The City of Yonkers, Village of Scarsdale, City of White Plains, Town of Greenburgh, Westchester Joint Water Works, Veolia Water New York, Inc. ("the Westchester plaintiffs") and Town of Carmel on behalf of Carmel Water District #2 ("Carmel") seek to vacate portions of a New York State Department of Environmental Conservation ("DEC") decision dated February 28, 2023 affirming DEC's administrative law judge's ("ALJ") determination that the standard for reviewing the New York City Water Board's excess water rates is "whether the proposed rates would serve the Water Board's economic and public policy goals."

In 1905 the Legislature passed the Water Supply Act (see L 1905, ch 724) to provide an additional supply of potable water to the growing number of New York City residents. The Water Supply Act granted New York City the right to develop watershed systems north of the City and to operate and construct reservoirs, aqueducts and other infrastructure for the purpose of diverting such waters. The Act further empowered New York City to take surrounding real estate to supply the water systems through the power of eminent domain. See generally In re Bd. of Water Supply of City of New York, 158 AD 116 (3d Dept 1913), aff'd, 209 NY 572 (1913); see also Inc. Vil. of Cornwall v. Envtl. Protection Admin. of City of New York, 45 AD2d 297 (2d Dept 1974).

In exchange for receiving the foregoing benefits, the Water Supply Act requires the City to provide water on a wholesale basis to municipalities in counties where the watersheds are located. The daily quantity of water the City is obligated to furnish is known as "entitlement water" and is subject to a formula codified in New York City Administrative Code § 24-360(e). [*2]Water supplied over and above the quantity of entitlement of water is referred to as "excess water." With respect to entitlement water, municipalities which elect to tap into the City's water supply system must pay "such fair and reasonable water charges or rates as may be agreed upon between the commissioner of environmental protection and the authorities of such municipal corporations...." NYC Administrative Code § 24-360(b). If a municipality and the City cannot agree to a rate of compensation, upon application, the DEC shall fix a fair and reasonable rate after hearing from all interested parties. Id.; Matter of New York City Water Bd. v. Zagata, 240 AD2d 1005 (3d Dept 1997).

On August 18, 2016, the Westchester plaintiffs filed a petition with DEC seeking administrative review of the Water Board rates for entitlement and excess water for fiscal years 2015-2017. On February 9, 2018, the ALJ found that DEC possessed the authority to review the excess water rates the Water Board charged to upstate customers. On February 22, 2019, Carmel was granted party status to participate in the proceeding. In a February 28, 2023 interim decision the ALJ held that the "fair and reasonable" standard of review articulated in Administrative Code § 24-360 only applied to entitlement water rates and that based on Matter of Prometheus Realty Corp. v New York City Water Bd., 30 NY3d 639 (2017), the standard for reviewing challenges to excess water rates was "whether the proposed rates would serve the Water Board's economic and public policy goals." The ALJ's determination was affirmed in an administrative appeal.

On April 27, 2023, the Westchester plaintiffs commenced a hybrid CPLR article 78 proceeding seeking a declaration that the proper standard of review for excess water rates is what is "fair and reasonable." On the same date Carmel commenced an article 78 proceeding in Putnam County seeking substantially similar relief. Following consolidation of the proceedings, the parties stipulated that plaintiffs' claims challenging the standard of review would be converted to causes of action for declaratory judgment (see CPLR 103(c); Lakeland Water Dist. v. Onondaga County Water Auth., 24 NY2d 400 (1969)). DEC then moved for summary judgment on the declaratory judgment causes of action.

The parties agree that Administrative Code § 24-360 pertains only to entitlement water rates and there is no statutory authority explicitly delineating the standard of review for excess water rates. DEC and the Water Board maintain that the Public Authorities Law ("PAL") controls. In support, they cite to The New York City Municipal Water Finance Authority Act of 1984 (PAL § 1045-a et seq.), which created the Water Board. Defendants assert that under the Act, the Water Board possesses broad authority including the power "[t]o establish, fix, revise, charge and collect and enforce the payment of all fees, rates, rents and other service charges for the use of, or services furnished by the...water system..." PAL § 1045-g(4). They maintain that under Prometheus the Water Board "has unfettered discretion to fix rates," and therefore the DEC must uphold its proposed excess water rates unless they are "utterly arbitrary and unsupported by economic or public policy goals...." Matter of Prometheus Realty Corp., at 646.

