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New Jersey Bell Telephone Co. v. State

Decided: June 15, 1953.


On appeal from decision of the Board of Public Utility Commissioners.

For affirmance -- Chief Justice Vanderbilt, and Justices Wachenfeld, Burling and Jacobs. For reversal -- Justices Heher and Oliphant. The opinion of the court was delivered by Burling, J. Heher, J. (dissenting). Oliphant, J., concurs in this dissent.


This is a public utility rate case. The New Jersey Bell Telephone Company, a corporation of the State of New Jersey (hereinafter adverted to as the Company), appeals from two determinations of the Board of Public Utility Commissioners, Department of Public Utilities, State of New Jersey (hereinafter called the Board). The first of the orders appealed from is the Board's decision and order of August 15, 1951 denying the Company an increase in intrastate rates; the second is the Board's order of September 18, 1952 denying the Company's petition for rehearing in this matter.

The present proceedings were induced by the Company's filing with the Board on April 20, 1950 new rates schedules proposed to become effective May 21, 1950. The net result of these proposed tariff changes was estimated by the Company to produce at least $9,800,000 in additional annual gross intrastate revenues.

Two earlier efforts by the Company to increase rates had been successful. The Company introduced in evidence in the present proceedings the decision and order of the Board with respect to each of these earlier rate increases and the same are to some extent interrelated in the determination now under review.

The first of these prior orders related to proceedings for increased rates initiated before the Board by the Company in 1947. The Board by order of November 25, 1947 had held that the schedule of increased rates then filed by the Company was excessive and therefore "unjust and unreasonable," but had allowed a revised schedule of rates designed to produce an increase in annual intrastate operating revenues of $10,515,000 to result in an annual net intrastate operating income of $8,347,000. The Board found the Company's rate base to be $149,045,000 and that the rate of return thereon under the tariff increase allowed would be 5.6%. This rate the Board held would constitute a fair rate of return at that time.

The second of the above mentioned prior orders of the Board related to proceedings concerning increased intrastate rates proposed by the Company and subsequently made subject to hearings before the Board in 1948. The Board by order of April 11, 1949 had held that the schedule of rates then proposed by the Company was unjust and unreasonable in that it would yield an excessive return but that a schedule of rates that would increase annual intrastate operating revenues by $8,305,000 was just and reasonable. It again determined the rate base, in the amount of $178,000,000, and determined that a fair rate of return thereon would be 5.6%.

The Company appears to have filed no appeal from either the November 25, 1947 or the April 11, 1949 decision and order of the Board.

The present proceedings, as hereinbefore stated, had their inception in the filing of the Company's new proposed tariff increases on April 20, 1950, to be effective May 21, 1950. On April 26, 1950 the Board ordered a hearing thereon and

ordered that the effective date of the proposed schedules (May 21, 1950) be suspended until August 21, 1950. The Board on August 2, 1950 ordered the further suspension of the proposed rates to November 21, 1950. On August 24, 1950 the Company filed a stipulation with the Board voluntarily consenting to stay of operation of the proposed rates to January 20, 1951. Additional stipulations extending the suspension of the rates were filed on January 18, 1951, April 19, 1951 and June 18, 1951.

On August 15, 1951 the Board filed its decision and order. It held that the existing rates were not unjust, unreasonable or insufficient, and that the proposed rates were unjust and unreasonable. Accordingly it denied the rate increase sought by the Company. The Board found the intrastate rate base to be $255,836,000; it adjusted operating expenses (which as estimated indicated a rate of return of 6.07%) and found the rate of return after adjustment to be 6.37%. This rate of return it found "clearly not insufficient."

On August 29, 1951 the Company filed with the Board a petition for rehearing. In this petition the Company argued that the evidence it had submitted on its rate base during the course of the 1950-1951 proceedings should be reconsidered. It sought in addition to supplement that evidence and to introduce "current" evidence of changed conditions and of the "imminence of the imposition of higher tax rates by Congress and the continuing increase in other elements of cost." The Company did not detail the items of decision which it contended constituted material error.

On April 18, 1952 the Company requested that its petition for rehearing be granted. The Board on April 29, 1952 by letter suggested to the Company that it supplement the petition for rehearing filed August 29, 1951. Accordingly on May 5, 1952 the Company filed with the Board a "Supplement to Petition for Rehearing" asserting further changed conditions and seeking additional increase in gross revenue, namely $4,406,000.

A hearing before the Board was held on May 21, 1952. This hearing was confined to argument as to whether a rehearing

should be allowed the Company. The Company's petition was resisted by intervenors, namely, the United States Government and the City of Perth Amboy.

Subsequently on June 11, 1952 the Board ordered further information to be furnished it in affidavit form by the Company. This order was complied with on June 13, 1952. Thereafter on September 18, 1952 the Board filed its order denying the Company's petition and supplemental petition for rehearing. It appears that this order was issued by the Board on September 20, 1952.

