LI CLEAN AIR WATER AND SOIL

CAWS OPPOSES STAY OF ARTICLE 78



The Public Service Commission ("PSC") and the Department of Public Service ("DPS") are seeking a stay of the Article 78 so they can investigate New York American Water's ("NYAW") admitted overcharging for taxes. LI Clean Air Water and Soil ("CAWS") opposes and asserts that this is an admission of the allegations of the Article 78 which is that the PSC and DPS acted arbitrarily and capriciously in simply joining a joint proposal that assumed NYAW's numbers for property taxes, infrastructure and costs were all accurate. They weren't and the DPS and PSC only prevented CAWS from receiving responses to discovery that would have proven this point. 

CAWS and ratepayers from Nassau's north and south shores demand that the Supreme Court rule on the Article 78 that they brought to end the PSC's May 18, 2017 Order ("Order") that set our water rates and demand that it stop taxing us for our water.
 
The PSC failed to ensure that our water rates were just and reasonable. In September 2017, CAWS and ratepayers brought an Article 78 against the PSC for, among other violations, arbitrarily and capriciously setting our water rates based on property tax valuations that were not substantiated during the proceeding. Despite CAWS Directors Dave Denenberg and Claudia Borecky's multiple requests for evidence for how NYAW arrived at the assessment and valuation of its water utility properties for the years prior to this rate proceeding, the DPS, the PSC and NYAW, working in conjunction with each other, adamantly refused to provide CAWS with the documentation it requested, claiming it irrelevant to the current proposal. Since between 40-72% of our water bills pays taxes on NYAW's water utility property - a tax that those on public water do not pay - documentation that would justify this rate request is certainly relevant.
 
Then, in December 2017, NYAW admitted that it had mistakenly overvalued its property in Sea Cliff, costing ratepayers more than $2 million, and asked the Supreme Court to stay the Article 78 until such time that it rectifies its errors. These errors were discovered in 20I3 and not reported to the PSC until December 2017.
 
"The evidence was there," declares Dave Denenberg. "NYAW knew about the error and kept it secret for four years. Had the Public Service Commission and NYAW turned over the information we requested, it would have saved ratepayers in Sea Cliff over $2 million. Even now, NYAW has yet to substantiate how they arrived at the property valuations in the Merrick or Lynbrook districts. The PSC is commissioned to ensure just and reasonable rates. The Supreme Court should not postpone our litigation to allow the PSC to do its job. We are requesting that the Supreme Court stay the current rate proposal and stop taxing us for our water."
 
"It looks like we opened Pandora's box," states Claudia Borecky. "This proves once and for all that the Public Service Commission is incapable of monitoring the convoluted methods of taxing us for water utility properties. The solution is simple and has never been more apparent. We need public water."
 
CAWS thanks the community for donating $6,000 to pay our attorney for taking on this Article 78.  We still need $4,000 more to take it to its conclusion.  Please write a check to either CAWS or the Law Offices of Teresa Butler, c/o LI Clean Air Water & Soil, P.O. Box 500, Merrick, NY 11566. Checks made out to CAWS are tax deductible.          

ARTICLE 78


SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ALBANY
LI CLEAN AIR WATER AND SOIL, LTD., NORTH AND CENTRAL MERRICK CTWC ASSOCIATION, AGATHA NADEL, AMADEO INDEX NO. MATTHEW GAETA, MICHAEL COTTELL, ALIDREY CruFFO. LAWRENCE RUISI, and ADAM GREENBERG.
Petitioners,
- against 
NEW YORK STATE PUBLIC SERVICE COMMISSION, NEW YORK STATE DEPARTMENT OF PTIBLIC SERVICE, andNEWYORK AMERICAN WATER COMPANY, fI{C.,
Respondents,


For a Judgment Pursuant to Article 78 of the Civil Practice Law And Rules.


VERIFIED PETITION PI]RSUANT TO ARTICLE 78 OF THE NEW YORK CIVIL PRACTICE LAW AND RULES TO REQUIRE RESPONDENTS TO SET ASIDE THE JOINT PROPOSAL AND ORDER ESTABLISHING RATES FOR WATER SERVICE ALLOWING RATE INCREASES, INCENTIVES, PROPERTY TAX INCREASES AND PROPERTY TAXESCHARGED TO RATEPAYERS BY NEW YORK AMERICAN WATIR COMPANY,INC.
Petitioners,


LI CLEAN AIR WATER AND SOIL, LTD., NORTH AND CENTRAL, MERRICK CIVIC ASSOCIATION, AGATI{A NADAL, AMADEO MATTHEW GAETA, MICHAEL COTTELL, AIIDREY CruFFO, LAWRENCE RUISI and ADAM GREENBERG, by and through their attorneys, Law Offices of Teresa Butler, P.C., petition the court for relief and allege as follows:
PETITIONERS AND RESPONDENTS


1. Petitioner LI Clean Air Water and Soil, Ltd ("CAWS") is a not-for-profit corporation doing business in the state of New York. Several of CAW'S officers, directors and members are ratepayers of New York American Water Company, Inc.


2' Petitioner North and Central Merrick Civic Association ('NCMCA") is a not-for-profit organization doing business in the state of New York. Several of NCMCA'S' officers. directors and members are ratepayers of New York American Water Company, Inc.


