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Petition of County of Essex

April 10, 1997

IN THE MATTER OF THE PETITION OF THE COUNTY OF ESSEX (1) FOR APPROVAL AND CONTINUATION OF INTERIM SOLID WASTE DISPOSAL RATES; AND (2) FOR APPROVAL OF A CUBIC YARD CONVERSION RATIO OF 3:1.


On appeal from a final decision of the Department of Environmental Protection and Energy.

Approved for Publication April 10, 1997.

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

The opinion of the court was delivered by: Kimmelman

The opinion of the court was delivered by

KIMMELMAN, J.A.D.

The appeal from the August 23, 1994, final order of the Department of Environmental Protection and Energy (DEPE) by Waste Management of New Jersey, Inc., (WM) under Docket No. A-0522-94T1 and the appeal and cross-appeal of the same order by Solid Waste Transfer and Recycling, Inc., (SWTR) and the City of Newark, respectively, under Docket No. A-0351-94T3 have been consolidated for the purpose of this opinion.

The principal legal issue involved in both appeals focuses upon the propriety of applying automatic annual incremental increases, based upon the Consumer Price Index (CPI), to the rates being charged Essex County (Essex or County) by WM and SWTR, the operators of two solid waste transfer stations in the City of Newark (Newark). Analysis of this issue depends upon whether interim acceptance, under emergency conditions, by the Board of Public Utilities *fn1 (Board) of the contracts entered into by WM and SWTR with the County for the operation of the transfer stations should be construed as having firmly resolved the enforceability of the CPI-based automatic rate increase clause in each contract. Other issues involve whether SWTR is entitled to compensation due to solid waste tonnage shortfalls and whether WM is entitled to interest on claims against the County resolved in its favor for $4,841,930 in tonnage shortfall adjustments and for $1,065,746 in landfill taxes paid by it.

I

By way of background, it appears that for many years, solid waste emanating from Essex County and other adjacent northern New Jersey counties had been disposed of at landfills located in the Hackensack Meadowlands (Meadowlands) and operated by the Hackensack Meadowlands Development Commission. As the Meadowlands neared its capacity, the counties using its facilities were directed to make alternative arrangements.

In earlier litigation, a court order was entered in 1982, and amended in 1983, requiring Essex County to cease all use of the Meadowlands landfill facilities after July 31, 1987. It was contemplated that the County would develop and construct a resource recovery facility for its waste and that such facility would be operational on or about the January 31, 1987, cut-off date. Unfortunately, the construction plans for the County's resource recovery facility were delayed and the facility was not scheduled to be operational until sometime in 1990. Because the Meadowlands landfills were to close on July 31, 1987, the County proposed an emergency interim plan whereby it would undertake to solicit companies engaged in solid waste collection and disposal who would be interested in the construction and operation of temporary transfer stations, that is, facilities where collection trucks empty their loads of solid waste for loading onto larger trucks or railway cars and transfer to out-of-state disposal sites.

In December 1986, the County issued a solicitation of interest seeking proposals for the establishment of one or more solid waste stations to operate on an interim basis for approximately three years until the County's resource recovery facility became operational. It was noted that any proposed transfer station would need DEP approval and that the rates or tariffs to be charged would need approval by the Board. Approximately 100 solicitations were mailed out to prospective operators and advertisements were placed in trade journals as well as in the Star Ledger. Nine companies responded and ultimately the responses were narrowed down to two companies based on suitability of the site proposed, access to transportation networks, and readiness of structures already in place at the sites. The County informed the DEP of the preferential proposals submitted by WM and SWTR.

At the behest of the DEP and the County, Governor Kean issued an emergency declaration which enabled the DEP to circumvent the lengthy process for initiating transfer station approval. The DEP was then able to issue the necessary performance permits so that WM and SWTR could operate as licensed handlers of solid waste. Meanwhile, the County had commenced extensive contract negotiations with WM and SWTR and settled upon three solid waste transfer sites, two in Newark and one in Orange. At a later date, the site in Orange was eliminated because the solid waste capacity was adequate at the two Newark sites. The tariff rates to be charged by WM and SWTR for each ton of waste received were finally settled upon and each appellant executed a detailed written agreement with the County on July 1, 1987. Specific provisions of each contract such as the automatic CPI-based escalator clause and the standard clause that each contract was to be governed and construed pursuant to the laws of the State of New Jersey are the principal focus of this appeal.

The contracts were awarded and executed by the County not as a result of competitive bidding normally required by the Local Public Contracts Law (LPCL), N.J.S.A. 40A:11-1 to 40A:11-49, but rather under the emergency bidding exception contained in N.J.S.A. 40A:11-6. Newark immediately filed a complaint in lieu of prerogative writs in the Law Division challenging the construction and operation of the two waste transfer facilities by WM and SWTR, contending that the July 1, 1987, transfer station contracts were void because they were not awarded in compliance with the public bidding provisions of the LPCL. Newark's position was that the County was not entitled to invoke the emergency public health, safety, or welfare provisions of N.J.S.A. 40A:11-6 because the County had intentionally created the emergency by not earlier resolving the problem of lack of solid waste facilities. On the return date of an order to show cause, the Law Division Judge refused to restrain the continued construction of the transfer stations but, on motion of the DEP and because a final administrative order was involved, did transfer the matter to the Appellate Division. In a very thorough opinion by Judge Dreier which recounted the historical background of this matter, this court held that WM's and SWTR's contracts with the County were lawfully negotiated and awarded pursuant to the emergency bidding exception of the LPCL. See Newark v. Essex County Bd. of Chosen Freeholders, 221 N.J. Super. 558, 535 A.2d 517 (App. Div. 1987).

The two transfer stations located in Newark were constructed and became operational on time but are no longer in use.

