THE NEW JERSEY PUBLIC UTILITIES ACT

Some Questions Involved in the Passaic
Gas Rate Case.

The "act concerning public utilities, to create a Board of Public Utility Commissioners and to prescribe its duties and powers" (Laws 1911, chapter 195) was enacted, in its present form, in 1911.

The provisions of the act do not operate upon all engaged in pursuits "affected with a public interest", but are confined to those owning, operating, managing or controlling within the State "any steam railroad, street railway, traction railway, canal express, subway, pipe line, gas, electric light, heat, power, water, oil, sewer, telephone, telegraph system, plant or equipment for public use, under privileges granted or hereafter to be granted by the State of New Jersey or by any political subdivision thereof" (Sec. 15).

In framing the statute the accumulated experience of the past reflected in the progressive adjudications of the courts declaring the principles regulating the conduct of business enterprises affected with a public interest was not disregarded. On the contrary, the statutory structure was reared upon the foundation of that experience, so reflected.

The cases arising under, and construing, the act uniformly recognize that while in so far as the statute lays down a new rule, that rule must control, yet that where its language is consistent with the rule previously recognized it must be construed as merely declaratory of the rule as it was before the adoption of the act.1

The statute in providing (Sec. 18 (a)) that no public utility coming within its operation shall make or exact any unjust or unreasonable rate for any product or service supplied or rendered by it within the State, simply redeclares the rule of the common law, which holds the rates exacted in a business of a public nature to the standard of "the just and reasonable rate".2

'Public Service Railway Co. v. Board of Public Utility Commissioners, 81 N. J. L. 363.

'Messenger v. Pennsylvania R. R. Co., 36 N. J. L. 407, 37 N. J. L. 531; Public Service Corporation v. American Lighting Co., 67 N. J. E. 122; Borough of Washington v. Washington Water Co., 70 N. J. E. 254.

Under the common law rule, so declared by the statute, the public utility is entitled to impose, and is limited to the exaction of, a just and reasonable rate. "Just" and "reasonable" are, however, relative terms. What is just and reasonable depends upon many varying circumstances. The element of justice and reasonableness, which marks the limit of the rate which may be charged, relates to both the public utility and the consumer. The public utility is in any event entitled only to a fair return-fair to itself and to the consumer. Consequently the rate exacted must be just and reasonable to both. If, as may happen, it cannot be just and reasonable to both, it must be to the consumer.3

This rule in its enforcement of co-operation among members of the State evidences, in striking manner, the dominating influence of social imagination in the law.

When a case arose at common law in which it became necessary to determine whether a rate exacted in a business of a public nature was, or was not, just and reasonable, the courts possessed the power to make such determination and to prevent the exaction of the rate if found to be unjust or unreasonable.

The courts, however, did not possess the power to prescribe a rate to be operative upon the public in the future. Such power is legislative and not judicial in its nature. It is not only not possessed by the courts, but could not be conferred upon them by legislative enactment without violation of the State constitution."

The framers of the statute recognized this limitation upon the power of the courts to prevent violations of, and enforce compliance with, the common law obligation thereby redeclared, and established an administrative body vested with power when it determined an existing rate to be unjust or unreasonable, to fix a just and reasonable rate thereafter to be imposed, observed and followed, and through the establishment of this administrative tribunal, vested with such power, provided a means for enforcing continuous compliance with the common law obligation redeclared by the statute (Sec. 16 (c)).

537.

The State in the enactment of the statute adopted no new pol

Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. *Nebraska Telephone Co. v. Nebraska, 55 Neb. 627; Raritan River R. R. Co. v. Traction Co., 70 N. J. L. 732; City of Madison, et al. v. Madison Gas & Electric Co., 108 N. W. 1906 (Wis.).

"Western Union Tel. Co. v. Myatt, 98 Fed. 335; State v. Johnson, 61 Kans. 803; and see, Janvrin, et al. v. Revere Water Co., 174 Mass. 514.

icy with reference to the nature and limitations of the obligation. It did, however, adopt a new policy in creating an administrative tribunal vested with power adequate to enforce continuous compliance with the obligation.

The power of the State to regulate, through legislative enactment, the rates exacted in a business of a public nature was definitely established in the Granger Cases. The power is a power of government. It is continuing in its nature; is not lost by nonuser; and its exercise is in nowise abridged or limited by the fact that the State has not, over a long period of years, exerted it." The power is in nowise abridged or limited by the fact that those affected may have engaged in business before its exercise. Engaging in a business affected with a public interest, they were from the beginning subject to the power of the body politic to require them to conform to such regulations as might be established by the proper authorities for the common good. Nor is the power in anywise abridged or limited by the fact that the property devoted to the public use may, before the exercise of the power, have been leased to a tenant who relied upon the earnings for the means of paying the agreed rent, or that the income therefrom may, before the exercise of the power, have been pledged as security for debts incurred."

That this power of legislative regulation may be exerted directly by the legislative authority or indirectly through an administrative tribunal vested with power to that end is settled by a long line of authorities.10

In view of these adjudications it was not to be expected that the statute would be attacked because of its delegation of the power to fix just and reasonable rates to the administrative tribunal created thereby. Nor has such attack been made.

