On appeal from the New Jersey Board of Public Utilities.
Morton I. Greenberg, J. H. Coleman and Long. The opinion of the court was delivered by Long, J.A.D.
On this appeal the Public Advocate, Division of Rate Counsel (Public Advocate) challenges a decision of the Board of Public Utilities (Board) altering the terms of a settlement agreement which had resolved the issues in a pending rate case. Because we have concluded that Public Advocate's challenge is meritorious and that the decision of the Board was arbitrary and unreasonable, we reverse.
The case arose on May 21, 1984 when the Middlesex Water Company, ("Middlesex") a public utility in the State of New Jersey, providing water to customers in parts of Middlesex County, filed a petition with the Board to increase its rates by 20.2% or $3,768,674. Middlesex also served the Public Advocate,
with a copy of the petition as a representative of the public interest. N.J.S.A. 52:27E-18.
On June 11, 1984, pursuant to N.J.S.A. 48:2-21(d) the Board suspended the effective date of the new rates for four months. (Thereafter the rates were again suspended until early 1985). The Board transmitted the matter to the Office of Administrative Law for determination as a contested case. N.J.S.A. 52:14F-1 et seq. A public hearing was held on August 1, 1984. During the period from the filing in June through the hearing and into October 1984 the parties met on several occasions to try to resolve the case. In addition to the typical rate case issues an additional issue was raised by the Board concerning some $400,000 of "overearnings" or "non-recurring" revenues by Middlesex. The parties agreed to attempt to resolve the overearnings issue once all other issues had been put to rest. Throughout these discussions Middlesex took the position that the overearnings issue was not within the scope of the rate case and questioned the legality of such a review. It was agreed by the parties that Middlesex required a revenue increase of $1,185,000.
While the Middlesex matter was proceeding, the issue of overearnings had also arisen in a rate case filed by the Elizabethtown Water Company (Elizabethtown). On September 24, 1984 in In the Matter of the Petition of Elizabethtown Water Co. the Board determined that Elizabethtown had overearned in prior years and to compensate, although it was entitled to a substantial rate increase, Elizabethtown would not be allowed to implement the new, higher rates until approximately February 1, 1985 in order to "use up" the overearnings.
Middlesex, while aware of the Board's decision in the Elizabethtown matter, agreed to settle its case. Agreement was reached with the Board staff on an overearnings amount of $200,000 rather than the staff's alleged $400,000. The parties agreed to effectuate the refund by postponing the effective date of Middlesex's increased rates for two months until December
15, 1984. Although agreeing to this, Middlesex continued to object to the legality and method of offset used by the Board in Elizabethtown. Since Middlesex's costs are affected by Elizabethtown's rates, Elizabethtown being a supplier of Middlesex, it was also agreed that the impact of Elizabethtown's rate increase on Middlesex would be permitted to be recovered upon implementation of Elizabethtown's delayed increase. A formal, written stipulation containing these terms was drafted. Language was proposed by Middlesex reserving its right to appeal the overearnings issue but that Board Staff and the Public Advocate insisted upon a stipulation which would resolve the entire case. Thus, that language was excised from the stipulation. The settlement was forwarded to the Office of Administrative Law on October 9, 1984 and was adopted in an initial decision issued October 10, 1984. The Board approved the stipulation at its October 25, 1984 meeting and ultimately entered an order confirming the approval on November 7, 1984.
On October 25, 1984 Elizabethtown filed notice of appeal and a motion for interim relief to the Appellate Division with respect to the Board's order in its case. On October 31, 1984 this court granted relief, ordering that, as soon as tariffs could be implemented, the increased rates could take effect, subject to refund pending the appeal. Following this ruling on the Elizabethtown motion, Middlesex requested a conference with the Board's staff and the Public Advocate to determine whether the parties would agree to modify the terms of the settlement to conform to the Appellate Division's order in Elizabethtown. Middlesex requested an immediate implementation of its tariffs on an interim basis to reflect the increased water costs resulting from the court's interim order in Elizabethtown. On this issue the parties agreed to permit an immediate revision in Middlesex's tariffs to allow Middlesex to increase its rates to cover its increased costs due to the Elizabethtown rate increase, subject to refund pending appeal. In addition, Middlesex requested that it receive the same treatment on the overearnings
issue as the court had ordered the Board to afford to Elizabethtown. This would effectively relieve Middlesex of the portion of the stipulation in which it agreed to ...