Matter of City of Yonkers et al. v New York State Department of Environmental Conservation et al.
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Attorneys and Parties
Brief Summary
Municipal water-rate regulation and administrative review of charges for "excess water" sold by the New York City Water Board to upstate communities outside New York City.
Supreme Court held that the New York State Department of Environmental Conservation (DEC) must apply a "fair and reasonable" standard when reviewing excess-water rates, relying on Administrative Code of City of NY § 24-360 [statute governing rates for entitlement water and review procedures for city and out-of-city customers] and provisions of Environmental Conservation Law article 15 [DEC's authority over the state's water resources and certain intermunicipal water-supply permits].
The Appellate Division reversed so much of the judgment as denied DEC's motion for summary judgment and rejected Supreme Court's declaration that the fair-and-reasonable standard governs review of excess-water rates.
The court held that Administrative Code § 24-360 expressly governs only entitlement water, not excess water, and the Environmental Conservation Law provisions cited by Supreme Court concern permit situations where one water system is compelled to supply another, not voluntary excess-water sales. Because the Water Board is a utility-like public benefit corporation making rate-setting judgments involving economic and public policy considerations, DEC must apply the deferential standard from Matter of Prometheus Realty Corp. v New York City Water Board and Carey Transp. v Triborough Bridge & Tunnel Authority—whether the rates are supported by economic or public policy goals and are not utterly arbitrary.
Background
New York City obtains water from a system of city-owned reservoirs and lakes north of the city. Certain upstate municipalities along the aqueduct route are statutorily entitled to purchase "entitlement water" from that supply at a "fair and reasonable" rate under Administrative Code of City of NY § 24-360 [defines fair and reasonable for entitlement water as the city's actual total cost after deducting specified in-city distribution and related expenses, and sets review procedures]. The New York City Water Board may also choose to sell "excess water," meaning water above the amount to which those communities are entitled, but the statute does not set a pricing formula for excess water. In 2016, the petitioning municipalities and water districts challenged Water Board rates for fiscal years 2015 through 2017 before DEC. During those years, excess-water rates were about three times the entitlement-water rates. An Administrative Law Judge, later affirmed by the DEC Commissioner, concluded that excess-water rates are reviewed under a deferential standard focused on whether they serve the Water Board's economic and public policy goals, rather than the fair-and-reasonable standard applicable to entitlement water.
Lower Court Decision
Supreme Court, after the parties converted the standard-of-review dispute into declaratory judgment claims, denied DEC's motion for summary judgment and declared that DEC should use the fair-and-reasonable standard in adjudicating challenges to excess-water rates. The court reasoned that DEC's authority over excess-water disputes stems from its statewide conservation role under Environmental Conservation Law article 15 and found guidance in ECL 15-1521 [providing that certain water rates must be fair and reasonable] and ECL 15-1503 (2) (c) [requiring specified water projects to be just and equitable to affected municipalities].
Appellate Division Reversal
The Appellate Division modified the judgment by granting DEC's motion for summary judgment and declaring that DEC's review of the Water Board's excess-water rates is governed by the standard set forth in Matter of Prometheus Realty Corp. and Carey Transp. Under that standard, a utility-like rate setter has broad discretion so long as it does not engage in illicit discrimination and its differentials are not utterly arbitrary or unsupported by economic or public policy goals as it reasonably conceives them. The court held that DEC should not substitute its own judgment for the Water Board's on economic and policy questions outside DEC's conservation mandate. The remainder of the judgment was affirmed.
Legal Significance
This decision clarifies that in disputes over New York City Water Board charges for excess water sold outside the city, DEC does not apply the statutory "fair and reasonable" formula reserved for entitlement water under Administrative Code § 24-360. Instead, excess-water rate review is deferential and mirrors judicial review of utility rate setting. The ruling limits the reach of Environmental Conservation Law article 15 in this context by distinguishing between compulsory intersystem water-supply arrangements and voluntary excess-water sales.
For excess water, the New York City Water Board's rates are not judged by whether DEC thinks they are "fair and reasonable"; they are upheld unless they are irrational, discriminatory, or lack support in legitimate economic or public policy objectives.