The Company served and filed its notice of appeal (from the Board's orders of August 15, 1951 and September 18, 1952) to the Superior Court, Appellate Division, on October 6, 1952. The Attorney-General acting for the State as respondent moved to dismiss the appeal. Decision on the motion was reserved by the Superior Court, Appellate Division, pending argument of the appeal. Prior to hearing there, certification was allowed on our own motion, after the matter was opened to the court by petition of the State in its individual capacity as a respondent. The State as such respondent at the same time renewed its motion to dismiss the Company's appeal. The motion to dismiss the appeal was denied.


On the appeal there are many questions involved. Tersely, these questions relate to the adequacy and validity of the findings of the Board concerning the three principal factors in utility rate determination, namely rate base, income and expenses, and rate of return. The detail of these questions will be treated separately in this opinion under discussion of the pertinent factors.

It suffices at this point to state that our examination of the record and consideration of the pertinent principles of law results in affirmation of the Board's orders of August 15, 1951 and September 18, 1952.


In view of the novelty of the questions relative to the Board's order denying the Company's application for rehearing, we move first to the disposition of that portion of the appeal.



The questions involved on the phase of the appeal dealing with the Board's order of September 18, 1952, denying the Company's petition for rehearing may be summarized as follows:

(a) Did the Board abuse its discretion in denying the petition for rehearing on the original evidence and determination?

(b) Did the Board abuse its discretion in denying the petition for rehearing insofar as changed conditions were asserted therein?

That the Board has authority to order a rehearing is substantiated by R.S. 48:2-40, which provides that "The board at any time may order a rehearing and extend, revoke or modify an order made by it." Cf. Central R. Co. of N.J. v. Dept. of Pub. Utilities, 7 N.J. 247, at 254-255 (1951). This statutory provision is a rule of the Board within the contemplation of Rule 1:2-6(d) adopted June 7, 1951. Cf. Borough of Jamesburg v. Hubbs, 6 N.J. 578, 584 (1951). It is a legislative recognition of the principle that unless qualified by statute the right to order a rehearing is inherent in administrative tribunals, expressed by Mr. Justice Heher for this court in Handlon v. Town of Belleville, 4 N.J. 99, 106-107 (1950).

The general rule with respect to allowance of rehearing is stated in the Handlon case, supra, to be qualified by the requirement for the exercise of reasonable diligence. R.S. 48:2-40, supra, expresses the legislative purpose to enlarge this inherent power of the Board to permit it to allow a

rehearing "at any time." Central R. Co. of N.J. v. Dept. of Pub. Utilities, supra (7 N.J., at pp. 254-255). However, this would not have permitted the Board to grant a rehearing after the allowance of a writ of certiorari (pending determination thereon) under the former procedure relating to resort to the writ for review of the Board's orders. R.S. 48:2-43. Nor does it affect the course of review ordained by this court under our constitutional mandate. The pertinent portion of N.J. Const. 1947, Art. VI, Sec. V, par. 4, provides:

"Prerogative writs are superseded and, in lieu thereof, review, hearing and relief shall be afforded in the Superior Court, on terms and in the manner provided by rules of the Supreme Court, as of right, * * *."

The procedure for review in the present case, within the constitutional requirement, is provided by Rules 3:81-8, 1:2-5 and 1:2-6 (d), supra. Cf. Central R. Co. of N.J. v. Dept. of Public Utilities, supra (7 N.J., at pp. 257-259). Consistently therewith the appeal from the August 15, 1951 order of the Board was required to be made within 30 days of the service thereof on the Company, since at the time of the order Rule 1:2-5(f) applied. (The present Rule 1:2-5(b), effective January 1, 1952, provides a 45-day period applicable to agency decisions entered after that date.) The filing of a timely petition for rehearing with the Board, however, tolls the time for appeal, Rule 1:2-6 (d), supra, if the petition is filed within the time for appeal. In the present matter the Company's petition for rehearing was filed on the 14th day after the date of the Board's original decision but on the 13th day after service of the decision on the Company, the controlling date under former Rule 1:2-5 (f) supra. (Cf. Rule 1:2-5(b) now in effect). There then remained 17 days within which to file an appeal from the order of August 15, 1951. This remaining time again began to run from the date of the decision denying the rehearing. The date of actual decision was September 18, 1952, and computation of time under Rule 1:2-5, supra, would indicate

that the last day for the filing of the notice of appeal was October 5, 1952. However, since October 5, 1952 was a Sunday, the filing on October 6, 1952 was timely. Rule 1:7-8. We need not consider whether the "date of a decision denying" rehearing, Rule 1:2-6 (d) supra, is the date of service of the decision (in this case, September 20, 1952) as argued by the Company.

The Company's petition for rehearing was itself timely under R.S. 48:2-40, supra. It was equally timely within Rule 1:2-6 (d), supra, for it was filed within the time allowed by Rule 1:2-5, supra, for appeal. Cf. Albertson v. F.C.C., 87 U.S. App. D.C. 39, 182 F.2d 397 (App. D.C. 1950); Saginaw Broadcasting Co. v. F.C.C., 68 App. D.C. 282, 96 F.2d 554 (App. D.C. 1938); Southland Industries, Inc., v. F.C.C., 69 App. D.C. 82, 99 F.2d 117 (App. D.C. 1938).