3. Petitioner Agatha Nadel is a resident of Glen Head, Town of Oyster Bay, Nassau County, and a ratepayer of New York American Water Company, Inc. in the Sea Cliffwater supply district.


4. Petitioner Amadeo Matthew Gaeta is a resident of Merrick, Town of Hempstead, Nassau County, and aratepayer of New York American Water Company, Inc. in the Merrick water supply district.


5. Petitioner Michael Cottell is a resident of Glen Head, Town of Oyster Bay, Nassau County, and a ratepayer of New York American Water Company, Inc. in the Sea Cliffwater supply district.


6. Petitioner Audrey Ciuffo is a resident of Merrick, Town of Hempstead, Nassau County, and aratepayer of New York American Water Company, Inc. in the Merrick water supply district. 7. Petitioner Lawrence Ruisi is a resident of Glen Head, Town of Oyster Bay, Nassau Counfy, and aratepayer of New York American Water Company, Inc. in the Sea Cliff water supply district.


8. Petitioner Adam Greenberg is a resident of Lynbrook, Town of Hempstead, Nassau Counf, and a ratepayer ofNew York American Water Company, Inc. in the Lynbrook water supply district.


9. Respondent New York State Public Service Commission ("PSC") is an agency of the State of New York with offices in Albany, New york.


10. Respondent New York Departrnent of Public Service ("DPS") is an agency of the State of New York with offices in Albany, New York.


1 1. Respondent New York American Water Company, lnc. ("NYAW") is a domestic for profit corporation with its principal place of business in Nassau county, New york.


12. Respondent PSC and its members are policy and decision-makers directly responsible for negotiating and approving rates and charges, and establishing rules and regulations for NYAW. Pursuant to the applicable law, such rates and charges must be just and reasonable.


13. The current rules and regulations unjustly and unreasonably allow NYAW: 

a) to overcharge its ratepayers for property taxes;
b) to manipulate property tax challenges, creating tax-refund source profits for its own and its shareholders' benefit rather than for the benefit ofits ratepayers; and
c) force its ratepayer- property owners to pay property taxes at an effectively greater rate than  municipal and public water customers;
The rates and regulations, that are the subject of this proceeding, would illegally continue the unjust and unreasonable conditions detailed above.


PRELIMINARY STATEMENT


14. The PSC, by Order Establishing Rates for Water Service, dated May 18,2017 (the "May 18 Order"), adopted and ordered to take effect a Joint Proposal (the "JP") with Modifications executed by the DPS and NYAW. The adoption of the May 18 Order and JP was arbitrary and capricious and contrary to the PSC's statutory responsibility to provide, among other things, just and reasonable charges for NYAW ratepayers. By adopting the JP, the PSC:


a) illegally allowed NYAW to charge its ratepayers rate increases for property taxes well in excess of the New York State Tax Cap (the "Tax Cap") by failing to take into consideration the 2%o Tax Cap; 
NYAW could retain up b 2AYo of any properry tax refund as profit, rather than encouraging the more suitable administrative property tax challenge system set up by Nassau County,
giving NYAW an obvious opportunity to abuse the tax certiorari proceeding for the benefit of NYAW and its shareholders at the expense of its ratepayers.;
c) illegally provided an incentive for NYAW to retain up to l5% of overcharges for property taxes directly collected from taxpayers;
d) illegally failed to consider that passing 100% of NYAW's properly tax burden onto ratepayers is unconstitutional because it forces NYAW ratepayer-properfy owners within the same jurisdiction to pay significantly higher property tax rates, subsidizing the properfy taxes of other propefty owners within the same jurisdiction;
e) illegally refused to provide critical information regarding a change in school districts which received property tax payments from NYAW since the 201 0 joint proposal between its  predecessor, Aqua Water and the PSC, covering the Merrick District (the "2010 Joint Proposal"), despite the obvious relevance ofthe reason or reasons for such change, how and why such change came about and whether such change could or should form the basis for property tax grievance proceedings to recover overpayment or reimbursement of such past properfy tax payments;
0 illegally allowed a rate increase which could not be calculated because it included an increase from the rate year ofthe 2010 Joint Proposal to the base year ofthe current JP and/or from the base year to year one of the current JP that was not disclosed in the JP.
g) illegally allowed NYAW to charge a surcharge for certain delineated infrastructure projects, which, historically, are never implemented, but are subsequently charged for other projects that NYAW later requests and the PSC routinely approves without public input or participation.


15. In all, the determination to approve the JP was affected by errors and misapplications law with respect to New York State Real Property Tax Law and the State and Federal Constitutions; was arbitrary and capricious in that the May l8 Order lacks any basis in fact or reasoning; and was abuse of discretion as the PSC deferred to NYAW for any and all support for the rate increases and incentives.


BACKGROUND AND FACTS


16. In Nassau County, the vast majority of residents receive water provided by municipal and public water districts or authorities. A small minority of residents receive water services from private water supplier NYAW.


17. NYAW is a wholly owned subsidiary of American Water Works, Inc. (AWW"), a for
profit publicly traded corporation listed on the New York Stock Exchange as AWK. AWW touts itself as
the largest publicly traded provider of water and wastewater services in the US and highlights its earnings
potential to investors, making special note of its "Regulatory Businesses" which "continue to deliver solid
results" (See Exhibit "A").


