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County of Bergen v. Board of Public Utility Commissioners

Decided: November 26, 1975.


Lynch, Ackerman and Larner. The opinion of the court was delivered by Larner, J.A.D.


The County of Bergen operates refuse disposal sites in Lyndhurst and Ridgefield Park*fn1 which are available to Bergen County municipalities, private garbage contractors doing business in the county, and Bergen County residents. In prior litigation it was determined that the county's operation of the disposal sites is subject to the jurisdiction of the Board of Public Utility Commissioners (Board) in accordance with N.J.S.A. 48:13A-1 et seq. Bergen Cty. v. Dept. of Pub. Util. , 117 N.J. Super. 304 (App. Div. 1971).

The latter case also dealt with an escrow fund consisting of rate increases collected from customers pending that litigation. The court entered an order continuing the escrow until the Board determined the reasonableness of the rate increase which had been unilaterally imposed by the county without prior Board approval.

The county thereafter petitioned the Board for retroactive approval of the increased rates which were effectuated in January 1971. After public hearings before the Board's hearing examiner the latter filed a report dated January 17, 1974 recommending a denial of the application. Exceptions were filed by the applicant and on April 25, 1974 the Board rendered its decision substantially adopting the recommendation of the examiner. The order denied the rate increase and directed that the county "revert to the rates that were being charged prior to January 1971" and refund from the escrow fund the excess collected from customers subsequent to that date.

The County of Bergen appeals from that order, contending that the denial of the rate increase was erroneous because the Board failed to take into account as expense items annual amortization figures based on the cost of acquiring the Lyndhurst site and the cost for site preparation at both locations.

The Lyndhurst site was purchased by the county in 1964 for the sum of $420,000. The county asserts that this cost should be included as an expense item on an amortization schedule over a period of 17 years -- the life of the bond issue authorized to finance the purchase. The cost for site preparation is estimated at $792,231 and involves various construction costs to make the land suitable for the intended use. The county sought to amortize this cost over a period of 10 years, allocating $79,231 a year.

Without these two items sought to be deducted as an expense, the records of the county reflect that the operation would have produced a profit for 1970, 1971 and 1972 at the rates in effect prior to the January 1971 increase. If these depreciation items are considered as an expense, there would have been a loss of $139,379 in 1970, a profit of $28,838 in 1971, and a loss of $93,700 in 1972.

The county administrator testified that the rate increase was arrived at without cost studies or analyses and purely on a review of the budget and an effort to recapture losses incurred in previous years.

In the proofs before the Board the applicant made no effort to establish a rate base or a reasonable rate of return as a premise for the projected rate increase. The county relied solely on its internal bookkeeping, reflecting only income and expenses and seeking to establish a loss in operation by virtue of the deduction of the disputed depreciation items, from which it argued that the rate increase imposed in January 1971 was reasonable. Furthermore, the county conceded that it was not conducting the operation for a profit but only to arrive at a break-even point between income and expenses.

It should be noted preliminarily that there was no evidence below relating to the projected life of the facilities involved to support the claimed figures for depreciation or amortization. The county merely selected 17 years for the land cost amortization because that was the life span of the bond issue, and selected a ten-year figure for the site preparation based on its own estimate of the useful life of the disposal sites.

The hearing examiner and the Board determined that the applicant's inclusion of an amortization item for the cost of acquisition of the Lyndhurst site was not a proper element of expense for the purpose of rate setting. The rationale underlying this conclusion is that land in itself is not a depreciating asset and that in this case the landfill operation will in fact transfer a ...

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