On appeal from Superior Court of New Jersey, Law Division, Burlington County.
Seidman, Antell and Lane. Seidman, P.J.A.D. (dissenting).
Defendant Edgewater Park Sewerage Authority (Edgewater) is appealing from the whole of the final judgment entered by the Law Division directing defendant to establish a new rate schedule for sewer service so that apartment units having one and two bedrooms would not pay an annual rate for sewer service over two-thirds of that paid by single-family dwellings and denying relief on the third-party complaint. Plaintiffs, The Phoenix Apartments, Inc. and Phoenix Associates, Ltd., are appealing from that portion of the final judgment which denied damages. We reverse plaintiffs' judgment.
Plaintiffs filed a complaint in lieu of prerogative writs against Edgewater alleging that the action of defendant in charging one-and two-bedroom apartment units the same annual fee for sewer service as it charges single-family residences and condominium units containing at least three bedrooms was arbitrary, inequitable and discriminatory. They sought to have defendant directed to reduce the annual sewer charge made for apartment units to no more than two-thirds of the charge for the single-family residences and condominium units. In addition, plaintiffs sought to be reimbursed for sewer service charges paid that exceeded what is determined by the court to be fair and equitable for one-and two-bedroom apartment units. Edgewater filed a third-party complaint against Willingboro Municipal Utilities Authority (Willingboro) seeking to have third-party defendant directed to reduce the annual sewerage treatment charge proportionately to the amount awarded plaintiffs and for money damages in an amount equivalent to the amount that the court deemed to be charges which exceeded what was fair and equitable.
Since Edgewater does not have its own sewerage treatment facilities, it entered into an agreement with Willingboro for treatment of sewage under a 40-year contract. A "domestic house connection" included any individual family or dwelling unit, including an apartment unit. The rate schedule agreed
upon was subject to adjustment only if the rates prevailing in Willingboro were subsequently altered, and then Edgewater's rates would be adjusted on a dollar-per-dollar basis. Edgewater charges a flat annual rate to users of its sewer system and makes no distinction between apartments and single-family dwellings.
The Phoenix Apartments were connected to the Edgewater system during the fall of 1968. The apartment complex is on a 50-acre tract and consists of about 55 buildings. The apartments were completed in 1971 and contain 446 residential units, 328 one-bedroom units and 118 two-bedroom units, including town houses.
In 1978 Edgewater Park had a population of about 8,500 residents. It had 1,540 single-family residences, of which 10 had one bedroom, 57 had two bedrooms and the balance of 1,473 had three or more bedrooms. It also had 1,298 apartments and 488 condominium units, of which 75% had one bedroom and the balance, two bedrooms. As of December 1, 1977 there were 1,332 single-family residences connected to Edgewater's sewerage system. At that time there were 1,298 apartment units and 466 condominium units connected to the system. For the year ending November 30, 1977, Edgewater's total budget was $198,750. It paid Willingboro $124,111.28. For 1978 Edgewater's total budget was $227,550. It paid Willingboro that year $126,313.13.
Norman Wolgin, the original builder and developer of the apartments, testified that he kept monthly rent rolls on all 446 units, showing how many people resided in an apartment, the approximate age, name, rent and the date of the lease, because the county health board required such record. The records were prepared by his office personnel, and he reviewed them every couple of months. The trial judge permitted the introduction of these documents, stating that they were business records kept in the regular course of business under Wolgin's supervision. The rent rolls were essential to the expert opinion of Bennett Levin,
a professional engineer called by plaintiffs. Levin testified that there was a monthly average of 694 people residing in the apartment complex, for a total of 1.56 persons per dwelling unit. He applied that figure against the 1,786 apartments in the township and evolved a population of 2,786 people residing in apartments. He then concluded that 5,713 people resided in single-family dwellings, or an average of 3.71 persons per single-family dwelling. Gerald Speitel, a professional engineer, testified that in his opinion one-and two-bedroom apartments should not pay the same amount of the fixed costs because the apartments paid their own money to construct the internal facilities and because they have much fewer residents per unit than a single-family dwelling. He felt that apartments should pay about two-thirds of the charge that single-family residences pay. From his survey of 332 single-family residences served by New Jersey Water Company, he concluded that the average home used 243 gallons a day. Combining his survey with one prepared by the defense, he concluded that a single-family residence used 230 gallons a day, whereas an apartment used 154 gallons a day. From this he concluded that an apartment used 67% of the water used by a single-family residence.
William G. Major, a professional engineer and land surveyor who is the consulting engineer for Edgewater, testified there were budgetary items not related to flow, such as fixed costs for salaries of board members, insurance, trustee fees, debt service and principal-interest. Harry S. Allen, president of Charles J. Kupper, Inc., testified that greater emphasis should be placed on service than on use of the sewerage system because the system is designed to serve 24 hours a day and whether the system is in extreme use or not by a given user. Based on a review of water use and waste water flow for apartments and houses, he said he found that it did not provide a distinct classification of user. Only 12.6% of the total Edgewater budget was variable or flow-dependent. Herbert S. Krugman, a consultant specializing in utility rates, cost of service and financial analysis, testified that water consumption was not necessarily the best or most
equitable method of determining sewerage service charges because costs were being incurred to measure a very small, variable element, and a complicated rate schedule was being set up. For Edgewater's system he determined the fixed costs per unit for all types of users to be $86.13, which includes only 12 cents for the variable element. The optimum goal that rates and rate designers should achieve is to attempt to bill fairly and equitably in an easy, understandable manner, at least cost.
The trial judge concluded that apartments have a sewage flow substantially less than dwellings in Edgewater Park. The difference between dwellings and apartments in sewage flow was significant and bore a direct relationship to "use or service." He concluded there was discrimination. He opined that the water consumption figures provided adequate support for this determination. The judge ruled that plaintiffs were entitled to prospective relief only, stating that the evidence showed that sewer charges were components of rents collected by plaintiffs from their tenants. The judgment directed Edgewater to establish new rates for apartments and dwellings, with the new rates reflecting a difference between dwellings ...