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Petition of Valley Road Sewerage Co. for Approval of an Increase in its Rates for Sewer Service

November 3, 1995


On appeal from the Board of Regulatory Commissioners.

Approved for Publication November 3, 1995.

Before Judges Baime, Villanueva and Kimmelman. The opinion of the court was delivered by Baime, J.A.D.

The opinion of the court was delivered by: Baime

The opinion of the court was delivered by BAIME, J.A.D.

This appeal presents questions of public concern. At issue is whether the Board of Regulatory Commissioners (now the Board of Public Utilities) (Board) may deny or curtail rate relief to a public utility based upon that utility's failure to furnish adequate service. We hold that the Board may deny a rate increase because of a utility's poor performance over an extended period of time notwithstanding the fact that operating losses will inevitably follow from the denial.


The salient facts are not in dispute. Valley Road Sewerage Company (Valley) applied to the Board for a rate increase on August 21, 1992. The matter was referred to the Office of Administrative Law as a contested case. Following lengthy hearings, the administrative law Judge issued an initial decision in which he recommended denying Valley's application. Citing years of financial mismanagement, the Judge concluded that the company's present management could not be relied upon to apply the requested additional revenues to the problems besetting the company. The Board adopted the Judge's findings and denied Valley's request for rate relief pending hearings concerning whether the company's operating authority should be revoked. The Board additionally directed that the docket "remain open in the event that future circumstances render rate relief feasible."

Valley appealed the Board's order. While this appeal was pending, the Board conducted hearings and ultimately directed the filing of a complaint in the Chancery Division for the appointment of a receiver to manage the company's day-to-day operations and eventually sell it to a qualified entity. For the reasons set forth in its letter opinion dated April 18, 1995, the Chancery Division ordered the appointment of Robert G. Goode as receiver with full authority over the company's assets and operations. The court directed the receiver to solicit offers from qualified buyers interested in acquiring Valley. We are told that Valley has filed separate appeals from the Board's revocation decision and the Chancery Division's judgment.

The sole issue in the present appeal is whether the Board violated Valley's constitutional and statutory rights by denying rate relief. The company was established in the early 1960's by Richard Schindelar, who remains the sole shareholder. Valley provides sewage collection and treatment services to customers in Hillsborough and Tewksbury Townships. A small segment of its customers are served by a treatment plant in Tewksbury known as the Pottersville plant. The remaining customers are served by two treatment plants in Hillsborough, namely the River Road and Fieldhedge Drive plants.

The company's financial condition has long been precarious. Valley has never reported a profit. Its financial statements disclose negative retained earnings approaching two million dollars. Its liabilities include over $400,000 in overdue gross receipts and franchise taxes owed to the State. This liability is the result of Valley's acknowledged failure to pay this tax since the State began collecting it in 1980. Additional taxes are owed to various municipalities.

Valley also has an appalling record of environmental violations. The record reveals chronic problems with "infiltration and inflow" of excessive amounts of extraneous water, such as groundwater and sump pump discharge, into its sewage collection system. Despite numerous skirmishes with the Department of Environmental Protection (DEP), penalty assessments continue to be imposed at an alarming rate. In 1985, Valley entered into an administrative consent order with the DEP in which it agreed to pay over $12,000 in penalties for numerous violations at the company's River Road and Fieldhedge Drive plants. Valley also agreed to undertake remedial measures, including the hiring of a full-time operator for the two plants and the retention of an independent contractor to reduce the company's infiltration and inflow problem. Only parts of this remediation plan were actually implemented.

In 1992, the DEP assessed Valley approximately $660,000 in penalties for violations of effluent limits and other conditions of the company's pollution discharge permit. Although the DEP subsequently agreed to reduce these penalties if Valley's infiltration and inflow problems were eradicated, no evidence was presented that the company ever submitted the required plan to the DEP.

In addition, Valley's permit for its Fieldhedge Drive plant was conditioned upon the plant's ceasing operations no later than November 1, 1987, by interconnecting with the Hillsborough Township Municipal Utilities Authority system pursuant to a bulk customer agreement. However, no interconnection has taken place because Valley failed to reduce its infiltration and inflow to the levels required by the bulk customer agreement.

Valley contends that its failure to resolve these environmental problems was the result of its inability to obtain sufficient revenues. However, the record reflects that Valley filed for rate increases twice before the present application, and that it received substantial increases on both occasions. ...

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