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Township of Deptford v. Woodbury Terrace Sewerage Corp.

Decided: July 15, 1969.


For reversal -- Chief Justice Weintraub and Justices Jacobs, Proctor, Hall and Schettino. For affirmance -- Justices Francis and Haneman. The opinion of the court was delivered by Proctor, J. Weintraub, C.J. (concurring). Francis, J. (dissenting). Justice Haneman joins in this dissent.


This appeal concerns the power of the Public Utilities Commission (PUC) to modify an order which had previously approved the franchise of a public utility.

On August 8, 1955, plaintiff Township of Deptford granted a franchise to the defendant, Woodbury Terrace Sewerage Corporation (Woodbury), for the construction and operation of a sewage disposal plant and system which would service one part of the Township. Woodbury is a public utility organized under Title 48:13 of the Revised Statutes. The Township ordinance granting the franchise contained the following option provision:

2b * * * "That the Woodbury Terrace Sewerage Corp. by acceptance of this consent makes an irrevocable continuing and unlimited offer to the Township of Deptford to sell, bargain, transfer and assign to the Township of Deptford, or its successors, all mains, meters, plants and pumping station and all and any other physical equipment of its sewerage system and all rights, privileges and franchises in and pertaining to the tract, for which consent is now given, for the sum of EIGHTY THOUSAND DOLLARS ($80,000.00) or a sum equal to the cost of the sewerage plant excluding the cost of mains, whichever sum is less; deducting nevertheless a sum equal to one-sixteenth

(1/16) of the purchase price, as above provided, for each complete year of operation following the date when the said corporation commences operation of any part of the system, and for the sum of ONE DOLLAR ($1.00) at any time after the expiration of sixteen years from the date when the corporation commences operation of any part of the system. It is mutually agreed that upon the adoption by the Township of Deptford of an ordinance accepting the above offer, the Woodbury Terrace Sewerage Corp., shall forthwith without fraud or delay, sell, bargain, transfer and assign the said facilities to the Township of Deptford for the agreed price as herein provided.

"The title to be sold to the Township of Deptford for the price as above shall be free and clear of all charges, debts, liens, mortgages, bonds or other encumbrances or obligations whatsoever of the Woodbury Terrace Sewerage Corp. and the said utility company shall not in any way encumber or allow to be encumbered any of the facilities of the company upon which the Township may exercise its option, provided however, that the Woodbury Terrace Sewerage Corp. may encumber the plant and system in an amount not exceeding at any time that sum for which the Township may purchase the facilities as provided heretofore."

The grant of the franchise was then approved by the PUC on October 13, 1955. In March 1957, after the plant and part of the system had been constructed at a cost of over $90,000, the PUC informed Woodbury that its annual depreciation charge of 6 2/3% upon which it was basing its rate schedule was too high, since the sewage disposal system had an economic life expectancy of 40-50 years. It suggested that Woodbury use a figure approximating the normal life of the system, instead of measuring depreciation against the reduction in the purchase price specified in the option clause quoted above. (Contrary to the intimation in the dissenting opinion, the parties had made no agreement as to the proper rate of depreciation.) On September 13, 1957 Woodbury petitioned the PUC for a ruling which would either permit the higher rate of depreciation or void the option provision. A public hearing was held, but the Township of Deptford, though duly served, did not appear. On March 26, 1958 the PUC ordered depreciation at the rate of 2 I/4% (a 40-year economic life) and amended the October 13, 1955 approval of franchise to include the statement:

"This certificate is not to be construed, under any circumstances, as a ruling upon Paragraph 2b of the Ordinance with respect to the acquisition of the utility properties by the Township of Deptford."

A clause identical to the above appears in the orders approving the franchises of the two other sewer utilities in Deptford Township, Cooper Village and Oak Valley, both of which contained essentially the same option clause in their franchises as in Woodbury's. The thrust of Woodbury's petition was, to a great extent, that it be placed in the same position vis a vis the Township as the other sewer utilities, both of whose option clauses, it contended, had been voided in 1956.

