necessary implication (see, ¢.g.,
Suffolk County Builders Association, Inc. et al v. County of
Suffolk, et al, NY2d [decided 4/5/79]; Matter of
National Merchandising Corp. v Public Serv. Comm., 5 NY2d
485, 489; cf. Matter of Bates v Toia, 45 NY2d 460, 464).
Nevertheless, the absence of explicit statutory authorization need
not be fatal to a given assertion of regulatory power by the Com-
mission. For, as we have recognized previously, the Legislature
on occasion broadly declares its will, specifying only the goals to
be achieved and policies to be promoted, while leaving the imple-
mentation of a program to be worked out by an administrative
body (see, e.g., Matter of Sullivan County Harness Racing Assn.
v. Glasser, 30 NY2d 269, 276; cf. Matter of Bates v. Toia,
supra). In such cases, the sheer breadth of delegated authority
precludes a precise demarcation of the line beyond which the
agency may not tread. What is called for, rather, is a realistic
appraisal of the particular situation to determine whether the
administrative action reasonably promotes or transgresses the
pronounced legislative judgment (cf. Matter of Broidrick v
Lindsay, 39 NY2d 641, 646).
In the context of this case, without doubt, the Legislature
has conferred vast power upon the Public Service Commission
(see, e.g., Public Service Law, §§ 4, 5, 65, 66; cf. Matter of
Public Serv. Comm. of State of N. Y. v Jamaica Water Supply
Co., 42 NY2d 880, affg 54 AD2d 10). Indeed, the Commission
is expressly endowed with “all powers necessary or proper to
enable it to carry out the purposes of” the Public Service Law
(Public Service Law, §4, subd. 1). Added to this is the Com-
mission’s specific power of “general supervision of all gas corpo-
rations and electric corporations” and “all gas plants and electric
plants” (Public Service Law, §66, subd. 1).
In light of current exigencies, one of the policies of any public
service legislation must be the conservation of our vital and
irreplaceable resources. The Legislature has but recently im-
posed upon the Commission a duty “to encourage all persons
and corporations * * * to formulate and carry out long-range
programs * * * [for] the preservation of environmental values
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Appendix A
and the conservation of natural resources” (Public Service Law,
§5, subd. 2). Implicit in this amendment is a legislative recogni-
tion of the serious situation which confronts our State and nation.
More important, conservation of resources has become an avowed
legislative policy embodied in the Commission’s enabling act
(see, also, Matter of New York State Council of Retail Merchants
Vv Public Serv. Comm. of State of N. Y., 45 NY2d 661, 673-
674).
It necessarily follows, therefore, that the Commission pos-
sesses ample power to prescribe reasonable measures designed to
prevent wasteful consumption or unneeded expansion of utility
services. By prohibiting promotional advertising of electric
power, the Commission has taken precisely such a step. In its
expertise, the Commission could have reasonably concluded that
promotional advertising might tend to increase injudicious and
unnecessary consumption of electrical power. Given this, the
authority for the advertising ban becomes apparent.
Nor did the Commission exceed its jurisdiction by prohibiting
the inclusion of inserts in utility billing envelopes. The Legisla-
ture has granted the Commission express authority “to fix and
alter the format and informational requirements of bills utilized
by public and private gas corporations, electric corporations and
gas and electric corporations in levying charges for service, to
assure simplicity and clarity * * *” (Public Service Law § 66,
subd. 12-a).' Incident to that authority and in the same subdi-
? Added by Laws of 1977, chapter 527, approved Aug. 1, 1977.
In a case such as this une, in which the effectiveness of the Public
Service Commission’s prohibitions has been judicially stayed by
interim orders during the course of this litigation such that they have
not yet attained practical vitality, we have no difficulty in applying
to this appeal the principle that we must decide the case on the
basis of the law as it exists today. (Strauss v University of the
State of New York, 2 NY2d 464, 465.) It would be but a futile
exercise to annul the PSC determination on the basis of prior law
only to have the agency validly repromulgate its order under the
recent amendment.
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Appendix A
vision it is provided that the “commission shall further ensure
periodic explanation of applicable rates and rate schedules for
the purpose of assisting customers in making the most efficient use
of energy”. Thus, the Legislature has authorized the Commission
to regulate not only the format and informational content of the
bill itself but the entire billing communication. Petitioners invite
us to read these provisions narrowly, restricting the Commission’s
jurisdiction to the actual billing instrument itself rather than ex-
tending it to the entire contents of the billing envelope. This
artificial distinction must be rejected. By necessary implication,
the statute, if it is to amount to more than an empty adage, must
provide the Commission with authority to oversee the distribu-
tion of bill inserts. Were the agency’s power construed to extend
only to the bill itself, control over informational content and
format “to assure simplicity and clarity” could be severely ham-
pered if not totally undermined. While the bill might be simple
and clear, utilities could literally inundate consumers with a
morass of irrelevant and conflicting data, forms, and pamphlets,
causing confusion and oversight. Indeed, granting the utilities
unfettered discretion to include all materials would negate the
legislative goals of simplicity and clarity. It is difficult to con-
ceive a legislative intent to permit such a disordered pattern. A
more acceptable alternative is an interpretation of the statute
empowering the Commission to regulate the billing process as a
whole.
This construction becomes all the more reasonable when
viewed in the context of the entire regulatory scheme. Rather
than restricting the PSC’s authority, the Legislature has invested
that agency with all powers needed to carry out the purposes of
the Public Service Law, as well as power to supervise generally
the operation of electric and gas corporations and electric and
gas plants (Public Service Law, §4, subd 1; §66, subd 1). In
view of the expansive definitions of electric and gas plants (Pub-
lic Service Law, §2, subds 10, 12), the Commission’s supervisory
authority must be taken to extent to those “useful and necessary
services [and property] which facilitate” or are used in connection
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Appendix A
with the “manufacture, conveying, transportation, distribution,
sale, or furnishing” of utility power (Matter of National Mer-
chandising Corp. v Public Serv. Comm., 5 NY2d 485, 490-491;
Public Service Law, §2, subds 10, 12). Control of the billing
procedure, a process necessarily adjunct to the furnishing of
utility service, thus fits neatly into the PSC’s supervisory role.
This supervisory power, combined with the more specific billing
regulatory authority, provides ample justification for Commission
oversight of billing envelope content.
To summarize, the Public Service Commission is possessed of
sufficient statutory power to prohibit the promotional advertising
of electricity and to prescribe the content of electric and gas
corporation consumer billing envelopes.
Ii
The Commissions actions being within the limits of its dele-
gated authority, petitioner’s First Amendment contentions must
be addressed. The constitutional attack is directed at both the
outright prohibition of promotional advertising and the ban on
bill enclosures dealing with controversial topics.
Analysis in the First Amendment area proceeds on one of
two tiers, depending upon the nature of the restriction which
government has imposed (see, e.g., Ely, Flag Desecration: A
Case Study in the Roles of Categorization and Balancing in First
Amendment Analysis, 88 Harv L Rev 1482). At one level,
government regulation designed to suppress traditional communi-
cative activity becausqof its content or potential impact is sub-
ject to the most rigo rutiny. Absent some compelling justi-
fication, such as a likelihood that speech will incite “imminent
lawless action”, content-oriented restrictions may not stand
(Brandenburg v Ohio, 395 US 444, 447; see Hess v Indiana,
414 US 105; United States v O’Brien, 391 US 367, 376-377;
see, generally, Gunther, Learned Hand and the Origins of Mod-
ern First Amendment Doctrine: Some Fragments of History, 27
Stan L Rev 719). On the second tier are those governmental
8a
Appendix A
measures which, although not directly aimed at all communica-
tion, inhibit the free flow of information or ideas. The validity of
such a restraint is gauged by balancing the various competing
interests, with due regard for the status of First Amendment
rights in our constitutional scheme. Thus, so long as a facially
neutral regulation does not unduly constrict the exercise of
protected rights, it is not unconstitutional (compare Buckley v
Valeo, 424 US 1, 60-84, with Schneider v State, 308 US 147; see,
generally, Note, Less Drastic Means and the First Amendment,
78 Yale L J 464).
A
In the present case, the prohibition on billing inserts, which
was designed to vindicate the privacy rights of utility customers,
constitutes at best an indirect restraint upon expressional activity.
It extends not to all speech of a prescribed content, but only to
one manner of communication. No one viewpoint is singled out
for special treatment, nor is the general right to express ideas in
other forums effected. In short, the PSC is concerned with but
one particular means of expression, and then only to a limited
extent.
It is well settled that government may impose reasonable re-
strictions upon the time, place and manner of communication
(see, e.g., Grayned v City of Rockford, 408 US 104, 115-117;
Kovacs v Cooper, 336 US 77; Cox v New Hampshire, 312 US
569, 575). To constitute a valid time, place and manner restric-
tion, a regulation must be content neutral, supported by a signi-
ficant govenmental interest, and not foreclose alternative channels
of expression (e.g., Va. Pharmacy Bd. v Va. Consumer Council,
425 US 748, 771). Respondent PSC urges that its billing insert
decree satisfies these criteria. It is correct.
There is no doubt but that the regulation leaves open nu-
merous alternative means of communication. On its face, the
ban only reaches expressional activity conducted through the
billing envelope. Whatever other modes of speech were open
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Appendix A
to utilities prior to the effective date of the Commission order
remain available. That the cost of utilizing these alternative
channels may be higher is not determinative, especially where,
as here, petitioner has wholly failed to demonstrate that it will
be effectively precluded from exercising its rights (see, e.g.,
Kovacs v Cooper, 336 US 77, 88-89).
In a similar vein, the ban unquestionably fosters an important
governmental interest. Consumers of utility services, like many
others in captive situations, have no choice concerning receipt
of a periodic statement from the power company. Whatever
materials are enclosed in the envelope are destined to come in
contact with the addressee. When the insert espouses the utility’s
viewpoint on a controversial question, it is as likely to offend
the sensibilities of the recipient as it is to elicit agreement. Gov-
ernment need not stand idly by and deny assistance to those who
are inflamed by having a particular opinion foisted upon them.
“Nothing in the Constitution compels us to listen to or view any
unwanted communication, whatever its merit; we see no basis
for according the printed word * * * a different or more preferred
Status because [it is] sent by mail. The ancient concept that ‘a
man’s home is his castle’ into which ‘not even the king may enter’
has lost none of its vitality, and none of the recognized excep-
tions includes any right to communicate offensively with another”
(Rowan Vv Post Office Dept., 397 US 728, 737; see, also, Martin
V Struthers, 319 US 141; Black, He Cannot Choose But Hear:
The Plight of the Captive Auditor, 53 Colum L Rev 960). A
governmental agency such as the PSC may take appropriate steps
to protect this privacy right of its constituents (Kovacs v Cooper,
supra at pp 86-89; Cohen v California, 403 US 15, 21-22; see,
also, Public Utilities Comm'n. v Pollak, 343 US 451, 466-469
[Douglas, J. dissenting]).
Finally, the regulation, properly viewed, is not content ori-
ented. True, the directive sweeps within its strictures only those
bill inserts treating controversial topics. But it does not discrimi-
nate against persons of any particular political stripe or prohibit
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Appendix A
the expression of any one position on a hotly debated issue. In
short, the restriction endeavors, in an objective and evenhanded
manner, to limit billing insert materials to the innocuous and
noncontroversial. Given these circumstances, where the com-
munication intrudes upon the privacy of the home, such a limi-
tation does not offend the First Amendment (Erznoznik v City of
Jacksonville, 422 US 205, 209; see Greer v. Spock, 424 US 828,
838-839; Lehman v City of Shaker Heights, 418 US 298, 302-
304: see, Tribe, American Constitutional Law, § 12-21, at pp
690-691, & n 21).
Accordingly, because it satisfies the above criteria, the PSC
order banning bill inserts constitutes a valid time, place and
manner regulation.
B
To be contrasted is the Commission directive proscribing all
promotional advertising of electric service. Rather than an
oblique inhibition, this order works a direct curtailment of ex-
pressional activity: an entire category of speech is prohibited
because of its potential impact upon the society. As noted, con-
tent-oriented regulations have been subjected to an exacting
standard of review, the precise level of that standard being deter-
mined by reference to the nature of the communication.
Until recently, communication in the commercial sphere
would not have been accorded any First Amendment recognition
(compare Valentine v Chrestensen, 316 US 52, with Bigelow v
Virginia, 421 US 809). While now entitled to a measure of
constitutional protection, the full panoply of safeguards afforded
more traditional communications does not necessarily attach
(Ohralik v Ohio State Bar Assn., 436 US 447, 456). Our
task, therefore, is to apply the emerging principles of the com-
mercial speech doctrine to the present context.
A common theme sounding in commercial speech cases is
the notion that society, as a whole, “may have a strong interest
in the free flow of commercial information” (Va. Pharmacy Bd. ©
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Appendix A
Vv Va. Consumer Council, 425 US 748: 764, 765; see, e.g.,
Linmark Associates, Inc. v Willingboro, 431 US 85, 92; Bates v
State Bar of Arizona, 433 US 350, 364-365). In a market system
such as ours, allocation of resources is largely accomplished
through a confluence of private economic decisions. Society
possesses a vital interest in ensuring that these economic deci-
sions are consummated in an intelligent, well informed atmos-
phere, and the free flow of commercial information is indispens-
able to the attainment of this goal (e.g., Va. Pharmacy Bd. v Va.
Consumer Council, supra, at p 765).
The individual consumer, too, has a stake in the availability
of commercial information. To many, knowledge of the price
and availability of goods and services takes on an importance
overshadowing even the most urgent political debate. Especially
in these days of rapidly fluctuating prices, the free flow of com-
mercial information plays a central role in consumer decision
making. Indeed, it could mean the difference between enjoy-
ment or nonenjoyment of basic necessities (see, Va. Pharmacy
Bd. v Va. Consumer Council, supra, at p 764).
Recognition of these interests accounts, in large measure,
for the protections extended commercial speech. In a competi-
tive market, information concerning the availability and price
of goods and services is essential to consumers. Analysis of pre-
cedent bears out this observation. In Va. Pharmacy Bd. v Va.
Consumer Council (425 US 748, supra), for example, the State
sought to prohibit advertising of prescription drug prices. Ack-
nowledging the State’s strong interest in ensuring the profes-
sionalism of pharmacists, the Supreme Court nonetheless found
the societal and individual benefits flowing from price advertising
in this competitive industry to be superordinate: “Virginia is free
to require whatever professional standards it wishes of its phar-
macists; it may subsidize them or protect them from competition
in’other ways. * * * But it may not do so by keeping the public
in ignorance of the entirely lawful terms that competing pharma-
cists are offering” (Id., at p 770). Similarly, in Bates v. State Bar
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Appendix A
of Arizona (433 US 350, supra), a disciplinary rule restricting
advertising by attorneys was invalidated. In so doing, the court
again highlighted the role of commercial information in a free
enterprise economy, commenting that “such speech serves indi-
vidual and societal interests in assuring informed and reliable
decisionmaking” (Id., at p 364). The various justifications
offered in support of a ban on attorney advertising were deemed
insufficient to override these interests (Id., at pp 366-379).
By the same token, where the importance of the free flow
of commercial information is diminished, either because of mar-
ket structure of the industry or hazards associated with a par-
ticular means of communication, First Amendment protection
reaches its nadir.? This dichotomy is aptly illustrated by Ohralik
v. Ohio State Bar Assn. (436 US 447, supra), where a pro-
hibition of in-person solicitation by attorneys was upheld.
