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Petition of Public Service Elec. and Gas Co.

June 26, 1997


On appeal from the Board of Regulatory Commissioners.

Approved for Publication September 8, 1997.

Before Judges Landau, Wallace and Kimmelman. The opinion of the Court was delivered by Wallace, Jr., J.A.D.

The opinion of the court was delivered by: Wallace

The opinion of the Court was delivered by


This is a public utility rate case. The Coalition for Fair Competition and Daniel Chinitz (Coalition) appeal from a series of orders spanning December 1992 to May 1994 by the Board of Regulatory Commissioners (Board) granting rate petitions to Public Service Electric & Gas (PSE&G). The orders disposed of two consolidated rate petitions. One rate petition sought an increase in base rates for gas and electric services. The other petition sought an increase in charges for installing gas appliance parts and performing repair services. In this appeal, the Coalition challenges (1) the propriety of the Board's decision-making technique of adopting three comprehensive settlement agreements in place of its own independent analysis and findings of fact, and (2) the sufficiency of the evidence supporting the Board's ruling on the APSO petition. We affirm.


On October 1, 1991, PSE&G petitioned the Board for approval to increase its charges for the delivery and installation of gas appliance replacement parts and other related services. This petition was referred to as the Appliance Parts and Service Order (APSO) petition. PSE&G sought an average increase of 13.6% per appliance part and service order from the rates that had been implemented on August 8, 1990. On November 14, 1991, PSE&G petitioned the Board for an increase in its base rates for gas and electric services (Base Rate) in the total amount of 688.7 million. The two petitions were subsequently consolidated and transmitted to the Office of Administrative Law for hearing as a contested case.

In February 1992 the Coalition moved to intervene. The Coalition identified itself as a trade association with members in the heating, cooling, and appliance service business. It alleged that it would be injured if PSE&G were permitted to raise its base rates and to provide APSO services below cost to the detriment of the Coalition members. At the hearing on its motion to intervene on May 5, 1992, the Coalition noted that it wanted to appear solely with respect to the points raised in its motion and did not contemplate that its intervention would cause undue delay.

Daniel Chinitz, owner of a plumbing supply company joined in the motion to intervene. He claimed that he would be harmed if PSE&G's requests were granted. Rate Counsel *fn1 supported the Coalition's motion to intervene. The Administrative Law Judge (ALJ) granted the motion and scheduled the end of August 1992 for consideration of the APSO case.

Fifty-nine days of evidentiary hearings were conducted before the ALJ between April 27, 1992 and August 27, 1992, generating over 12,000 pages of transcript and over 900 exhibits. The Coalition participated only on the two dates scheduled for the APSO portion of the hearings, August 24 and 25.

After closing the record on August 27, 1992, the ALJ established a briefing schedule and a schedule of settlement negotiations addressed to the Base Rate issues. The Coalition did not join in those negotiations.

The settlement negotiations resulted in three settlement agreements, referred to jointly as the "Stipulations," which purported to settle the issues involved in the Base Rate case. The first agreement was captioned the Revenue Requirement Stipulation. The parties executing this Stipulation were PSE&G, the Board Staff, Rate Counsel and one of the intervenors, Federal Executive Agencies. PSE&G had originally sought a $476.3 million increase in electric base revenues and a $145.5 million increase in gas base revenues. The signatories agreed to "an increase in electric base revenues of $235 million and an increase in gas base revenues of $35 million" and to a rate of return of 10.08% on both electric and gas. The Stipulation explained in detail how these figures were computed and expressed that the record and exhibits in evidence provided ample support for the Stipulation. Further the parties agreed that the Stipulation "represents a fair and reasonable overall Disposition of this proceeding which protects and promotes the interests of the electric and gas customers and affords a reasonable level of rate relief which will enable [PSE&G] to continue to render safe, adequate and proper electric and gas service to the public." The parties also agreed that the Stipulations were intended to be a "full, final and complete resolution of the issues contained therein."

The second Stipulation was captioned the Electric Cost-of-Service/Rate Design Stipulation. This Stipulation was executed by the four signatories to the Revenue Requirement Stipulation, plus four other intervenors: New Jersey Food Council, Princeton University, New Jersey Industrial Energy Users, and Millen Industries, Inc. This Stipulation allocated the $235 million increase in electric base revenues among eleven listed "classes" of services and detailed charges for various services.

The third Stipulation was the Gas Cost-of-Service/Rate Design Stipulation. This Stipulation was signed by PSE&G, the Board Staff, Rate Counsel, and five intervenors: the Township of South Orange Village, the Township of Glen Ridge, the Montclair Cogeneration Project Associates Limited Partnership, New Jersey Industrial Energy Users, and North Atlantic Utilities. This Stipulation allocated the gas base-rate increase among four kinds of services: residential, general, large volume, and street lighting. It also detailed charges for various services.

After reviewing the history of the hearings and subsequent negotiations, the ALJ, in his initial decision dated December 14, 1992, noted that "all active parties" had submitted three Stipulations to settle all outstanding issues in the Base Rate case and that the APSO issues would be decided later. The ALJ stated:

After careful review, I FIND that the stipulations represent a fair and reasonable overall Disposition of these proceedings which protects and promotes the interests of the electric and gas customers and affords a reasonable level of rate relief which will enable the Petitioner to continue to render safe, adequate and proper electric and gas service to the public, and is therefore in the public interest. The Stipulation[s] are attached hereto, and fully incorporated herein. I note that all active parties to these proceedings have executed these stipulation[s] of settlements.

