The opinion
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0096-21
IN THE MATTER OF THE
PETITION OF NEW JERSEY-
AMERICAN WATER COMPANY,
INC. FOR APPROVAL OF
INCREASE TARIFF RATES AND
CHARGES FOR WATER AND
WASTEWATER SERVICE,
CHANGE IN DEPRECIATION
RATES AND OTHER TARIFF
MODIFICATIONS.
_____________________________
Argued March 22, 2023 – Decided December 30, 2024
Before Judges Accurso, Firko and Natali.
On appeal from the New Jersey Board of Public
Utilities, Docket No. WR17090985.
James C. Meyer argued the cause for appellant New
Jersey-American Water Company, Inc. (Riker,
Danzig, Scherer, Hyland & Perretti, LLP, attorneys;
James C. Meyer, of counsel and on the briefs; Michael
S. Kettler, on the briefs).
Brandon C. Simmons, Deputy Attorney General,
argued the cause for respondent New Jersey Board of
Public Utilities (Matthew J. Platkin, Attorney General,
attorney; Donna Arons, Assistant Attorney General, of
counsel; Brandon C. Simmons, on the brief).
Christine M. Juarez, Assistant Deputy Rate Counsel,
argued the cause for respondent New Jersey Division
of Rate Counsel (Brian O. Lipman, Director, attorney;
Brian O. Lipman and Susan E. McClure, of counsel;
Christine M. Juarez and Emily Smithman, on the
brief).
The opinion of the court was delivered by
ACCURSO, P.J.A.D.
New Jersey-American Water Company, Inc. appeals from a final
decision of the New Jersey Board of Public Utilities denying its request for
acquisition adjustments to its rate base for its purchases of Shorelands Water
Company and the Borough of Haddonfield's Water and Sewer System.
American Water claims the Board "improperly imposed a new standard" that
"the utility provide a formal 'commitment' or 'guarantee' never to build the
avoided capital projects" it claimed provided the "tangible benefit" to existing
ratepayers justifying the adjustments and failed to acknowledge the facts in the
record establishing the benefits the acquisitions provided those ratepayers.
We disagree that the Board or the Administrative Law Judge, whose
decision the Board adopted without modification, applied any standard other
than the one the Board established in I/M/O Elizabethtown Water Co., 11
A-0096-21
2
N.J.A.R. 303, 1984 WL 981081 (N.J.B.P.U. 1984), rev'd on other grounds, 205
N.J. Super. 528 (App. Div. 1985), aff'd as modified, 107 N.J. 440 (1987).
American Water's real quarrel is with the ALJ's fact-findings adopted by the
Board, which, because they have sufficient support in the record, are
conclusive on this appeal. See In re Pub. Serv. Elec. & Gas Co.'s Rate
Unbundling, 167 N.J. 377, 385 (2001); N.J.S.A. 48:2-46 (a reviewing court
may set aside an order of the BPU only "when it clearly appears that there was
no evidence before the board to support the same reasonably").
The law governing American Water's application is straightforward.
The only issue before the Administrative Law Judge was whether American
Water would be permitted to recognize proposed acquisition adjustments for
Shorelands and Haddonfield in its rate base.1 N.J.S.A. 48:2-21(b) charges the
Board with the obligation to "fix just and reasonable" rates. That ordinarily
involves a three-step process in which "the utility must prove: (1) the value of
its property or the rate base, (2) the amount of its expenses, including
operations, income taxes, and depreciation, and (3) a fair rate of return to
1
The acquisition adjustments were the only issues remaining in the Office of
Administrative Law following a settlement by American Water, Board Staff,
Rate Counsel, and intervenors of the Company's 2017 rate petition, agreeing
the Company's base rate revenues should increase by $40 million, thereby
reducing approved interim rates by $35 million.
A-0096-21
3
investors." In re Petition of N.J. Am. Water Co., 169 N.J. 181, 188 (2001)
(quoting In re Petition of Pub. Serv. Elec. & Gas, 304 N.J. Super. 247, 265
(App. Div. 1997)). Here, however, because the only issue was the acquisition
adjustments, the Company was required to establish only the first ratemaking
factor, that is, its rate base, defined as "the fair value of the property of the
public utility that is used and useful in the public service at the time of its
employment." In re New Jersey Power & Light Co., 9 N.J. 498, 509 (1952).
