For affirmance -- Chief Justice Hughes, Justices Mountain, Sullivan, Pashman, Clifford and Schreiber and Judge Conford. For reversal -- None. The opinion of the court was delivered by Schreiber, J.
This action involves the validity of two written options which had been assigned to the plaintiff, Township of Marlboro, to purchase the physical assets of the defendants, four water and sewerage companies whose facilities were used to serve parts of the township. The water and sewerage companies, Village Water Co. (VWC), Pine Brook Sewer Co. (Pine Brook), Central Jersey Sewerage Co. (CJS) and Central Jersey Water Co. (CJW), had been created by two residential developers, which required water and sewage facilities for their respective developments. One developer was U.S. Home and Development Corp. (U.S. Home), the parent of CJW and CJS. The other was Big Brook, Inc., owner of Pine Brook*fn1 and VWC. The water and sewerage companies are "public utilities" as defined in N.J.S.A. 48:2-13 and are subject to the general jurisdiction of the Board of Public Utility Commissioners. N.J.S.A. 48:2-1 et seq.
The Township of Marlboro had created a municipal utilities authority known as the Marlboro Township Municipal Utilities Authority (MTMUA) pursuant to the municipal
utilities authorities law, N.J.S.A. 40:14B-1 et seq. Since no sewerage or water facilities could be constructed within the township unless the MTMUA consented, N.J.S.A. 40:14B-61, the developers and their respective water and sewerage subsidiaries entered into two separate agreements with MTMUA on December 27, 1963. The option provisions in question were contained in these virtually identical agreements. MTMUA consented to the construction, maintenance and operation of sewerage and water facilities within the developers' respective areas. The agreements also provided that the consents were subject to MTMUA's option to purchase all the water and sewerage facilities and the options were the consideration for the right to operate. The options, exercisable over a ten-year period, contained fixed purchase prices of $745 per house connection for a certain number of houses, the costs of additional houses which were serviced to be adjusted upward by 80% of an Engineering News Record Cost Index over a base date of January 1, 1964. The allocation between water and sewer was $450 and $295 respectively.
Pursuant to N.J.S.A. 48:13-11 and N.J.S.A. 48:19-17, the utilities sought Marlboro's consents to use the public streets and on December 30, 1963, the Township Committee of the Township of Marlboro adopted resolutions granting its municipal consent permitting construction, maintenance and operation of sewerage and water pipes in the streets, roads and alleys.
Because privileges or franchises granted to a public utility are not valid until approved by the Board of Public Utility Commissioners, N.J.S.A. 48:2-14, the defendant water and sewerage companies, CJS, CJW, VWC and Pine Brook filed petitions with the Board seeking, among other things, approval of the various consents which they had received.
On December 20, 1966, the Board approved the franchise granted to CJW, but refused to place its stamp of approval on the purchase option. The decision recited that, except for the option, approval of the municipal consent was in
the public interest. (P.U.C. Dkt. No. 667-485). In another determination rendered on the same day the Board made an identical ruling with respect to CJS. (P.U.C. Dkt. No. 667-486).
In acting on the Pine Brook and VWC petitions on June 23, 1967 and July 20, 1967, the Board again refused to approve the option provisions. In its Pine Brook opinion, the Board included the following findings (substantially the same language appears in its VWC opinion):
While N.J.S.A. 48:3-7 exempts sales to municipal authorities of utility property from the need for Board approval, we consider a purchase price fixed far in advance of such a sale pursuant to a consent's provisions to be a proper subject of our consideration at this time. Such an agreement may have a direct effect upon the quality of plant to be installed and service rendered the public by the petitioner. During the option period, petitioner is required to supply safe, adequate and proper service. If the price to be paid by the Authority is not a reasonable one, petitioner may be discouraged from making adequate provisions for the design, construction and installation of the system. Financing a system under an option of sale could also present grave problems. Further, the Board has on several occasions rejected this type of option as reducing a utility's incentive to properly maintain and improve its facilities.
There is no affirmative indication that the price in this option is unreasonable, although we note that costs have risen sharply since the price of $295 per house was fixed in 1963. On this record we are unable to make any finding as to the price or as to its possible impact on petitioner's service. In view of our review of the record concerning the municipal consent which follows, we will approve the Authority's consent with the exception of these portions relating to the option.
[ Pine Brook, P.U.C. Dkt. No. 672-81 (June 23, 1967). Accord, VWC, P.U.C. Dkt. No. 674-165 (July 20, 1967)].
On November 25, 1968 and March 19, 1969, the franchise area of VWC was enlarged by resolutions of the Marlboro Township Committee and MTMUA. The service area of Pine ...