II

Initial regulatory approval was sought when, on July 16, 1987, the County filed an application with the Board for Certificates of Public Convenience and Necessity for three solid waste transfer stations (later amended to include only the two stations in Newark). The County further sought approval of the contracts it had entered into with WM and SWTR and sought approval of the tariff rates representing the charges to the County as set forth in such contracts. This expedited interim approval was requested because of the approaching July 31, 1987, Meadowlands closure deadline.

The Board held a public hearing on July 28, 1987, and, on July 31, 1987, ordered that Certificates of Public Convenience and Necessity be issued to the County and sub-certificates be issued to WM and SWTR for the transfer stations involved. In the same order, the Board emphasized the "emergent nature" of the County's petition and said "the Board HEREBY ACCEPTS the Contracts [between the County and WM and SWTR] . . . ." The Board approved, on an "interim, initial, emergent" basis, the tariff rates submitted by the County and specifically provided:

"Operations authorized herein are subject to the rights and duties of public utilities as set forth in Title 48 New Jersey Statutes Annotated and the New Jersey Administrative Code applicable to public utilities."

On February 4, 1988, the County filed a supplemental petition with the Board for final approval of the interim initial tariff rates "subject to this Board's continuing rate-making review and jurisdiction. . . ." On May 2, 1988, the Board transferred the matter to the Office of Administrative Law (OAL) as a contested case. In that proceeding, Newark sought to compel WM and SWTR to respond to discovery requests but the Administrative Law Judge (ALJ) ruled that WM and SWTR were not parties to the proceeding and should not be joined. Consequently, an interlocutory application was made by Newark to have the Board review the ALJ's ruling.

On August 5, 1988, the Board, by an order signed by its then president, Christine Todd Whitman, joined WM and SWTR as parties in the case and made clear that it regarded WM and SWTR and the transfer stations operated by these appellants to be public utilities. The order was significant and far reaching for the purposes of this appeal and provided, in pertinent part, as follows:

The solid waste disposal rates which Essex seeks to have approved are based almost entirely upon the service fees or charges to Essex contained in certain lengthy contracts between it and the respective Transfer Stations pursuant to which the Transfer Stations furnish solid waste disposal service to Essex.

The contracts are complex. They were negotiated in reliance upon the emergency provisions of the Local Public Contracts Law, N.J.S.A. 40A:11-1, et seq. . . .

The rates in question are "initial rates" and as such did not and do not require hearings to become effective. However, as indicated by the Board at its hearing concerning the petition of Essex held July 28, 1987, further hearings would be held in the future to consider the reasonableness of any rate that would be set. And, as stated by the Board in its Order of July 31, 1987, the rates were approved by the Board as "interim, initial emergent tariff rate(s)" on an "interim and subject to refund" basis. The Board, therefore, clearly indicated in the hearing and in the Order that the rates would be subject to subsequent hearing and scrutiny and, if warranted, refund. To achieve such scrutiny the Board transmitted the petition for their final approval to the Office of Administrative Law (OAL) for hearings and examination with respect to the reasonableness thereof.

Approximately 98% of the rates is made up of the monies paid by Essex to the Transfer Stations pursuant to said contracts. If the contracts, and the charges to Essex made thereunder, are considered sacrosanct or unreviewable by the Board, as Waste Management would have it, there can be no effective examination of Essex's solid waste disposal rates. This is not what the Board intended, and not what the public good requires.

In her July 12, 1988, memoralization [sic] of the ruling under interlocutory review, the ALJ correctly inferred that the Board has deemed the Transfer Stations to be public utilities subject to its general jurisdiction under N.J.S.A. 48:2-13. Any solid waste facility, including a transfer station, constructed or operated pursuant to the provisions of the Solid Waste Management Act, N.J.S.A. 13:1E-1, et seq., shall be deemed a public utility and shall be subject to the rules and regulations of the Board. N.J.S.A. 13:1E-27. The Transfer Stations each hold a Certificate of Public Convenience and Necessity to engage in the business of solid waste disposal and, if [sic] fact, are so engaged. It would be unlawful for them to be engaged in the solid waste disposal business unless they held certificates. N.J.S.A. 48:13A-6.

In light of these statutes the argument of Waste Management that it did not seek a Sub-Certificate to engage in solid waste disposal, that it did not and does not consider itself a public utility and that it is a "private vendor", rather than a public utility, is of no consequence. As public utilities, the Transfer Stations must bear the burden of justifying the reasonableness of their rates, i.e., the service fees and charges to Essex under the contracts. Central R. Co. of N.J. v. Dept. of Public Utilities, 7 N.J. 247, 81 A.2d 162 (1951). Such contracts, although their provisions were agreed upon by the Transfer Stations and Essex, are nevertheless subject to modification by the Board in the public interest. When the state, through the Board, exercises its soverign [sic] power over rates, the contract rights of the parties must yield. In re Application of Saddle River, 71 N.J. 14, 362 A.2d 552 (1976) at p. 23.

In this proceeding complete relief, i.e., a determination of the reasonableness of the interim, emergent, initial rates charged by Essex for solid waste disposal and, if warranted, a refund of a part of such rates, cannot be accorded among those already parties, i.e., Essex, Newark and other municipalities, the Department of the Public Advocate, Division of Rate Counsel, and Board Staff, unless the Transfer Stations are joined as parties. It is the Transfer Stations and the Transfer Stations alone, that possess most if not essentially all of the information needed to determine the reasonableness of the rates; the service fees or charges to Essex under said contracts comprise nearly the whole of the rate which is in turn charged by Essex to the people of Essex County for solid waste disposal. Under such circumstances we cannot blindly accept such fees and charges as a given.

WM sought a stay of the Board's August 5, 1988, ruling and sought an administrative hearing regarding its status as a public utility. On September ...


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