It has, however, been attacked under a claim that a jurisdictional determination required to be made by the administrative body involves the exercise of a judicial function. The attack

failed.

The statute, it is true, confines the power of the administrative

"Munn v. Illinois, 94 U. S. 113; Chicago, Burlington & Quincy R. R. Co. v. Iowa, 94 U. S. 155; Peik v. Chicago & Northwestern Railroad Co., Laurence v. same, 94 U. S. 164.

'Chicago, Burlington & Quincy R. R. Co. v. Iowa, supra; Stone et al. v. Farmers Loan & Trust Co., (Railroad Commission Cases) 116 U. S. 307. Munn v. Illinois, supra.

Chicago, Burlington & Quincy R. R. Co. v. Iowa, supra.

10 Atlantic Coast Line v. North Carolina Corp. Commission, 206 U. S. 1.

body, to fixing, after hearing, upon notice, a just and reasonable rate, whenever it determines an existing rate to be unjust and, unreasonable.

In the exercise of the power so conferred, a determination that the existing rate is unjust or unreasonable is, therefore essential to the fixing of a just and reasonable rate.

The determinations to be made are correlated. The determination with respect to the existing rate constitutes merely a step in the exercise of the power to prescribe a just and reasonable rate for the future.

It is not a judicial act. It does not in anywise determine the rights of parties with respect to transactions already had. It merely provides the basis for the exercise of the power to fix a just and reasonable rate thereafter to be imposed.11

The first proceeding of importance calling for an exercise of the power to regulate rates by the administrative body created under the statute was initiated in July, 1911.12 It involved an inquiry as to the justice and reasonableness of the rate for gas exacted by Public Service Gas Company in the territory supplied by that company from its plant at Paterson, and eventuated in an order determining that the existing rate of one dollar and ten cents per thousand cubic feet, with a discount of ten cents per thousand cubic feet for prompt payment, was unjust and unreasonable, and fixing ninety cents per thousand cubic feet as the just and reasonable rate.

The order so made has been subjected to judicial review.13 It was affirmed in the Supreme Court. In the Court of Errors and Appeals a divided court first declared the affirmance by the court below erroneous, but upon reargument the court, again dividing, affirmed the judgment below, sustaining the order. An appeal is now pending in the Supreme Court of the United States.

A consideration of the proceeding before, and the report of, the administrative body upon which the order was based, and of the opinions delivered in the courts reviewing the order, will indicate the principles to be observed in, and the limitations imposed upon, the exercise of the power conferred by the statute as deter

"Southern Railway Co. v. Hunt, et al. (Ind.) 83 N. E. 721.

12In re Rates of Public Service Gas Co., 1 Reports of Board of Public Utility Comrs. of N. J. 433.

Public Service Gas Co. v. Board of Public Utility Commissioners, et al. 84 N. J. L. 463, 92 Atl. 606; 94 Atl. 634.

mined by the courts of the State, and make clear the main questions to be presented to the Supreme Court of the United States.

At the outset of the inquiry the administrative tribunal was confronted by the necessity of finding a basis of calculation of the just and reasonable rate. It found such basis in the "fair value of the property used for the convenience of the public”. In this it followed a uniform line of judicial decision1 and its course met with no adverse comment in the courts passing upon its order.

The necessity of determining the method to govern in ascertaining the amount of capital devoted to the public service remained. Some basic theory as to capitalization must be adopted. Without such theory the exercise of the power conferred by the statute was impossible. Without such theory the administrative body could neither determine whether the existing rate was just and reasonable, nor fix a just and reasonable rate. Four bases were advanced and considered: (1) The outstanding capitalization, to which reference will again be made; (2) the bare cost of substantial reproduction of the property at the present time; (3) the original cost of the property, and (4) the fair value of the property at the present time.15

The "fair value of the property at the present time", was adopted as determining proper capitalization. In this the weight of judicial authority was followed.10 The reviewing tribunals approved the view adopted.

Having adopted this basis, question arose, whether, with respect to the physical property, (1) replacement value new, evidenced by the cost of reproduction of the property as new or (2) such value diminished by an estimate for such deterioration in value as the property had undergone at the date of the appraisal should be accepted. The second of these views prevailed.

In turn question arose, whether the deduction made for depreciation should be based upon (1) the theoretical depreciation

"Brymer v. Butler Water Co., 179 Pa. 231, Smyth v. Ames, 169 U. S. 466; Kennebec Water Dist. v. Waterville, et al., 97 Me. 185; Long Branch Comrs. v. Tintem Manor Water Co., 70 N. J. E. 71, 71 N. J. E. 790 15Wyman's, Public Service Companies, sec. 1080, et seq.

16 Smyth v. Ames, supra; San Diego Land Co. v. National City, 174 U. S. 739; San Diego L. & T. Co. v. Jasper, 189 U. S. 439; Stanislaus County v. San Joaquin & Kings River C. & I. Co., 192 U. S. 201; Wilcox v. Consolidated Gas Co., 212 U. S. 19; Lincoln Gas Co. v. Lincoln, 223 U. S. 349; Cumberland Tel. & Tel. Co. v. Louisville, 187 Fed. 637; Spring Valley Water Works v. San Francisco, 192 Fed. 137; Home Telephone Co. v. Carthage, 235 Mo. 644, 139 S. W. 547.