Plaintiffs claim that the ALJ's reliance on Prometheus was misplaced. They contend that Prometheus involved the scope of the Water Board's authority to set different rates for separate classes of in-city consumers and thus provides no guidance for the standard of review DEC should use to review upstate municipalities' challenges to excess water rates. They assert that the standard of review defendants adopted gives too much deference to the Water Board and abrogates DEC's role as conservator of the State's water resources. Plaintiffs maintain that [*3]Environmental Conservation Law ("ECL") § 15-1521 governs DEC's authority to review and fix excess water rates. They rely on language in ECL § 15-1521 stating that in the event two municipalities cannot agree on water rates, DEC may fix a "fair and reasonable" amount after a hearing. Plaintiffs submit that the "fair and reasonable" standard for reviewing excess water rates would promote uniformity between the relevant provisions of the ECL and Administrative Code § 24-360 which uses this standard for DEC review of entitlement water rates the Water Board sets for upstate municipalities.

Prometheus was an article 78 proceeding challenging the Water Board's decision to issue a billing credit to one service class while simultaneously imposing a systemwide rate increase to all consumers. In upholding the Water Board's rate setting actions, the Court of Appeals recognized that as a utility it had unfettered discretion to fix rates that would not be disturbed unless "utterly arbitrary." Promethius at 646. The Court, however, did not address the interplay between the DEC and the Water Board in fixing and reviewing water rates for upstate consumers. Unlike Prometheus, this is not an article 78 proceeding, the DEC is not a utility, and the rate dispute at issue involves non-city users. While the Water Board has statutory authority to set the initial rates for upstate consumers, DEC is the final arbiter of such rates. Village of Scarsdale v. Jorling, 91 NY2d 507, 516 (1998).

The standard of review DEC adopted also runs contrary to DEC's statutory mandate. "DEC's authority over excess consumption rates is derived from the DEC's power to control, regulate and preserve the water resources of the entire State..."Id at 517. DEC is the "conservator of the States's water resources." Id. The Water Resources Law codified in ECL article 15 grants the DEC comprehensive authority to regulate and control the State's water resources. It is the public policy of this State that "the acquisition...and use of water for domestic and municipal purposes shall have priority over all other purposes." ECL § 15-0105(5). To facilitate the public's access to water resources, the DEC is obligated to "exercise its powers and perform its duties in any matter affecting the construction of improvements to or developments of water resources for the public health, safety or welfare, including but not limited to the supply of potable waters for the various municipalities and inhabitants thereof..." ECL § 15-0109. Consistent with the foregoing, a DEC permit is required to acquire or take water from an existing or new source. See ECL § 15-1501(1)(a). In determining whether to grant such permit, the DEC is obligated to first consider whether "the project is just and equitable to all affected municipalities and their inhabitants with regard to their present and future needs for sources of potable water supply..." ECL § 15-1503(2)(c). Should DEC grant a withdrawal permit it is further empowered to place conditions on such permit "as may be necessary to provide satisfactory compliance by the applicant...with due regard to the actual or prospective needs, interests and rights of others that may be affected by the project." ECL § 15-1503(4). DEC also retains the authority to oversee and impose conditions on public water supply permits issued prior to the 2011 amendments to ECL article 15. See 6 NYCRR 601.12.