Ohralik recognizes the “ ‘common-sense’ distinction between
speech proposing a commercial transaction, which occurs in an
area traditionally subject to government regulation, and other
varieties of speech.” For this reason, commercial speech occu-
pies a “subordinate position in the scale of First Amendment
values” (Id., at p 455-456). Thus, a particular mode of adver-
tising which would not well serve the societal interest in informed
decisionmaking, such as in-person solicitation, may constitution-
ally be banned: “In-person solicitation is as likely as not to
discourage persons needing counsel from engaging in a critical
comparison of the ‘availability, nature, and prices’ of legal serv-
ices * * * it actually may disserve the individual and societal
interest * * * in facilitating ‘informed and reliable decision-
2 We are not suggesting that the fate of a business entity’s First
Amendment rights turns upon its economic self interest (see First
National Bank of Boston v. Bellotti, 435 US 765). To the contrary,
petitioners’ economic interest would be well served by promotional
advertising. Rather, it is the beneficial or detrimental impact of
commercial information upon society which assumes importance on
analysis.
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Appendix A
making’” (Id., at pp 457-458). Such speech, Ohralik, teaches,
may be prohibited in the public interest.
Applying these principles, the ban on promotional adver-
tising of electricity is consistent with First Amendment strictures.
Public utilities, from the earliest days in this State, have been
regulated and franchised to serve the commonweal. Our policy is
“to withdraw the unrestricted right of competition between
corporations occupying * * * the public streets * * * and supply-
ing the public with their products or utilities which are well nigh
necessities” (People ex rel. New York Edison Co. v Willcox, 207
NY 86, 99; Matter of New York Electric Lines Co., 201 NY
321). The realities of the situation all but dictate that a utility
be granted monopoly status (see People ex rel. New York Electric
Lines Co. v Squire, 107 NY 593, 603-605). To protect against
abuse of this superior economic position, extensive governmental
regulation has been deemed a necessary coordinate (see People
ex rel. New York Edison Co. v Willcox, supra, at pp 93-94).
In view of the noncompetitive market in which electric
corporations operate, it is difficult to discern how the promo-
tional advertising of electricity might contribute to society’s
interest in “informed and reliable” economic decisionmaking.
Consumers have no choice regarding the source of their electric
power; the price of electricity simply may not be reduced by
competitive shopping. At best consumers may seek, through the
Public Service Commission, to limit future increases in electrical
prices. Surely promotional advertising would provide no informa-
tion of assistance in this respect.
Indeed, promotional advertising is not at all concerned with
furnishing information as to the “availability, nature, and prices”
of electrical service. It seeks, instead, to encourage the increased
consumption of electricity, whether during peak hours or off-
peak hours. Thus, not only does such communication lack
any beneficial informative content, but it may be affirmatively
detrimental to the society. It would not strain the bounds of
judicial notice for us to take cognizance of the present energy
l4a
Appendix A
crisis. Conserving diminishing resources is a matter of vital
state concern and increased use of electrical energy is inimical
to our interests. Promotional advertising, if permitted, would
only serve to exacerbate the crisis. In short, this constitutes a
compelling justification for the ban.
Accordingly, the order of the Appellate Division in each
case should be affirmed, with costs.
+ * .
In each case:
Order affirmed, with costs. Opinion by Cooke, Ch.J. Concur:
Jasen, Gabrielli, Jones, Wachtler and Fuchsberg, JJ.
Decided May 1, 1979
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Appendix B
Opinion of the New York Supreme Court, Appellate Division,
Third Judicial Department, July 27, 1978
STATE OF NEW YORK
SUPREME COURT
APPELLATE DIVISION—THIRD DEPARTMENT
No. 33186
In the Matter of
CONSOLIDATED EDISON Co. OF NEW YorK,
Respondent,
against
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, °
Appellant.
CONSOLIDATED EDISON Co. OF NEW YorK,
Respondent,
against
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,”
Appellant.
No. 33185
In the Matter of
CENTRAL Hupson Gas & ELECTRIC CorpP.,
Respondent-A ppellant,
against
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW York,
A ppellant-Respondent.
«
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Appendix B
APPEAL from a judgment of the Supreme Court at Special
Term (Roger J. Miner, J.) entered March 6, 1978 in Albany
County, which granted petitioner’s application, in a proceeding
pursuant to CPLR article 78, to vacate an order of the Public
Service Commission and declared that the order was unconsti-
tutional.
Cross APPEALS from a judgment of the Supreme Court at
Special Term (Roger J. Miner, J.), entered March 14, 1978 in
Albany County, which granted in part and dismissed in part
petitioners application, in a proceeding pursuant to CPLR article
78, to vacate an order of the Public Service Commission.
* * *
PETER H. ScuiFF (Howard J. Read of counsel), for Public
* Service Commission, appellant, appellant-respondent, Empire
State Plaza, Albany, New York 12223.
JosEPH D. BLock, for Consolidated Edison Co. of New
York, Inc., respondent, 4 Irving Place, New York, New York
10003.
GouLp & WILKIE (Davison W. Grant of counsel), for Cen-
tral Hudson Gas & Electric Corporation, respondent-appellant,
One Wall Street, New York, New York 10005.
Le Bogur, LAMB, LerBy & MACRAE (Ronald D. Jones,
Andrew Gansberg and Howard S. Ockman of counsel), for
National Fuel Gas Distribution Corp. and others, amici curiae,
140 Broadway, New York, New York 10005.
Harvey J. SHULMAN, for Scientists’ Institute for Public
Information and others, amicus curiae, 1609 Connecticut Ave-
nue, N.W., Washington, D. C. 20009.
* * &
GREENBLOTT, J.
We are here concerned with two separate appeals but because
of the similarity of issues we are considering them together.
17a
Appendix B
The first appeal concerns an order of the Public Service
Commission (PSC) issued on February 25, 1977 which provided,
in pertinent part, that “[aJll utilities subject to the jurisdiction
of this Commission shall discontinue the practice of utilizing
material inserted in bills rendered to customers as a mechanism
for the dissemination of the utility’s position on controversial
matters of public policy”. Petitioner, Consolidated Edison Com-
pany of New York, Inc. (Con Edison), challenged the validity
of that portion of the order and Special Term annulled the order
to the extent that it prohibited Con Edison from utilizing bill
inserts as a means of disseminating its views on controversial
matters of public policy. Special Term concluded that there was
no basis in the statutory powers accorded the PSC which would
authorize the total ban of such inserts. We disagree.
The PSC has general powers of supervision and regulation
over activities of gas and electric utilities. (See, e.g., Public
Service Law, §66.) The issue before us is whether, given these
powers, the PSC may prevent management from expressing its
political positions in a manner that is inevitably subsidized by
the consumer, particularly when the PSC places no restrictions
on advertisement by any other means. We hold that it may.
Con Edison does not dispute that the PSC has a duty to
allocate costs for political advertising to accounts chargeable to
shareholders (16 NYCRR chap. III, subchap. F, account 426.4).
An obvious corollary of this duty is the requirement that con-
sumers not be charged with the costs of these political activities.
The PSC necessarily has the duty to protect consumers from such
charges.
The PSC protests that, given the manner of airing its views
chosen by Con Edison, it cannot fulfill that duty. We agree that
it would be impossible to separate out the costs attributable to
mailing the bills (a customer expense) from the costs attribut-
able to mailing out management statements (a shareholder
expense). Unless the PSC allocates all the costs of mailing as
well as costs of stuffing the envelopes to the utility, management
will benefit from a savings in postage and labor, a subsidy the
PSC is empowered to prevent. That the mailings would not
cost the consumers anything is irrelevant since the issue is whether
18a
Appendix B
management’s costs will be reduced through customer subsidy.
In the battle of ideas, the utilities are not entitled to require
the consumers to help defray their expenses.
We also reject the argument that the order is a violation of
the utilities’ free speech rights. Since the PSC’s authority to
issue the order and the necessity for doing so have been estab-
lished, it is only a serious infringement of petitioner’s constitu-
tional rights that would warrant our annulment of the order.
Here, there is no order barring Con Edison from expressing its
opinions, nor is there an order barring the company from using
the usual forms of advertisement. There is merely an order
prohibiting the use of bill inserts to put forth management posi-
tions. This insignificant impingement on petitioner’s rights is
far outweighed by the PSC’s duty to prevent customer subsidy
of management’s pamphleteering.
Nor do we view the order as being fatally vague. The order
restricts only the utility's use of the bill insert to express its
“position on controversial matters of public policy”. The boun-
daries of the order need not be defined with utmost exactitude.
We have little doubt that the PSC and the utilities are capable
of distinguishing useful information for consumers (¢.g., ways
to conserve energy) from management’s statements on the poli-
tical issues of the day (e.g., benefits of nuclear energy). Further,
the order clearly contemplates expenditures that would qualify
under account 426.4 of the PSC’s accounting guidelines (16
NYCRR, chap. III, subchap. F) as expenditures to influence
public opinion. This is as detailed a statement of the contours
of the order as the Constitution requires. Thus, the judgment
entered March 6, 1978 must be reversed.
In the second appeal petitioner Central Hudson Gas & Elec-
tric Corp. (Central Hudson) cross appeals from a judgment of
Special Term insofar as the court dismissed its application to
vacate that part of the order of the PSC issued on February 25,
1977 which classified expenses for advertising designed to sway
public opinion as nonoperational and, therefore, chargeable to
shareholders and which prohibited promotional advertising by
electric utilities. For the reasons hereinbefore mentioned so much
of the judgment as annulled that portion of the PSC order banning
~ Te
——_ _
19a
Appendix B
the use of bill inserts as a means of disseminating the utility’s
position on controversial matters of public policy should be
reversed.
Concerning the prohibition of promotional advertising Cen-
tral Hudson initially argues that no statutory authority empowers
the PSC to order such a prohibition. The PSC relies on its statu-
tory obligation to assure that rates charged are just and reason-
able (Public Service Law, §66) and upon section 5 (subd. 2)
of the Public Service Law which requires the PSC to encourage
corporations subject to its jurisdiction “to formulate and carry
out long-range programs individually or cooperatively, for the
performance of their public service responsibilities with economy,
efficiency, and care for the public safety, the preservation of
environmental values and the conservation of natural resources”.
In justification, the PSC concluded that promotional advertising
will increase the use of electricity causing spiraling price increases
due to the fact that present rates do not cover the marginal cost
of new capacity; that such advertising provides misleading signals
that energy conservation is unnecessary; and that additional usage
will increase the level of dependence on foreign sources of fuel
oil. Considering the impact of promotional advertisement, the
PSC is, in our view, statutorily empowered to prohibit such adver-
tisement (Public Service Law, §66; §5, subd. 2).
Central Hudson also argues that the prohibition violates its
right to free speech as guaranteed by the First Amendment to the
United States Constitution. The Supreme Court has held that
commercial speech falls within the protection of the First Amend-
ment (Virginia Pharmacy Bd. v Virginia Consumer Council,
425 US 748). More recently, in a case where a prohibition was
directed at speech itself, the Supreme Court held that the prohi-
bition must be supported by a showing of a subordinating interest
which is compelling and the burden is on the government to show
such an interest (First National Bank of Bostonv Bellotti,
US , 98 S Ct 1407). Upon our review of the record, it is
the opinion of this court that the PSC has sufficiently demon-
strated such an interest and, therefore, the prohibition of promo-
tional advertising is not violative of Central Hudson’s First
Amendment right to freedom of speech.
20a
Appendix B
Expenditures for political and related advertising activities
have normally been excluded from operational expenses in the
ratemaking process and consequently have been chargeable to
shareholders rather than ratepayers (16 NYCRR chap. III, sub-
chap. F, account 426.4). Central Hudson, however, argues
against the expansion by the PSC of the definition of political
and related advertising activities to include “all advertising which
seeks to sway opinion—legislative, environmental, governmental,
consumer or any other kind—to the industry’s position on public
policy disputes”. Specifically included in this category by the
PSC were expenses incurred in advertisements designed to influ-
ence public opinion concerning the development of nuclear
energy. We agree with Special Term that the PSC may properly
classify such expenditures pursuant to its rate regulating activities
and that the expanded definition propounded by the PSC is not
overly broad, arbitrary or capricious (see Southwestern Elec. Co.
v Federal Power Comm., 304 F2d 29, cert. den. sub nom Ala-
bama Power Co. v Federal Power Comm., 371 US 924). We also
find no constitutional infirmity in such categorization.
The judgment entered March 6, 1978 should be reversed,
on the law, without costs, and the order declared constitutional.
The judgment entered March 14, 1978 should be modified,
on the law, by deleting so much thereof as annulled the PSC’s
directive; determination confirmed, and, as so modified, affirmed,
without costs.
SWEENEY, J. (concurring in part and dissenting in part).
We respectfully dissent from that part of the majority’s deci-
sion that holds that the Public Service Commission (PSC) is
authorized to restrict political inserts in billing envelopes.
The PSC has only those powers conferred upon it by the
Legislature and such additional powers as are incidental thereto
or necessarily implied therefrom (Matter of New York Tel. Co. v
Public Serv. Comm. of State of N.Y., 59 AD2d 17). Two
provisions of the Public Service Law are proposed by the PSC
as authority in support of the ban in question. Initially, it is urged
that section 65 (subd. 3) of the Public Service Law is violated
a ee ree
2la
Appendix B
by the use of bill inserts in that it gives the managements of the
utilities a benefit or advantage unavailable to others. It is clear,
however, that section 65 (subd. 3) relates to the prohibition of
discrimination in the provision of services and no such discrimina-
tion is present in the instant case.
It is also argued by the PSC that section 66 (subd. 2) of the
Public Service Law authorizes the ban on bill inserts as that
section empowers the PSC to “order such reasonable improve-
ments as will best promote the public interest”. In support of this
argument, it is contended that the order in question is designed
to protect utility subscribers generally from the conversion of the
billing process into a subsidized forum for the dissemination of
management's political views. The majority adopts the position
of the PSC that the bill inserts would be inevitably subsidized
by the consumer and consequently finds authority in the PSC to
prohibit the use of bill inserts. In our view, however, it would
not be impossible for the PSC to perform its duty of allocating
the cost of these management statements to accounts chargeable
to shareholders. We find nothing to prohibit the PSC from pro-
portioning the costs so that the cost attributable to the placing
of the bill inserts in envelopes and the mailing of the bill inserts
would be chargeable to shareholders rather than ratepayers. Such
an apportionment would prevent the subsidizing of management’s
views through the use of bill inserts. Consequently, we find no
express or implied statutory power authorizing the PSC to ban
the bill inserts prohibited by its order of February 25, 1977. We
would, therefore, affirm both of the judgments here on appeal.
MAHONEY, P.J., and MIKOLL, J., concur with GREENBLOTT,
J.; SWEENEY and Main, JJ., concur in part and dissent in part
in a separate opinion by SWEENEY, J.
Judgment entered March 6, 1978 reversed, on the law, with-
out costs, and order declared constitutional.
Judgment entered March 14, 1978 modified, on the law, by
deleting so much thereof as annulled the Public Service Com-
mission’s directive; determination confirmed, and, as so modified,
affirmed, without costs.
