IN RE: ASTORIA GAS TURBINE POWER (2005)

In a proceeding pursuant to Real Property Tax Law article 7 to review certain real property tax assessments, the petitioner appeals from (1) an order of the Supreme Court, Queens County (Golia, J.), dated March 10, 2003, which denied its motion for partial summary judgment on the issue of whether its equipment was misclassified as class three utility real property and should be reclassified as class four commercial property and granted the cross motion of the Tax Commission of the City of New York and the New York City Commissioner of Finance for partial summary judgment on the issue of misclassification, and (2) an order of the same court dated October 7, 2003, which denied its application to sign an order to show cause.

Motion by the respondents, inter alia, to dismiss the appeal from the order dated October 7, 2003, on the ground that it is not an appealable paper.   By decision and order on motion of this court dated March 19, 2004, that branch of the motion which was to dismiss the appeal from the order dated October 7, 2003, on the ground that it is not an appealable paper was held in abeyance and referred to the Justices hearing the appeal for determination upon the argument or submission thereof.

Upon the papers filed in support of the motion, and the papers filed in opposition thereto, and upon the argument of the appeal, it is,

ORDERED that the motion is granted and the appeal from the order dated October 7, 2003, is dismissed on the ground that no appeal lies from an order denying an application to sign an order to show cause (see CPLR 5701);  and it is further,

ORDERED that the order dated March 10, 2003, is reversed, on the law, the petitioner's motion for partial summary judgment is granted, the respondents' cross motion for partial summary judgment is denied, and the respondents are directed to reclassify the petitioner's class designation upon the 2001-2002 assessment roll in accordance herewith;  and it is further,

ORDERED that one bill of costs is awarded to the petitioner.

In May 1996 the Public Service Commission of the State of New York (hereinafter the PSC) issued an opinion mandating the restructuring of the electric utility industry within the State (see 1996 N.Y. PSC [Op. No. 96-12] ).   Among the goals of the reorganization was increased competition and deregulation within the industry, with an eye to greater consumer choice and an overall reduction of energy rates (see 1996 N.Y. PSC [Op. No. 96-12];  see also Matter of County of Westchester v. Helmer, 296 A.D.2d 68, 748 N.Y.S.2d 174;  Matter of Energy Assn. of N.Y. State v. Public Serv. Commn. of State of N.Y., 169 Misc.2d 924, 653 N.Y.S.2d 502, affd. 273 A.D.2d 708, 710 N.Y.S.2d 662).   As a result, on July 21, 1998, the PSC approved, subject to certain conditions, the plan of Consolidated Edison Company of New York (hereinafter Con. Ed.) to divest about two-thirds of its New York City, or “in-City,” fossil-fueled electric generating capacity to unregulated third parties and an unregulated affiliate (see Pub. Serv. Commn. Order Authorizing the Process for Auctioning of Generation Plant, Case 96-E-0897, 1998 WL 716044 [July 21, 1998] ).   In 1999 NRG Energy, Inc., the petitioner's parent company, purchased one of Con. Ed.'s power plants located in Astoria, Queens.   In authorizing the transfer of Con. Ed.'s electrical generating facilities to the petitioner and other independent power producers, the PSC ruled that they would be accorded “light regulation” under the Public Service Law and exempted these wholesale generators of electricity from PSC regulation relating to the retail sale of electricity, as they were to be subject to the competitive wholesale generation market forces which the PSC did not regulate (see Matter of Consolidated Edison Co., of N.Y., Order Approving Transfer of Generating Facilities and Making Other Findings, Case 96-E-0897, 1999 WL 716539 [July 28, 1999];  Matter of Consolidated Edison Co., of N.Y., Order Approving Transfers of Generating Facilities and Making Other Findings, Case 96-E-0897, 1999 WL 538227 [June 8, 1999];  Matter of Carr Street Generating Station, LP, Case 98-E-1670, 1999 WL 486017 [April 23, 1999];  Matter of AES Eastern Energy Order Providing for Lightened Regulation, Case 99-E-0148, 1999 WL 486015 [Apr. 23, 1999] ).   In addition, the Federal Energy Regulatory Commission (hereinafter the FERC) granted the petitioner, as a company offering electrical power exclusively for sale at wholesale rates, status as an “exempt wholesale generator” under the Public Utility Holding Company Act of 1935, exempting it from certain Federal regulations intended for monopoly utilities (see 15 USC § 79z-5a[e] ).