18. Pursuant to tariffs approved by and filed with the PSC, NYAW charges for water service
for approximately 120,000 ratepayers in Nassau County located in the towns of Hempstead or Oyster
Bay. NYAW's Nassau County service area includes three districts: (1) Lynbrook, (2) Merrick, and (3)
Sea Cliff.


I. The Lynbrook District consists of all or some of the following hamlets: Atlantic Beach,
Baldwin, Baldwin Harbor, Barnum Island, Bay Park, Cedarhurst, East Atlantic Beach, East
Rockaway, Harbor Isle, Hewlett, Hewlett Bay Park, Hewlett Harbor, Hewlett Neck, Inwood,
Island Park, Lakeview, Lawrence, L5mbrook, Malverne, Malverne Park-Oaks, Meadowmere,
North Lawrence, North Lynbrook, North Woodmere, Oceanside, Roosevelt, South
Hempstead, valley Stream, west Hempstead, woodmere and woodsburgh;


II. The Merrick District consists of all or some of the following hamlets: Merrick, Bellmore, N.
Bellmore, Wantagh, Seaford, Massapequa, Massapequa Park, Levittown, S Farmingdale.


III. The Sea CliffDistrict consists of all or some of the following hamlets: Village of Sea Clift,
Glen Cove, Glen Head, Glenwood Landing, Old Brookville and Roslyn Harbor.


19- NYAW ratepayers include but not limited to commercial users, residential users, fire protection districts, school districts, not-for-profit organizations and other utilities. NyAW has no competition, thus the ratepayers have no choice in who provides their water service. NYAW has a monopoly over water, a basic necessity.


20. Under New York law, the PSC is tasked with the monitoring and oversight of NYAW's
operations, rates and other activities and to protect ratepayers from abuses and to ensure that all charges
are'Just and reasonable" (See May 18 Order, p. l4).


OVER-CHARGING OF PROPERTY TAXES BY NYAW


21. NYAW ratepayers pay water rates far in excess of rates charged to other residents of
Nassau Counfz, more specifically, within the Towns of Hempstead and Oyster Bay. In fact, NYAW rates
prior to the JP were often 300-500% higher than neighboring districts. (Compare 91212016 CAWS
Testimony of Donald Davidson p.3,9122/2A16 CAWS Exhibit DD-l; & Petitioners' Water Bills attached
as Exhibit "B"). Likewise, fire districts served by NYAW may pay upto 1,200o/o more for fire hydrants
than fire hydrants served by public water. (Transcript of the Public Statement Hearing, Oceanside, at 6
pm, July 13,2016,pp.11-14, Testimony of John Madden, Oceanside Fire Chief).


22. Depending on the NYAW district, property taxes account for at least 40Yo and as much as
72o/o of NYAW ratepayers' water rates. NYAW's property tax collection causes a skewed system for
special districts that are exempt from paying property taxes such as school districts, fire districts, libraries,
government users, wherein they pay taxes to themselves whenever they pay their water bill.
NYAW's Predecessor Paid Property Taxes To School Districts Outside of Its Service Area


23. At the March 8,2017 Evidentiary Hearing (the "March Hearing"), the Administrative
Law Judges ("ALJ") received comments that NYAW's predecessor paid property taxes to thirfy-three
school districts, only eight of which were actually served by NYAW's predecessor (September 1,2016
Direct Testimony of Claudia Borecky Exhibit # 2 NCMCA NCMCA-Cb-2). Apparently, for decades,
1 Unless otherwise noted as an Exhibit herein, all citations refer to the certified transcript of the Record, as provided by respondent PSC to the Court pursuant to CPLR 7804(e).these school districts served by municipal water collected property taxes from NYAW's predecessor,
despite not being in NYAW's service area and not containing any NYAW property.


24. At some point, NYAW stopped paying properly taxes to a number of school districts not
within its service area.


25. Since the 2010 Joint Proposal, the school districts receiving property tax payments from
NYAW has changed to include only districts within NYAW's service area and where NYAW property is
located. The basis for such change, whether through PSC, NYAW or governmental action could logically
result in a property tax savings and/or refunds to NYAW and, therefore, the taxpayer.


26. When asked about the change in school districts receiving property taxes from NYAW,
the PSC and NYAW refused to explain the reason for the change or whether such change could be the
subject for a property tax challenge. Despite CAWS submission of interrogatories and requests to admit
as well as raising the issue at the March Hearing, the ALJs found such evidence and such inquiries to be
irrelevant to the JP Transcript of the March 8,2017 Evidentiary Hearing ("Tr.") (Tr., p. 154-61, 170).
PSC Incentivizes NYAW To Draw Out Prooertv Tax Challenees


27. In addition, in the 2010 Joint Proposal the PSC created and permitted an incentive for
NYAW to challenge its property taxes through property tax grievance proceedings (tax challenges). At
present, NYAW has numerous pending property tax challenges, almost all are not resolved in less than
ten years See 412912016 Testimony of Dante M. DeStefano, New York Water Corporation Inc.
("DeStefano Testimony"), (DeStefano Testimony, p. 26; and NYS E. Courts Case Search Results, dated
9ll3l20l7 for New York Water Service & Long Island Water Corporation attached hereto as Exhibit
,,crr).


