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New Jersey Bell Telephone Co. v. State

Decided: August 21, 1978.


On appeal from the New Jersey Board of Public Utility Commissioners.

Matthews, Crane and Antell. The opinion of the court was delivered by Antell, J.A.D.


Based on a claim of unconstitutional confiscation of property by the Board of Public Utility Commissioners (Board) the New Jersey Bell Telephone Company (company) seeks a de novo review and determination of its application for a rate increase. Confiscation is averred on the claim that the Board (1) illegally arrived at its findings as to rate base, income and expense and rate of return and (2) failed to make essential findings and conclusions. Bluefield Watermarks & I. Co. v. Public Service Comm'n , 262 U.S. 679, 690, 43 S. Ct. 675, 67 L. Ed. 1176 (1923); In re New Jersey Power & Light Co. , 9 N.J. 498, 535 (1952). The company maintains that the Board ignored the findings and recommendations of its hearing examiners and reached its result by inflating revenues, disallowing expenses and reducing rate base arbitrarily. Also alleged as the basis for relief from the rate determination is the Board's noncompliance with the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. , and the Open Public Meetings Act, N.J.S.A. 10:4-6 et seq. Finally, we are asked to reverse the action of the Board in rejecting the company's plan for directory assistance charging and in imposing on the company its program for lifeline rates.

To explain the Board's conduct the company brings to our attention the fact that some 2 1/2 months before this proceeding was begun the company received rate relief in the

form of increases designed to produce $60,000,000 in additional revenues through a 12% rate of return on equity. Therefore, the recurrent theme of this appeal is the company's contention that the action below is befouled by the fact that the Board arrived at a "predetermined result" which was motivated by its desire "to punish appellant for its early refiling and to discourage other utilities from filing rate cases too rapidly."

The previous filing by the company occurred in April 1974 and the order allowing the rate increase was entered September 18, 1975. The present petition was filed December 2, 1975 for approval of rate increases promising additional annual revenues of $174,600,000, voluntarily reduced April 30, 1976 to $157,800,000. The increases were scheduled to become effective January 1, 1976 and their operation was suspended by the Board pursuant to N.J.S.A. 48.2-21(d) on December 4, 1975. Sixty-three public hearings were conducted between January 26, 1976 and June 25, 1976, generating a record of approximately 7,500 pages of transcript and 489 physical exhibits. On August 23, 1976 the two hearing examiners issued their "Report and Recommendations on Revenue Requirements" and the three members of the Board delivered their oral opinions on November 3, 1976. The Board's formal decision and order was filed November 5, 1976.

The hearing examiners recommended a fair value rate base of $2,050,057,000. The Board's finding on rate base was $1,999,646,000. The respective recommendations of the hearing examiners and the finding of the Board as to fair rate of return on rate base were as follows:

Tobia 8.86% $56,512,000

McAfoos 8.64% 39,165,000

Board 8.49% 374,000 over-recovery

The following findings were made as to test year operating income:

Tobia $151,494,000 7.4% of rate base

McAfoos 155,458,000 7.6% of rate base

Board 169,951,000 8.5% of rate base

The following recommendations and conclusion were arrived at with respect to a reasonable rate of return on equity:

Tobia 12.75%

McAfoos 12.25%

Board 12%

Hearing Examiner Tobia recommended 12.5% to 13% as a fair range of return on equity, and McAfoos recommended 11.75% to 12.75%. The rates of return testified to as reasonable by the witnesses ranged between 11.29% and 15%. The company urges that in the exercise of our independent judgment we order a return on equity of 13%, citing as precedent New England T. and T. Co. v. Dept. of Pub. Util., Mass. , 354 N.E. 2d 860 (Sup. Jud. Ct. 1976).

It is clear that in this State the courts have no power to fix rates. This "is not a judicial function, but a legislative one, and the State has created the Board of Public Utility Commissioners as its agent for that purpose." In re Intrastate Industrial Sand Rates , 66 N.J. 12, 19 (1974); Public Service Coord. Transport v. State , 5 N.J. 196, 224 (1950). Accordingly, by statute we are authorized only to set aside the agency's order where "it clearly appears that there was no evidence before the board to support the same reasonably or that the same was without the jurisdiction of the board." N.J.S.A. 48:2-46.

The company argues that our duty to make independent findings of law and fact follows from the fact that a claim of confiscation has been made, citing Atlantic City Sewerage Co. v. Bd. Pub. Utility Comm'rs , 128 N.J.L. 359, 364 (Sup. Ct. 1942), aff'd o.b. 129 N.J.L. 401 (E. & A. 1943), and N.J. Suburban Water Co. v. Bd. Public Utility Comm'rs , 123 N.J.L. 303, 308 (E. & A. 1939), cert. denied

sub nom. McGregor v. Bd. of Public Utility Comm'rs , 309 U.S. 663, 60 S. Ct. 582, 84 L. Ed. 1010 (1940). Where a claim of confiscation fails, and a challenge remains to the reasonableness of the rate it is said that the court should "weigh the evidence and resolve for itself the issue of reasonableness." In re Intrastate Industrial Sand Rates, supra , 66 N.J. at 21; In re New Jersey Power & Light Co., supra , 9 N.J. at 508; Public Service Coord. Transport v. State; supra , 5 N.J. at 215. But the claim of confiscation "is meritorious only where the rate base determination, allowances of income and operating expense, and finding of rate of return are illegally arrived at or are not found." In re New Jersey Power & Light Co., supra 9 N.J. at 535. And, although not a strong presumption, Public Service Coordinated Transport, supra 5 N.J. at 215-216, the Board's action is, where the issue of reasonableness has been raised, presumably valid since its exercise of the rate-making power involves "a broad measure of legislative discretion." In re New Jersey Power & Light Co., supra 9 N.J. at 508. As the court said in State v. N.J. Bell Tel. Co. , 30 N.J. 16 (1959):

So long as the determination of the rate base reflects the reasonable judgment of the Board and is grounded upon sufficient relevant and competent evidence, it is not the judicial province to interfere in what is essentially a legislative function. [at 29-30]

In selecting its approach to the problem before it the Board is free to act as it sees fit provided that

In fact, it has been held that "the Legislature in Title 48 intended to delegate the widest range of regulatory power over public utilities to the PUC." Deptford Tp. v. Woodbury ...

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