The Coalition filed exceptions to the ALJ's decision. It asserted that PSE&G had sought successfully to remove the Coalition from the roster of parties during the negotiations over the Stipulations. The Coalition complained that it was denied the opportunity to engage in "horse trading," which it asserted was the essence of negotiation. It rejected the ALJ's premise that the issues of interest to them involving competition for appliance repairs could be resolved separately in the pending hearings in the APSO part of the case. It also insisted that the Stipulations in the Base Rate case had an "impact" on the APSO issues, and that, therefore, the Stipulations could not be accepted without the agreement of the Coalition. The Coalition urged the Board to conclude that there was no settlement to approve and to remand the matter to reopen the proceeding and to include the Coalition within the negotiation process.

At the Board's December 30, 1992 meeting, the Coalition began to argue in support of its exceptions. The Board's chairman interrupted and stated that the "proper place" for the Coalition's arguments was in the pending APSO proceeding. The chairman added that the Coalition could have attended but did not attend the numerous meetings at which the Stipulations were negotiated. Thereafter, the Board members voted to accept the Stipulations.

The Board issued its Summary Decision and Order the next day, concluding:

The Board FINDS these Stipulations represent a reasonable Disposition of the issues in these matters which will enable the Company to continue to provide its customers with safe, adequate and proper service at just and reasonable rates, and that the Stipulations appropriately balance the interest of the utility's ratepayers and shareholders, and therefore, are in the public interest. Accordingly, the Board HEREBY ADOPTS the Initial Decision of ALJ McAfoos and the three Stipulations as its own and incorporates the Initial Decision and Stipulations into the within Order as if fully set forth herein. . . .

The Board added that it was issuing a decision on a "summary" basis in order to implement the new rates by January 1, 1993, the date contemplated by the Stipulations and that a final decision would follow.

The Board considered the Coalition's concerns but agreed with the ALJ that those concerns could be addressed in the APSO case, concluding that:

In order to preserve the ability to implement any findings which may be made in support of any of these issues, the Board HEREBY ORDERS that the rates and other provisions established pursuant to the within Decision and Order shall be subject to modification, effective January 1, 1993, to reflect any findings which may ultimately be made regarding the Coalition's outstanding issues.

In its May 14, 1993 Final Decision and Order, the Board reviewed each Stipulation in detail and reiterated its decision to adopt the Stipulations subject to any modifications necessitated by the pending APSO case. The Board addressed the Coalition's challenges to its mode of decision and rejected the Coalition's claim that it had been excluded from the negotiating process:

It is clear that the Coalition had a full opportunity to participate in the litigation phase of these proceedings, consistent with ALJ McAfoos' May 5, 1993 ruling. Moreover, the Coalition had a full opportunity to present to the Board its Exceptions to the Initial Decision of the ALJ. No party filed Exceptions adverse to the Coalition and thus the Coalition was not prejudiced by the Board's shortening the period for Replies to Exceptions. Additionally, the Coalition was fully aware that settlement negotiations among the parties were occurring, but did not participate in those negotiations. The Board is not aware of any overture by the Coalition or any other non-signatory party to take part in settlement negotiations which was denied. No procedural rights of the Coalition have been violated.

Next, the Board criticized the Coalition's conceded motive and emphasized that settlements were favored.

The Coalition argues that approval of the Initial Decision and Stipulations would rob it of its ability to engage in "horse trading" with respect to its issues of concern which remain before the ALJ. The Board finds this reasoning to be faulty and disturbing. The Coalition does not, as a matter of law, have the right to prevent other parties from reaching a settlement of issues for consideration by the Board. Particularly in a case as complex and technical as this, the adversary parties themselves are often in the best position to work out the framework of a reasonable resolution of the issues. For this reason, the Courts of this State have acknowledged the strong public policy in this jurisdiction favoring settlement of litigation and will strain to give effect to the terms of a settlement wherever possible. . . . Such negotiated settlements, which must still be approved by the Board, often provide the parties with a more expeditious resolution of the proceedings and help reduce regulatory lag. In this regard, we would note that the Company's petition to increase its rates was filed in November 1991. The Board's statutes and regulations allow for a nine month statutory suspension period. While it is often virtually physically impossible for a fully litigated case of this magnitude and complexity to be resolved within the nine month period, this Board is committed to the expeditious and fair processing of all rate petitions, including this one. The Board's role in these matters is to balance the interests of the Company and its customers and to insure a timely resolution of these matters in a manner that is reasonable and fair to all parties.

The Board stressed that the Stipulations had been agreed to by Rate Counsel, the statutorily authorized entity to represent the public interest in rate proceedings, and that Rate Counsel had agreed that there is ample support in the record for the Stipulations. The Board also noted similar approval by the ALJ who had presided over the fifty-nine days of hearings and who had reviewed all the evidence.

The Board recognized that the Stipulations did not contain a line-by-line breakdown of each and every item included in rate base or in operating expenses. Nevertheless, it did not find that that was a sufficient reason not to approve them. It noted that:

Stipulations of large rate cases necessarily involve compromises among the parties and rarely identify the resolution of each and every issue in a case. Nevertheless, the Board is convinced that, viewed in their entirety, these Stipulations are the result of intense, good faith, arms-length negotiations among many parties who were actively involved in the litigation and settlement phases of this case including the Company, Rate Counsel, Board Staff and numerous intervenors. As the United States Supreme Court noted in Duquesne Light Co. v. Barasch, it is not the theory but the impact of a rate order that counts. If the total effect of a rate order cannot be said to be unreasonable, ...

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