When a utility sells an asset to another utility, "only the property's
original cost [less depreciation] is entered into the purchasers' rate base,"
Hackensack Water Co. v. Woodcliff Lake Bor., 9 N.J. Tax 545, 555 (1988),
the original cost being "the cost of the property to the first person who devoted
the property to utility service," Hackensack Water Co. v. Bor. of Old Tappan,
77 N.J. 208, 216 n.4 (1978). An acquisition adjustment, allows "the excess of
the sale price over that cost" to be "treated as an allowable expense for rate-
making purposes." Hackensack Water Co., 9 N.J. Tax at 555. BPU will
generally not recognize an acquisition adjustment unless the utility has
"proven that a specific and tangible benefit inured to ratepayers from the
acquisition," In re S. Jersey Gas Co., BPU 843-184, GR8508858 (Bd. of Pub.
A-0096-21
4
Utils. Dec. 30, 1985), in accordance with the policy it adopted in 1984 in
Elizabethtown, 11 N.J.A.R. at 357.
In Elizabethtown, the Board approved an acquisition adjustment for the
utility's Washington Valley System purchase but not for its Peapack-Gladstone
System acquisition. Ibid. The Board explained it "would continue to
recognize the appropriateness of acquisition adjustments where a specific
benefit can be shown, such as the acquiring of needed facilities which benefit
the entire system," agreeing with Board staff and the New Jersey Division of
Rate Counsel the utility had "demonstrated a tangible benefit" to ratepayers by
the Washington Valley purchase, ibid., because it "acquired a well and storage
tank that it would have had to construct in order to meet the supply and
demand on the existing system," id. at 313. As to Peapack-Gladstone,
however, the Board found "petitioner offered no evidence as to why existing
ratepayers should bear the cost associated with a purchase that may be in the
public interest, but does not particularly aid existing customers in the system. "
Id. at 314.
In the OAL, the parties stipulated that Shorelands was a Board-regulated
water utility providing service to approximately 11,000 customers in Hazlet
Township in Monmouth County. American Water serves approximately
A-0096-21
5
631,000 water and fire service customers and approximately 41,000 sewer
service customers. American Water purchased Shorelands for $51,468,661, a
premium of $26,738,000 over its original cost less depreciation of
$24,540,203, for which it sought full rate base recognition, including an
acquisition adjustment of $26,738,000 to be amortized over forty years.
American Water presented the testimony of its senior director of coastal
operations, Kevin Keane and its Vice President and Director of Engineering,
Donald Shields, P.E., who testified that integrating the Shorelands system into
American Water's adjacent Coastal North System provided both operational
benefits that improved service to existing American Water customers and
avoided significant capital costs of planned projects no longer necessary by
virtue of the company having acquired the Shorelands system. Specifically,
they emphasized Shorelands' location in Monmouth County, in the middle of
an existing American Water system, "created overall lower operating pressures
in the combined systems, which translates into lower energy consumption,
fewer main breaks and overall greater operational savings," thereby increasing
the quality of service to customers.
Keane testified the integration would "have the benefit of fully utilizing
the elevated storage in both systems and should also have a positive impact on
A-0096-21
6
power savings, potentially resulting in less pump run time during peak
demands as well as not having to operate additional pumps to maintain or
recover system pressures due to main break events." He added the Company
"anticipates that the ground water diversion from the Shorelands system wells
will be optimized during peak production periods thus, creating a larger, more
diverse water supply portfolio, because [of] the combined assets of the two
companies." Finally, he noted American Water "will also have the ability to
optimize its surface water withdrawal from the New Jersey Water Supply
Authority by leveraging the combined withdrawal limits of the two
companies," and "[t]he anticipated result will be less purchased water costs,
from the Marlboro MUA and/or the New Jersey Water Supply Authority
during peak periods."
Shields emphasized the savings to ratepayers that would result from the
acquisition, which allowed American Water to avoid or defer capital projects
on which it had previously planned to spend millions of dollars and that would
have been necessary had the Company not acquired Shorelands. Shields
testified the acquisition allowed American Water to avoid seven capital
projects, totaling $29 million: (1) an estimated $5 million project to replace
the Navy Tank; (2) an estimated $3.5 million project to purchase and install "a
A-0096-21
7
dual purpose high/low gradient tank"; (3) an estimated $5 million project to
convert the Union Beach standpipe to ground storage; (4) a project to replace
"five pressure reducing valves ('PRVs') in the Aberdeen zone"; (5) a project to
replace "three PVRs in the Middletown zone"; (6) an estimated $3.5 million
project to purchase two new Englishtown wells; and (7) an estimated $10
million project to construct "approximately 4 miles of a planned source supply
main (the Raritan-Middlesex main)."
