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In re Petition of South Lakewood Water Co.

Decided: July 6, 1972.


For reversal -- Chief Justice Weintraub and Justices Jacobs, Francis, Hall and Schettino. For affirmance -- None. The opinion of the Court was delivered by Hall, J.


This litigation concerns the right to furnish water service to a portion of Brick Township (Township), Ocean County, as between South Lakewood Water Company (South Lakewood), a privately owned utility desirous of extending its lines from an adjacent municipality, and Brick Township Municipal Utilities Authority (Authority), a local governmental agency created to provide water and sewer service to the Township. On South Lakewood's petition, the Board of Public Utility Commissioners (Board) decided in its favor, although neither the Township nor the Authority had consented to the extension. The Appellate Division affirmed on the Authority's appeal. 115 N.J. Super. 352 (1971). We granted its petition for certification. 59 N.J. 291 (1971).

Two important legal questions are presented, both concerning the extent of the Board's power. The first is

whether, quite apart from the effect of the creation of a municipal utilities authority, the Board has the power to override a municipality's refusal to grant a private water company the right to operate, i.e. a franchise, within its borders. The second is the effect of the creation of a municipal utilities authority and whether the Board has the power to override an authority's refusal to consent to a private water company's commencement or extension of operations within the authority's territory. These questions arise in the following factual setting.

South Lakewood is a wholly owned subsidiary of Leisure Technology Corporation which operates a retirement community, as well as other land development enterprises, in the eastern end of Lakewood Township, a municipality adjoining Brick Township on the west. It was incorporated in 1962 and furnishes water service to the area in which these enterprises are located under franchises granted to it by Lakewood Township and approved by the Board. In addition, the president of South Lakewood and Leisure Technology Corporation is affiliated with other companies which control considerable property along State Highway Route 70, across the boundary in Brick Township. Substantial business establishments, located upon this and adjacent land and comprising the township's largest commercial area and its greatest concentration of heavy water users, now obtain their water supply from private wells. It is this area that South Lakewood desires to serve by extending its mains from Lakewood Township. Concededly, the object is to enable South Lakewood to make more money by serving this profitable section and to increase the value of the lands to be served.

Brick Township is a 26 square mile municipality, which has experienced tremendous growth, chiefly through residential developments. Its population has increased almost 30 times in the last three decades, and in the 1960-70 span went from 16,299 to 35,057. It has never had a townshipwide water or sewer system and without a doubt it has

reached the point where both are necessary. Presently the only public water available is furnished to scattered developments by a handful of small water companies. Since at least 1965 it has been working on plans for a unified municipal water supply system, with an associated sewer system, to service the township. In that year a firm of retained consulting engineers prepared a master plan for that purpose, and the plan was updated in 1969.

In December 1967 and July 1968 South Lakewood applied to the township governing body for a consent to serve the previously mentioned portion of the township and approval of an extension of its lines into the township for that purpose -- i.e., for a franchise to operate therein. Discussions were had, but the governing body never took any action. It appears to be conceded that the inaction amounted to a refusal of consent. The application included an offer to enter into an agreement giving the township the right to purchase at any time any system South Lakewood might install. Thereafter South Lakewood obtained the consent of the State Department of Transportation and the Ocean County Board of Freeholders to lay its pipes beneath state and county highways bounding the proposed area. (While the area contained township roads, service apparently did not, at least initially, involve laying pipes beneath them, so the consent of the township governing body was not needed for this purpose.)

On April 3, 1969, South Lakewood filed with the Board the petition which commenced the instant litigation. As the caption of this case indicates, it purported to be an appeal from the refusal of Brick Township to grant it a franchise to extend its lines and furnish service to the described area and claimed that refusal was unreasonable and contrary to the public interest. The relief sought was a Board determination that the proposed service was "reasonably necessary for the service, convenience or welfare of the public" and a grant of authority to proceed.

Three weeks later, on April 24, the Authority became operative.*fn1 It was created as a local governmental agency, under the municipal utilities authorities law, N.J.S.A. 40:14B-1, et seq., to construct and operate a water system, and associated sewer system, to serve substantially all of the Township, including the area here involved. It was permitted to intervene before the Board and, along with the township governing body, vigorously opposed the relief sought by South Lakewood. South Lakewood did not seek the Authority's consent to extend its mains into the township; N.J.S.A. 40:14B-61 provides that "[n]o facilities for the distribution of water within a district shall be constructed unless the municipal authority shall give its consent thereto and approve the plans and specifications therefor." It is evident, however, that consent would have been refused had it been sought, so that the situation may be considered as if there had been a formal application and refusal. The Board, as well as the Appellate Division, however, treated the case on the basis that since the Authority was not in existence at the time South Lakewood sought the franchise nor when it filed its petition with the Board, its creation had no superseding or special effect, and so they held that the cited section had no application.

Consequently the Board dealt with the case factually as if it were a contest between two competing water utilities, each seeking to serve the same new territory. The hearings, which were not completed for about a year, dealt principally with the physical aspects of South Lakewood's proposal and the Authority's plans. The former's proofs sought to demonstrate demand, water capacity to serve the area and ability to extend its mains and provide the service within 30 days. The Authority's opposition was on a much broader plane. It [61 NJ Page 237] showed a long range plan for a system to serve the whole township, including acquisition of the private water companies now serving small segments. The first stage of the plan called for development of the well field, treatment plant, and storage tank and the installation of distribution mains to service first, in about 15 to 18 months, the commercial area in question. The well field is near this area and would require mains to be run through it to reach other parts of the township. Testimony at the last hearing evidenced steady progress on this first stage. The Authority strongly urged that granting South Lakewood's petition would interfere with the development of its master plan, would cause unnecessary expense by reason of the laying of duplicate mains, would result in the loss of a profitable heavy use section thereby having financial consequences on the cost of service to township residents, and might well require the Authority to pay a premium in the future to acquire the proposed South Lakewood installations. The Board in its decision as to the merits gave no consideration to the Authority's plans and proofs or to the welfare of the township as a whole. In holding in favor of South Lakewood it simply rested upon a demand for water service in this commercial area and the claimed ability of South Lakewood to furnish service within 30 days. The Appellate Division simply said, on this aspect of the case, that the record substantially and reasonably supported the Board's conclusion.*fn2


The Power of The Board of Public Utility Commissioners to Override the Refusal of a Municipality to Grant a ...

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