Opinion ID: 2339485
Heading Depth: 2
Heading Rank: 2

Heading: May a municipal utility include in its annual operating charge a component to recover costs of capital construction?

Text: This point was expressly left undecided in Crowe v. Mayor & Council of Sparta, supra, because, in the circumstances of that case, the municipality was not actually recovering original capital costs through its sewer rates. 106 N.J. Super. at 206. Still, the court permitted inclusion in the rate base of what is substantially the same item  a provision for depreciation allowance. Id. We perceive no substantive difference in the principles. In essence, the obligation of a municipal utility is to establish a fair rate to the users so that [it] may receive a just return on the fair value of its property and so that the public is not burdened with unreasonable costs. H.P. Higgs Co. v. Borough of Madison, supra, 188 N.J. Super. at 228. As noted, our law has never imposed an orthodoxy of ratemaking on municipalities and our courts have regularly looked to authority law for guidance. Id. at 227 (citing Reahl v. Randolph Township Mun. Util. Auth., supra, 163 N.J. Super. 501). Under provisions applicable to authority law, recovery of capital costs in the rate structure is clearly appropriate. See Airwick Indus., Inc. v. Carlstadt Sewerage Auth., supra, 57 N.J. at 121-22; White Birch Realty Corp. v. Gloucester Township Mun. Util. Auth., supra, 80 N.J. at 171; see also P.J. Ritter Co. v. Mayor of Bridgeton, 135 N.J.L. 22, 33-34 (Sup.Ct. 1946), aff'd, 137 N.J.L. 279 (E. & A. 1948) (analogizing municipal-utility and private-utility ratemaking). That municipalities could recover capital costs in utility rates appears to be the practice heretofore followed by our courts. See Gabriel v. Borough of Paramus, 45 N.J. 381, 389 (1965) (annual sewer charges included debt-service component). Since 1983, municipal water utilities have been required to establish rates that include, among other things, recovery of capital expenditures and debt service. N.J.S.A. 40:62-77. According to tables contained in a recent report of the New Jersey Division of Local Government Services, most of the state's municipalities now recover some portion of the debt service for municipally-owned utilities from rate charges. See New Jersey Division of Local Gov't Services, 46th Annual Report 665-72 (1983). [7] We therefore do not believe that it is inappropriate for a municipality to include a capital-cost-recovery item in utility ratemaking, subject to the overall requirement that the rates be free from patent unreasonableness. Piscataway Apartment Ass'n v. Township of Piscataway, supra, 66 N.J. at 109.