Shields further testified the integration of Shorelands allowed American
Water to defer two projects that "would otherwise need to be built, or built
sooner, or done more expensively but for this transaction": (1) a "supply
capital project . . . compris[ing] six ASR [aquifer storage and recovery] wells
with projected capital costs of $14.9 million"; and (2) an estimated $4 million
project on "certain resiliency improvements at the Newman Springs pump
station."
American Water also presented the testimony of the Company's Director
of Rates and Regulation, Frank X. Simpson, a C.P.A., who estimated the
revenue requirement impact to customers of the Shorelands acquisition over a
40-year period. Simpson estimated benefits to revenue requirements from the
elimination or deferral of the capital projects Shields had identified and
A-0096-21
8
compared that to his estimate of the impacts to revenue requirements from
including the acquisition adjustment in rate base and amortizing it over the
same period. Simpson concluded "[t]he net benefit in actual dollars of the
avoided and deferred capital, offset by the rate base treatment and 40-year
amortization of the [Shorelands acquisition adjustment] is a positive benefit to
our customers of approximately $16 million," or $6.6 million reduced to
present value using a 3% discount rate.
Rate Counsel presented the testimony of Howard Woods, Jr., a licensed
professional engineer with over forty years of experience in the planning,
design, construction and operation of water and wastewater utilities, including
seventeen years spent at American Water. Although Woods agreed that
Simpson's analysis was a reasonable way to consider the impact of the
Shorelands acquisition, he testified the benefit to ratepayers in Simpson's
analysis was entirely dependent on the Company's claim that it "will not spend
the sums" laid out in Shields' testimony "for these or similar projects." Woods
testified that "[s]hould other reasons arise that cause the Company to undertake
items deferred or avoided in this analysis at any point while the acquisition
adjustment is being amortized, a portion of the offsetting value to ratepayers
will be lost."
A-0096-21
9
Further, Woods pointed out that Simpson's analysis "presumes that the
Company has actually decreased its overall utility plant investments by the
amount shown for each year." Yet, "if the Company maintained its overall
level of capital spending by using the avoided or deferred cost dollars to
implement other needed improvements in other areas of its systems, customers
would see the impact of those other investments in rates along with the impact
of the acquisition adjustment." He testified "[t]here is nothing in [Simpson's]
analysis or the Company's [written] testimonies that demonstrates that
customers will actually see lower rates because of the acquisition or any of the
avoided or deferred projects."
Specifically, Woods explained that "[t]he recovery of the amortization of
the acquisition adjustment is a fixed, known and measurable cost" of
$26,722,978, the amount the Company paid over the original cost less
depreciation of those assets. If that amount were "included in rate base and
amortized over 40-years, the Company's customers will pay the Company a
return of and return on this excess investment and the annual amortization
amount. In the first year, this is a revenue requirement of $3,964,485"
according to Simpson's analysis. Woods maintained that "is cash that will be
collected from customers and the amount will not be impacted by the
A-0096-21
10
avoidance or deferral of any of the capital projects included in Mr. Simpson 's
analysis."
Woods used the Navy tank, built in 1951, as an example of how
"sensitive" Simpson's analysis, which projects "a theoretical benefit to
ratepayers of $6,444,247" from the Shorelands acquisition, is to any changes in
Shields' list of avoided and deferred capital projects. Shields had testified the
Shorelands acquisition and its consolidation into the Company's "Coastal
North system would not eliminate the need for the Navy Tank," which had
been scheduled for replacement as inadequate for the Company's needs. With
the merger of Shorelands, however, Shields testified "the Navy Tank standpipe
will be adequate to serve the reconfigured and reduced coverage of the
Middletown Gradient" and "would remain in service for the foreseeable
future."
Woods testified that Simpson's analysis presumes the Navy Tank, sixty-
seven-years old at the time of Woods' testimony, would outlast the average
seventy-two-year lifespan reflected in the "current depreciation rate for
distribution tanks" of its kind, by forty years. If American Water had to
replace the tank at the seventy-two-year mark, customers would incur those
"avoided" costs. Woods explained: "By making this single and fairly minor
A-0096-21
11
change to the analysis [Simpson offered in evidence], the net positive benefit
of $6,644,247 is reversed and the 'benefit' of the Shorelands acquisition
becomes a net cost of $197,353."