The petitioner commenced this proceeding pursuant to Real Property Tax Law article 7 challenging, inter alia, the classification of its power plant as “[u]tility real property” (RPTL 1801[c] ) and consequent designation as class three property (see RPTL 1802[1] ) on the City's 2001-2002 assessment roll.   The Supreme Court denied the petitioner's motion for partial summary judgment on the issue of whether its equipment was misclassified as class three utility property and should be reclassified as class four commercial property, and granted the respondents's cross motion for partial summary judgment on the issue of misclassification.

The petitioner contends that because it shares none of the common characteristics of a utility and because the price at which it sells its electricity on the competitive wholesale generation market is not set by the PSC or other regulatory agency, its power plant is not “utility real property” within the meaning of RPTL 1801(c).  Therefore, the petitioner argues, its power plant should not have been designated as class three property.   The City, on the other hand, contends that power plants always have been designated as class three property and that while the PSC does not supervise the rates that the petitioner charges for its electricity on the wholesale market, the petitioner is still subject to PSC regulation with respect to matters such as reorganizations, enforcement, investigation, safety, reliability, and system improvement.   We agree with the petitioner and therefore hold that the petitioner's power plant should be reclassified as class four property.

Under article 18 of the Real Property Tax Law, New York City's real property is divided into four classes:  classes one and two include all residential property, class three includes “utility real property,” and class four includes all other commercial property (see RPTL 1801, 1802).   RPTL 1801(c) defines “(u)tility real property,” in pertinent part, as “the real property ․ of persons and corporations subject to the supervision of the state department of public service ․ or any other regulatory agency of the state or federal government, used in the generation ․ of ․ electricity.”

 “[T]he construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld” (Matter of Howard v. Wyman, 28 N.Y.2d 434, 438, 322 N.Y.S.2d 683, 271 N.E.2d 528;  see Matter of New York State Assn. of Life Underwriters v. New York State Banking Dept., 83 N.Y.2d 353, 359-360, 610 N.Y.S.2d 470, 632 N.E.2d 876;  Matter of Colt Indus. v. New York City Dept. of Fin., 66 N.Y.2d 466, 470-471, 497 N.Y.S.2d 887, 488 N.E.2d 817).  “Where, however, the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency” (Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 403 N.E.2d 159;  see also Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316, 322, 756 N.Y.S.2d 108, 786 N.E.2d 7).  “In such a case, courts are ‘free to ascertain the proper interpretation from the statutory language and legislative intent’ ” (Seittelman v. Sabol, 91 N.Y.2d 618, 625, 674 N.Y.S.2d 253, 697 N.E.2d 154, quoting Matter of Gruber [New York City Dept. of Personnel-Sweeney], 89 N.Y.2d 225, 231-232, 652 N.Y.S.2d 589, 674 N.E.2d 1354).   The question of what “subject to the supervision of the state department of public service ․ or any other regulatory agency” means in RPTL 1801(c) may be resolved by consideration of the statutory language, design, and purpose (see e.g. Matter of Gruber [New York City Dept. of Personnel-Sweeney], supra ).   Accordingly, the City's construction of the statute is not entitled to deference.   This is especially so since it appears that the City merely continued the property's historical designation as class three property without regard to the statutory language.

 “It is fundamental that a court, in interpreting a statute, should attempt to effectuate the intent of the Legislature” (Patrolmen's Benevolent Assn. of City of N.Y. v. City of New York, 41 N.Y.2d 205, 208, 391 N.Y.S.2d 544, 359 N.E.2d 1338;  see also Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 453, 261 N.Y.S.2d 8, 209 N.E.2d 68, cert. denied 382 U.S. 905, 86 S.Ct. 241, 15 L.Ed.2d 158).   As the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof (see Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577, 583, 673 N.Y.S.2d 966, 696 N.E.2d 978).   In ascertaining the purpose and applicability of a statute, it is proper to consider the legislative history of the act, the circumstances surrounding the statute's passage, and the history of the times (see McKinney's Cons. Laws of N.Y., Book 1, Statutes § 124).   Application of these principles leads to the conclusion that the City's broad construction of the statutory language is contrary to the legislative intent.

