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In re Applications of Verizon New Jersey

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


January 4, 2008

IN THE MATTER OF THE APPLICATIONS OF VERIZON NEW JERSEY, INC. FOR THE APPROVAL OF THE SALE AND CONVEYANCE OF REAL PROPERTY LOCATED IN THE CITY OF JERSEY CITY, HUDSON COUNTY, NEW JERSEY TO KENNEDY BUSINESS CENTER, L.L.C.
IN THE MATTER OF THE APPLICATIONS OF VERIZON NEW JERSEY, INC. FOR THE APPROVAL OF THE SALE AND CONVEYANCE OF REAL PROPERTY LOCATED IN THE CITY OF EAST ORANGE, ESSEX COUNTY, NEW JERSEY TO TRIAD INTERNATIONAL, INC.
IN THE MATTER OF THE APPLICATIONS OF VERIZON NEW JERSEY, INC. FOR THE APPROVAL OF THE SALE AND CONVEYANCE OF REAL PROPERTY LOCATED IN THE TOWNSHIP OF FREEHOLD, MONMOUTH COUNTY, NEW JERSEY TO 75 BANNARD ST. REALTY CORP.

On appeal from a final administrative decision of The New Jersey Board of Public Utilities, Docket Nos., TM05100861, TM05110957 and TM06010015.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 26, 2007

Before Judges A. A. Rodríguez, C. S. Fisher and C. L. Miniman.

Appellant, New Jersey Division of Rate Counsel (Rate Counsel), challenges the approval by the Board of Public Utility (BPU) of the sale of three separate properties owned by Verizon New Jersey, Inc. (Verizon) to private parties.*fn1 We affirm.

The facts are not disputed. The first property, located in Jersey City, consists of a six-story building on approximately 1.20 acres of land. This property was purchased prior to 1981 for $709,500. Verizon spent $7,056,846 in improvements. In 2004, Welsh Chester Galiney Matone, Inc. (WCGM), a real estate appraiser, appraised its market value at $8.9 million. In 2005, this appraisal was revised to fall between $6.25 million and $6.5 million. The property was advertised for sale in May 2005. Three bids were received and rejected for being less than the appraised fair market value. In July 2005, a bid for $6,405,000 made by Kennedy Business Center, L.L.C. was accepted by Verizon. The second property is located in East Orange and consists of a three-story building on approximately 5.40 acres of land. This property was acquired in two transactions: one in May 1957 and the other in October 1970. The total cost was $3,473,400. Verizon spent $9,117,590 in improvements. WCGM appraised the East Orange property in 2004 and set the market value at $2,425,000. The property was advertised for sale in July 2005. The highest bid in the amount of $2.8 million was made by Triad International, Inc. and accepted by Verizon.

The third property consists of a one-story building on approximately 8.153 acres of land located in Freehold. This property was acquired in 1992 for $3.25 million. Verizon spent $5,530,811 in improvements. WCGM appraised the property in 2004 at $4.25 million. In 2005, WCGM reappraised the property and set the fair market value at $6.15 million. The property was advertised for sale in August 2005. The highest bidder, 75 Bannard St. Realty Corp., offered $6,125,000, which was accepted by Verizon. There is no relationship between Verizon and any of the purchasers.

Verizon filed a petition with the BPU seeking approval for all three sales. Rate Counsel filed comments with the BPU recommending that the Jersey City, East Orange and Freehold properties be subject to independent and more recent appraisals. Verizon filed reply comments, opposing Rate Counsel's arguments. On March 22, 2006, the BPU approved the sale of the Jersey City and East Orange properties. On March 31, 2006, the BPU approved the sale of the Freehold property. Verizon was not obligated to share the proceeds from its land sales with ratepayers. Rate Counsel appeals from the BPU approvals, limiting its challenge solely to the issue of appropriateness of the profit sharing provisions. Specifically, Rate Counsel contends that the BPU's ruling denying ratepayers the sharing of proceeds from the sale of utility property based upon the form of regulation is inherently wrong and should be reversed and vacated. The specific arguments are:

A. The BPU's interpretation that N.J.S.A. 48:2-21.18 limits its authority under N.J.S.A. 48:3-7 to require sharing of proceeds is an impermissible expansion of the scope of N.J.S.A. 48:2-21.18 beyond what the statute provides. Such action is legal error and is arbitrary, capricious, and an abuse of discretion that eviscerates and harms the interest of New Jersey ratepayers which the Board has been entrusted to protect.