Woods also testified that American Water could similarly decide it
needed the two $3,500,000 Englishtown Wells in light of Shields' testimony
that "[t]he Coastal North System has a reliable maximum day supply deficit"
and the rapid growth of the Lakewood area where the wells are located, and
the $4 million Newman Springs Clearwell, "essentially a storm hardening and
resiliency project," that Shields testified could be deferred to 2032 in his
calculation of the savings to the Company by the Shorelands acquisition.
According to Woods, if American Water undertook just those three projects as
originally scheduled, "[t]he net present value of the avoided and deferred
projects, which is shown as a positive benefit of $6,644,247 for ratepayers
would become a net present value loss of $25,452,118."
American Water acquired the Haddonfield Borough system through a
competitive bidding process. The Company paid $28.5 million for the system,
$1,798,369 over its $26,911,098 original cost less depreciation, outbidding the
next-highest bidder by $537,400. The Company sought full rate base
A-0096-21
12
recognition for its purchase, including an acquisition adjustment of $1,798,369
to be amortized over forty years.
The Company presented the testimony of David Forcinito, P.E., Senior
Director of Operations for Southwest Operations, for Burlington, Camden,
Gloucester and Salem Counties. Forcinito testified about "the operational
benefits as well as the customer service enhancements resulting from [the
Company's] acquisition of the Borough of Haddonfield's water system."
According to Forcinito, integration of the Haddonfield and American
Water systems increased the redundancy, "resiliency and water quality in both
systems." He testified "full integration of the two distribution systems resulted
in ten additional connections . . . , bringing the total number of connections
between the two systems to twelve," thus improving "the resiliency of supply
of both systems to withstand operational disruptions such as main breaks. "
Integration also eliminated "five dead-end water mains in the Haddonfield
system and two dead-end mains in [American Water's] system," allowing
water to flow continuously, thereby reducing water age "and the potential for
water quality issues in the distribution system" and attendant customer
complaints.
A-0096-21
13
Forcinito also testified "the addition of the Haddonfield system adds to
[American Water's] economies of scale, creating additional value for all
customers," by, for example, reducing the "per customer-cost of state-
mandated water sampling requirements . . . because these costs can be
managed in a more holistic and efficient manner in the Southwest Region,
rather than in an isolated, system-by-system basis, and customer complaints
about water quality are reduced as a result." He explained these economies of
scale also "provide[ ] a market advantage: Material can also generally be
purchased at a much lower cost through American Water's purchasing power."
Vice President and Director of Engineering Shields testified the
Haddonfield system "was in need of upgrades at two wastewater pumping
stations, Coles Mill and Roberts Avenue," which "were subject to [New Jersey
Department of Environmental Protection] inspections and had received notices
of deficiency and related Notices of Violation for lack of appropriate
maintenance." Shields also testified American Water built "a new pumping
station, Atlantic Avenue, . . . to retire a failing gravity sewer main located
behind the Wedgewood Swim Club" that "ran adjacent to the Cooper River."
Shields and Forcinito testified that integration allowed it to
decommission Haddonfield's Cottage Avenue Standpipe located on a small lot
A-0096-21
14
between two houses, which, in addition to insufficient volume of equalization
and emergency storage, suffered from water quality issues related to excessive
water age. Forcinito testified that decommissioning the standpipe allowed
American Water to "improve[ ] the water age in the distribution system," avoid
"a safety hazard" to nearby residences, and eliminate "the need to recoat" the
tank. According to Shields, "[a]bsent [American Water] ownership, the
Cottage Avenue Standpipe would need to be demolished and replaced with a
modern, appropriately-sized elevated storage tank at the cost of approximately
$5 million (before considering the costs of the ongoing maintenance needs of
such a tank)."
Forcinito testified that American Water was also able to decommission
Haddonfield's Centre Street water treatment plant, which had "periodic
flooding" and "limited automation" requiring "manual operation of its filtration
process," and "transfer the water allocation to an existing [American Water]
allocation permit." Forcinito explained retiring the plant "eliminated the need
to undertake a costly upgrade of the plant and bring it up to current Company
standards" benefiting both former Haddonfield customers and existing
American Water customers who would pay "a lower customer cost."
A-0096-21
15
American Water witness Stephanie Cuthbert, P.E., C.M.E., who served
as the water and sewer engineer for the Borough of Haddonfield for the seven
years preceding the Company's acquisition, testified that Haddonfield's wells
were located in an aquifer that DEP has designated as "critical area no. 2" in
which new diversions of groundwater are prohibited, making the allocation
"valuable for the entity that owns the rights to the allocation and [of] . . .
inherent value to the Haddonfield System." According to Cuthbert, "[t]his
very valuable diversion can be re-assigned to other wells owned by [American
Water] and does not require the same level of treatment for iron and
manganese removal as the groundwater diverted from the Haddonfield wells;
thereby providing a secondary benefit" to the Company.