28. Upon resolution of such property tax challenges, the PSC generally allows NYAW to
retain l2-20o/o of the refunds as profits for its shareholders and 20-33%o in fees and disbursements. The
ratepayers, who paid 100% of the property taxes recovered at times receive only 50% of refunds awarded
by the court (DeStefano Testimony, p. 24-5). This is an unjust and unreasonable profit windfall for
NYAW that was not calculated or considered by the PSC.


29 . For instance , at the same time the PSC was considering the JP, NYAW settled a ten-year
old property tax grievance case based on a2005 NYS Court of Appeals ruling establishing that a water
utility could not be charged for ad volarem garbage taxes. NYAW received $984,058.71 as a result of the
settlement. In case DPS l6-W-0384, Order Allocating Property Tax Refunds, the PSC granted
$219,720.74 for fees and disbursements to NyAW, $91,720.56 or I2%o in profits to NyAW and returned
the remainder to ratepayers, amounting to only 68Yo of the settlement amount, an inequitable, unjust and
unreasonable return to ratepayers who financed l00o/o of the propefi taxpayments that were the subject
of the refund (see Case 16-W-0384 PSC Order Allocating Properfy Tax Refunds ("Properfy Tax Refund
Order"), p.11-12, attached as Exhibit "D").


30. Nassau County property tax assessments are set by its County Assessor. Under state law,
Nassau County provides an administrative procedure for property tax challenges through its Assessment
Review Commission ("ARC"). Routinely, ARC resolves over 100,000 property tax grievances per year
without resorting to traditional litigation. ARC resolutions generally reduce a property's assessed value
prior to the property tax rolls being set, resulting in a reduced properly tax burden. 31. During the PSC's deliberations regarding the JP, the PSC was not aware and did not know about the administrative processes for settling property tax grievances in Nassau County and was
not aware of the Nassau County Assessment System, the Nassau County Assessor or ARC (Tr., p. 126, 131).


32. NYAW has shown that its properfy tax challenges routinely, if not always, last ten years.
Due to the PSC incentives, NYAW retained 12-20% from tax challenges. The ratepayers paid 100%o of
the properly taxes refunded, but only approximately 60%o was returned to them. This windfall is neither
just nor reasonable.


33. The PSC believes that it is necessary to provide NYAW with an incentive to commence
properly tax challenges (Tr., p.96, 107-08). Clearly, the PSC believes that without such an incentive,
NYAW will not act in good faith to attempt to reduce its property taxes and will simply pass on 100%o of
NYAW's property taxes to its ratepayers without reduction.


34. Yet, while the PSC does not believe NYAW will act in good faith with respect to
property tax challenges without an incentive, the PSC did not understand, consider or was aware of
NYAW's opporfunity to approve the properly tax challenge procedures. CAWS raised the issue at the
March 8 Hearing and in testimony that no evidence was presented showing that NYAW challenges its
property taxes administratively and that it was shown that every property tax challenge proceeding
commenced by NYAW in Nassau County lasts over ten years (Tr. p. 130-31; Destefano Testimony p.26).


35. In discovery, both NYAW and the PSC failed to respond to CAWS' interrogatories,
document requests or requests to admit with regard to the propefty tax challenge proceedings and any
administrative attempts by NYAW to resolve a property tax challenge.


36. In the JP with respect to the Lynbrook and Merrick districts, the PSC provides an added
incentive with NYAW with respect to properly taxes. Where NYAW overcharges for property taxes 
referred to by the PSC as over-collecting, NYAW may now retain 20oh of the overcharge. When asked
what showing by NYAW would be necessary to retain overcharged property taxes, the PSC refused to
answer. No explanation was provided by the PSC and the only offered explanation, they believe property
tax challenges could be used to justifu retaining overcharges of current properry taxes, NYAW
acknowledged that such justification could be proferred.


37 . Despite several requests for information in discovery and at the March 8,2017 Hearing
with respect to properly tax challenges, the PSC refused to explain the incentive. Why is it that NYAW is
assumed to need the incentive with no expectation that they will act in good faith to seek property tax
reductions?


THE TAX CAP


38. Since the 2010 Joint Proposal, the New York State Legislature adopted a state tax cap
law (the "Tax Cap") (See Properry Tax Cap-Legislation Laws of New York, 2011, Chapter 97 (Part A),
limit on the annual growth of properly taxes levied by local governments and school dishicts to two
percent or the rate of inflation, whichever is less (NYS Dept. of Taxation and Finance and NYS Dept. of
State, "The Proper8 Tax Cap," Guidelines of Implementation, p. 1). The Tax Cap provides a ceiling for
any district's or municipality's increase in properfy taxes. Since implementation of the Tax Cap, property
tax increases have routinely been less than2Yo in every Nassau County district, thanks to this state
legislation.


39. Notwithstanding this fact, the JP provides for 4o/o increases in properfy tax collections
annually for NYAW (May 18 Order, p. 70). This unjust and unreasonable ruling builds in a virtually
guaranteed windfall for NYAW.


40. Interrogatories, Notices to Admit and documentation requests regarding the PSC and
NYAW's consideration of the Tax Cap were not answered. At the March Hearing, it appeared that pSC
witnesses were bewildered by a question about the Tax Cap. After counsel for the PSC improperly told
the witnesses that they had heard of the Tax Cap, ablatant and illegal abuse of procedure was allowed by
the ALJs. The record clearly shows however, that the PSC admiued they did not consider the Tax Cap
when setting the tax increases in the JP (Tr., p 68, i l).