22a
Appendix C
Opinion of the New York Supreme Court, Albany County,
February 17, 1978
STATE OF NEW YORK
SUPREME COURT: COUNTY OF ALBANY
In the Matter of
CENTRAL Hupson Gas & ELECTRIC CORPORATION.
Petitioner,
-against-
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK.
Respondent,
for a judgment pursuant to Article 78 of the
Civil Practice Law and Rules.
Supreme Court, Albany County Special Term, December 9, 1977
Justice Roger J. Miner, Presiding
Calendar No. 50
APPEARANCES:
GOULD & WILKIE, Esqs.
Attorneys for Central Hudson Gas and Electric Corporation
WALTER A. BossERT, JR., Esq.,
DAVISON W. GRANT, Esq. and
Tuomas C. Hutton, Esq. of Counsel
One Wall Street
New York, New York 10005
PETER H. ScHIFF, Esq.
Counsel to Public Service Commission
Howarp J. READ, Esq. of Counsel
Empire State Plaza
Albany, New York 12223
23a
Appendix C
MINER, J:
On February 25, 1977 the respondent issued its “Statement
of Policy on Advertising and Promotional Practices of Public
Utilities” and “Order Implementing Certain Restrictions on
Utility Advertising.” In this proceeding pursuant to CPLR
Article 78 petitioner challenges three aspects of the policy state-
ment and implementing order: a) the prohibition upon the use
of bill inserts to disseminate the views of utility management on
controversial matters of public policy; b) the prohibition upon
promotional advertising: c) the respondent's definition of political
advertising.
The issues raised by the prohibition upon the use of bill inserts
are addressed in a separate opinion issued by this court simul-
taneously herewith. (Matter of Consolidated Edison v Public
Service Commission.) For the reasons set forth in that opinion,
this prohibition is invalid.
Petitioner claims that the ban upon promotional advertising
by electric utility companies is a violation of its First Amendment
rights under the United States Constitution. Although commer-
cial speech is constitutionally protected, it may be regulated to
promote a significant governmental interest. (Va. Pharmacy
Board v Va. Consumer Council, 425 US 748, 48 L. ed. 2d
346: The Suffolk Outdoor Advertising Co. v. Hulse et al,
NY2d , decided December 21, 1977.) Such an interest
exists here. Respondent has determined that the promotion of
electricity would increase the costs of providing electric service,
causing an adverse impact upon electric rates. Respondent found
that even the promotion of off-peak usage would, because of
inefficient rate structure, encourage usage not properly priced
and economically inefficient. Respondent is charged with the
duty of assuring that rates charged are just and reasonable. (Pub-
lic Service Law, §66; 48 NY Jur., Public Utilities. §61.) The
prohibition upon promotional advertising has a rational basis
related to respondent’s rate regulating responsibilities and ad-
vances a significant public interest. (Linmark Associates, Inc. v
24a
Appendix C
Willingboro, 431 US 85, 52 L. ed. 2d 155; Matter of Pell Vv
Board of Education, 34 NY2d 222.)
Expenditures for political and related activities are required
to be recorded “below the line” in a non-operating account and
therefore are chargeable to shareholders rather than ratepayers.
(16 NYCPR Ch. II, Subch. F, Art. 1, Accounts, 426.4.)
Respondent may properly classify such expenditures in connection
with its rate regulating activities. (Southwestern Electric Power
Co. v FPC, 304 F2d 29, cert. den. 371 US 924.) In its state-
ment of policy respondent has included in its definition of politi-
cal and related activities “. . . all advertising which seeks to sway
opinion—legislative, environmental, governmental, consumer or ~
any other kind—to the industry’s position on public policy dis-
putes.” (p. 10). Specifically included was advertising designed
to influence public opinion respecting the development of nuclear
power. The court finds that the definition adopted by respondent
is not overly broad, arbitrary or capricious. The positions taken
by petitioner to sway public opinion may be adverised and the
standard established for determining the allocation of the cost
thereof has been clearly established by respondent. Although
public utility regulators in other jurisdictions may have deter-
mined that expenditures for certain advertising falling within the
PSC definition of political activity are properly charged to opera-
tional expenses for rate making purposes, the court finds that
respondent’s determination was not an abuse of discretion here.
Submit judgment consistent herewith.
Dated: February 17, 1978.
All papers to the attorney for respondent.
25a
Appendix D-1
Notice of Proposal to Issue Order Restricting Certain Uses
of Electrical Energy, December 5, 1973
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
At a session of the Public Service Commission held in the
City of New York on December 4, i973
COMMISSIONERS PRESENT:
William K. Jones, Deputy Chairman
Edward P. Larkin, dissenting
Carmel Carrington Marr
Harold A. Jerry, Jr.
CasE 26532—Proceeding on motion of the Commission to con-
serve fuel used in the production of electric energy.
NOTICE OF PROPOSAL To IssUE ORDER
RESTRICTING CERTAIN USsEs OF ELECTRIC ENERGY
(Issued December 5, 1973)
By THE COMMISSION:
As has been made clear in recent weeks, the demands for
electric energy in this State cannot be met for the foreseeable
future without significant reductions in usage in view of the lack
of sufficient fuels to generate electricity. The most critical fuel
shortage in terms of electric generation exists with respect to
residual fuel oil. About 40 percent of the residual oil consumed
in New York State is refined from crude oils imported from Arab
states in the Middle East and North Africa. Parts of the State
‘are more than 50 percent dependent on Arabian-based residual
oil. Much of this supply is no longer available in view of the
embargoes imposed by those nations; moreover, for the foresee-
able future substitute supplies are not obtainable from other
sources. We should make clear, however, that while these embar-
goes have aggravated the situation, a fuel shortage, particularly
of fuels conforming to sulfur requirements under air quality
standards for the metropolitan New York City area, was immi-
nent in any event.
26a
Appendix D-1
The supply of natural gas has also been deficient for a num-
ber of years, and, despite restrictions imposed on its sale, the
coming heating season will see even shorter supplies available in
New York. In addition, while there is an adequate amount of
coal resources in the United States, the current production would
n be sufficient to substitute fully for deficiencies expected in
other fuels.
As a direct result of these shortages, the interconnected elec-
tric utility system in New York State does not have sufficient fuel
stocks or sources of supply to continue furnishing all customer
demands for the 1973-1974 winter. If the State system were
forced to operate at normal levels throughout the current heating
season, there is a likelihood that service would have to be drasti-
cally curtailed at some point, including periods of no service at
all to some or many customers, because of an inability to replen-
ish fuel supplies.
In light of this impending emergency, we view it as our obli-
gation under the Public Service Law to take reasonable steps to
enable the electric companies to continue providing essential
service. At this juncture, increasing capacity is not the answer
because of the immediacy of the problem and the shortage of
fossil fuels to power new sources of generation. By reducing
power demand we can, however, exert the direct control neces-
sary to avert a disaster. In addition, fuel savings can be achieved,
although at the expense of overall electric reliability, by requiring
utilities to operate at reduced voltages.
While voluntary measures to reduce energy consumption
have been undertaken as a result of appeals from the President
and other officials, we have concluded that a number of manda-
tory restrictions on electric consumption should also be imposed
as quickly as possible. Such restrictions are essential to husband
supplies of fuel so as to permit generation of electricity for the
most essential uses.
The Commission has received a large number of recom-
mendations for optimizing the use of available fuel supplies for
27a
Appendix D-]
necessary power purposes in times of crises. Among these
recommendations are prohibitions or restrictions on certain uses
which may be considered wasteful or nonessential in the present
circumstances. Such uses include outdoor display, private and
other decorative lighting and advertising lighting, commercial
window display lighting and outdoor decorative fountains, elec-
tric ground level snow melting equipment, and heating and light-
ing in buildings during times when such buildings are not in use.
We consider outdoor display, private and other decorative
lighting and advertising lighting to include all outdoor lighting
other than highway, street, driveway, walk and parking lot
lighting, safety lighting, and illumination of signs needed to iden-
tify business establishments during their hours of operation.*
Except as needed for identification, the marquees of any place
of entertainment shall be considered an advertising sign. Where
light from other sources is insufficient to allow the reading of
the lettering on the marquee from the nearest street or road, an
application for relief may be made to the Commission.
At this time of the year in particular, outdoor display and
advertising lighting and decorative fountains can consume large
amounts of electric energy, and create the false impression that
there is no shortage of the fuels needed to generate electricity.
Energy conservation is discouraged by such lighting.
The same is true where commercial office buildings and
parking lots are left with lights burning long after offices have
ended the day’s operations, which includes after-hours cleaning. **
The Ievel of light necessary for reading and other work during
business hours would be wasteful of substantial amounts of power
* A sign shall generally be regarded as “needed to identify a
place of business” where there is no more than one sign, showing
the name of the establishment and type of business only, visible on
each building side which contains an entrance for use by the patrons
of the establishment.
** The proposed conditions assume that such cleaning would
require no more than three hours.
28a
Appendix D-1
if maintained overnight and would afford no benefit after business
hours.
Similarly, heating in commercial buildings need not be main-
tained after the day’s operation at the same temperature main-
tained during business hours. Space heating thermostat setback
to 55°F and the shutdown of air conditioning equipment in
unoccupied areas of buildings would conserve a great deal of
energy.
Electric snow melting equipment, while providing great con-
venience, consumes a great deal of energy and is generally not
essential. If service is denied for such equipment we foresee no
particular hardship ensuing. Should any occur, application for
relief may be made to the Commission.
In light of these findings we intend, absent good cause other-
wise shown, to direct the electric utilities of this State to file tariff
leaves shortly after the date hereinafter specified adopting the sub-
stance of the following conditions for the supplying of electric
SeTVICe.
1. No customer shall utilize electric power for outdoor dis-
play, private or other decorative or advertising lighting as defined
hereinabove or outdoor decorative fountains at any time. In
addition, after regular business hours of the customer or establish-
ment maintaining signs, no customer shall use electric power for
the purpose of illuminating any sign other than exit signs, and
safety or emergency signs.
2. Commercial window display lighting may not be used
after 9:30 p.m. or after the close of business, whichever is later.
3. No commercial office building customer shall allow park-
ing lot lighting or interior lights, other than those required for
overtime work, safety or security, to remain on more than three
hours after the close of business hours of such customers. When
working hours differ among offices within a building, electric
lights shall be turned off in each office within three hours after
the regular closing time of that office, if separate lighting circuits
29a
Appendix D-I
are available. Lights shall not be turned back on until the start
of business hours the next morning in such offices or office
buildings.
4. In every commercial building, space heating thermostats
shall be set at no more than 55°F, and air conditioning units shall
be switched off, during nonbusiness hours except for areas having
essential, special requirements or special processes that are in
operation. The provision should not be construed to prohibit
heating up to 68°F in small areas occupied by watchmen, in areas
where after-hours cleaning operations are carried out or to assure
such temperature in time for the opening of the business day.
5. Electric ground level snow melting equipment may not
receive electric service, except that cases of special hardship
may be appealed to the Commission.
6. If a customer shall violate any of the above-mentioned
provisions, the electric corporation serving that customer shall,
upon five days’ written notice, discontinue all electric service to
the customer. In the event violations are committed in a build-
ing in which more than one tenant, or one or more tenants and
the landlord, are served through the same meter, the utility
providing service shall not discontinue service without first noti-
fying the Commission.
In addition, the Commission is considering the possible use
of voltage reductions, either downstate or statewide, to enhance
the conservation of scarce petroleum fuels. Staff estimates that
a five percent reduction might produce an energy saving of
about two percent of load. The energy saving is not directly
proportional to the voltage reduction, since some types of load,
such as electric motors, would continue to use about the same
amount of energy on a constant basis and in other cases the
length of the process, such as cooking, would merely increase
with about the same total use of energy.
The use of voltage reduction is not, however, without risk.
The ability to reduce load quickly by 5 percent voltage reduc-
30a
Appendix D-1
tion is an important tool for the system dispatcher when he
must meet sudden emergencies involving lack of capacity. To
the extent that the tool has already been used, he must turn to
other, perhaps more drastic, expedients. Moreover, we are
concerned that prolonged voltage reductions may have an adverse
effect upon the functioning or durability of motors and certain
other types of electrical equipment. To date, most of our experi-
ence with voltage reductions has been with limited time periods.
We propose to order a voltage reduction in all areas of the
State with these exceptions: (1) Voltage should not be reduced
on a specific circuit where to do so would result in an unusable
voltage. As to any such circuit, the utility concerned shall
promptly file a program for upgrading the circuit. (2) Voltage
need not be reduced in an area where voltage reduction would
not facilitate oil conservation because of the nature of local
electric generation and limitations on transmission line capacity.
We have considered whether the voltage reduction should
be employed only over the hours of daily peak load, suck as
from 2 p.m. to 8 p.m., or continuously over all 24 hours of the
day. While the exact difference in savings cannot be predicted,
it may be estimated that a four-hour schedule on-peak would
save a very substantial portion of the total that could be realized
by continuing the voltage reduction for the entire 24 hours.
Balancing the fuel savings and the inherent risks of voltage
reduction, it is our present intention, absent good cause otherwise
shown, to require operation at reduced voltages throughout the
State for the periods from 2 p.m. to 8 p.m. As an alternative,
for areas with supervisory control of voltage levels, we are con-
sidering ordering voltage reductions in three four-hour periods:
8 a.m. to 12 noon; 2 p.m. to 6 p.m.; 8 p.m. to 12 midnight.
Finally, it seems clear that in the present circumstances there
is no reasonable basis for any continued promotion of electric
usage by any utility subject to our jurisdiction through the use of
advertising, subsidy payments not committed prior to the date of
this order, or employee incentives.
31a
Appendix D-1
The Commission orders:
1. That unless good cause is shown by writing received at
the office of this Commission at 44 Holland Avenue, Albany, New
York 12208 not later than December 14, 1973, the Commission
will direct the electric corporations serving customers in New
York State to file tariff leaves containing the hereinabove de-
scribed restrictions on electric service, and will order a statewide
five percent voltage reduction during the period 2 p.m. to 8 p.m.
each day until further notice except in the special circumstances
discussed above.
2. All electric corporations are hereby prohibited from pro-
moting the use of electricity through the use of advertising, sub-
sidy payments not committed prior to the date of this order, or
employee incentives.
3. That each electric corporation shall immediately cause
the proposals contained in this order to be published in at least
two newspapers of general distribution in each territory served
by that corporation.
By the Commission,
(SEAL) (SIGNED) SAMUEL R. MADISON
Secretary
32a
Appendix D-2
Statement of Policy on Advertising and Promotional Practices
of Public Utilities
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
STATEMENT OF POLICY
ON ADVERTISING AND PROMOTIONAL
PRACTICES OF PUBLIC UTILITIES
Issued: February 25, 1977
Promotional Advertising .........................
See So i eA
Civic, Political and Related Advertising Activities .... .
Informational and Other Institutional Advertising .....
Statement of Chairman Kahn concurring in part and dis-
I 5 Sora on le. Cs sas Oh wk a os boa a
Statement of Commissioner Mead dissenting in part ... .
34a
Appendix D-2
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
COMMISSIONERS:
Alfred E. Kahn, Chairman, concurring in part and dissenting
in part
Edward Berlin, Deputy Chairman
Carmel Carrington Marr
Harold A. Jerry, Jr.