Rate Counsel's witness Woods testified the Haddonfield acquisition
undoubtedly provided measurable benefits to former Haddonfield customers
but no benefit to existing American Water customers. Woods testified the
"significant benefits to Haddonfield ratepayers in the short run" included an
immediate three-year rate freeze, American Water's five-year "commitment to
invest $16 million in system improvements," cost savings from
decommissioning the Cottage Avenue Standpipe and Centre Street Water
A-0096-21
16
Treatment Plant and "retention by the Borough of antennae revenues for a
period of ten years."2
By contrast, Woods found the benefits to existing American Water
customers to be illusory, explaining they "can only be described in the most
general of terms and . . . are only likely to be realized at some distant point in
the future when Haddonfield rates are equalized with the Company's statewide
rates." He testified existing customers would not benefit from American
Water's Atlantic Avenue Lift Station ($2,009,191), Roberts Avenue Sewer Lift
Station ($2,225,655), and Coles Miller Sewer Lift Station ($4,978,799)
projects, "which alone represent more than half of the $16 million promise
made to Haddonfield." In addition, Woods testified the Company transferred
2
Woods testified that included in the Company's $28,500,000 bid for
Haddonfield's water and sewer systems was an offer "to maintain the existing
water rates for Haddonfield ratepayers for a period of three years from the date
of closing," free water and sewer service to seven Borough-owned buildings
and a commitment "to make capital improvements to the Haddonfield systems
starting with an estimated $6.5 million in improvements within the first 12
months of closing and a total of an additional $9.5 million in capital
improvements over the first five years." In addition to the total $16 million in
capital improvements in the five-year period after closing, "the Company also
committed to allowing the Borough to retain revenues from cell antennae
leases for a period of ten years," and to continue a Senior Citizen subsidy of
Camden County Municipal Authority charges." Woods testified the voters
approved those general terms and conditions of the Company's proposal in a
referendum on the sale of the systems.
A-0096-21
17
the Borough's water allocation rights to which Cuthbert referred in her
testimony "to other Company owned wells in a Company-owned system that
already enjoyed a substantial surplus allocation."
Shields testified in rebuttal that "[w]hile [American Water] currently
holds a surplus in water allocation or water quantity, the groundwater supplies
in Critical Area 2 have changed significantly in water quality. These
allocations are important and will be used to deal with the impact of
Perflourinated Compounds (PFC's) that [the Company] is experiencing in the
region." Woods responded by noting that the Company, "three years after the
acquisition of the Haddonfield system, . . . still cannot quantify the impact of
these groundwater quality issues or the impact that the Haddonfield acquisition
may or may not have on the solution to these problems."
ALJ Jacob S. Gertsman issued a thirty-two-page initial decision,
meticulously summarizing the testimony presented and the parties ' arguments
and recommending the denial of American Water's request for acquisition
adjustments for both Shorelands and the Haddonfield systems. Addressing
first the testimony presented on the Shorelands acquisition, the ALJ found
American Water had "failed to demonstrate that the capital projects specified
in the petition are not proceeding." The ALJ was persuaded by Woods'
A-0096-21
18
testimony that American Water could, simply by reviving the $5 million Navy
Tank project five years down the road, wipe out "the entire net positive
benefit" from the present avoidance. The ALJ was also persuaded that the
Company could similarly revive the Englishtown Wells and Newman Springs
projects and incur significant costs that translate to higher rates.
ALJ Gertsman found Woods had presented — and American Water had
failed to adequately address — "reasonable conditions where any or all the
projects [on Shields' list] may proceed." The ALJ found the testimony of the
Company's witnesses unpersuasive because absent any commitment by
American Water not to go through with the projects, "the benefits to ratepayers
are subject to reasonable conditions where any or all of the projects could
proceed."3 The ALJ found Shields' testimony that "[t]he Coastal North System
3
ALJ Gertsman included this colloquy with the Company's counsel in his
decision.
Judge Gertsman: So, what are the benefits, the
tangible benefits to the existing customers of New
Jersey American?
Counsel: I think they're well pointed out in the
testimony that we have. They consist of essentially
three categories for Shorelands, somewhat different
categories for Haddonfield. So, for Shorelands there
are seven specific projects.