41. Without taking into consideration the Tax Cap, the May 18 Order provides an incentive for NYAW to retain up to I5o/o of overcharges for properfy taxes directly collected from ratepayers with
only a showing of an "impact" on the properly tax reduction (Tr., p. 83-3, JP, p. 16). This incentive put in
place by the PSC to gain a l5%o profit from properly tax overcollections without taking into consideration
the restrictive effects ofthe Tax Cap is arbitrary and capricious. 42. The PSC's reliance on historical properfy tax increase data without taking into account the new realty of the Tax Cap is arbitrary and capricious, and results in rates that are unjust and
unreasonable, and therefore violative of the applicable laws. Profits To Shareholders 43. Under the JP and,2010 .Ioint Proposals, NYAW and its predecessors are permitted to realize, and, in fact, do realize, at least 9.75% profits. The May l8 Order allowed a9.lYo profit for
NYAW with an incentive to retain 100o/o of an additional .650/o (see May l8 Order, p.33, and Tr., p. 185).10


44. PSC's building in a "guaranteed" profit in the May 18 Order for NYAW's shareholders,
thus reducing investor risk, while ratepayers are charged for 100% plus of NYAW's property taxes is
arbitrary and capricious.


Base Year Rate Increase Unknown


45. The JP does not provide what the increases in rates are from the 2010 Joint Proposal to the base year in the JP andlor from the base year of the JP to Year One.


46. Despite repeated requests at the March Hearing, the PSC had no idea what increases were provided in the JP with respect to the base year compared to the 20 1 0 Joint Proposal and year one of the JP (Tr., p. 46-66).In response to such inquiries, NYAW eventually referred to exhibits to the JP, but could not identify the exhibit (Tr., p. 50). The exhibits eventually identified at the hearing did not, in fact, provide the information requested.


Surcharges Not Applied to Designated Projects


47. NYAW and its predecessors routinely received approval in prior Joint Proposals for infrastructure improvements permitting NYAW to charge its ratepayers surcharges for such improvements. NYAW and its predecessors routinely did not implement these infrastructure improvements. lnstead, NYAW would seek and gain approval from the PSC to implement other infrastructure projects always
receiving the requested surcharge. Such amendments andlor revisions to the JP are not subject to a public hearing or process attended by even a single ratepayer.


48. In discovery and at the March Hearing, NYAW and the PSC either admitted or refused to
answer questions regarding NYAW's failure to implement infrastructure improvements provided for in the
JP (Tr. p. 214-16,220-21).Instead, the PSC stated that the surcharges were all allowed in accordance with
proper requests by NYAW to implement other infrastructure projects. When asked what that proper
procedure was and how it was formulated, the PSC and NYAW refused to respond.


49. The March Hearing lasted over eight hours. Throughout the process, PSC staff counsel repeatedly provided testimony for its witnesses (Tr., p. 50, 56, 113-14, 118,237). Despite CAWS and 1.1 NCMCA's objections, the ALJs never denied staff counsel nor sustained an objection regarding counsel providing testimony for the witnesses.


50. Throughout the course of the March Hearing, staff counsel for the PSC and NYAW counsel repeatedly objected to numerous questions by CAWS. Every objection raised was sustained by the ALJs. Over the course of the day, the ALJs did not ovemrle a single one of the dozens of objections made by the PSC's and NYAW's counsel (Tr., generally).


ARGUMENT


THE PSC'S APPROVAL OF THE JP WITIIOUT I(NOWING TIIE FULL NXTENT OF TIIE RATE INCREASE IS ARBITRARY AND CAPRICIOUS.


5l. The JP does not disclose the actual and full extent of the rate increase. Specifically, the JP
shows rate increases and surcharges from year one to year four for property tax collection, operation and
maintenance and profits (JP, p. 5 , 7 , 9-11 , l7). It does not, however, show the rate increases to year one.
That is, NYAW and the PSC admits that the rates increased from the last year of the 2010 Joint Proposal
to the base year for the JP and from the base year from the JP to year one. The extent ofthat rate increase
is not disclosed in the JP or the May 18 Order.


52. The PSC, at the March Hearing, could not identif, disclosure of and the extent of the rate
increase from the 2010 Joint Proposal to the base year ofthe JP and from the base year ofthe JP to year
one, despite CAWS' direct questions. Neither could NYAW. Instead, NYAW witnesses responded that
CAWS, and therefore, the ALJs and the public, could find the information in some unidentified exhibit.
When pressed to identifu the exhibit, NYAW identified an exhibit that did not disclose those increases
(Tr., p. 203-4).


53. Later, in an effort to have the JP disclose the full extent of the rate increases, the ALJs
inquired regarding the increase to and from the base year (Tr., p 204-5).


54. To date, the JP was never revised to indicate the full extent of the rate increase and, specifically, does not disclose the rate increase from the base year to year one.

55. The press release by the PSC only informs the public of the rate increase from year one to
year four and doesn't mention the revenue increase from the base year to year one. See May 18,2017
PSC Press Release "PSC Grants Smaller New York American Water Rate Request". This information is
also not disclosed in the JP or NYAW's Public Notice (Tr., various p., 186-206; and 7/1412017 NYAW
Afhdavit of Publication).