Anne F. Mead, dissenting in part
Charles A. Zielinski
STATEMENT OF POLICY
On ADVERTISING AND PROMOTIONAL PRACTICES
OF PuBLic UTILITIES
(Issued February 25, 1977)
BY THE Comnasmoet:
On July 28, 1976, we issued a notice of proposed policy
statement and requested comments on the subjects of advertising
by utilities and the promotion of electricity sales. We indicated
our intention to reexamine subjects covered in our 1972 policy
statement on these matters’ in light of contemporary conditions.
We asked interested parties to comment on the items discussed in
the proposed policy statement and to offer alternative suggestions
on these issues if they so desired.
Over 300 responses to our notice were received. Many of
these were brief statements of position from individual consum-
ers; others, including those from most of the utilities, consumer,
environmental and other special interest groups, were more com-
prehensive in scope. Because of the great number of responses,
1 Statement of Policy on Advertising and Promotional Practices
by Public Utilities, 12 NY PSC 108-R (issued June 21, 1972).
35a
Appendix D-2
no attempt will be made in our discussion to identify the particu-
lar views of individual respondents. It is worthy of special men-
tion, however, that we found the responses extremely valuable.
They were all carefully considered and evaluated in reaching
decisions on the issues presented in our notice.
Although the amount of money spent on advertising by major
utilities in this State is a very small portion of their total revenues,
the proper extent and content of such advertising and the ultimate
responsibility for its cost is an increasingly controversial issue.
This Commission has routinely monitored the advertising prac-
tices of New York utilities within the framework of the Uniform
System of Accounts and the guidelines for rate treatment of these
expenditures set forth in our 1972 policy statement, as subse-
quently amended in individual rate proceedings. Thus, we have
established a system of regulation which has provided reasonable
assurance that even the minor amounts expended are properly
accounted for, so that we can determine whether utility rates
reflect only reasonable amounts, expended for proper purposes.
Our 1972 policy statement was issued at a time when the tele-
phone industry was beset with significant service problems, since
largely overcome, when the emerging gas supply shortage was
first recognized and, of perhaps greatest importance, before the
1973 oil embargo which resulted in severe fuel oil shortages and
sharply increased oil costs. While we have, through individual
rate and other orders, amended the provisions of the 1972 policy
statement where necessary to meet these changing conditions, we
have during the past year felt it desirable to have a fresh look, in
integrated fashion, at the totality of issues associated with utility
company advertising and promotional practices, in the light of
circumstances of 1976 and 1977.
Advertising expenses may be subdivided into two broad cate-
gories: promotional—advertising intended to stimulate the pur-
chase of utility services—and institutional and informational, a
broad category inclusive of all advertising not clearly intended to
promote sales.
36a
Appendix D-2
Promotional Advertising’
(1) Electricity
The 1972 policy statement contained no restriction on the
promotional advertising of electric utilities, explicitly recognizing
that those companies had exercised self-restraint in these efforts,
most of which were limited to development of off-peak loads.
Shortly after the oil embargo, and in response to the reductions
in oil supplies, we prohibited the promotion of the use of elec-
tricity through advertising or the provision of subsidy and in-
centive plans. That ban is still in force.
In our July 28, 1976 notice, we requested comments on a
proposal to lift the flat ban against sales promotion by electric
companies. We listed several competing considerations, some
arguing for extension of the ban and others for its relaxation.
Of the responses received on this specific matter, a large
number of parties suggested that electric companies be permitted
to develop off-peak loads. In addition to the benefits of a limited
relaxation that were mentioned in our notice, many of these
parties pointed out that development of off-peak load would
likely result in a lowering of the unit cost of electricity, due to
a greater utilization of existing plant, with a resulting downward
pressure on, or at least a stabilization of, present rates. Others
observed, as we did in our notice, that where electricity competes
with oil, promotion of electricity, if generated incrementally from
coal or uranium, could confer the additional benefit of making
this country more independent of foreign oil supplies in those
cases where oil is the primary competitive fuel.
We recognize now, as the Commission did in 1972, that
development of off-peak loads may be beneficial in numerous
1In addition to establishing the policy set forth below, we will
require strict adherence to the accounting classifications of this type
of advertising as set forth in the Uniform System of Accounts pre-
scribed for electric, gas and telephone utilities. See Resolution of
the Commission: Amendment of 16 NYCRR, Chapters II, III and
VI, Article 1, adopted October 24, 1973.
37a
Appendix D-2
ways. Increased off-peak generation, however, while conferring
some beneficial side effects, also consumes valuable energy re-
sources and, if it is the result of increased sales, necessarily cre-
ates incremental air pollution and thermal discharges to water-
ways. More important, any increase in off-peak generation from
most of the major companies producing electricity in this State
would not, at this time, be produced from coal or nuclear re-
sources, but would require the use of oil-fired generating facilities.
The increased requirement for fuel oil to serve the incremental
off-peak load created by promotional advertising would aggravate
the nation’s already unacceptably high level of dependence on
foreign sources of supply and would, in addition, frustrate rather
than encourage conservation efforts. We realize, too, that a
continued ban on promotion of off-peak electric usage may aptly
be described as piecemeal conservationism since promotion of oil
for use in heating or internal combustion applications is not
similarly proscribed. Nevertheless, conservation of energy re-
sources remains our highest priority. We do not consider it
inconsistent with that principle to implement programs that ad-
mittedly will be less than optimally effective, in a national con-
text. It is reasonable to believe that a continued proscription of
promotion of electric sales will result in some dampening of
unnecessary growth so that society’s total energy requirements
will be somewhat lower than they would have been had electric
utilities been allowed to promote sales.
We conclude that the existing ban on promotion of elec-
tricity sales should be continued. We recognize, however, that
as we move toward more and more widespread adoption of
time-of-day rates, it may be highly desirable for companies to
publicize those rates, and point out the various ways in which
customers may take advantage of them. While this advertising
may better be described as informational, we wish to make
clear, in any case, that it is our desire to permit advertising of
this kind, provided it has the exclusive, or at least preponderant
effect of encouraging shifts of consumption from peak to off-
peak and little or no effect of increasing aggregate sales. For
38a
Appendix D-2
these reasons, we will remain prepared to approve specific pro-
posals by the companies for specifically described programs
that meet these criteria. We shall reexamine from time to time
our determination to continue, with the limited exception for
publicizing time-of-day rates, the ban on promotional advertising
should conditions change sufficiently to warrant such a reevalua-
tion. Further, we shall continue to maintain surveillance of ail
advertising activities engaged in by electric utilities, and where
deviations from the requirements of our order are found, we will
take remedial action, including adjustments in rate cases, to
bring about compliance.
(2) Gas
Because of the then emerging and increasingly severe short-
age of natural gas, on October 26, 1971,’ we ordered all gas
companies (with the exception of several small companies spe-
cially situated) to limit the attachment of new gas customers
and the expansion of gas service to existing customers.? That
order also provided:
Effective January 1, 1972, all gas distributors subject
to the restrictions imposed herein shall cease all promo-
tional activities designed to acquire new gas customers
or increase sales of gas to existing customers. Except to
the extent indicated below, such prohibition shall apply
to all advertising employing mass media, all bill inserts
or other direct mailings to customers or others, and all
calls by salesmen seeking to obtain or arrange “conver-
sions” to gas space heating or to sell or promote the sale
of gas appliances. The prohibition does not apply to:
(a) Service calls to repair existing gas equipment,
recommendations relating to the replacement of such
equipment, and information relating to such replacement.
1 Case 25766, the Gas Restriction Case, 11 NY PSC 1257.
2 Case 25766, the Gas Restriction Case, 11 NY PSC 1257.
39a
Appendix D-2
(b)} Advice directed to existing customers as to how
they may achieve the best heating and safety results with
respect to existing gas equipment. Use of the mass
media or unselective mailings are not an acceptable
means of accomplishing this objective.
(c) Direct contact with existing or potential cus-
tomers for the purposes of encouraging the installation of
dual-fuel equipment.
(d) Individual responses to inquiries received by a
gas company without prior solicitation.
These provisions were incorporated into our 1972 Policy
Statement and remain in effect. We have reexamined these
requirements in light of current conditions and conclude that,
for the most part, they should remain unchanged. We are,
however, concerned about the exception granted in item (c)
above. Because additional demand for gas can be created as a
result of direct contact with potential customers for the purpose
of encouraging the installation of dual-fuel equipment we will
no longer consider this a permissible activity by gas utilities.
Of course, the companies may continue to encourage their exist-
ing gas customers to install alternate fuel equipment. In addition,
in view of the deepening gas supply shortage, and the essentiality
of inducing all customers to conserve, we will no longer permit
promotional activities designed to retain existing customers at
previous levels of consumption, except in those limited instances
where gas companies are permitted to attach new residential
load to offset a decline in firm load.
All other provisions of our previous order will remain in
effect, as to each gas company covered. Exceptions to this policy
may be granted provided a company can clearly demonstrate that
it has firm supplies of gas, for the present and near future, suffi-
cient to permit it to engage in some limited form of promotional
activity without lessening the supply of gas available to existing
customers.
40a
Appendix D-2
As long as the shortage of natural gas continues, we shall
maintain close surveillance of advertising and other promotional
activities of gas companies. We shall also continue to require
prior submittal of the promotional plans of gas utilities seeking
to deviate in any way from our order in Case 25766 as amended
here.
(3) Telephone Companies
On February 11, 1970, we directed New York Telephone
Company to “cease all promotional advertising and all other
promotional activities designed to attract additional subscribers
or otherwise to increase telephone usage until such time as the
company’s capacity to provide service exceeds busy-hour require-
ments throughout the state, except for local promotions in areas
where ample capacity exists.” Case 25290, New York Telephone
Company Service Case, First Interim Order, 10 NY PSC 93.
Since adoption of this order, New York Telephone Company's
capacity to provide service has improved to the point where it
now exceeds busy-hour requirements throughout the state. By
order issued in Case 25290 on March 13, 1973, 13 NY PSC 461,
we relaxed the promotional advertising restrictions previously
imposed “provided that the company will insure that the service
sought to be promoted will not burden the subscriber body with
an increase in average costs, but rather will tend to reduce the
burden of cost which must be supported by the average sub-
scriber.”
While the interim order in Case 25290 was outstanding, we
considered whether the promotion of yellow pages should also
be restricted and we concluded that it should not. Yellow pages
promotion may increase telephone usage to some extent, but the
major purpose of these directories is to facilitate more efficient
use of the telephone by reducing calls to information or to parties
unable to assist the caller.
We shall continue the policy on telephone promotional adver-
tising that is now in effect. Promotional advertising by New York
Telephone Company, or by other telephone companies, including
4la
Appendix D-2
radio-telephone utilities, will be carefully scrutinized to assure (1)
that adequate capacity exists to provide the service sought to be
promoted without adversely affecting existing subscribers; and
(2) that the advertising expenditures themselves together with
the expansion of the service which they seek to promote will tend
to reduce rates for telephone service.
Institutional Advertising
In addition to seeking to promote sales, utilities (like other
businesses) engage in “institutional advertising”—a rather amor-
phous phrase covering all advertising which is not sales promo-
: tional in nature. Although our staff has employed some rela-
tively useful tests in reviewing expenditures for this kind of
advertising,’ the very imprecision of the definition has caused
substantial controversy in our proceedings about whether certain
kinds should be recovered in rates. Therefore, we believe there is a
clear need to reexamine this area, and to establish a policy for
treatment of related expenses in rate cases. We consider sepa-
rately two categories of institutional advertising: (1) civic,
political and related advertising activities, and (2) informational
and other institutional advertising.
Civic, Political and Related Advertising Activities
It is generally accepted that advertising which states a utility’s
position on a matter of public controversy necessarily reflects the
political views or self-interest of managements or shareholders
and should not be borne by ratepayers, whose views or interests
may differ. Thus, political advertising—in support of, or opposed
to, governmental action of any kind—will not be considered a
legitimate cost of doing business for the purpose of determining
rates. See Complaint of Grassroots Action, Incorporated, Case
26315, April 18, 1973, 13 NY PSC 630. Our amended Uniform
System of Accounts reflects this view. All political advertising
is required to be recorded below the line in nonoperating expense
account No. 426.4. Expenditures recorded in this account are
routinely excluded in the ratemaking process.
1F.g., “Is the advertising clearly beneficial to consumers?”
OE EEE Aen
42a
Appendix D-2
Our decisions in two recent cases notwithstanding,’ we shall
also include in the category of political and related activities, and
therefore payable by stockholders, all advertising which seeks to
sway opinion—legislative, environmental, governmental, con-
sumer or any other kind—to the industry’s position on public
policy disputes. Utilities, of course, have the right to publish their
thoughts on vital issues concerning their operations, but, upon
consideration of the comments received in response to our notice,
we are now persuaded that it is unfair to impose the cost of dis-
seminating those thoughts onto ratepayers who may or may not
agree with them. The expression of a utility’s views on a contro-
versial issue may truly reflect its concern for the welfare of its
consumers and may make a genuine contribution to a public
policy debate; but we believe that it is basically unfair to assess
against ratepayers the cost of advertisements urging the adoption
of positions with which they may disagree. Therefore, we will no
longer sanction the use of sums provided by ratepayers to advance
one side of a public controversy. We include in this category
expenses incurred in the preparation of materials designed to
influence public opinion in the current debate concerning the de-
velopment of nuclear power. We do not seek by this action to
inhibit or discourage participation by utilities in public debates
of issues that vitally concern them: we recognize and endorse
their right to do so. We simply believe that it is wrong to expect
ratepayers to finance that participation.
Further, we shall not permit advertising on matters of public
controversy to be included in the printed material that often
accompanies the mailing of consumer bills. We believe that
using bill inserts to proclaim a utility’s viewpoint on controversial
issues (even when the stockholder pays for it in full) is tanta-
mount to taking advantage of a captive audience, since the con-
sumer cannot avoid receiving the literature with the utility’s
message. Regardless of whether consumers read the material, it
1Case 26848, Rochester Gas & Electric Corporation (Opinion
76-8, issued April 8, 1976) and Case 26887, Long Island Lighting
Company (Opinion 76-11, issued May 28, 1976).
43a
Appendix D-2
is basically unfair to subject ratepayers who disagree with the
utility’s viewpoint to the arguments of the utility through its bill-
ing mechanism. A utility company’s mailing list provides an
available conduit for the easy dissemination of information, which
should be used for the benefit of both the consumer and the com-
pany to convey noncontroversial and useful information that will
create a better informed public. It should not become a vehicle
for dissemination only of the company’s views on controversial
matters of public policy. Accordingly, we will not permit bill in-
serts to be used by utility companies for the purpose of advertis-
ing their opinions or viewpoints on controversial issues of public
policy.
Informational and Other Institutional Advertising
Some forms of utility institutional advertising clearly are in
the public interest and their costs are a legitimate expense of
doing business. These include appeals for the conservation of gas
or electricity; notification of emergency conditions and proced-
ures; instructions in the proper use of the equipment which makes
use of the utility’s service; information about new rates, new bill-
ing practices, or new inspection or meter reading schedules;
advice concerning hazards associated with the utility’s service;
reports on matters of interest to the public concerning the utility’s
service—such as service difficulties and progress in overcoming
them, projections of new capacity additions, plans for new or
improved means of providing service, and the like. Expenses
incurred by utilities for this type of advertising are clearly
properly recoverable in rates.'
1In addition to purely informational advertising, those advertis-
ing costs attributable to a utility’s effort to upgrade the residential
and industrial potential of its franchised territory and to improve
the area’s overall economic condition are properly recoverable.