A-0096-21
19
has a reliable maximum supply deficit" undermined the Company's assertion
that the acquisition would avoid and delay, respectively, the Englishtown
Wells and ASR wells projects "designed to help alleviate the capacity issues in
the Coastal North System." The ALJ explained this inconsistency "lends
credence to Rate Counsel's argument that the Company's inclusion of these
supported benefits to ratepayers is speculative."
ALJ Gertsman noted that
[t]he Company has been resolute in its position that a
commitment not to proceed with the projects would be
irresponsible, which is plainly within its discretion.
However, while it is not the proper role for this
tribunal to decide if the Company should commit to
avoid or defer these projects, upon review of the
record it is readily apparent that the benefits of the
Judge Gertsman: And we've been through that before.
So, this seems to be one of the main issues, the main
factual issues in this case. The other parties have said
that there is no commitment from the Company to not
actually do these projects; is that correct?
Counsel: I think it would be irresponsible to make
such a commitment. I think what we are bound by
here is the record. On this record are those projects
going forward? Testimony is clear that they're
not. . . .
Judge Gertsman concluded that American Water was certainly well
within its rights to conclude "that making this commitment is 'irresponsible.'
However, the Company's argument that that the testimony is clear that the
projects are not going forward is not supported by the record."
A-0096-21
20
Shorelands acquisition remain illusory, unless and
until the Company has in fact made that commitment.
Put simply, the benefits to ratepayers from the
Shorelands acquisition can only be established if the
projects do not move forward, which the Company has
not met its burden to demonstrate.
The ALJ concluded American Water had thus not "met its burden to
demonstrate" the Shorelands acquisition would produce "tangible benefits to
ratepayers as set forth by the Board in Elizabethtown and South Jersey Gas in
order to justify the burden." He further concluded the proposed Shorelands
acquisition adjustment "fail[ed] to meet the requirements set forth by the
Board in Elizabethtown and South Jersey Gas." The ALJ rejected the
Company's assertion that Rate Counsel's position that American Water could
revive its avoided and deferred capital projects was "entirely speculative and
unsupported," explaining the burden was on the Company "to demonstrate by a
preponderance of the credible evidence" that it would not complete these
projects in the future.
ALJ Gertsman agreed with Board Staff and Rate Counsel "that
[American Water] has failed to demonstrate that the acquisition provides
tangible benefits to ratepayers due to its refusal to commit to avoiding and/or
deferring these capital projects," which "would potentially result not in a net
benefit to ratepayers, as required by Elizabethtown and South Jersey Gas, but
A-0096-21
21
rather a net present value loss." As ALJ Gerstman succinctly explained, "the
benefits to ratepayers from the Shorelands acquisition can only be established
if the projects do not move forward, which the Company has not met its
burden to demonstrate."
As to the Haddonfield acquisition, ALJ Gertsman found "the record fails
to demonstrate that the acquisition provides benefits to existing [American
Water] customers." The ALJ found "particularly compelling" Woods'
testimony that Haddonfield ratepayers would experience significant short -run
benefits but could not identify "any short-term synergies that would benefit
existing New Jersey American ratepayers."
The ALJ concluded American Water failed to meet "its burden to
demonstrate" the Haddonfield acquisition produced "tangible benefits as set
forth by the Board in Elizabethtown and South Jersey Gas" so as "to justify the
burden of this premium on its ratepayers," and that the proposed Haddonfield
acquisition adjustment "fail[ed] to meet the requirements set forth by the
Board in Elizabethtown and South Jersey Gas." He agreed with Board Staff
that American Water failed to show "any tangible benefits to existing
ratepayers," and that "the burden to ratepayers far exceeds any intangible
benefits claimed by the company and would strike an unjust balance between
A-0096-21
22
ratepayer interests and the Company." The ALJ credited Wood's testimony
that the acquisition would provide virtually no benefits to American Water's
existing customers, finding Woods had "successfully rebutted" Shield's
testimony that the water allocation permit the Company had acquired through
Haddonfield would be useful in addressing the PFC's in the groundwater. The
ALJ explained American Water "has cited various benefits that solely benefit
former Haddonfield customers while it remains unable to quantify the impact
of the acquisition on its ability to address the PFC's, which would conceivably
benefit its existing customers."
After receipt of the parties' exceptions, the Board issued a detailed
fourteen-page final order adopting the ALJ's initial decision, which it found "to
be just and reasonable, in the public interest, and in accordance with the law."