The aforementioned provisions of article 15 govern DEC's role in reviewing excess water rates. See Jorling, at 517. Given the Legislature's policy declaration and the DEC's sweeping regulatory authority over the State's water resources, a standard of review for excess water rates based solely on the economic and public policy goals of the Water Board is overly deferential. In determining whether to place conditions on an applicant's withdrawal of water, the DEC is bound [*4]to consider not only the needs of the applicant, but also "the actual or prospective needs, interests and rights of others that may be affected by the project." ECL § 15-1503(4). If the DEC considers only the Water Board's prerogatives when reviewing excess water rates, it would be abdicating its legislatively prescribed mandate and statutory obligations. To the extent that defendants contend that the New York City Municipal Water Finance Authority Act grants the Water Board unfettered discretion in determining water rates, nothing in the Act circumscribes DEC's authority over the water resources of the entire State. To the contrary, the legislature has expressly stated that DEC's authority under ECL article 15 may not be diminished by any other law or municipal ordinance. See PAL § 1045-bb. In light of the foregoing, the ALJ's reliance on Prometheus in determining the prospective standard of review for excess water rates was erroneous as a matter of law.

Having rejected defendants' position that Prometheus is dispositive, the Court must determine whether ECL § 15-1521 and the "fair and reasonable" standard of review plaintiffs advocate controls. When posed with a question of statutory interpretation, the Court's primary consideration is to ascertain and give effect to the intention of the Legislature. See Matter of DaimlerChrysler Corp. v. Spitzer, 7 NY3d 653 (2006). In 2011 the Legislature amended article 15 of the ECL to address "the need to better regulate the State's water and modify the DEC's currently very limited ability to regulate water withdrawals for most purposes." Assembly Mem in Support, 2011 A.B. 5318, Ch. 401. Of significance, the Bill amended ECL § 15-1501 to require that all persons operating a water withdrawal system over a certain capacity obtain a DEC permit. The amendment further clarified that existing water withdrawals would be entitled to an initial permit pursuant to existing law. See Id. Regarding ECL § 15-1521, the Legislature noted that pursuant to existing law, " ECL § 15-1521 authorizes DEC to require that an applicant for a water supply permit make provisions for and supply water to other areas of the state if the areas should be supplied by the water source sought by the applicant." Id. The amendment to ECL § 15-1521 added language expanding DEC's authority to impose such a condition on not only new but also for operators of existing water supply systems seeking "increased withdrawal of water for a public water supply...." ECL § 15-1521, as amended by L. 2011, ch. 401.^[FN1]

ECL § 15-1521 does not directly apply to this action because it does not involve an application for a new or modified permit for increased water withdrawal. Notwithstanding, under the comprehensive authority conferred under ECL article 15, DEC has the authority to oversee excess water rates as a condition imposed upon the taking of excess water. Pursuant to the 2011 amendment, DEC has jurisdiction over the rate dispute by virtue of having issued an initial permit for water withdrawal. See ECL § 15-1501(9); see also Sierra Club v. Martens, 158 AD3d 169 (2nd Dept. 2018). DEC has broad discretion to impose conditions it deems reasonable upon the issuance of a permit. See ECL § 15-1503(4); 6 NYCRR 601.12. As discussed above, among the many factors the DEC is obligated to consider when issuing or renewing a permit is whether "the project is just and equitable to all affected municipalities and their inhabitants with regard to [*5]their present and future needs for sources of potable water supply...." ECL § 15-1503(2)(c).

Given the foregoing, and consistent with the Court of Appeals's holding in Jorling, ECL 15-1503 and the criteria set forth therein rather than ECL § 15-1521 are implicated in the instant dispute. While the 2011 amendments to article 15's regulatory scheme post-date Jorling, nothing therein would abrogate the Court of Appeals's determination that DEC has statutory authority to set excess water rates pursuant to its permit granting powers and inherent authority to regulate the State's water resources. By using the criteria contained within ECL § 15-1503(2)(a-h) to adjudicate the instant rate dispute, the DEC may best fulfill its mandated role to evaluate and take into account concerns expressed by the Water Board (see ECL § 15-1503(2)(g) ("[whether]the proposed water withdrawal will be implemented in a manner that incorporates environmentally sound and economically feasible water conservation measures")), plaintiffs' expectation that the excess rates be "fair and reasonable," (see ECL §15-1503(2)(c) ("[whether] the project is just and equitable to all affected municipalities and their inhabitants with regard to their present and future needs for sources of potable water supply")) and the Water Board's economic interests as set forth in PAL §1045-j.