Advertisements extolling the desirability of the area as a location
for job-creating industry would, if successful, benefit all of the
utility’s customers. Whatever its possible effects on utility rates, its
benefits for the economy of New York State clearly makes such
advertising a fully acceptable activity by utility companies.
44a
Appendix D-2
There is, in addition to purely informational, a large middle
ground of institutional advertising that falls somewhere between
that clearly beneficial to customers, and that which is clearly
political or controversial. There is advertising, for example, in
which a company defends, justifies, or even merely explains and
describes its activities. It might be argued, on the one hand, that
there is no reason for ratepayers to bear the costs of such self-
justification; that it is not of direct usefulness to them. On the
other hand, it is extremely difficult to argue, especially now when
public utilities are subjected to frequent public attack and criti-
cism, that these are not, within limits, legitimate and indeed in-
escapable costs of doing business in today’s conditions. It is un-
reasonable not to afford utility managements under attack an
opportunity to explain and justify themselves. It might be argued,
of course, that since such expenditures are on behalf of the com-
panies rather than in the direct service of their ratepayers, they
ought to be paid for by the shareholders. But if they are inescap-
able costs of doing business, and if, as is our policy, we allow
shareholders returns only at the minimum level necessary to
attract capital, then at least in principle if we were nominally to
disallow these expenditures from rates, we would have to provide
a correspondingly larger return on equity.
Our experience demonstrates that the time spent by our staff
in ferreting through innumerable vouchers of institutional adver-
tising is far out of proportion to the dollar amount of expenses
found in that process to be unacceptable for rate purposes. For
example, in the year 1975, all advertising costs spent by the seven
largest privately owned electric, gas and steam utilities in New
York State amounted to $3,370,000. Since the utilities received
$5,280,264,000 in revenues for that year, the advertising costs
equated to 6/100 of 1% of those revenues: six cents on all
forms of advertising for every $100 in revenues received. It fol-
lows that since institutional advertising of a questionable nature
is only a part—and typically a very small part—of total adver-
tising, its impact on rates would be very slight indeed. It is
obvious that any benefits gained from close, individual examina-
45a
Appendix D-2
tion of these insignificant costs must be outweighed by the costs
of their examination.
It is for these reasons that we have decided to allow com-
panies a very small pool of dollars in rates to cover both informa-
tional and the intermediate category of “other institutional”
advertising. On the basis of past practice, this allowance will,
in all probability, range between 1/10 and 1/25 of one percent
of operating revenues, in inverse relationship to the size of the
companies. It will be determined individually for each company,
‘in its next or pending rate case,’ on the basis of various other
factors including size, geographical location, number of customers
and costs of doing business in the area. Adoption of this modest
lump sum advertising allowance approach will end the vexing
and essentially arbitrary process our staff now engages in of
reviewing all informational and other institutional advertising to
decide whether specific expenses should be allowed or disallowed
in setting utility rates.
This plan will obviously not solve all the problems we have
described: we will still have to determine which advertisements
are clearly political and/or self-serving, and specifically dis-
allowed; and parties in rate cases would still be free to question
the propriety of the lump sum allowance for the informational
and other institutional advertising categories. On the other hand,
it has the virtue of recognizing that some modest institutional
expenditures, over and above those purely informational in
nature, are an inescapable and legitimate cost of doing business,
and get the Public Service Commission out of the business of an
item-by-item content examination and evaluation of past adver-
tisements—an activity in a sense redundant anyhow, in view of
the fact that all we really do is set a reasonable level of rates for
the future.
1In pending cases where the hearings have been completed,
parties may present their views on a proper lump sum institutional
advertising allowance on brief.
46a
Appendix D-2
Our staff will maintain close and continuing scrutiny over
the level of the lump sum advertising allowance for each com-
pany to assure that the amount provided is sufficient to cover
only reasonable and necessary advertising costs consistent with
this policy statement. We expect to review the policies set forth
here periodically and to revise them when it seems desirable to
reflect new or changed circumstances.
In the area of developing better public relations and avoiding
obvious areas of customer dissatisfaction, utility managements
are urged to give serious consideration to the clear labeling of
the institutional advertising that will not be recorded as a cost
of doing business for rate purposes. It is not in the interest of
anyone to have institutional advertising exacerbate customer
resentments at a time when large rate increases are made neces-
sary by increases in various classes of costs beyond the control
of utility management. Expenditures for institutional advertising
are subject to management control and utility managements would
be well advised, if the advertisement is either political or of a
type not providing useful information to customers, to state in
the advertisement itself: “The costs of this message are being
borne by the company’s stockholders and the expense will be
excluded from consideration in any proceeding concerned with
fixing the company’s rates.”
47a
Appendix D-2
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
STATEMENT OF POLICY
ON ADVERTISING AND PROMOTIONAL
PRACTICES OF PUBLIC UTILITIES
ALFRED E. KAHN, Chairman, concurring in part and dissenting
in part:
I am for the most part in agreement with the conclusions
we reach in this decision and the supporting argument, having
participated actively in their formulation. At the same time, my
views about our proper role in regulating the advertising policies
of utility companies are sufficiently distinctive from those of my
fellow commissioners to make me want to set them forth in my
own words and over my own signature.
I begin by saying, in different words, what our opinion says:
namely, that the many hours that we, our staff, the regulated
companies and various intervenors devote to utility company
advertising policies, and to deciding what portion of such
expenditures are properly recovered in rates, are by any reason-
able test a waste of time and ratepayers’ money. These efforts
must surely have the lowest benefit/cost ratio of any in which
we engage; and the time inescapably devoted to them by our
staff and commissioners would almost certainly have a much
larger pay-back to ratepayers if it could be devoted to other
endeavors—such as the further scrutiny of management effi-
ciency, the formulation of more efficient rate structures, more
intensive pressures on the companies we regulate to engage in
load management and to encourage conservation. The heated
discussions about advertising policy are, in other words, a tempest
in a teapot, considering, first, the very, very small number
of dollars at stake, and, second, the essential fraudulence of
our purporting to exclude from rates expenditures for advertising
that company managements will continue to feel it necessary
to make: since we make every effort to set the allowable return
48a
Appendix D-2
on equity at the minimum cost of capital, and most of the
companies we regulate are not earning even that, in principle
putting any advertising expenditures “below the line” can only
mean, if we are honest, increasing the allowed return on equity,
in order to enable these companies to raise the capital they need
on reasonable terms.
Fer these reasons, I am particularly enthusiastic about our
decision to provide companies with a very, very modest lump-sum
allowance for institutional advertising. It is a first step in the
direction of sanity, offering the hope of cutting down on the
endless hours our staff has to devote to scrutinizing individual
advertisements, then deciding and litigating whether they are
properly includable in test-year expenses for rate-making
purposes.
At the same time, there are many things we do and must do
that cannot be said to pay off on a pure dollar and cents basis.
If it infuriates some consumers to see some of their dollars—
even if for each of them it means only a penny a year—spent to
extol the benefits of nuclear power, or to induce them to purchase
additional electricity or gas, or to make greater use of the
communications facilities provided them by franchised monopo-
lists, we must confront the question of principle, of whether we
should be condoning this kind of use of ratepayers’ dollars, even
if the confrontation costs ratepayers more dollars than the com-
panies spend in these questionable ways.
If it comes to questions of principle, however, there are
more principles at stake than the Commission seems willing to
recognize in its decision today, and it is these that I take the
occasion of this partial concurrence and partial dissent to spell
out.
Promotional advertising by electric companies
It is only with the greatest reluctance and distaste that I join
my colleagues in continuing our absolute prohibition of promo-
49a
Appendix D-2
tional expenditures by electric companies. While, as a non-
lawyer, it has never been clear to me why the protections of the
Fourteenth Amendment, which as a matter of historical fact was
enacted to protect the rights of real, biological people, should
necessarily have been extended to state-created artificial entities
like corporations, I also believe in competition as a form of
economic organization, wherever it is feasible. And for com-
petition to be effective, some sales promotion is necessary. Even
if that were not so as a general matter, it would in my judgment
be inescapably so when there compete in the market two rivals,
one of whom is free to advertise his wares and the other is—under
our present policies—not.
The issue of whether electric companies should be permitted
to advertise (observe that the question before us is not whether
those expenditures should be recovered in rates, but one, rather,
of our totally prohibiting such activities) arises almost exclusively
in the context of summer-peaking electric companies wanting to
be permitted to promote electric space heating, which is for them
essentially an off-peak use of power, with their principal rivals,
the distributors of heating oil, vociferously importuning the Public
Service Commission and the Legislature to prevent them from
doing so. An idea is not necessarily a bad one merely because it
is propounded by a scoundrel, or—as in this case—a business-
man who wants to be relieved of the burdens of competition. But
it has always been a source of wonder to me how self-styled pro-
tectors of the consumer interest could have so readily allied
themselves—to such a point that in some cases the distinction
between them disappears entirely—with people who seek the
assistance of government in suppressing competition.
There are considerations in this case, however, that induce
me to go along with continued prohibition, however queasily.
1. The first is grounded in a combination of facts: first, that
for apparently all of the summer-peaking electric companies in
the state, marginal generating capacity off-peak as well as on
is oil-fired, and promises to continue to be for several years; and
50a
Appendix D-2
that the use of such capacity to provide electricity for resistance
heating, because of the fact that it takes something like three btu’s
of oil to generate the equivalent of one btu of electric energy,
is simply far less efficient in energy terms and uses more oil in
total than direct combustion of the oil for space heating purposes.
(I must point out, however, that the three for one comparison
grossly exaggerates the relative inefficiency of electric resistance
heating, because it fails to take into account the energy costs of
delivery of oil to the various points of consumption; the far less
than 100% efficiency with which oil is typically burned in furn-
aces; the lesser injury to the environment from combustion of oil
in electricity generation than, alternatively, in thousands of sepa-
rate furnaces; and the promise of the heat pump of sharply in-
creasing the efficiency of the use of electricity for heating. But
electric space heating still seems to use more oil, typically; and it is
a matter of utmost urgency to reduce the dependence of our econ-
omy on imported oil, which must supply the growing difference
between what we are capable of producing at home and what we
consume. )
On the other hand, I find myself in basic disagreement with
the popular simplistic view that electric resistance space heating
should simply be banned because it is “less energy efficient.” I
do not accept an exclusively energy standard of value. There are
many pertinent costs and benefits besides the direct use of energy
to be taken into account in making intelligent economic choices
—the relative costs of labor, of capital installations of heating
equipment (which also indirectly use energy), the relative com-
fort and convenience of alternative methods of satisfying needs,
the use of other scarce materials, and the damage to the environ-
ment. The only sensible common denominator for these various
costs is the dollar: provided there are no major distortions in
the price tags placed on these various elements of cost, it is the
total dollar costs, not just the btu’s that should be compared.
Moreover, I do not believe it is the proper function of a public
utility regulator to tell people that they cannot have things for
which they are willing to pay the price. It is our responsibility
S5la
Appendix D-2
to see that prices reflect costs—all relevant social costs; it is our
responsibility also to persuade and educate consumers to make
intelligent choices. But I do not conceive it as our responsibility
to teil people that they may not have something for whose total
marginal social costs they are willing to pay: regulators are all
too prone to substitute their judgments of what is good for people
for the judgments of the people themselves.
For these reasons, it is only with the greatest reluctance that I
go along with a policy that denies one competitor the right to
advertise his wares, while leaving another free to do so, because
we do not think customers should be encouraged to use electric
resistance heating.
2. Idoso, additionally, because the most promising mechan-
ism for offsetting the relative inefficiency of converting fossil
fuels into electricity is the heat pump; but installation of a heat
pump means also installation of central air conditioning. To this
extent, then, the promotion of off-peak electric space heating
involves, in effect, the promvtion also of on-peak summer air
conditioning. Once again, my espousal of free consumer choice
as a general principle would require me to regard such a develop-
ment with equanimity—were it not for the fact that the price of
electricity to most consumers in the state does not fully reflect the
apparently much higher marginal social costs of on-peak con-
sumption in summer peaking markets. Until each consumer indi-
vidually confronts a marginal cost-based, time-of-consumption
rate, consumption on peak, with its large marginal use of oil-fired
generation, is artificially subsidized.
If, then, the uncontrolled promotion of electric heating means
the installation of heat pumps, which mean, in turn, more central
air conditioning, the use of which is not charged its full marginal
costs, the result is inefficient subsidization of consumption on
peak, and higher rates for all consumers,
3. There are, of course, some electric companies in the state
whose peaks fall in the winter rather than in the summer. It
52a
Appendix D-2
would seem that these might be permitted to promote, at least
where there is a reasonable basis for believing the effect will be
to stimulate sales off peak, improve their load factors, and there-
fore benefit all customers (provided the rates for the promoted
service cover long-run incremental costs). But until we have
ascertained in our generic electric rate proceeding (C.26806)
whether the proper costing entity for marginal cost-based time-
of-day rates is the individual company or the state system as a
whole, such a relaxation of our ban opens up the possibility that,
by permitting upstate, winter-peaking companies to promote sum-
mer air conditioning, we may in effect be encouraging a greater
expansion of capacity for the State as a whole, which is summer
peaking, than would otherwise be desirable. To put it another
way, if the proper costing entity is the State rather than the indi-
vidual company, the marginal costs of summer sales may be much
higher than of winter sales even in winter-peaking markets. Until
we have resolved these costing questions, there is a danger that
permitting individual companies to promote sales off their own
individual peaks will in effect involve uneconomic subsidization
of those sales.
I do not regard flat prohibitions of promotion by public utility
companies abhorrent as a matter of principle. Where a company
enjoys something close to monopoly, conferred upon it by public
franchise, it does not in my judgment have an unfettered right
to advertise. This is particularly so because merely disallowing
such expenditures in setting rates, under the glib assumption that
these costs will then be borne by stockholders rather than rate-
payers, is something of a sham, for reasons I have already set
forth.
Nuclear advertising
This last observation applies with particular force to the Com-
mission’s decision here to disallow the costs of advertisements
publicizing company management views in favor of nuclear
power. If electric company executives continue to feel that nu-
clear energy is in the best interest of their ratepayers, they are
53a
Appendix D-2
likely to continue to feel a responsibility for publicizing that fact.
(And, for reasons we have already set forth in our Rochester Gas
& Electric and Long Island Lighting Company decisions on this
subject, decisions that the Commission majority reverses today,
I would not wish them to refrain.) Since we set our allowance
for return on equity at something close to the minimum cost of
capital, and most companies in the state are in any event earning
something short of that amount, any continuation of such “dis-
allowed” expenditures by utility company managements would
in principle require us to raise the return on equity allowance
correspondingly. In these circumstances, telling companies to put
certain expenditures “below the line” comes out either to telling
them to stop making the expenditures entirely, or is essentially
cosmetic—and a trifle insincere.
I would have been happy to go along with the resolution of
this dilemma proposed by Commissioner Berlin to the RG&E
and LILCO cases—namely that utility companies be required to
provide equal support for the presentation of opposing view-
points. A reading of the responses to our call for comments on
this subject persuades me, however, that his proposed require-
ment would expose us to endless litigation; I reluctantly conclude
that its administration would be simply impractical.
In these circumstances, my own preference would be to ex-
tend the modest lump-sum allowance we have decided to provide
for institutional advertising to cover discussions of general public
policy issues such as the desirability of nuclear power as well.