56. The petitioners allege the rate increase from the base year to year one cannot be
calculated within the JP. Such calculation cannot be made by an ordinary reading of the JP, such as by a
ratepayer or even the ALJs. It is further noted that such non-disclosed rate increases should be broken
down by such elements such as property taxes, operation and maintenance, profits, that are calculated and
included in the rate. These items are also not broken down or disclosed in the JP leading to unjust and
unreasonable rates.


57. In approving the JP without knowledge or disclosure of the rate increase from the base
year to year one, the PSC acted in an arbitrary, capricious and illegal manner without evidentiary support
and contrary to its legal mandate to protect ratepayers.


THE PSC'S GRANTING INCENTIVES FOR I\TYAW TO COMMENCE TAX CERTIORI PROCf,EDINGS WHICH YIELD TAX REFUNDS IS ARBITRARY AND CAPRICIOUS AND WITI{OUT F'ACTUAL AND LEGAL SUPPORT.


58. In the JP, the PSC provides an incentive for NYAW to file property tax challenges which
result in tax refunds. The incentive allows NYAW to use the tax refunds, which are entirely paid by
ratepayers, as reimbursement for its fees and disbursements and to realize an unjust and unreasonable 12=20% profit for its shareholders.


59. Historically, NYAW commences numerous property tax challenges which generally are
not resolved for a decade or more. As disclosed in discovery, in the past ten years NYAW has obtained
over $25.2 million in tax refunds of which up to 30Yo was retained by NYAW in fees and disbursements
and up to l8%o was realized by the shareholders, and in some cases only 52Yo of the tax refund was
returned to ratepayers even though they paid 100 % of the property taxes (DeStefano Testimony, p. 24-5;
and PSC Properly Tax Refund Order attached as Exhibit "D").

60. Nassau County, through its Department of Assessment, assesses all properties in the
county. Nassau Counfy, pursuant to state law, provides an administrative procedure to challenge
assessments before its ARC. An administrative proceeding before the ARC can resolve a property tax
challenge prior to the tax rolls being set so that the taxpayer does not overpay its taxes and so that there is
no need for a legal challenge to obtain a refund.


61. The PSC is statutorily obligated to ensure that charges for water are just and reasonable.
The PSC, despite its oversight of NYAW, assumes that NYAW will not make good faith efforts to reduce
its properfy tax burden unless it is given a monetary incentive to do so, with such monetary incentive
gained at the expense of NYAW's ratepayers.


62. NYAW, through this incentive, can maximize its profits if it maximizes property tax
refunds through the tax certiori process. If NYAW aggressively submits property tax challenges before
the ARC, it could reduce NYAW's properfy taxes thus its ratepayers' burden prior to the tax rates being
set, resulting in ratepayers paying less for NYAW's property taxes, but NYAW would realize less profits
from its cut ofproperly tax refunds.


63. As the PSC assumes NYAW will not act in good faith unless it is given an incentive with
respect to property tax challenges, it is only logical to assume that NYAW will prosecute its properly tax
challenges in such a way to maximize properly tax refunds and minimize administrative resolution of a
property tax challenge.


64. History shows that NYAW's property tax challenges never settle administratively;
always go to judicial review and appeals, generally last over ten years; and result in at least 20Yo recovery
by NYAW for fees and disbursements; and 12-20Yo profit. These facts not only suggest that, but proves
that NYAW files a properly tax challenge and then simply submits the same challenge each year at
minimal cost to NYAW in an effort to drag out the proceeding as long as possible.


65. Despite this rather obvious incentive for NYAW to drag out the property tax challenges,
the PSC and NYAW, at the March Hearing or in discovery, refused to acknowledge that the structure
approved by the PSC incentivizes NYAW to pursue drawn out challenges rather than seek the much
shorter ARC administrative proceeding. Instead, the PSC relies upon NYAW's incentive to act in good
faith only to submit challenges when it allows NYAW to retain 50a/o of ratepayers' overpayment of
property taxes.


66. PSC's reasoning that, to ensure good faith by NYAW in its property tax challenges, it
must allow NYAW to retain funds recouped through such challenges results in nothing more than back
door profits for NYAW from its ratepayers. Such a process results in unjust and unreasonable charges
burdening NYAW's ratepayers.


67. It is against substantial evidence and arbitrary and capricious for the PSC to reward
NYAW for bringing properly tax challenges because it cannot trust NYAW to act in good faith to bring
property tax challenges, but then, on the other hand, ignore that NYAW is incentivized to prosecute those
tax challenges in a manner that maximizes its profits at the expense of the ratepayers. This results in
unjust and unreasonable rates.


68. The PSC is obligated to protect ratepayers from private monopolies over a public necessity. 69. NYAW's ratepayers have no choice but to buy water from NYAW, a private for-profit monopoly. The PSC approved property tax challenge incentive scheme results in a vicious cycle for NYAW's ratepayers, wherein they pay NYAW's properly taxes as part of their rates, NYAW initiates long drawn out wholly-controlled challenges for "overassessments" resulting in refunds that are split between NYAW's lawyers and shareholders, with only a portion going back to the ratepayer, who was the initial source of the properly tax payments.