It was asserted by the State as an individual respondent that the Board's delay in reaching its decision denying the Company's application for rehearing was too greatly removed from the date of the original decision and therefore the Company's appeal was not timely. This is without merit in view of Rule 1:2-6 (d), supra.

The Company's petition for rehearing, regardless of its merits, was addressed to a review of the findings and conclusions stated by the Board in its original decision of August 15, 1951. The Company was within its rights in applying for rehearing.

A rehearing is not essential to due process of law. In Pittsburgh, C.C. & St. L.R. Co. v. Backus, 154 U.S. 421, 426-427, 14 S. Ct. 1114, 38 L. Ed. 1031, 1036 (1894), the United States Supreme Court held, in reviewing an appeal from a state supreme court judgment upholding a state tax board determination:

"* * * Rehearings, and new trials, are not essential to due process of law, either in judicial or administrative proceedings. One hearing, if ample, before judgment, satisfies the demand of the constitution in this respect."

Further it has been repeatedly declared by the United States Supreme Court that rehearings before administrative bodies are addressed to their own discretion and only a showing of the clearest abuse of discretion could sustain an exception to that rule. Radio Corp. of America v. United States, 341 U.S. 412, 420-421, 71 S. Ct. 806, 95 L. Ed. 1062, 1071 (1951); United States v. Pierce Auto Freight Lines, 327 U.S. 515, 534-535, 66 S. Ct. 687, 90 L. Ed. 821, 834-835 (1946); Interstate Commerce Commission v. Jersey City, 322 U.S. 503, 514-519, 64 S. Ct. 1129, 88 L. Ed. 1420, 1428-1431 (1944).

These general principles are supported by the pertinent statutory provisions. In Central R. Co. of N.J. v. Dept. of Pub. Utilities, supra (7 N.J., at pp. 254-255), this court held:

"* * * the legislative intent to require final disposition of initial rate proceedings within a maximum six months period is evident. On the other hand, it is equally evident that the Legislature intended no bar to further hearings on the same subject matter, for the Board is authorized to investigate upon its own initiative or upon complaint in writing any matter (which would necessarily include fares) concerning any public utility, R.S. 48:2-19, supra, and at any time to order a rehearing and extend, revoke or modify an order made by it, R.S. 48:2-40, supra. The comprehensive legislative design is one of continuous supervision, with a mandate to the Board to resolve initial investigations, expeditiously, and yet granting to it concomitant authority to institute corrective proceedings and especially where experience furnishes evidence of failure of an earlier order to accomplish its intended purpose.

We find no fault with the action of the Board in initiating a rehearing. * * *"

In the present case the Company's petition for rehearing, insofar as it related to the evidence considered by the Board and the Board's decision and order (dated August 15, 1951) emanating therefrom, appears merely to have reiterated the Company's disagreement with the Board's treatment of the evidence generally. It contained no clear indication of the nature of the "material errors" the Company alleged were apparent in the Board's decision. Viewed in the light of

that circumstance alone, the Board's denial of the petition for rehearing was within their discretion. Compare Public Service Coordinated Transport v. State, supra (5 N.J., at p. 226).

The Company asserts, however, that the Board was required to allow its petition for rehearing upon the Company's allegations of changed circumstances. In so contending the Company attempts to draw support from the above-quoted portion of our opinion in the Central R. Co. case, supra (7 N.J., at pp. 254-255). The rehearing there was granted by the Board within its independent discretion to initiate rehearing. It was not held that the statute constituted a mandatory direction to the Board to allow a rehearing, and nothing in the statute may be so construed.

It is settled that the statute provides in the continuing supervisory power of the Board a wholly adequate means for close supervision of public utility rates and for the correction of inequities and adjustment to shifting circumstances. Central R. Co. of N.J. v. Dept. of Pub. Utilities, supra; Atlantic City Sewerage Co. v. Board of Public Utility Commissioners, 128 N.J.L. 359, 367 (Sup. Ct. 1942), affirmed 129 N.J.L. 401 (E. & A. 1943). However, the authority to allow rehearings does not constitute unlimited sanction for an indiscriminate grant of rehearings by the Board, nor a method for circumvention of the orderly statutory procedures for initiating rate hearings, detailed in R.S. 48:2-19 and R.S. 48:2-21. Where the petition for rehearing seeks to reopen the matter for the purpose of introducing evidence of changed circumstances, the Board's action in allowing or denying the rehearing is discretionary and may be set aside only for abuse of the delegated legal discretion. Cf. Grogan v. DeSapio, 11 N.J. 308, 321 (1953); Reid Development Corp. v. Parsippany-Troy Hills Tp., 10 N.J. 229, 237 (1952). The following expression of this court in In re New Jersey Power & Light Co., 9 N.J. 498, 527 (1952), may be adapted here to emphasize the letter and spirit of the statute in this respect:

"* * * Where by reason of circumstances beyond the control of the Utility and unforeseeable at the time of the rate order it becomes apparent that the existing rates are insufficient to provide a fair rate of return, and rates reasonable both to the public utility and the public, the remedy is not by way of invalidation of the past order on the basis of the subsequent events * * * but by way ...

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