Court Opinion

ID: 7283452
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:22:15.56913+00
Date Added: 2024-06-11T16:19:05.208708
License: Public Domain

Btjbling, J.
(dissenting). The problem involved in this litigation is the extent to which a return on the investment of constructing and maintaining an extension of existent public utility facilities is a factor in ordering such extension at the utility’s expense.
The problem is one of first impression before this court, and has not been raised in our courts prior to the recent case of In re Township of Lakewood, 29 N. J. Super. 422 (App. Div. 1954), rehearing denied sub nom. Lakewood Tp. v. Lakewood Water Co., 30 N. J. Super. 79 (App. Div. 1954). There the Appellate Division reversed an order of the Board of Public Utility Commissioners imposing conditions of cost upon applicants for extensions, where the particular proposed extension would result in a net operating loss. That decision was not further appealed. Thus, the Board in the instant case had no recourse but to follow the rule laid down in the Lakewood case and to reject the examiner’s recommendation.
The rule expressed by the majority in this case is that utilities must bear the burden of extensions of service where “a reasonable number of prospective users in a reasonably integrated or localized group within the franchise area and within reasonable distance of existing facilities are desirous of service, and that the public convenience and necessity require that such users be served,” regardless of the opportunity for a reasonable return upon its investment immediately or in the reasonably foreseeable future. The majority conclude that “lack of profit or inadequacy of profit is important only as it affects the overall return of the utility.”-
The source from which a solution to the problem must be ultimately found is the legislative standards set forth in R. S. 48:2-27 which provides:
“The board [of Public Utility Commissioners] may, after hearing, upon notice, by order in writing, require any public utility to * * * construct * * * any reasonable extension of its existing facilities where, in the judgment of the board, the extension is reasonable and practicable and will furnish sufficient business to justify the con*210struction and maintenance of the same and when the financial condition of the public utility reasonably warrants the original expenditure required in making and operating the extension.”
The statute requires that the judgment of the Board be predicated upon the existence of three conditions precedent which are connected with the conjunctive “and” before an extension is ordered. The Board must find (1) that the extension is reasonable and practicable; (2) that the extension will furnish sufficient business to justify its construction and maintenance and (3) that the financial condition of the public utility reasonably warrants the original expenditure required in making and operating the extension.
The condition relating to “sufficient business” clearly refers to the return from the particular proposed extension, as distinguished from the over-all financial structure of the utility (including over-all return) dealt with in the third condition. This follows from the fact that “sufficient business” modifies the phrase “to justify the construction and maintenance of the same,” i. e., the particular extension.
Where a particular extension will not produce a reasonable return on the cost of construction and maintenance, either immediately or within the reasonably foreseeable future it can hardly be said that there exists “sufficient business” to justify it.
The Legislature has taken pains to spell out the criteria upon which judgment must be grounded. It is submitted that the factors expounded by the majority, i. e., reasonable number of prospective users, reasonably integrated or localized group within the franchise area, reasonable distance from existing facilities, relate only to the first condition; that the given extension be justified under the existent circumstances as reasonable and practicable. And the criterion of over-all return is clearly comprehended within the last condition, namely, that the financial condition of the public utility reasonably warrants the original expenditure in making and operating the extension. In effect the majority either write out of the statute or construe as being redundant the requirement that the extension will furnish sufficient busi*211ness to justify its construction and maintenance. This construction violates the long standing rule of construction that words inserted by the Legislature shall not be construed to be meaningless.
Erom a study of the statute, it is implicit that the term “sufficient business” was utilized by the Legislature to connote the fact that the return need not be immediate, but that the business prospects be such that a fair return will result in the reasonably foreseeable future.
Thus,' the Board must find, before an order compelling extension of mains is issued, that within the reasonably foreseeable future a sufficient number of consumers will connect to the supply system, so that the total revenue derived from the extension will produce a reasonable return on the cost of its construction and maintenance. .In this connection the number of existent potential customers in the-proposed service area, the general rate of construction and development in the locality of the proposed service, and United States census figures showing population increases for the area are some of the relevant data upon which such an estimate may be based.
The probable return on the investment in the particular extension is universally a factor to be considered in ordering an extension. See Annotation, 58 A. L. R. 537 (1929); 43 Am. Jur., Public Utilities and Service, sec. 48. Whether it is dispositive must, of course, depend upon the legislative will, and where, as here, it is specifically included as one of three enumerated guiding criteria, all of which must he found to exist before an extension is ordered, neither the Board nor this court can set the policy at naught.
