Bangiola, J.d.c. (Temporarily assigned).
[184 NJSuper Page 358] This is an action in lieu of prerogative writs brought by plaintiff H.P. Higgs Co., Inc., and against the Borough of Madison, a municipal corporation of New Jersey, in which plaintiff
alleges that the provisions of Ordinance 31-80 are invalid and that the rates established by the said ordinance are arbitrary, capricious and discriminatory.
Madison operates a municipal electrical utility pursuant to the provisions of N.J.S.A. 40:62-12. It operates the utility solely within its geographic limits and is therefore not subject to regulation by the New Jersey Board of Public Utilities (BPU).
Madison buys all of its power at wholesale rates as regulated by the Federal Energy Regulatory Commission (FERC) and delivers energy through substations in a distribution system of transformers, poles and lines, all of which are owned by the borough. The tariffs or price at which Madison sells electricity to its consumers is not regulated by either the BPU or FERC. Madison has generally in the past followed Jersey Central Power and Light Company (JCP&L) rates in charging its customers. As a result of following those rates the municipality has realized a significant surplus and, in a sense, a "profit" by way of excess revenues over the cost of power as compared with the revenues realized from the sale of power or energy. These excess revenues have routinely been transferred to the general fund of the borough. In addition to surpluses provided by the electric utility operation, there were payments made in lieu of gross receipts taxes which have been carried as an expense of the utility. Transfers of funds from the utility from 1977 through 1981 were as follows:
Anticipated Surplus $340,000 $115,000 $389,000 $293,000
"In Lieu of" Payments 291,000 360,000 370,000 395,000
------- ------- ------- -------
TOTAL $631,000 $475,000 $759,000 $688,000
"In Lieu of" Payments 425,000
Historically, previous governing bodies (prior to those in power at the time of the enactment of Ordinance 31-80) followed the JCP&L rates.
Subsequent to the institution of this action defendant employed H. Zinder and Associates to make a study of the rate structure of the utility. Pursuant to the recommendations of the Zinder report and the experts employed by that company, Ordinance 39-81 was enacted.*fn1
The testimony in this matter was extensive; exhibits totalled 50 for plaintiff and 26 for defendant. A variety of reports and briefs were submitted which are all part of the record and were considered in the rendering of this decision.
The Madison electric utility is expressly authorized by statute. N.J.S.A. 40:62-12. The borough council is empowered to establish by ordinance the rates to be charged for supplying electricity. N.J.S.A. 40:62-13. Since the borough's electric utility does not supply electricity beyond its corporate limits, the Madison Electric Department is not considered a public utility and is therefore not subject to the regulatory jurisdiction of the Board of Public Utilities. N.J.S.A. 40:62-24. See, also, N.J.S.A. 48:2-13; In re Glen Rock , 25 N.J. 241 (1957) (BPU jurisdiction does not encompass municipal corporations); Jersey City Incinerator Auth. v. Public Utilities , 146 N.J. Super. 243, 253-54 (App.Div.1976).
Substantial differences exist between the approach taken in reviewing a proposed rate increase by the BPU as contrasted to that employed by courts reviewing a challenge to a rate fixed by ordinance for the services rendered by a municipal utility. To begin with, a privately-owned utility in a rate proceeding before the BPU has the burden of proving that the increase is reasonable. N.J.S.A. 48:2-21(d). N.J. Bell Tel. Co. v. Public
Utility Comm'rs. , 12 N.J. 568, 585 (1953); In re New Jersey Power and Light Co. , 9 N.J. 498, 526 (1952); Central R. Co. of N.J. v. Public Utilities Dep't , 7 N.J. 247, 255-257 (1951).
By contrast, a presumption of reasonableness and validity attends municipal enactments. Collingswood v. Ringgold , 66 N.J. 350, 358 (1975); Moyant v. Paramus , 30 N.J. 528, 534 (1959); Dock Watch Hollow Quarry Pit v. Warren Tp. , 142 N.J. Super. 103, 116 (App.Div.1976), aff'd 74 N.J. 312 (1977). A court's role in reviewing the exercise of a municipal function is narrow and limited. Dock Watch Hollow Quarry Pit, supra , 142 N.J. Super. at 116; Rudderow v. Mt. Laurel , 121 N.J. Super. 409 (App.Div.1972). Courts will interfere with the presumption in favor of municipal action only upon an affirmative showing that the action was arbitrary or unreasonable. The burden of proof is upon a plaintiff to demonstrate such unreasonableness. Dock Watch Hollow Quarry Pit, supra , 142 N.J. Super. at 116. See, also, Rudderow v. Mt. Laurel, supra , 121 N.J. Super. at 415; Bellings v. Denville Tp. , 96 N.J. Super. 351, 356 (App.Div.1967).
This standard of unreasonableness governs the instant case. In determining whether plaintiff here has met its burden, the court is obligated to inquire into the appropriateness of those factors raised by plaintiff and in fact used by the borough in establishing its utility rate. These factors include: (1) Madison's adoption of Jersey Central Power and Light Company retail rates for residential and GS secondary class customers; (2) accounting methods used in computing the utility ...