The logic, I suggest, is the same: company managements are
likely to feel a continued obligation to present their views on the
merits of nuclear energy; they are likely to feel that this is in the
interest of their ratepayers, possibly more than their stockholders
(who hardly benefit when companies must sell stock below book
value in order to finance these extremely costly plants); and I
would be inclined to agree.
Following this same reasoning, I repeat my extreme satisfac-
tion at the Commission’s resolution of the issue of institutional
54a
Appendix D-2
advertising. Our decision here is both sensible and non-ideologi-
cal. We decline to cater to the vulgar view, often demagogically
expressed, that public utility companies have no right to com-
municate with their customers, or to answer the often unjust
criticisms to which they are subjected, and that if they wish to do
so, the expenditures should be placed “below the line”—an expe-
dient that is in my judgment something of a sham.
55a
Appendix D-2
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
Re: STATEMENT OF POLICY ON ADVERTISING AND PROMO-
TIONAL PRACTICES OF PUBLIC UTILITIES
ANNE F. MEAD, Commissioner, dissenting in part:
I concur, with one exception, in the statement of policy issued
this day on advertising and promotional practices of public
utilities,
The one exception is the area of institutional advertising
which is designed to create, enhance or sustain the corporate
image of the utility or which indulges in self-congratulation or
self-admiration of the utility or its accomplishments. In my
opinion these advertisements should not be allowed as an oper-
ating expense in any rate schedule proceeding or for rate making
The institutional advertising which I describe above is not in
my opinion a necessary or proper expense in providing utility
service. At a time when utility rates are increasing beyond the
ability of many to pay, any expense, no matter how small, that
is not necessary or beneficial to the consumer should not be
allowed for ratemaking purposes.
56a
Appendix D-3
Order of the Public Service Commission of the State of
New York Denying Petitions for Rehearing, July 14, 1977
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
At a session of the Public Service Commission
held in the City of Albany on July 6, 1977
COMMISSIONERS PRESENT:
Edward Berlin, Acting Chairman
Edward P. Larkin
Carmel Carrington Marr
Harold A. Jerry, Jr.
Anne F. Mead
Charles A. Zielinski
Notice of Proposed Policy Statement and Request for Comments
on Advertising by Public Utilities and Electric Promotion
Practices.
ORDER DENYING PETITIONS FOR REHEARING
(Issued July 14, 1977)
By THE COMMISSION:
On February 25, 1977, we issued our Policy Statement on
Utility Advertising announcing certain changes in our treatment
of this subject. Specifically, we stated: (1) that gas utilities
should discontinue direct contact with potential customers for
the purpose of encouraging installation of dual-fuel equipment
and (2) that all utilities should discontinue the practice of using
bill inserts as a mechanism for the dissemination of a utility’s
position on controversial matters of public policy. By Order
issued the same day, these changes were put into effect.
Petitions for rehearing have been received from the Con-
sumer Protection Board (CPB), Central Hudson Gas & Electric
Corporation, Columbia Gas of New York, Inc., Consolidated
57a
Appendix D-3
Edison Company of New York, Inc., Niagara Mohawk Power
Corporation, New York Telephone Company, New York State
Electric & Gas Corporation and Rochester Gas and Electric
Corporation. Replies to exceptions have been filed by the CPB
and the Natural Resources Defense Council, Inc., et al.
PROMOTIONAL ADVERTISING
Central Hudson excepts to our decision to continue the exist-
ing prohibition of promotional advertising by both electric and
gas companies. The utility contends that under Virginia State
Board of Pharmacy v Virginia Citizens Consumer Council, Inc.,
425 US 748 (1976), commercial speech is protected by the
guarantees of the Bill of Rights and, therefore, our restriction
on promotional advertising is void. This case involved a Vir-
ginia statute which provided that a pharmacist is guilty of un-
professional conduct if he advertised the price of any prescrip-
tion drug. There is no contention here that commercial speech
falls outside the scope of the First Amendment. But this does
not mean that commercial speech may never be regulated.
In Virginia State Board of Pharmacy, the Court could find
no legitimate State interest in restricting the dissemination of
pricing information to the public. A much different situation
exists here. The rates of electric utilities in this State continue
to rise. The need for such increases derives in substantial part
from pressures for increasing plant capacity to meeting growing
demand. While some progress is being made to price electricity
to meet its marginal cost, it is clear that the rates charged today
do not cover the marginal costs of new capacity. In these
circumstances, promotion of electric usage by electric utilities
will simply exacerbate the pressure for spiraling prices. More-
over, when national policy requires energy conservation, the
promotion of electricity by regulated public utilities provides
totally misleading signals that conservation is unnecessary. This
is especially true since the utilities in this State are expected to
promote conservation by their customers.
58a
Appendix D-3
While promotion of off-peak usage, particularly electric space
heating, is touted by some as desirable because it might increase
off-peak usage and thereby improve a summer-peaking company’s
load factor, we are convinced that off-peak promotion, especially
in the context of imperfectly structured electric rates, is incon-
sistent with the public interest,’ even if it could be divorced in
the public mind from promoting electric usage generally. As we
pointed out in our Policy Statement, increases in generation, even
off-peak generation, at this time, requires the burning of scarce
oil resources.” This increased requirement for fuel oil aggravates
the nation’s already high level of dependence on foreign sources
of supply.
An additional area of legitimate State interest was pointed out
by Chairman Kahn in his separate statement. The uncontrolled
promotion of electric heating most likely means the installation
of heat pumps, since they are the most promising mechanism for
offsetting the relative inefficiency of converting fossil fuels into
electricity; but installation of a heat pump means also installation
of central air-conditioning. To this extent, promotion of off-peak
electric space heating involves promotion of on-peak summer air-
conditioning as well as on-peak usage of electricity for water
heating. And thie price of electricity to most consumers in the
State does not now fully reflect the much higher marginal costs
of on-peak consumption in summer peaking markets. In these
circumstances, there would be a subsidization of consumption
on-peak, and consequently, higher rates for all consumers. The
promotion of electric consumption at rates that do not reflect the
costs of it to society is not the kind of commercial speech con-
templated by Virginia Board of Pharmacy.
1 Advertisements encouraging installation of heating equipment
will frequently occur during the summer periods when air-conditioning
por is at its peak and when requests for conservation are being
2 We distinguish here between promotional advertising designed
to shift existing consumption from peak to off-peak hours and
advertising designed to promote additional consumption during off-
peak hours. It is the latter that we proscribe here.
59a
Appendix D-3
Our Statement recognized, however, that some companies
have peaks occurring in the winter. To the extent rates cover
long-run incremental costs for those companies, there is reason
to believe that the promotion of off-peak sales may improve
their load factors and benefit their customers. But, as former
Chairman Kahn pointed out, before we know that this actually
is the case, we must first ascertain whether the proper costing
entity for marginal cost-based time-of-day rates is the individual
company or the State system as a whole,’ since if we allow winter-
peaking companies to promote summer air-conditioning, we may
be encouraging a greater expansion of capacity for the entire
State, which as a whole is summer-peaking, than would be neces-
sary or desirable.?
It is clear, therefore, that there are ample grounds here for
regulation of commercial speech. Manufacturers and dealers,
whom we do not regulate, remain free to promote the use of
electric equipment and appliances. Such advertising will not
provide the same misleading signals to the public and at the same
time will provide a means for the public to be advised of the
available alternatives.
Columbia Gas specifically objects to our decision to extend
the ban on promotional activities by gas utilities to include direct
contact with potential customers for the purpose of encouraging
installation of dual-fuel equipment. Columbia Gas argues that
this additional restriction is unnecessary since the Commission
now exercises total control over the expansion of its market.
Under existing restrictions it cannot take on new customers and
it must inform potential customers that it has no gas available
for their use. Our new restriction, the company argues, denies
1 This question is at issue in Case 26806 (Generic Electric Rate
Proceeding). A decision is expected presently.
2 Expressed another way, if the proper costing entity is the State
rather than the individual company, the marginal costs of summer
sales may be much higher than of winter sales even for winter-
peaking markets.
60a
Appendix D-3
it the possibility of obtaining new business if, and when, the
natural gas supply situation improves and the company is author-
ized to take on new customers.
The specific purpose of our Order was to reduce the demand
for gas. It would be inconsistent with this aim to permit a gas
utility to promote the attachment of potential customers. In
accordance with our past policy, however, we are prepared to
modify, or even remove, this restriction upon a clear showing that
the company has firm supplies of gas sufficient for it to engage in
some limited promotional activity without lessening the supply
of gas available to existing customers.
POLITICAL ADVERTISING
Central Hudson also argues that our prohibition on the recov-
ery through rates of expenditures for political advertising some-
how violates its Constitutional rights. To support this claim, the
company relies on West Ohio Gas Co. v Public Utilities Comm’m,
294 US 64 (1934) and Virginia State Board of Pharmacy,
supra. Both cases, however, are inapposite. First, unlike the
Virginia case, we are not prohibiting the company from expressing
its position on matters of public controversy. We are simply not
permitting a utility to pass along to its ratepayers the costs in-
volved in publicizing its political views. West Ohio stands for
the proposition that advertising is a legitimate business expense
and, therefore, a reasonable allowance should be provided for
this activity. It does not require a dollar-for-dollar reimburse-
ment to the company for any and all expenses incurred.
BILL INSERTS
Every utility filing a petition has alleged that our decision to
prohibit the use of bill inserts to publicize its views on matters of
public controversy violates the First Amendment and, in addition,
is too vague. We reject these contentions.
First we think it pertinent that our prohibition in no way
attempts to prohibit the companies from making their views
6la
Appendix D-3
known. But use of the bill insert for this purpose is, in our judg-
ment, improper since it gives a utility a unique and undue advan-
tage in publicizing its position. The utility’s billing records make
available a selectively chosen target audience. Any material that
is enclosed with a bill will be received by the customer since he
has no alternative but to pay the bill if he desires continuation of
his utility service. While it is up to the customer whether to read
the matter contained in bill inserts, utility management obviously
has a unique vehicle for getting its material into its customers’
hands.
If the bill insert is turned into a mechanism to promote the
management’s views on controversial issues, the unique advan-
tage of the billing mechanism is then transformed into a device
for presenting only one side of this issue. We believe that this
confers an unreasonable advantage on management that unduly
discriminates against others who may not share or who oppose
the company’s views. Our previously announced ban on contro-
versial material in bill inserts is to preserve the insert for matters
that are not merely presentations by partisans on one side of a
debate but which contain useful information on topics that are
not controversial. In addition to the undue advantage conferred
on management, there are several other factors that we also con-
sider important.
The bill insert is not only a unique medium of communica-
tions, it is also quite limited: (1) the size and weight of the insert,
in principle, should be such that it will fit in an envelope with the
bill without increasing the weight of the total package so much
as to require additional postage costs; and (2) an insert can be
used only so often as a bill is sent by the utility company, usually
once a month, but in many cases only once every other month.
These limitations mean that utility companies could easily use
up much of the scarce resource of bill insert communication by
soliciting support for the industry’s position on controversial
public issues. Bill inserts can, and, in our view, should be used
primarily to convey information that is clearly helpful to con-
62a
Appendix D-3
sumers, such as practical steps that individuals can take to con-
serve energy. Our prohibition assures preservation of the latter
public interest objective.
Since utilities have monopoly franchises conferred by the
government, no other person or entity can provide utility service
and thereby gain the wide, captive audience for bill inserts
enjoyed by them. This makes the utility bill insert medium
analogous to the limited radio spectrum, whose use is properly
regulated by the government (specifically the Federal Communi-
cations Commission), to assure that those who are given the
privilege to use limited spectrum space for the operation of radio
and television stations act as trustees of the public interest.
Broadcasters, of course, are not precluded from airing their
opinions. Indeed, they are encouraged to do so. But, they are
required, by the FCC’s “fairness doctrine” to present contrasting
views on controversial public policy issues, because there simply
is not enough spectrum space available to allow everyone with a
unique point of view to operate a radio or television station.
Since the same limitation is pertinent to utility bill inserts, we con-
sidered imposing something like a “fairness” or “equal time”
requirement on the companies: if a utility stated its position on a
controversial issue in a bill insert, it would have to give an organi-
zation with an opposing viewpoint a chance to disseminate its
opinion as an insert with the utility’s bill. While some of us pre-
ferred this approach, we were all convinced ultimately that it
would be difficult to administer fairly,’ and would tend to lessen
undesirably the number of bill inserts dealing directly with such
useful and uncontroversial information as consumer conservation
measures.
It is for these basic reasons that we adopted our ruling. And
it does not contravene the utilities’ rights of free speech or press.
Utility bill inserts are not newspapers which, in principle, any
1 We note that no utility company has submitted to us a proposal
for handling controversial issues in bill inserts in this manner.
63a
Appendix D-3
person is free to publish and thereby make his opinions known
to the public. The privilege to disseminate utility bill inserts
derives from the privilege of franchised monopoly, conferred by
the government. It can, therefore, be regulated by the govern-
ment to assure that it is exercised in the public interest.
We have not, of course, prohibited the utilities from express-
ing their corporate opinions on controversial public policy issues
in any other media. They are free, like all other members of our
society, to explain their positions on radio and television inter-
views, to seek to purchase space in newspapers, and to speak
before public gatherings. For these kinds of communications, we
merely require that the companies, rather than their customers,
bear the costs.
The goal of free speech and of a free press is a well-informed
electorate capable of making sound public policy decisions. Our
ruling does not diminish to any substantial degree the utilities’
ability to contribute to that goal. It does, however, preclude
their monopolizing the unique utility bill insert medium.’
The petitioners also argue that the term “controversial issues
of public policy” is too vague and does not give them any clear
standards by which to judge the content of their bill inserts.
In the Guidelines, we discussed the various types of materials
that would fall within our proscription. These Guidelines are
admittedly general but we expect to give them greater definition
through future advisory determinations. One such determination
‘ We note also that where the ratepayer’s bill is accompanied by
political advertisement, the political material is, absent allocation,
getting a free ride; the utility is deriving the economic benefit of
postage, envelope, labor and overhead involved in the billing process.
And even if an allocation of the expenses could be made, the actual
cost of enclosing such material in the bill itself does not approach
the one-sided benefit to the management of being able to use the
unique billing process in presenting its side of the controversy. It is
certainly questionable whether ratepayers should be compelled to
support views with which they do not agree. See Abood v District
Board of Education, 45 USLW 4473 (1977).
64a
Appendix D-3
was made in our Policy Statement where we specifically included
in this category expenses incurred in the preparation of materials
designed to influence opinion in the current debate concerning
the development of nuclear power. In its petition here, Con
Edison requested a determination as to whether materials pre-
pared in response to the demand by several elected officials for
public operation of its facilities falls within the political category.
We believe that it does and therefore should not be included as
a bill insert. In the event a utility wishes additional guidance
with respect to this matter, it should feel free to seek it. We will
resolve any request expeditiously so that no undue delay will
result.
Con Edison also states that under the Constitution, the field
of postal regulation has been preempted by the Federal govern-
ment. Claiming that our decision on bill inserts is such an inter-
ference with the mails, the company argues, therefore, that we
have acted illegally. This argument is specious. Our prohibition
involves neither direct physical interference with Federal postal
activities nor a direct immediate burden on the performance of
postal functions. Our Order is in no way an interference with
the Federal regulation of the mails. See Railway Mail Assoc. Vv
Corsi, 326 US 88 (1945).