After the PUC's action in 1958, Woodbury expended considerable funds in expanding their system, obtaining approval from the PUC in 1960 and in 1961 for the refinancing of a demand note and the sale of stock in order to pay for the additions. From 1957 to 1967 Woodbury doubled the number of customers being served.

In 1966 the present suit for specific performance of the option provision in the franchise, Paragraph 2b, was instituted by the Township. The trial court held that the option provision could not become operative without PUC approval, and that the action of the PUC in 1958 in specifically failing to approve Paragraph 2b had the effect of rendering that provision invalid.

The Appellate Division reversed, holding that the order of the PUC of March 26, 1958 amending the franchise "was not a disapproval of the option but a statement that the PUC neither approved nor disapproved it. Further, assuming the PUC had the power to approve or disapprove the option when it approved the franchise initially, and the right thereafter to amend its approval of the franchise in other respects, we hold that in face of N.J.S.A. 48:3-7 the PUC had no authority to void the option after it had approved it, especially after more than two years had elapsed and over 100 houses had been connected to the system." 101 N.J. Super.

426, 433-434 (1968). The Appellate Division remanded the case to the trial court for a hearing on Woodbury's remaining defenses. We granted Woodbury's petition for certification. 52 N.J. 501 (1968).

On this appeal, we begin by examining the PUC's order of March 26, 1958 amending its approval of Woodbury's franchise. The Legislature has expressly provided that no franchise granted by a municipality "shall be valid until approved by the board." N.J.S.A. 48:2-14. The plaintiff argues, as the Appellate Division held, that the PUC's language in its order was not a disapproval of Paragraph 2b, the option clause. While the language of the 1958 order standing alone may appear equivocal, it is clear that when the language is read together with N.J.S.A. 48:2-14, a failure to specifically approve a provision constitutes disapproval. This was the only interpretation of the statute which was offered before the PUC's Examiner at the hearing.

In any event, we are convinced from a reading of the record that the PUC intended to void the option clause. The PUC has in many decisions refused to approve conditions in franchises using language similar to that used in the present case, with the intent to thereby render them ineffective. See, e.g., Lynpark Utility Co., P.U.C. Dkt. No. 637-480 (Oct. 17, 1963); Birch Hill Park Disposal Co., P.U.C. Dkt. No. 617-529 (Aug. 22, 1961). The fact that the PUC approved the extension of credit and the expansion of facilities subsequent to the 1958 order is a clear indication that it treated its amending certificate as having the effect of voiding the option provision. Otherwise, the PUC would be permitting the borrowing of funds based upon an equity which would, as a result of the option clause, prematurely depreciate to zero in about 10 years.

The action taken by the PUC on March 26, 1958 was a disapproval of the option clause. There remains the question whether such a disapproval was within the power of the PUC. With regard to the general powers of the PUC, Justice Hall has said for this Court:

"[T]his State has delegated in most sweeping terms 'general supervision and regulation of and jurisdiction and control over all public utilities' and 'their property, property rights, equipment, facilities and franchises' to the Board. N.J.S.A. 48:2-13. More specifically, the Board is empowered to direct utilities to furnish safe, adequate and proper service, R.S. 48:2-23, N.J.S.A., and to that end it may fix just and reasonable standards and practices. R.S. 48:2-25, N.J.S.A." In re Public Service Electric and Gas Co., 35 N.J. 358, 371 (1961).

Our courts have consistently held that the Legislature in Title 48 intended to delegate the widest range of regulatory power over public utilities to the PUC. Id., at 371; and see, e.g., Atlantic Coast Electric Ry. Co. v. Public Utility Board, 92 N.J.L. 168 (1918); In re Central Ry. Co., 30 N.J. Super. 520 (App. Div. 1954).

With regard to municipal grants of franchises, the Legislature has expressly provided in N.J.S.A. 48:2-14, supra, that:

" No privilege or franchise granted after May first, one thousand nine hundred and eleven, to any public utility by a political subdivision of this state shall be valid until approved by the board. Such approval shall be given when, after hearing, the board determines that the privilege or franchise is necessary and proper for the public convenience and properly conserves the public interests. In granting its approval the board may impose such conditions as to construction, ...

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