In its Discussion and Findings, the Board first denied American Water's
motion for leave to file a sur-reply to Rate Counsel's reply exceptions,
explaining American Water "fail[ed] to cite to any case law or rule in support
of its position" that it should be permitted to address by sur-reply "Rate
Counsel's alleged mischaracterization of the established Board precedent on
acquisition adjustments." Finding the Company's argument limited to its claim
"that existing [American Water] customers benefit from the acquisitions," the
A-0096-21
23
Board identified the issue before it as "whether the acquisitions of the
Haddonfield and Shorelands systems provided any specific and tangible
benefits to [American Water's] legacy customers."
The Board denied the Shorelands acquisition adjustment, finding the
Company "failed to meet its burden to show that the Shorelands acquisition
provides a benefit to ratepayers" and that "passing this large premium to
ratepayers would strike an unfair balance between ratepayers and the Company
because [American Water] would earn a return on investment on a premium
which does not tangibly benefit ratepayers." The Board rejected the
Company's arguments that the "acquisition resulted in the cancellation of
$29,000,000 in previously planned capital investments," as well as "benefits
from deferred capital projects and . . . significant synergistic savings," finding,
as the ALJ did, "that the inclusion of these improvements and their resulting
benefits are speculative." The Board explained "the testimony indicates that
there were little or no synergy savings resulting from the Shorelands
acquisition" and "NJAWC's claim that it will avoid capital costs is not
supported by any tangible evidence," as "NJWAC may very well still endeavor
to complete the projects which it claims it will not, at a later date," so "there
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are no guarantees that the Shorelands acquisition will result in lower overall
capital costs to [American Water's] existing customers."
The Board likewise denied the Haddonfield acquisition adjustment,
finding "the burden to ratepayers far exceeds any tangible benefits claimed by
[American Water] and would therefore strike an unjust balance between
ratepayer interests and the Company." The Board explained it was
unpersuaded that the acquisition "provided tangible benefits to ratepayers," as
the "greatest benefits cited in the record were with respect to the avoided
capital of replacing or fixing existing Haddonfield facility, but this bene fit
only benefits former Haddonfield customers," and "existing [American Water]
ratepayers are burdened by the acquisition because the cost of providing
service to the Haddonfield system and the costs of the acquisition are
significant."
American Water raises the following issues for our consideration:
I. THE BPU IMPROPERLY IMPOSED A NEW STANDARD TO
DENY THE SHORELANDS ACQUISITION ADJUSTMENT THAT
IS INCONSISTENT WITH ITS PRIOR ORDERS ESTABLISHING
ITS POLICY ON THIS ISSUE WITHOUT EXPLAINING OR EVEN
ACKNOWLEDGING ITS CHANGE OF POSITION.
II. THE NOVEL "GUARANTEE" REQUIREMENT APPLIED TO THE
SHORELANDS ACQUISITION IMPERMISSIBLY: (A) IMPOSED
AN UNHEARD OF STANDARD OF PROOF OF ABSOLUTE
CERTAINTY WHERE THE PROPER STANDARD WAS
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PREPONDERANCE OF THE EVIDENCE AND (B) REQUIRED
[AMERICAN WATER] TO DISPROVE RATE COUNSEL'S
UNSUBSTANTIATED CLAIMS.
A. The BPU imposed an unheard of absolute certainty standard of
proof on [American Water].
B. The ALJ and BPU improperly required [American Water] to
provide a guarantee in order to disprove Rate Counsel's
unsubstantiated claims.
III. THE BPU'S DENIALS OF THE ACQUISITION ADJUSTMENTS
FOR SHORELANDS AND HADDONFIELD WERE NOT
SUPPORTED BY SUFFICIENT CREDIBLE EVIDENCE.
A. The BPU's rejection of the Shorelands Acquisition Adjustment
relied on mere speculation that the projects "may" go forward,
ignored [American Water's] evidence that the Navy Tank would
not be replaced, and failed to acknowledge the contradictions in
Mr. Woods' Navy Tank testimony.
B. The BPU failed to make any factual findings regarding the
benefits of the Haddonfield acquisition to existing [American
Water] customers, and the ALJ erred in holding that benefits that
could not be specifically quantified were insufficient.
Our review of the record convinces us that none of these arguments is of
sufficient merit to warrant any extended discussion in a written opinion. R.
2:11-3(e)(1)(E).
