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Langan v. West Keansburg Water Co.

Decided: July 1, 1958.


Price, Haneman and Schettino. The opinion of the court was delivered by Haneman, J.A.D.


This is an appeal from a dismissal by the Board of Public Utility Commissioners of a complaint seeking (1) to determine which of the two defendants holds a franchise to serve water in a portion of Raritan Township, and (2) to compel an extension of water lines.

The facts are:

Joseph Langan (Langan) is a land developer who owns a section of Raritan Township (Raritan) known as Union Park. These lands are not presently serviced by either of the defendants. On February 14, 1927 the Borough of Union Beach (Union Beach) entered into a contract with Raritan, under the terms of which the former agreed to extend water mains and to supply water in a specifically described area within the latter municipality. On August 6, 1943 the agreement was renewed for a period of 15 years from the approval thereof by the Water Policy Commission. This extension of the agreement will expire on January 30, 1960. It is represented that Union Beach has no intention of renewing this contract upon its expiration, although it has taken no formal action to that end. On November 25, 1954 Raritan adopted an ordinance which granted a franchise to the West Keansburg Water Company (the Water Company) to serve water in the entire township, except "in roads, streets, avenues, beachways, parks, parkways and

highways and other public places in which there are now located water mains laid by the Water Department of * * * Union Beach for which permission has been heretofore duly granted by the Township Committee of * * * Raritan." The lands owned by the plaintiffs are not within the area described in the contract between Union Beach and Raritan, although Union Beach does have water mains adjacent thereto. The nearest existing main of the Water Company is located approximately one-half mile from Langan's tract. Desiring to develop this tract, Langan conducted negotiations with both Union Beach and the Water Company. Union Beach refused to furnish any water but the Water Company agreed to extend its mains provided Langan would pay to it the entire estimated cost of such extension. A controversy arose between Langan and the Water Company as to the latter's estimate of cost. Eventually Langan refused to absorb any portion of this cost. Langan and his wife, Marion H. Langan, thereupon filed a complaint in which he demanded "a determination be made as to the Water Company which holds a franchise for the area covered by the requested extension, and that that company be compelled to make the extensions on a proper and lawful basis." Thereafter a supplemental complaint was filed by 21 named plaintiffs, all allegedly owners of property, and residents of Union Park, in which they demanded identical relief.

It is to be noted that, although plaintiffs in the supplemental complaint state that they "desire that water lines be extended so as to make water available to their property on a proper and legal basis," none of them specifically and without reservation agrees to enter into a contract with the Water Company for water service. Of the 21 plaintiffs named in the supplemental complaint, Felix Kegley was the only one to appear personally at the hearing and he appeared only as a result of a subpoena which his own lawyer caused to be issued for him. His testimony concerned only a collateral matter. Despite the non-appearance of the other plaintiffs, we must assume that they continue to assert their contentions.

The Water Company's answer demonstrates that it was "ready, anxious and willing to make an extension of its water mains according to the rules laid down by the State of New Jersey Public Utility Commission concerning extension of water service."

In recent years there has been considerable real estate development in Raritan and a resulting extension of the mains of the Water Company. In each instance the entire cost of the installation of the extension was paid for by the developer. The Water Company's total investment is equal to $426,138. Of that sum $368,771 represents payments made by developers for the cost of extension of water mains installed by the Water Company. This asset, of course, is not liquid, and represents subterranean water lines. The difference between these two sums reflects the investment of cash raised by the issuance of stock, debt securities, other borrowings and retained earnings. The annual report of the Water Company demonstrates that for the years 1955 and 1956 it had a net income of $349.85 and $297.15 respectively. No dividends were paid; neither were any salaries paid to the officers of the Water Company. The $368,771 above referred to is reflected on the books of the Water Company as a capital contribution rather than as income.

The Water Company estimates that the cost of extending its mains to the area in question would be $29,829. Langan estimates that the cost of such installation would be $22,329. The Water Company's estimate is the more realistic.

Plaintiffs argue that the Water Company is obliged to extend its mains to the vicinity of their properties. They stress that the so-called capital contributions should be treated as income and that, if so treated, would result in an adequate return to the Water Company in spite of the expenditure of $22,329 required for the presently sought extensions. In addition, they assert that a 2% annual depreciation charge on contributed capital, i.e. , installation cost of mains paid by developers, is improper. In the alternative,

plaintiffs seek to force Union Beach to extend its mains and make water service available to them.

The pertinent statute is R.S. 48:2-27, which reads:

"The board may, after hearing, upon notice, by order in writing, require any public utility to establish, construct, maintain and operate any reasonable extension of its existing facilities where, in the judgment of the board, the extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same and when the financial condition of the public utility reasonably warrants the original expenditure required in making and operating the extension."

This statute was recently construed in Board of Fire Com'rs of Fire Dept. No. 3, Piscataway Tp. v. Elizabethtown Water Co., Consolidated (Elizabethtown Water Company, Consolidated v. Board of Public Utility Commissioners), 27 N.J. 192 (1958). The court there said:

"* * * a franchise holder who alone serves an important and essential public need in a limited area cannot pick and choose its customers solely on the basis of pecuniary advantage and refuse to supply those who constitute an integral part of the locality simply because, considered in isolation , ...

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