 When article 18 of the RPTL was enacted in 1981 (L. 1981, ch. 1057), electric utilities subject to the supervision of the PSC, such as Con. Ed., were vertically-integrated monopolies owning substantially all of the electricity generating, transmission, and distribution facilities.   These public utilities had many advantages over the general business community, including the right of eminent domain, the use of public property, special franchises or public contracts, and relative freedom from competition.   Clearly, the Legislature's use of the “supervision” clause in RPTL 1801(c) was intended to distinguish the property owned by public utilities from nonutility property (see New York Steam Corp. v. City of New York, 268 N.Y. 137, 197 N.E. 172;  New York R.T. Corp. v. City of New York, 303 U.S. 573, 58 S.Ct. 721, 82 L.Ed. 1024).

In arguing that the petitioner's power plant is “utility real property,” the City emphasizes one characteristic-that the property the petitioner owns is a power plant that generates electricity.   Relying on that fact, the City argues that the petitioner's power plant comes within the definition of “utility real property” because power plants have always been so classified for real property tax purposes.   However, the City's construction ignores the operative language of RPTL 1801(c) distinguishing utility property from nonutility property.

The City further argues that the petitioner's power plant comes within the definition of “utility real property” because the petitioner remains subject to PSC and FERC regulation.   However, the limited degree of regulation by the PSC does not render the petitioner a public utility.   Moreover, the localized market mitigation measures approved by the PSC and FERC, which were imposed upon the petitioner and other in-City wholesale generators, were developed to prevent the exercise of generation market power in New York City during the transition period and do not involve the intense rate supervision imposed upon traditional electric utilities by the PSC (see AT & T Information Sys. v. City of New York, 137 A.D.2d 7, 527 N.Y.S.2d 10, affd. for reasons below 73 N.Y.2d 842, 537 N.Y.S.2d 482, 534 N.E.2d 320).

To accept the City's broad construction of the statutory definition of “utility real property” to include in class three the property of non-utilities such as the petitioner would produce a result not intended by the Legislature (see Matter of United Parcel Serv. of N.Y. v. Joseph, 272 App.Div. 194, 70 N.Y.S.2d 22, affd. 297 N.Y. 1004, 80 N.E.2d 533;  Matter of 320 W. 37th St., Inc. v. McGoldrick, 281 N.Y. 132, 22 N.E.2d 313;  Matter of Merchants Refrig. Co. v. Taylor, 275 N.Y. 113, 9 N.E.2d 799).   Moreover, to the extent that there is any ambiguity in the statutory definition of “utility real property,” it must be construed most strongly in favor of the taxpayer and against the taxing authority (see Matter of Manhattan Cable TV Servs., Div. Of Sterling Information Servs. v. Freyberg, 49 N.Y.2d 868, 869, 427 N.Y.S.2d 933, 405 N.E.2d 178;  Matter of Orange & Rockland Utils. v. City of Middletown Assessor, 269 A.D.2d 451, 703 N.Y.S.2d 218;  Matter of KIAC Partners v. Cerullo, 260 A.D.2d 381, 384, 687 N.Y.S.2d 692).   Thus, we find that the petitioner's power plant is not “[u]tility real property” within the meaning of RPTL 1801(c).

The City's argument that reclassifying power plants owned by non-utilities such as the petitioner as class four property would lead to disparate treatment of like properties owned by utilities such as Con. Ed. has already been rejected by the Court of Appeals (see New York Steam Corp. v. City of New York, supra ) and the United States Supreme Court (see New York R.T. Corp. v. City of New York, supra ).   Accordingly, the petitioner's motion for partial summary judgment should have been granted, and the City's cross motion for partial summary judgment should have been denied.