70. The PSC ignored facts presented to it demonstrating that their incentive scheme was contrary to the best interests of NYAW ratepayers and resulted in unjust and unreasonable water charges. 71. The JP allows NYAW to submit some basis - any basis - for it to be allowed to retain as profit to be distributed to its shareholders up to l5Yo of any property taxes it overcharges its ratepayers, contrary to its obligation to force just and reasonable rates for NYAW's ratepayers.

72. Tellingly, the PSC and NYAW even took offense from CAWS referring to overcharges
of properly taxes by NYAW, preferring the subtler term "over-collection". It is impossible to explain or
provide a rational basis for this incentive because the PSC and NYAW refused to do so. As part of
CAWS' cross examination, CAWS proferred that prior property tax challenges could be a basis for
NYAW to seek to retain its "over-collection" of property taxes. Given this example, during cross
examination, the PSC refused to answer, while NYAW could not or refused to give an explanation of its
basis to retain as profit up to l5Yo of its over-collection.


73. The clear incentive of NYAW to overcharge for property taxes and then argue to the PSC
that it somehow did something to keep its property tax burden down is obvious. Once again, the PSC does
not believe it could properly regulate NYAW without creating a monetary incentive for NYAW to act in
good faith. Yet, the PSC has created an incentive for NYAW to act in bad faith. This incentive is
arbitrary, capricious and completely against the PSC's legal mandate to regulate NYAW.


THE PSC REFUSED TO CONSIDER TIIAT THE CI{ANGE IN SCHOOL DISTRICTS' RECEIVING PROPERTY TAXES FROM NYAW WAS RELEVANT TO THE PROPERTY TAX FEES AND CHALTENGES IN THE MAY 18 ORDER.


‚Äč74. CAWS submiffed evidence that the ALJ in the 2010 Joint Proposal demanded
information regarding school districts receiving property taxes from NYAW's predecessor. The ALJ did
not recognize the relevance of such payments with respect to NYAW's rates and any contemplated
properly tax challenge. In discovery, NYAW eventually provided a list of the current school districts
receiving property tax payments from NYAW. NYAW asserted that since the 2010 Joint Proposal, the
school districts receiving properly taxes changed so that only school districts in areas serviced by NYAW
or where NYAW owned real properly would receive properly tax payments.


75. When CAWS and NCMCA sought information by interrogatories, document requests
and cross-examination as to the reason for such change, NYAW and the PSC refused to comply. At the
March Hearing, the ALJs sustained objections to questions regarding the reason for such changes, how
such change came about, the basis for such change and whether NYAW could seek property tax refunds
through property tax challenges for past payments to school districts not serviced by NYAW.

76. As CAWS submitted, during the 2010 Joint Proposal twenty-five (25) of thirty-three (33)
school districts receiving properfy tax payments were serviced by municipal / public water and not
NYAW. Given the submission by the PSC and NYAW that NYAW no longer pays properfy taxes to
districts it does not serve, the reason for such change and how it came about is clearly relevant and
important to the JP.


77. Obviously, if the change in recipient school districts was caused by a properly tax
challenge, a legal challenge, state law or otherwise, the ratepayers may be entitled to a refund of the
property taxes wrongly paid to school districts not in NYAW's service area, not containing NYAW
property and serviced by municipal / public water.


78. The failure of the PSC to consider the propriety, legality and constitutionality of
NYAW's ratepayers paying NYAW's properly taxes benefiting school districts serviced by municipal /
public water was arbitrary, capricious and without any basis.


79. The PSC and NYAW did not cooperate in attempts by CAWS and NCMCA to find out
why the recipient school districts changed since the 2010 Joint Proposal. NYAW and the PSC refused to
contemplate any possibility of recovery of past properfy tax payments to non-service area school districts.
80. The absolute and blatant refusal to comply with discovery of past property tax payments
to non-NYAW districts, and is arbitrary and capricious.


HISTORICALLY" INFRASTRUCTURE IMPROVEMENTS ARE APPROVED. BUT NOT IMPLEMENTED.


81. The PSC and the ALJs rely heavily on historical rate increases, propertlr tax increases and
practices to support approving the JP, for example, the PSC does not even consider state law such as the
tax cap when it granted a 4Yo increase in revenue relating to property tax collection. Likewise, the PSC
did not even consider facts when granting future rate increases for operation and maintenance.


82. When approving surcharges for infrastructure improvements, the PSC did not consider
historical patterns. CAWS, through discovery and evidentiary submissions, showed that in prior Joint
Proposals, NYAW and its predecessors routinely did not implement the infrastructure improvements
provided for in the JP. (See Tr., p. 220-22).Instead, NYAW through an undisclosed process which has no
public participation, requested implementation of infrastructure projects not disclosed or provided for in
the JP. (Id.)


83. Historically, projects identified by NYAW and included in the JP fail to materialize, even
though NYAW has received a surcharge from ratepayers. For example, CAWS and NCMCA showed
that in the JP certain projects, including a water tower in Wantagh, water pressurization work and new
piping set forth in the 2010 Joint Proposal were not implemented. Instead, NYAW realized the full extent
of its desired charge through implementation of other projects, which the PSC approved without public
input or comment (Id.).