Our assessment of the BPU's decision is governed by a familiar standard
of review. "An appellate court reviews a final agency decision with deference,
and will not reverse the ultimate determination of an agency unless the court
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concludes that it was 'arbitrary, capricious or unreasonable, or that it lacked
fair support in the evidence, or that it violated legislative policies ' expressed or
implied in the act governing the agency." In re Freshwater Wetlands Gen.
Permit No. 16, 379 N.J. Super. 331, 341 (App. Div. 2005) (quoting Campbell
v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)). As our Supreme Court has
explained, however, "rate making is a legislative and not a judicial function,
and that the [BPU], to which the Legislature has delegated its rate-making
power, is vested with broad discretion in the exercise of that authority. "
Petition of N.J. Am. Water, 169 N.J. at 188 (quoting In re Petition of Pub.
Serv. Coordinated Transp., 5 N.J. 196, 214 (1950)).
Although the Board's decisions "are entitled to presumptive validity,"
Petition of Jersey Cent. Power & Light Co., 85 N.J. 520, 527 (1981), they are
not, of course, immune from review. "The Legislature has authorized courts
expressly to 'review any order of the board and to set aside such order in whole
or in part when it clearly appears that there was no evidence before the board
to support the same reasonably or that the same was without jurisdiction of the
board.'" Petition of N.J. Am. Water., 169 N.J. at 188 (quoting N.J.S.A. 48:2-
46). We will not "sustain an action by the BPU, or that of any other
administrative agency, when that action is found to be 'arbitrary, capricious,
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unreasonable, or beyond the agency's delegated powers.'" Ibid. (quoting In re
Amendment of N.J.A.C. 8:31B-3.31, 119 N.J. 531, 544 (1990)).
Having reviewed this extensive record, we cannot find the Board applied
a higher or different standard than the one it adopted in Elizabethtown. The
Board accurately identified the issue as whether American Water carried its
burden to demonstrate "specific and tangible benefits" to ratepayers from the
acquisitions, and, after reviewing extensive direct, rebuttal, and surrebuttal
testimony reasonably found the Company had fallen well short of doing so as
to both acquisitions.
We specifically reject that the ALJ or the Board imposed any
requirement on the Company that it "guarantee" it would not move forward on
any of the list of avoided or deferred capital projects it relied on to
demonstrate "that a specific and tangible benefit inured to ratepayers from the
acquisition." In re S. Jersey Gas Co. BPU 843-184 (Bd. of Pub. Utils. Dec. 30,
1985). The obvious point of Wood's testimony was to demonstrate how
dependent any tangible benefit to legacy ratepayers from the Shorelands
acquisition was on American Water not moving forward with nearly every one
of the projects on Shields' lengthy list. Using just three examples from
Shields' list — the aged Navy Tank, the two Englishtown Wells located in an
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area of high population growth in the Coastal North System already subject to
"a reliable maximum day supply deficit" and the Newman Springs Clearwell,
"essentially a storm hardening and resiliency project" — Woods demonstrated
the $6,644,247 positive benefit for ratepayers of "[t]he net present value of the
avoided and deferred projects" the Company touted would "become a net
present value loss of $25,452,118" were the Company to find it necessary to
proceed on those three projects only.
All the ALJ found, and the Board adopted, was that putting items on a
list of avoided and deferred capital projects was not sufficient to establish "a
specific and tangible benefit inured to ratepayers from the acquisition." In
light of the reasonable questions Rate Counsel's witness raised about the
Company's ability to avoid or defer all of the capital projects it projected as a
result of the Shorelands purchase, it was incumbent on the Company to
establish by a preponderance of the evidence that the benefits to ratepayers
were not illusory — not as it argues that the Board imposed a "novel
'guarantee' requirement that the Company establish by "an unheard of absolute
certainty standard of proof."
Notwithstanding the Company's efforts to cast its claims as errors of
law, American Water's arguments on appeal reduce to quarrels with the
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29
agency's fact-finding which we are simply in no position to reject. See
N.J.S.A. 48:2-46; Petition of N.J. Am. Water., 169 N.J. at 188. Because the
Board's finding that the Company failed to carry its burden to establish by a
preponderance of the evidence that a specific and tangible benefit inured to the
Company's ratepayers from the Shorelands acquisition is supported by
sufficient credible evidence on the record as a whole, we affirm. See R. 2:11-
3(e)(1)(D). The Company's claims as to error on the rate treatment of its
Haddonfield acquisition are without sufficient merit to warrant any further
comment here. R. 2:11-3(e)(1)(E).
Affirmed.
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