IN THE MATTER OF THE BOARD'S REVIEW OF THE APPLICABILITY AND CALCULATION OF A CONSOLIDATED TAX ADJUSTMENT (NEW JERSEY BOARD OF PUBLIC UTILITIES)
A-1153-14T1
| N.J. Super. Ct. App. Div. | Sep 18, 2017Background
- The NJ Board of Public Utilities (BPU) used a consolidated tax adjustment (CTA) — based on the longstanding "Rockland methodology" — to allocate tax savings from parent-company consolidated federal returns to regulated utilities' rate bases.
- In 2013 the BPU opened a generic review of the CTA, solicited written comments and data from utilities, Rate Counsel, and stakeholders, and requested utility calculations using the Rockland method.
- BPU staff recommended three substantive changes: shorten the review period to five years, allocate 75% of consolidated tax savings to utilities and 25% to ratepayers, and exclude electric transmission assets from the CTA.
- The BPU published notice and received comments but did not conduct evidentiary hearings or follow the formal Administrative Procedure Act (APA) rulemaking steps (e.g., detailed socio-economic impact statement and response-to-comments report).
- Rate Counsel (appellant), supported by AARP and the Large Energy Users Coalition, appealed, arguing the BPU’s CTA revisions were rulemaking that required formal APA procedures; respondents (BPU and utilities) argued APA compliance was not required.
- The Appellate Division held the BPU’s modified CTA met the Metromedia factors for an administrative rule, required formal rulemaking under the APA, and reversed because the BPU failed to comply with APA procedural requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BPU’s CTA modifications constituted APA rulemaking | Rate Counsel: Modifications establish a generally applicable, prospective policy affecting many utilities and thus are an administrative rule requiring APA procedures | BPU/Utilities: CTA is a ratemaking tool applied in individual cases; not a rule; BPU may adjust CTA in rate cases so APA rulemaking unnecessary | Held: Modifications constitute rulemaking under Metromedia factors and required APA compliance; reversal for failure to follow APA |
| Whether BPU’s process satisfied APA procedural requirements | Rate Counsel: BPU failed to publish required socio‑economic impact statement, prepare response-to-comments report, or hold evidentiary hearings as implied by its notices | BPU: Process (notice, data requests, comment periods) provided adequate participation; formal rulemaking not required | Held: Process was inadequate — several statutory APA requirements were unmet and stakeholders were deprived of meaningful opportunity to contest BPU’s economic impact analysis |
| Whether Provision of Basic Generation Service precedent permits informal adoption | Rate Counsel: Distinguished — Provision involved a quasi-rule with hybrid proceedings and was coupled with pending adjudications; here no such hearings or adjudicatory follow-up exist | BPU: Provision allows flexibility; hybrid/informal procedures suffice when policy will be applied in rate cases | Held: Provision does not authorize bypassing APA here because all Metromedia factors favor rulemaking and BPU did not employ the hybrid process or ongoing adjudication that justified flexibility in Provision |
| Whether failure to follow APA prejudiced parties’ rights | Rate Counsel: Yes — deprivation of statutory rights to see BPU’s impact analysis and to present evidence and argument | BPU/Respondents: Contend no substantial prejudice because comments and data were solicited and BPU could adjust allocations in rate cases | Held: BPU’s failures constituted an irregularity that tended to defeat or impair substantial rights under N.J.S.A. 48:2-46; reversal warranted |
Key Cases Cited
- Provision of Basic Generation Serv., 205 N.J. 339 (N.J. 2011) (discusses when agency may use hybrid procedures and applies Metromedia factors)
- Metromedia, Inc. v. Division of Taxation, 97 N.J. 313 (N.J. 1984) (articulates multi-factor test to determine when agency action is an administrative rule)
- Airwork Serv. Div. v. Division of Taxation, 97 N.J. 290 (N.J. 1984) (agency action constituting a rule requires APA compliance)
- In re Request for Solid Waste Utility Customer Lists, 106 N.J. 508 (N.J. 1987) (agencies have leeway in procedures but are constrained by due process and the APA)
- N.J. Power & Light Co., 9 N.J. 498 (N.J. 1952) (rate setting must be based on actual, not hypothetical, operating expenses; ratepayers must share consolidated return tax benefits)