B. The Board's decision to deny ratepayers in the sharing of proceeds from the sale of [Verizon] utility property constituted administrative rule making, within the meaning of the Administrative Procedure Act, N.J.S.A. 52:14B-1 to 15 and required a rulemaking.

C. Public policy supports the sharing of proceeds from the sale of a utility's assets with New Jersey ratepayers, and the Board's action is inconsistent with that public policy and should be vacated.

Rate Counsel also contends that the BPU's failure to address issues raised by Rate Counsel below relating to prudency was arbitrary, capricious and amounted to reversible error, which warrants remanding to the Board for consideration. In particular, Rate Counsel argues:

A. Once raised prudency issues must be addressed and there is Board precedent for addressing the prudency of business decisions made by a utility company.

B. The Board's ruling deprived Rate Counsel of a fair opportunity to address factual questions related to prudency that would have assisted the Board in its review, and may have potentially altered the Board's ultimate determination which mandates reversal of the Board's ruling and remand.

We reject these arguments.

Our standard of review is clear. We will not upset the final determination of an agency unless it is shown that it was arbitrary, capricious or unreasonable, or that it violated legislative policies expressed or implied in the act governing the agency. Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963). We respect an agency's expertise in its interpretation of statutes and promulgation of regulations there under. Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973). However, the ultimate interpretation of statutes is a judicial and not an administrative function. Ibid. Thus, we are in no way bound by the agency's interpretation. Ibid.

Applying that standard here, and after a careful review of the applicable authorities, we conclude that the final decision of the BPU is legally correct and sound. We agree with the BPU that PAR-2, an alternative form of regulation, was approved by the BPU previously. PAR-2 does not require income sharing with ratepayers, but provides "alternative means that benefit the public's interest."*fn2

In its Order of Approval for these sales, the BPU agreed with Verizon's position that:

. . . the Ratepayer Advocate continues to maintain its position that Ratepayers be permitted to share in the proceeds of the sale despite the fact the Board squarely rejected its sharing argument in a separate investigative proceeding solely on this issue.

[Investigation Order].

We note that the BPU has already resolved the income sharing issue in the Investigation Order, where the BPU determined that:

proceeds sharing is outside of the plan for an alternative form of regulation, which has been in place since PAR-2's July 1, 2002 effective date, the [BPU] declines, at this juncture, to reopen the PAR-2 Order to otherwise impose it. The [BPU's] adoption of the alternative regulation plan with modifications, and PAR-2 having become effective without a challenge to the modifications by VNJ, reflects, in effect, a "trade off" between traditional rate base, rate of return regulation and alternative regulation, with each party accepting and relying upon both benefits and liabilities to the approach. Under the circumstances herein, including the absence of earnings sharing in PAR-2, which was not challenged on any appeal by the [Rate Counsel], as well as the [BPU's] subsequent, non-appealed rulings that under PAR-2 there is no sharing of land sales proceeds, it would not be appropriate, at this juncture, to vitiate one aspect of PAR-2 so as to require proceeds sharing, while still requiring [Verizon] to abide by its other PAR-2 obligations, including the requisite additional $55 million spending by [Verizon] over a five year period for its Access New Jersey ["ANJ"] program for communications technology equipment for the State's schools an libraries, as well as other required enhancements of its ANJ and Lifeline programs. Accordingly, the [BPU] finds that to reopen the PAR-2 Order at this juncture to require a sharing of proceeds from property sales and/or treatment of losses therefrom could jeopardize provisions of the PAR-2 Order which have been of substantial benefit to ratepayers and the State.

[Ibid. (emphasis added).]

We agree with the BPU's conclusion that Rate Counsel is raising an argument that has previously been rejected for good reasons by the BPU.

Affirmed.


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