OUT-OF-STATE POLITICAL CONTRIBUTIONS
We restated in the Policy Statement our long-standing posi-
tion that political advertising will not be considered a legitimate
cost of doing business. Any such expenditures must be recorded
below the line. See Complaint of Grassroots Action, Inc., 13 NY
PSC 630 (1973); Statement of Policy on Advertising and Pro-
motional Practices by Public Utilities, 12 NY PSC 108-R (1972);
Accounting for Donations, Dues and Lobbying Expenditures, 7
NY PSC 9-R (1967).
CPB is dissatisfied, however, and argues that out-of-state
political contributions should be banned completely, claiming that
any connection between out-of-state political actions and the New
York operations of a utility is too remote.
65a
Appendix D-3
In Grassroots, we considered the issue of political contribu-
tions by utilities and held that, as long as these expenditures
are minor, so that they have little or no effect upon a utility’s
financed stability, we will give our general consent and approval
as required by Section 107 of the Public Service Law for non-
utility-related expenditures. We stated that to require prior
approval for each expenditure before a utility could speak out
in the public forum on matters which could affect it would be
undesirable. We see no reason to depart from this general
policy even when out-of-state expenditures are involved.
PERCENTAGE LIMITATION ON ADVERTISING EXPENDITURES
New York Telephone argues that our guideline limitations
on institutional and informational advertising’ would result in
significant reductions in reasonable advertising expenditures.
The company argues that we erred in making no distinction
among the various types of advertising that fall within these
broad categories. For example, legally required notices and
purely informational advertising, i.e., notification of emergency
procedures or changes in billing practices should fall outside
the scope of our guideline limitations.”
NYT also claims that the ceiling on advertising expenditures
imposed by our Guidelines serves no useful purpose since staff
must still determine whether any particular advertisement is poli-
tical or self-serving. In any event, the company points out the
entire lump sum allowance may still be questioned in a rate
proceeding.
The phrase “and informational” was inadvertently omitted
from the last line of footnote 1 on page 13 of our Statement. The
last line of that footnote should read “institutional and informational
advertising allowance on brief.”
* The company estimates that 1977 expenditures for informa-
tional and institutional advertising will exceed $4 million, including
$600,000 for legally required notices. Under strict application of
our Guidelines, only $1,635,000 would be recoverable from rates.
66a
Appendix D-3
We recognized that our new-policy would not solve all the
problems relating to advertising. It is, however, an improve-
ment over our past practice of conducting an item-by-item ex-
amination and evaluation of past advertisements—a practice
which took valuable staff time, time which could be far better
used checking on other, quantitatively larger expense items.
What we are doing here is establishing a relatively simple proce-
dure to determine a reasonable allowance for future institutional
and informational advertising. We intend to monitor the results
of this new policy and to make any miodifications necessary in
light of this experience. We also recognize that expenses asso-
ciated with legally required advertising vary depending on the
territory served by the utility. We are prepared, therefore, to
take such differences into account in applying our Guidelines
to individual companies.
CONCLUSION
We have reviewed the petitions for rehearing filed in response
to our Statement of Policy on Advertising and Promotional
Practices of Public Utilities and conclude that they present no
new arguments of fact or law which warrant modification of our
Statement. The petitions are, therefore, denied.
The Commission orders:
1. The petitions for rehearing filed by the parties listed in
the Appendix to this Order in response to our Statement of
Policy on Advertising and Promotional Practices of Public Util-
ities and accompanying Order, issued February 25, 1977, are
denied.
2. This proceeding is closed.
By the Commission,
(SEAL) (SIGNED) SAMUEL R. MADISON
Secretary
67a
APPENDIX
Parties Filing Petitions for Rehearing
Central Hudson Gas & Electric Corporation
Columbia Gas of New York, Inc.
Consolidated Edison Company of New York, Inc.
New York State Electric & Gas Corporation
New York Telephone Company
Niagara Mohawk Power Corporation
Rochester Gas and Electric Corporation
Consumer Protection Board
68a
Appendix E
Petition to the New York Supreme Court, Albany County
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ALBANY
PETITION
Index No. 11317-77
In the Matter
of
CENTRAL Hupson Gas & ELECTRIC CORPORATION,
Petitioner,
—against—
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent,
for a judgment pursuant to Article 78 of the Civil Practice Law
and Rules.
CENTRAL HupDSON Gas & ELECTRIC CORPORATION, by its
attorneys, Messrs. Gouid & Wilkie, hereby petitions the Supreme
Court of the State of New York, Albany County, for a judgment
pursuant to Article 78 of the Civil Practice Law and Rules an-
nulling, vacating and setting aside certain provisions of an “Order _
Implementing Certain Restrictions on Utility Advertising” and
“Statement of Policy on Advertising and Promotional Practices
of Public Utilities” issued by the Public Service Commission of
the State of New York on February 25, 1977 and of “Order
Denying Petitions for Rehearing” issued by said Commission on
July 14, 1977.
In support of such petition ere Hudson Gas & Electric
Corporation alleges as follows:
1. Petitioner, Central Hudson Gas & Electric Corporation
(“Central Hudson”), is an electric and gas utility corporation,
duly incorporated under the laws of the State of New York, with
69a
Appendix E
its principal office at 284 South Avenue, Poughkeepsie, New
York. Central Hudson supplies electric and gas service to resi-
dents of the Mid-Hudson region of New York State.
2. Respondent, Public Service Commission of the State of
New York (“Commission”), is an administrative body of the
State of New York organized and existing under the Public Serv-
ice Law. The Commission’s principal office is in the City and
County of Albany.
3. Petitioner, as an electric utility corporation, is subject to
the regulatory authority of Respondent with regard to the electric
and gas service furnished by Petitioner.
4. On February 25, 1977, Respondent issued an “Order
Implementing Certain Restrictions on Utility Advertising” and
“Statement of Policy on Advertising and Promotional Practices
of Public Utilities’ (herein “Order” and “Policy Statement”,
respectively). A copy of the Order is attached hereto as Exhibit
A and a copy of the Policy Statement is attached hereto as Exhibit
B.
5. The Policy Statement sets forth Respondent’s determi-
nation to continue a prohibition on promotional advertising by
electric utility corporations which had been originally established
by it by Order issued on December 5, 1973.
6. The Policy Statement and Order establish Respondent’s
prohibition of the use by a public utility company of bill inserts
(i.e., material inserted with bills sent to customers) as a means
to disseminate its positions on matters of public controversy.
7. The Policy Statement sets forth Respondent’s determi-
nation and policy to treat as “political”, and therefore not prop-
erly chargeable to ratepayers, advertising on matters of imme-
diate concern to Petitioner and its customers which relate to
issues before the public, such as nuclear energy, environmental
issues and energy policy in general.
8. On March 28, 1977, Petitioner filed with Respondent
a petition for rehearing of the Order and Policy Statement pur-
70a
Appendix E
suant to Section 22 of the Public Service Law, a copy of which
is attached hereto as Exhibit C.
9. In its petition for rehearing, Petitioner urged Respondent
to reconsider its positions set forth in the Order and Policy
Statement on the grounds that (i) the continued prohibition of
promotional advertising by electric utility corporations violates
Petitioner’s constitutional rights of freedom of expression, (ii)
the prohibition of Petitioner’s right to use bill inserts for the
dissemination of its position on matters of public controversy
violates Petitioner’s Constitutional rights of freedom of expres-
sion and (iii) the determination and policy to disallow, as a
proper charge foi ratemaking purposes, the costs of advertise-
ments On matters of immediate concern to Petitioner and its
customers relating to issues before the public, such as nuclear
energy, environmental issues and energy policy in general, are
arbitrary and capricious and violate Petitioner’s constitutional
rights.
10. On July 14, 1977, Respondent issued an “Order Deny-
ing Petitions for Rehearing” (herein “Order on Rehearing”), a
copy of which is attached hereto as Exhibit D.
11. In the Order on Rehearing, Respondent denied Peti-
tioner’s request for rehearing and reconsideration.
12. No previous application has been made to this Court or
any justice thereof for the relief sought herein.
First Cause of Action
13. Petitioner repeats the allegations contained in para-
graphs 1 through 5 and 8 through 12.
14. Respondent's prohibition of promotional advertising by
Petitioner is not reasonable regulation of Petitioner’s commercial
speech and thus violates the First and Fourteenth Amendments
of the United States Constitution and of Article I, Section 8 of
the Constitution of the State of New York. |
Tla
Appendix E
Second Cause of Action
15. Petitioner repeats the allegations contained in para-
graphs 1 through 4, 6, and 8 through 12.
16. Respondent’s prohibition of the use by Petitioner of
bill inserts sent to its customers as a means of disseminating its
position on matters of public controversy violates the First and
Fourteenth Amendments of the United States Constitution and
Article I, Section 8 of the Constitution of the State of New York
as it improperly restricts the use by Petitioner of an available
means of communicating with its customers. 3
17. Such prohibition of the use of bill inserts also violates
the First and Fourteenth Amendments of the United States Con-
stitution and Article I, Section 8 of the Constitution of the State
of New York as it represents an attempt by Respondent to regu-
late speech on the basis of content.
18. Such prohibition of the use of bill inserts to disseminate
Petitioner’s position on “matters of public controversy” further
violates the First and Fourteenth Amendments of the United
States Constitution and Article I, Sections 6 and 8 of the Consti-
tution of the State of New York as it attempts to establish a
standard to regulate the speech of Petitioner which fails to give
adequate notice of the scope of its proscription and which fails
to give adequate guidance for its application and, consequently,
is unconstitutionally vague and overbroad.
Third Cause of Action
19. Petitioner repeats the allegations contained in para-
gtaphs 1 through 4 and 7 through 12.
20. Respondent's determination and policy to disallow, as
a proper charge for recovery from ratepayers, the costs of adver-
tisements by Petitioner on matters such as nuclear energy,
environmental issues and energy policy in general, which are
of immediate concern to Petitioner and its customers, are arbi-
trary and capricious as they represent an unwarranted invasion
72a
Appendix E
by Respondent into the discretion of Petitioner’s management
and will deny recovery by Petitioner of costs which ultimately
benefit its ratepayers.
21. Such determination and policy to disallow such adver-
tising costs as reasonable costs for ratemaking purposes will
work to deny Petitioner the opportunity to communicate on such
matters in violation of the First and Fourteenth Amendments of
the United States Constitution and Article I, Section 8 of the
Constitution of the State of New York.
WHEREFORE, Petitioner requests this Court to:
(1) Review pursuant to Article 78 of the Civil Practice Law
and Rules, the Order and Policy Statement and Order on Re-
hearing of Respondent, and enter a judgment annulling, vacating
and setting aside said Order and Policy Statement and Order on
Rehearing to the extent that they (i) prohibit advertisements by
Petitioner which promote the use of electric energy, (ii) prohibit
Petitioner from utilizing bill inserts as a means to disseminate
its positions on matters of public controversy and (iii) establish
a policy of disallowing for ratemaking purposes the costs of ad-
vertising by Petitioner on matters of immediate concern to Peti-
tioner and its customers such as nuclear energy, environmental
issues or energy policy in general;
(2) Declare that Respondent’s Order and Policy Statement
and Order on Rehearing violate Petitioner’s constitutional rights
and are arbitrary and capricious to the extent that they (i) pro-
hibit advertisements by Petitioner which promote the use of
electric energy, (ii) prohibit Petitioner from utilizing bill inserts
as a means to disseminate its positions on matters of public con-
troversy and (iii) establish a policy of disallowing for ratemaking
purposes the costs of advertising by Petitioner on matters of
immediate concern to Petitioner and its customers such as nuclear
energy, environmental issues or energy policy in general;
73a
Appendix E
(3) Grant Petitioner such other and further relief as to the
Court may seem just and proper.
Dated: New York, New York
November 4, 1977
GOULD & WILKIE
/s/
By DAvison W. GRANT
A member of the firm
Attorneys for Petitioner
Central Hudson Gas &
Electric Corporation
One Wall Street
New York, N. Y. 10005
(212) 344-5680
[Verification and Exhibits Omitted]
74a
Appendix F-1
Judgment of the Court of Appeals of the State
of New York, May 1, 1979
Remittitur
COURT OF APPEALS, STATE OF NEW YORK
THE Hon. LAWRENCE H. Cooke, Chief Judge, presiding
No. 151
In the Matter of
CENTRAL Hupson Gas & ELECTRIC CORPORATION,
Appellant,
vs.
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW York,
Respondent.
The appellant in the above entitled appeal appeared by
Gould & Wilkie; the respondent appeared by Peter H. Schiff.
The Court, after due deliberation, orders and adjudges that
the order is affirmed, with costs. Opinion by Cooke, Ch.J.
Concur: Jasen, Gabrielli, Jones, Wachtler and Fuchsberg, JJ.
The Court further orders that the papers required to be filed
and this record of the proceedings in this Court be remitted to
the Supreme Court, Albany County, there to be proceeded upon
according to law.
I certify that the preceding contains a correct record of the
proceedings in this appeal in the Court of Appeals and that the
papers required to be filed are attached.
[SEAL]
JOSEPH W. BELLACOSA
Joseph W. Bellacosa,
Clerk of the Court
Court of Appeals, Clerk’s Office, Albany
May 1, 1979
75a
Appendix F-2
Order of the Court of Appeals of the State of New York
Denying Rehearing, July 9, 1979
STATE OF NEW YORK, COURT OF APPEALS
At a session of the Court, held at Court of Appeals
Hall in the City of Albany on the ninth day of
July A. D. 1979
PRESENT, HON. LAWRENCE H. Cooke, Chief J udge, presiding.
Mo. No. 597
In the Matter of
CENTRAL Hupson Gas & ELECTRIC CORPORATION,
Appellant,
vs.
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent.
A motion for reargument in the above cause having hereto-
fore been made upon the part of the appellant herein and papers
having been submitted thereon and due deliberation having been
thereupon had, it is
ORDERED, that the said motion be and the same hereby is
denied with twenty dollars costs and necessary reproduction
disbursements.
[SEAL]
JOSEPH W. BELLACOSA
Joseph W. Bellacosa
Clerk of the Court
16a
Appendix G
Notice of Appeal to the Supreme Court of the
United States, August 22, 1979
SUPREME COURT OF THE STATE OF NEW YORK
| COUNTY OF ALBANY
Index No. 11317-77
In the Matter of
CENTRAL HuDSON GAS & ELECTRIC CORPORATION,
° Petitioner,
—against—
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent,
for a judgment pursuant to Article 78
of the Civil Practice Law and Rules.
NOTICE OF APPEAL TO THE SUPREME COURT
OF THE UNITED STATES
Notice is hereby given that Central Hudson Gas & Electric
Corporation, the Petitioner above-named, hereby appeals to the
Supreme Court of the United States from the final judgment of
the Court of Appeals of the State of New York entered in this
action on July 9, 1979, denying Petitioner’s motion for reargu-
ment of those portions of said Court’s determination of May 1,
1979, which sustained the prohibition by the New York Public
Service Commission of promotional advertising by electric utili-
ties and denied Petitioner’s petition herein.
77a
Appendix G
This appeal is taken pursuant to 28 U.S.C. §1257(2).