The cases cited by the majority are distinguishable. The case of Collingswood Sewerage Co. v. Borough of Collingswood, 91 N. J. L. 20 (Sup. Ct. 1918), affirmed 92 N. J. L. 509 (E. & A. 1918), is a rate case, posing a substantially different problem from the instant case. There the municipality had, by ordinance, established maximum rates to be charged by the sewerage company in exchange for its franchise. As a consequence the over-all return on the *212capital investment was less than 3%. Upon application for an increase in rates, the Board of Public Utilities determined that it could not exercise its jurisdiction to order an increase in rates without violating the constitutional sanctions against impairing the obligation of contracts. But as a corollary matter, the Board also determined that, although otherwise desirable, it could not order extensions of existing facilities because of the inadequate over-all return of the company, i. e., condition 3 above referred to. In reversing the Board’s determination the former Supreme Court held that the Board had both the jurisdiction and duty to order an increase in rates and at the same time, to order the extensions of service. There is no hint in the opinion that if the prevailing rates were increased, the extensions ordered would be operated at less than a fair return. In short, the condition relating to sufficient business was neither involved nor considered in the Collingswood case.
In Ridley Tp. v. Pennsylvania Public Utility Commission, 172 Pa. Super. 472, 94 A. 2d 168 (Super. Ct. 1953), the Pennsylvania statute there construed is quite different from our own. As cited by the court, 94 A. 2d at page 170:
“the Public Utility Code of May 28, 1937, P. L. 1053, § 401, 66 P. S. § 1171, clearly commands that ‘Every public utility * * * shall make all such * * * extensions * * * as shall be necessary or proper for the accommodation, convenience, and safety of its patrons *' * * and the public.’ (Emphasis added)”
The sole criterion set forth in the Pennsylvania statute is public convenience and necessity; it contains no language similar in import to “sufficient business”,or “financial condition.” And, as recently pointed out in Koplik v. C. P. Trucking Corp., 27 N. J. 1 (1958), “regardless of the views expressed in other jurisdictions, we must come back to our own statute for the ultimate decision.”
The United States Supreme Court cases of People of State of New York ex rel. New York & Queens Gas Co. v. McCall, 245 U. S. 345, 38 S. Ct. 122, 62 L. Ed. 337 (1917), and People of State of New York ex rel. Woodhaven *213Gaslight Co. v. Public Serv. Comm., 269 U. S. 244, 46 S. Ct. 83, 70 L. Ed. 255 (1925), did not involve problems of statutory construction. The issues urged were that the particular orders for extension of services in those cases violated due process, in that they were arbitrary, capricious or confiscatory. In each instance, the Supreme Court properly declined to rule on the reasonableness of the administrative action from a standpoint of state law. The problem of whether the state enabling legislation justifies a particular order and the problem of whether the order rendered violates the 14th Amendment to the United States Constitution are quite distinct.
It is equally significant that in each of the aforementioned cases the respective courts highlighted the foreseeable business prospects. Thus, in the Ridley case, supra, the court took judicial notice of the 1950 United States census figures which indicated that the population of the locale in question had increased 99% during the period from 1940 until 1950.
In the McCall case, supra, the United States Supreme Court held (245 U. S. at pages 350-351, 38 S. Ct. at page 124):
“These references to the evidence will suffice. They show this Public Service Commission ordering a public service corporation to render an important public service, under conditions such that in the aspect least favorable to the Gas Company the initial return upon the investment involved would be low but with every prospect of its soon becoming ample, and also that no claim was made by the company that the comparatively small loss which the company claims would result would render its business as a whole unprofitable.” (Emphasis supplied)
And in the later Woodhaven case, supra, the court emphasized in 269 U. S. at page 247, 46 S. Ct. at page 84:
“In the territory already served by the company there are 150 consumers per mile of main. The sections for which service is ordered are residential communities. They have had water and electric service for many years. The houses already there, and those being built, are of a kind to indicate that, if brought within reach, gas will be used by the larger part of the inhabitants. There are good prospects of growth in the immediate future. The facts justify reasonable an*214ticipation of a substantial and increasing demand for gas in the territory to be reached by the extensions.”
The plain meaning of the phrase “sufficient business to justify the construction and maintenance of the same” in the Hew Jersey statute leads to the conclusion that the intention was to compel extensions only where an adequate return upon the particular extension is a foreseeable probability within a reasonable time. It should be noted that there is an absence of persuasive constructional precedent indicating otherwise.