While not directly applicable to the instant rate dispute, the "fair and reasonable" language in ECL §15-521 is instructive. That statute governs rates disputes between public water supply systems, albeit in the context of permit applications or modifications. The "fair and reasonable" phraseology mirrors the "just and equitable" criteria in ECL § 15-1503(2)(c). While not controlling, a parallel may also be drawn between the foregoing provisions and the "fair and reasonable" standard in NYC Administrative Code § 24-360 governing disputes over entitlement water rates. Based on the foregoing, and harmonizing the ECL, Public Authority Law and Administrative Code as they relate to the pricing and review of excess water rates, the DEC should employ a fair and reasonable standard in reviewing challenges to excess water rates.

The Town of Carmel asserts that respondents erred as a matter of law in finding that the DEC is not required to set separate, individual rates for entitlement and excess water charged to upstate municipalities drawing from the City's water supply. Carmel asserts that NYC Administrative Code § 24-360 and Jorling dictate that entitlement and excess water rates be "fair and reasonable" to upstate users. It maintains that what is fair and reasonable to one municipality may not be the case with another and thus the DEC is required to make individualized determinations regarding entitlement and excess water rates rather than adopting a single rate for all upstate water districts.

Carmel's challenge to the interim determination that the DEC has no authority to set individual rates for upstate communities is not ripe for judicial review. "Whether [an] agency action is ripe for review depends upon several considerations. First, the action must impose an obligation, deny a right or fix some legal relationship as a consummation of the administrative process. Further, there must be a finding that the apparent harm inflicted by the action may not be prevented or significantly ameliorated by further administrative action or by steps available to the complaining party." Gordon v. Rush, 100 NY2d 236, 242 (2003). "[A] determination will not be deemed final because it stands as the agency's last word on a discrete legal issue that arises during an administrative proceeding." Matter of Essex County v. Zagata, 91 NY2d 447 (1998).

The interim decision Carmel challenges via CPLR article 78 does not amount to a final agency determination on the entitlement and excess water rates. While the DEC rejected [*6]Carmel's position that the DEC must review and set a fair and reasonable rate particular to each upstate municipality, its interim decision did not bar Carmel from presenting evidence at an administrative hearing in support of a fair and reasonable rate. Thus, Carmel's contentions are subject to further administrative redress. At the conclusion of the hearing it may yet prevail by obtaining an entitlement and excess rate that it deems "fair and reasonable." Because an evidentiary hearing on the appropriateness of the water rates would be necessary regardless of whether Carmel is aggrieved by the interim decision, it has not sustained actual injury by virtue of having to endure the time and expense of further administrative proceedings. Compare Gordon, supra. Upon conclusion of the hearing, further judicial review of not only Carmel's jurisdictional challenges but the underlying propriety of the rates the Water Board set as reviewed by the DEC will be justiciable and any reviewing court will have the benefit of a fully developed administrative record. Because the alleged harm Carmel would purportedly suffer based on the interim decision may be ameliorated or altogether avoided through further administrative review, the second cause of action in its petition is not yet ripe for judicial review. Wherefore, it is

ORDERED and DECLARED that the DEC should employ a fair and reasonable standard in adjudicating the pending challenge to excess water rates. It is further

ORDERED that DEC's motion for summary judgment is denied. It is further

ORDERED and ADJUDGED that the aspect of Carmel's petition seeking to annul DEC's determination that it lacks jurisdiction to set individual rates for upstate municipalities is denied.

The foregoing constitutes the decision, order and judgment of the Court. The signing of this decision and order shall not constitute entry or filing under CPLR §2220. Counsel is not relieved from the applicable provisions of that rule regarding notice of entry.