84. In the JP, CAWS and NCMCA provided evidence that the infrastructure improvements
identified by NYAW will not and cannot be implemented. For instance, a water tower in the Sea Cliff
District is subject to village, town and public opposition; road improvements for pipe installation in
Merrick District were already delayed and revised; and there was no basis for surcharges for NYAW
acquisitions or NYAW's new headquarters in Merrick. While NYAW amended each of these identified
infrastructure improvements that would either not be implemented or should not be subject to surcharges
on ratepayers, the PSC still approved the full amount requested by NYAW. Historically, these new
surcharges are permiffed and will be implemented during the course of the JP when NYAW decides what
infrastructure projects it wants to implement. And the PSC will rubber stamp the request without public
input.


THE JP PASSES 1OO% OF I\TYAW'S PROPERTY TAX BURDEN ONTO TIIE RATEPAYERS RESULTING IN RATEPAYERS SUBSIDIZING OTHER COUNTY AND TOWN TAXPAYERS IN VIOLATION OF U.S. AND N.Y. CONSTITUTIONS.


85. The PSC has a mandate to protect ratepayers, and permit rates that are just and
reasonable. In violation of the U.S. and NYS Constitutions, the PSC allows NYAW to pass 100% of its
property tax burden onto its ratepayers. As a state commission in which commissioners are required to
take an oath to uphold the U.S. and NYS Constitutions and the laws of the State of New York, the PSC
violates those laws and its oath.

86. Most of Nassau County and the Towns of Hempstead and Oyster Bay residents receive
water service from tax exempt municipal public water authorities or districts. Only NYAW ratepayers pay
property taxes as part of their water charges. Properly taxes paid by NYAW's ratepayers benefit and
subsidize all Nassau and Town of Oyster Bay and Hempstead residents. This inequitable imposition of
property taxes on NYAW ratepayers violates both the equal protection and due process clauses of the
constitution.


87. Presented with this issue by CAWS and NCMCA, the PSC and NYAW refused to
respond to any discovery requests requesting legal grounds in support of this inequitable imposition of
property taxes. Additionally, the PSC refused to allow any cross-examination in this regard. Tr. p. 161-65. Ultimately, the ALJs determined that constitutional issues were not a proper subject matter for its determination (May 18 Order, p.75).


88. Given that a large part of the rate increase in the JP was for property taxes and that 40
72%o of NYA'W's revenue, as approved by the PSC, is for property taxes, it is hard to imagine a more
relevant and appropriate line of inquiry.


89. However, property taxes are included in the rates charged to ratepayers and, as such, are a
fee. Under case law, the imposition of a fee which is really a tax (i.e., a tax disguised as a fee, particularly
when charged to some businesses and residents, but not others) is a violation of the due process clause of
the U.S. Constitution.


90. The PSC is tasked with determining whether each of NYAW's expenses is necessary for
the operation and maintenance of a water service. NYAW admits that property taxes are not part of its
operation and maintenance of the water service. Public/municipal water districts supply water to its
ratepayers without incurring this expense. The PSC, at the April Hearing and throughout the discovery
process, could not explain why paying properly taxes was necessary in order to supply ratepayers with
water.  At the April Hearing, the PSC admitted that it never questioned the necessity of this expense.


91. Pursuant to the equal protection clause of the US Constitution, all residents of a jurisdiction must be provided with "equal protection of the laws". Where residents within a jurisdiction are burdened with different levels of taxes, with no rational basis for the disparate payments, there is a violation of the equal protection clause.


92. In jurisdictions served by NYAW, ratepayers of NYAW are burdened with additional
fees for property taxes while municipal public water customers within the same jurisdiction have no such
burden. Such a disparity is unconstitutional.


93 ' The basis for Nassau's property valuation and tax system is that all residents are entitled
to be charged an equal rate and differences in amounts paid are only the result of differing properly values
and property types. The property tax charging system initiated by NYAW and blessed by the pSC skews
this and results in NYAW's ratepayers effectively paying more in property taxes to Nassau County and
the Towns of Hempstead and Oyster Bay, as compared to public water customers, who are part of a tax
exempt water system. This property tax subsidy forced on NYAW's ratepayers is unconstitutional. 94. Given that the PSC has created this unlawful result through its authorizing and allowing NYAW to pass 100% of its property tax burden onto its ratepayers, is an error of law as well as clearly arbitrary and capricious. for the PSC to have found this constitutional violation irrelevant and an
improper subject matter for this rate proceeding. Property taxes area large percentage of the rate increase
in the JP and of NYAW's revenue pursuant to the JP and the PSC past and present actions.


Wherefore, Petitioners respectfully request the court to:

A. Adjudge and declare that the Respondent PSC and DPF's May 18, 2017 Order Establishing Rates for Water Service implementing the Joint Proposal with Modifications is in violation of lawful procedure, effected by errors of law, arbitrary and capricious, and abuse of discretion.

B. Annul and vacate the May 18,2017 Order Establishing Rates For Water Service and
implemented Joint Proposal in its entirety;
C. Enjoin NYAW from collecting properfy taxes as fees from its ratepayers:
D. Granting any other and further relief as the court deems just and proper.

Dated: September 14, 2017

Levittown, New York
Teresa Butler, Esq.

Law Offices of Teresa Butler, p.C. Attorneys for Petitioners 87 Albatross Rd. Levittown, New York 11756 516-317-0967