The standard set forth in the majority opinion contains inherent difficulties. Extensions comparable with the instant one, though individually representing a relatively small loss in comparison with the over-all return, may cumulatively have a substantial effect upon the total income of a utility. In answer the majority contends that the concern in this case “is with the single issue now before us” and “there is neither need nor justification for considering any such hypothetical problem.” It is submitted that where, as here, the issue is one of statutory interpretation involving long range questions of policy, it is incumbent on the court to take into consideration the foreseeable consequences of a particular contended for interpretation. See 2 Sutherland, Statutory Construction, § 5905; Bayonne Textile Corp. v. American Federation of Silk Workers, 116 N. J. Eq. 146, 92 A. L. R. 1450 (E. & A. 1934). There is a suggestion in the majority opinion that a solution may be found in applications for rate increases. But rate hearings are time-consuming and tedious affairs, and repetitious applications for such rate increases are not practical as a solution to the problem. It is submitted that the Legislature did not intend that the utility company be obliged to resort to such a method to obtain its right to a fair and adequate return upon its investment.
Moreover, rate increases will, in effect, compel existent consumers to pay for extensions of service to others. The words of Chairman Gunnison of the New Hampshire Com*215mission, in In re Manley, (N. H.) P. U. R. 1925 C, 353, have not wilted or lost their force in the intervening 33 years:
“Thus, it will be seen that requiring a consumer to contribute toward the capital costs of furnishing service to him is an equitable adjustment of a common burden among the consumers. The controversy over the question of whether a consumer should contribute to the capital cost of furnishing him with service, is not in reality a matter between the utility and the consumers, but is rather a matter between the applicant for service and the consumers who are being served at a lower capital cost than it would cost to serve him.
The law entitled the utility to a revenue which will yield to it a fair return on the investment. The larger the investment, the larger must be the revenue, and necessarily, the higher will be the rates. It is, therefore, for the selfish interest of the utility to get as large an investment as the total yield from the business will warrant. But it is for the interest of the consumers to keep the capital investment as small as possible, in order that the rates for service may be as low as possible. When a utility declines to make extensions due to excessive capital costs involved, the unthinking public concludes that it does so in order that it can make more money, forgetting that the utility’s income will be limited to a reasonable return. It wholly loses sight of the fact that what the utility is really doing is to protect its other consumers against the unreasonable demands of a prospective consumer.” (at pp. 355-356) (Emphasis supplied)
What is needed in this area of the law is the translation of the general statutory standards into a fair, workable rule of thumb applicable to the general situation. Only in this manner can we hope to enhance the probability of the informal settlement of disputes between utility and consumer, thereby reducing the necessity for resort to the administrative and judicial processes.
“The General Rules Governing Extensions Made Upon Application of Individual Permanent Residents” recommending practices to be pursued affords such a constructive solution. These rules have been in existence since 1923, during which time utilities have operated under the recommended practice of charging consumers in the first instance for extensions into areas which must be serviced at a loss. And if, during a period of ten years the return from the extension resulted in a reasonable return, the original outlay was returned to the consumers.
*216Presumably, the utility, if it could foresee within the reasonable future an adequate return, would not require the advancement or engage in litigation, but rather would voluntarily extend the service as a matter of good business practice and public relations.
The Board in 1923, in sponsoring the General Rules, recognized that they were not applicable to all situations. Thus, in an explanatory preface to the Rules, the Board declared:
“In view of the fact that the statute, section 17 (c) [currently R. S. 48:2-27] specifically authorized the Board to require extensions to be made under certain conditions, the Board is not of the opinion that these suggested rules and regulations should be imposed by order upon the companies, as under the law any individual customer or any utility may appeal to the Board for special treatment in eases which do not appear to be appropriate for determination under the general rules.”
But this does not detract from the fact that the Board considered the Rules, as applied to the ordinary case, to be just and practicable with the least amount of complication. It is a testimonial to the workable nature of the previous policy, pursued in- this jurisdiction for over 30 years, that the issue raised here did not come before the courts prior to 1954 in the Lakewood case.
I would uphold the general rules as being in harmony with the policy established in B. S. 48:2-27, while at the same time recognizing the right of any party in a particular instance to obtain review by the Board of the utility’s decision of denial of unconditional extension, grounded upon the statutory criteria as interpreted in this opinion.
Accordingly, for the reasons set forth in this opinion, I dissent and vote to reverse the order from which the appeal has been taken and remand the cause to the Board of Public Utility Commissioners for a specific finding on the question of whether an adequate return upon the proposed extension is a foreseeable probability within a reasonable time.
Wacheneeld, J., joins in this dissent.
*217For affirmance—Chief Justice Weintraub, and Justices Hehek, Jacobs, Ekancis and Proctok—5.
For reversal—Justices 'Wacheneeld and Buklietg—2.