Dated: August 17, 1979
Dated and Entered:
August 22, 1979
. Office of Albany County Clerk
Albany, N. Y.
Yours, etc.
GOULD & WILKIE
One Wall Street
New York, New York 10005
(212) 344-5680
TAYLOR, FERENCZ & SIMON
60 East 42nd Street
New York, New York 10017
(212) 661-0930
Attorneys for Petitioner
To: Clerk of the Supreme Court,
Albany County
Albany County Courthouse
Albany, New York 12207
PETER H. ScuirFF, Eso.
Counsel to the Public Service Commission
of the State of New York
Empire State Plaza
Agency Building No. 3
Albany, New York 12223
(518) 474-2510
Attorney for Respondent
78a
Appendix G
AFFIDAVIT OF SERVICE
Index No. 11317-77
CERTIFICATE OF SERVICE
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ALBANY
| In the Matter of
CENTRAL HuDSON Gas & ELECTRIC CORPORATION,
Petitioner,
—against—
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Respondent,
for a judgment pursuant to Article 78
of the Civil Practice Law and Rules.
STATE OF NEW YORK
COUNTY OF NEW YORK
Tuomas C. HuTTON, being duly sworn, deposes and says:
I am an associate of the law firm of Gould & Wilkie, One
Wall Street, New York, New York 10005, attorneys for Central
Hudson Gas & Electric Corporation, Petitioner.
On August 17, 1979, I served the annexed Notice of Appeal
to the Supreme Court of the United States on the Public Service
Commission of the State of New York, Respondent, by deposit-
ing a true copy of the same in a properly addressed wrapper
with first class postage prepaid to Peter H. Schiff, Esq., General
Counsel, Public Service Commission of the State of New York,
Agency Building No. 3, Empire State Plaza, Albany, New York
12223 in an official mail box under the exclusive care and
79a
Appendix G
custody of the United States Postal Service within the State of
New York.
All parties required to be served have been served.
/s/
THOMAS C. HUTTON
Sworn to before me this
17th day of August, 1979
/s/
DOREEN M. SCHRAUFL
Notary Public
DorEEN M. SCHRAUFL
Notary Public, State of New York
No. 30-4606708
Qualified in Nassau County
Commission Expires March 30, 1981
80a
Appendix H
NEW YORK PUBLIC SERVICE LAW,
Sections 4, subd. 1; 5, subd. 2; and 66, subds. 1, 2, 4 and 5.
§4. The public service commission
1. There shall be in the department of public service a public
service commission, which shall possess the powers and duties
hereinafter specified, and also all powers necessary or proper to
enable it to carry out the purposes of this chapter. The com-
mission shall consist of five members, to be appointed by the
governor, by and with the advice and consent of the senate. A
commissioner shall be designated as chairman of the commission
by the governor to serve in such capacity at the pleasure of the
governor or until his term as commissioner expires whichever
first occurs. No more than three commissioners may be members
of the same political party unless, pursuant to action taken under
subdivision two, the number of commissioners shali exceed five,
and in such event no more than four commissioners may be mem-
bers of the same political party.
§5. Jurisdiction of public service commission
* * * *
2. The commission shall encourage all persons and corpo-
rations subject to its jurisdiction to formulate and carry out
long-range programs, individually or cooperatively, for the per-
formance of théir public service responsibilities with economy,
efficiency, and care for the public safety, the preservation of
environmental values and the conservation of natural resources.
§66. General powers of commission in respect to gas and
electricity
The commission shall:
1. Have general supervision of all gas corporations and
electric corporations having authority under any general or
special law or under any charter or franchise to lay down, erect
or maintain wires, pipes, conduits, ducts or other fixtures in,
over or under the streets, highways and public places of any
municipality for the purpose of furnishing or distributing gas or
8la
Appendix H
of furnishing or transmitting electricity for light, heat or power,
or maintaining underground conduits or ducts for electrical con-
ductors, and all gas plants and electric plants owned, leased or
operated by any gas corporation or electric corporation.
2. Investigate and ascertain, from time to time, the quality
of gas supplied by persons, corporations and municipalities; ex-
amine or investigate the methods employed by such persons,
corporations and municipalities in manufacturing, distributing
and supplying gas or electricity for light, heat or power and in|
transmitting the same, and have power to order such reasonable
improvements as will best promote the public interest, preserve
the public health and protect those using such gas or electricity
and those employed in the manufacture and distribution thereof,
and have power to order reasonable improvements and exten-
sions of the works, wires, poles, lines, conduits, ducts and other
reasonable devices, apparatus and property of gas corporations,
electric corporations and municipalities; and have power after
an investigation and a hearing to order any corporation having
authority under any general or special law or under any charter
or franchise, to lay down, erect or maintain wires, pipes, con-
duits, ducts or other fixtures in, over or under the streets, high-
ways and public places of any municipality for the purpose of
supplying, selling or distributing natural gas, to augment its
supply of natural gas, whenever the commission deems necessary
and whenever artificial gas can be reasonably obtained, by ac-
quiring by purchase, manufacture or otherwise a supply thereof
to be mixed with such natural gas, in order to render adequate
service to the customers of such corporation or to maintain a
proper and uniform pressure; and have power after an investi-
gation and a hearing to order any corporation having authority
under any general or special law or under any charter or fran-
chise, to lay down, erect or maintain wires, pipes, conduits, ducts
or other fixtures in, over or under the streets, highways and
public places of any municipality for the purpose of supplying,
selling or distributing artificial gas, to augment its supply of
artificial gas, whenever the commission deems necessary and
82a
Appendix H
whenever natural gas can be reasonably obtained, by acquiring
by purchase or otherwise a supply thereof to be mixed with such
artificial gas, in order to render adequate service to the custom-
ers of such corporation or to maintain a proper and uniform
pressure; and to fix such rate for the supplying of mixed gas as
Shall secure to such corporation a fair return; and may order
the curtailment or discontinuance of the use of natural gas for
manufacturing or industrial purposes, for periods aggregating
not to exceed four months in any calendar year, if it is estab-
lished to the satisfaction of the commission that the supply of
natural gas is not adequate to meet the reasonable demands of
domestic consumption and may prohibit the use of natural gas
in wasteful devices and practices.
* * * *
4. Have power, in its discretion, to prescribe uniform meth-
ods of keeping accounts, records and books, to be observed by
gas corporations and electric corporations and by municipalities
engaged in the manufacture, sale and distribution of gas and
electricity for light, heat or power. It may also in its discretion
prescribe, by order, forms of accounts, records and memoranda
to be kept by such persons, corporations and municipalities.
Notice of alterations by the commission in the required method
or form of keeping a system of accounts shall be given to such
persons or corporations by the commission at least six months
before the same shall take effect. Any other and additional
forms of accounts, records and memoranda kept by such corpo-
rations shall be subject to examination by the commission.
5. Examine all persons, corporations and municipalities
under its supervision and keep informed as to the methods, prac-
tices, regulations and property employed by them in the trans-
action of their business. Whenever the commission shal] be of
opinion, after a hearing had upon its own motion or upon com-
plaint, that the rates, charges or classifications or the acts or
regulations of any such person, corporation or municipality are
unjust, unreasonable, unjustly discriminatory or unduly preferen-
tial or in anywise in violation of any provision of law, the commis-
83a
Appendix H
sion shall determine and prescribe in the manner provided by and
subject to the provisions of section seventy-two of this chapter the
just and reasonable rates, charges and classifications thereafter to
be in force for the service to be furnished notwithstanding that a
higher or lower rate or charge has heretofore been prescribed by
general or special statute, contract, grant, franchise condition,
consent or other agreement, and the just and reasonable acts and
regulations to be done and observed; and whenever the commis- _
sion shall be of opinion, after a hearing had upon its own motion
or upon complaint, that the property, equipment or appliances of
any such person, corporation or municipality are unsafe, ineffi-
cient or inadequate, the commission shall determine and prescribe
the safe, efficient and adequate property, equipment and appli-
ances thereafter to be used, maintained and operated for the secur-
ity and accommodation of the public and in compliance with the
provisions of law and of their franchises and charters.
* * * x
84a
Appendix I
Notice of Proposed Policy Statement and Request for Comments
on Advertising by Public Utilities and Electric Promotion
Practice, July 28, 1976
NOTICE OF PROPOSED POLICY STATEMENT AND REQUEST
FOR COMMENTS ON ADVERTISING BY PuBLIC UTILITIES
AND ELECTRIC PROMOTION PRACTICES © |
(Issued July 28, 1976)
Over the years, the Commission has developed a series of
policies relating to advertising by public utility companies and
other practices designed to stimulate increased sales of electricity.
Some of these policies have in recent months been called into
question, and the Commission is considering revising them. To
this end, we solicit comments from interested parties to be sub-
mitted, in writing, to the Secretary of the Commission, Empire
State Plaza, Albany, New York, 12223, not later than September
13, 1976.
The promotion of electricity sales
On December 6, 1973, at the height of the energy crisis
precipitated by the exporting countries’ boycott, the Commission
flatly prohibited all sales promotional activities by electric compa-
nies. We are now considering relaxing that prohibition.
There is one aspect of the proposed relaxation on which we
do not solicit comments at this time. That would be such pro-
motion as would be the incidental consequence of efforts by
electric utility companies to publicize, explain, and advise con-
sumers on how best to take advantage of time-of-consumption
rates. As the companies introduce such rates, informational
activities of this kind are clearly desirable, even where they might
have the incidental effect of increasing the aggregate sales of
electricity.
The proposition on which we do solicit reactions is that we
relax our absolute prohibition of sales promotional activities by
electric companies generally, apart from those that are merely
85a
Appendix I
ancillary to the introduction of time-of-consumption rates. (The
distinction will in important instances be difficult to draw: since
the downstate companies are summer-peaking, one purpose or
result of rates varying by the season of the year could be to
promote the use of electric heating, and, largely because of the
very heavy use of electricity involved, this is the most controver-
sial promotion of all.)
On the side of continuing the flat prohibition are such consid-
erations as the following:
1. Electric companies are franchised monopolists, and no
public interest or need is served by permitting monopolists to
promote sales.
2. It is especially undesirable to cover the costs of such pro-
motional activities in rates, thereby forcing captive customers
to pay for activities designed to influence their consumption
habits (in contrast with merely providing them with informa-
tion).
3. Turning specifically to the promotion of electric resis-
tance space and water heating: it conflicts with the national
interest in energy conservation to promote additional utilization
of electricity, which by its very nature uses approximately 3 Btu’s
of source energy to deliver 1 usable Btu. Electric resistance
heating is therefore inherently inefficient in its use of primary
energy, compared with the direct buring of gas or oil in furnaces,
even after making allowance for the greater efficiency-in-use of
the electricity than those fuels.
4. The equipment for electric resistance heating is consid-
erably less costly than for gas or oil. Since builders typically
have a strong incentive to hold down the first costs of construc-
tion, they may already have a distorted incentive to install the
former in preference to the latter, even though the result may
be to impose markedly higher annual heating costs thereafter on
the purchasers, who are frequently, perhaps typically, not in a
position to weigh the higher future running costs against the
86a
Appendix I
lower initial purchase price in making their purchase decisions.
In these circumstances, it is particularly undesirable further to
encourage irrational purchase decisions by permitting the pro-
motion of electric heating.
5. The heat pump promises to mitigate some of these effi-
ciency disadvantages of electric resistance heating; however, the
effects of its widespread introduction on utility peak load and
load factors are uncertain.
Arguing on the side of a relaxation are the following con-
siderations:
1.q@{n major uses, electricity competes with oil and gas, and
while ®: proscribe the promotion of gas, the distribution of
heating oils is totally outside our control, and advertising by
those distributors freely permitted: in these circumstances, it is
not only unfair but produces distorted results for consumers to
be freely exposed to advertising messages by one set of compe-
titors, while the other is totally prohibited from communicating
with them. :
2. Electricity and electrical appliances compete with all
other goods and services for the consumer’s limited dollars. It
is inconsistent with a consumer-sovereign and free enterprise
economy for certain goods and services to be denied the right
to compete for those dollars while other competitors—many of
which may be promoting even less energy-conserving consump-
tion—remain unrestricted. It is the function of a regulatory
Commission in such an economy to see to it that prices accu-
rately reflect cost—not to go beyond that and dictate to con-
sumers and businesses, directly or indirectly, how they should
allocate their expenditures. Consumers are, to be sure, entitled
to protection against misleading advertising, and the foregoing
considerations would probably not absolve the Commission from
responsibility to ensure that the promotional information sup-
plied by franchised public utilities is in fact not misleading. The
proper solution to the possible problem, described earlier, aris-
87a
Appendix I
ing from the possibility that builders may have a distorted incen-
tive to install electric resistance heating, because of its lower
first cost, is to provide purchasers with reliable information
about the expected life cycle costs of buildings equipped with
different heating systems.
3. The function of the Commission is to see to it that the
prices of the services it regulates reflect society’s costs in supply-
ing them, and that consumers are well-informed—not to tell
consumers what advertising messages they may and may not
hear.
4. Gas is in short supply, and in most territories unavailable
for use in new construction, so that for most uses the only avail-
able alternative to electricity for space heating is o'l. Prohibition
of electricity promotion thus contributes to giving oil a monop-
oly in that market (whether this creates a danger of monopolistic
exploitation depends on the effectiveness of competition in the
oil industry).
5. While promotion of heating with electricity generated
from oil (because of its less efficient use of the primary energy
source) runs counter to our national policy of reducing our
dependence upon imported oil, the increased use of electricity
generated from nuclear fuel and coal would make a positive
contribution to that goal.
6. Electric space heating is environmentally preferable to
the direct combustion of oil: it is less polluting to burn fuels
in central electricity generating stations than in thousands of
individual furnaces.
88a
Appendix J
Selections from Opinion of United States District Court,
Eastern District of New York,
March 30, 1979
DOCKET NO. 77 C 972
MEMORANDUM AND ORDER
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
LONG ISLAND LIGHTING COMPANY,
Plaintiff,
—against—
- THE NEw YorK STATE PUBLIC SERVICE COMMISSION et al.
Defendants.
PRATT, J:
I. INTRODUCTION
Plaintiff Long Island Lighting Company (LILCO) com-
menced this action to declare unconstitutional and to enjoin
enforcement of orders issued by defendant New York State Pub- |
lic Service Commission (PSC) which prohibit (1) LILCO’s pro-
- motional advertising of electrical space heating for residential
use. ...
* * * *
B. PSC’s Policy and Orders.
In 1973 PSC gave notice of a proposal to issue an order
restricting certain uses of electric energy. Prompted by a critical
shortage in fuel oil available to generate electricity in the state,
PSC proposed a variety of energy saving steps, invited written
comments on its proposals, and required each utility to publish
the proposals immediately. In addition, PSC ordered that “all
electric corporations are hereby prohibited from promoting the
use of electricity through the use of advertising * * *”. LILCO
did not then challenge that prohibition on advertising; instead, it
complied with the order by ceasing to advertise electric space
89a
Appendix J
heating, a method of residential heating it had actively promoted
for a number of years.
In 1976 PSC undertook a reexamination of the subjects of
advertising by utilities and the promotion of electricity sales, and
after receiving comments on the Proposed position, it adopted
on February 25, 1977 a “Statement of Policy on Advertising
and Promotional Practices of Utility Companies,” (Policy State-
ment). As part of that statement PSC concluded “that the exist-
ing ban on promotion of electricity s
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