Court Orders BPU to Rewrite Rules on Smart Growth

Tom Johnson | June 25, 2012 | Energy & Environment
Three-judge panel tells state agency to refund charges collected for extending sewer lines, phone and power lines

For the second time in three years, the state Board of Public Utilities is being told by a court to rewrite its rules governing smart growth policies and the extension of utility service lines.

In a ruling by a state appeals court Friday, a three-judge panel ordered the agency to begin drafting a new regulation to award refunds to developers and homeowners who paid to have extensions of sewer, electricity, gas, and telephone lines to new homes because they were located in areas of the state not designated for smart growth.

The unanimous decision could force the agency and utilities to offer refunds to hundreds of developers and homeowners, a step that would very likely lead to future rate increases for all utility customers.

Just how much is hard to say.

In the decision, the court noted that one developer, Toll Brothers, paid $2.2 million for extension of utility lines “under protest” in areas not designated for smart growth. For homeowners, too, the cost could be steep. Barry Spindler spent $18,234 to extend electric and telephone lines for a home he built in Stow Creek Township, according to the decision.

In addition, South Jersey Gas, in a court filing, projected more than 400 developers or homeowners in its franchise territory made payments for projects not designated in smart growth areas.

The court’s ruling overturns the BPU’s reaction to a 2009 decision by an appellate court, which invalidated a four-year-old rule to stem sprawl. The agency had sought to limit the impact of the court ruling by applying it to only 18 cases, not the hundreds of projects affected by the decision.

In justifying its decision to apply the court ruling to less than two dozen projects, the BPU had argued in its filings to retroactively apply the benefits to all projects would pose “significant economic, legal, operational, and public policy concerns.” Any retroactive application of the benefits also could result in an increase in costs to ratepayers, the agency said.

In its decision, the court noted that its previous ruling in 2009 described the smart growth policies as an “extreme departure” from procedures that have been in place for nearly a century and held that the BPU lacked the authority to implement a “drastic alteration” of a prevailing statutory scheme in the absence of legislative approval.

The court said that ever since 1911, New Jersey law conferred a duty on the BPU to order utilities to pay for extensions of service if it is “reasonable and practicable” and the extension would furnish sufficient business to justify it.

The plaintiffs, who included Toll Brothers and Spindler, argued that the utilities have traditionally ordered their affairs, both financially and administratively, to take into the account the requirement to reimburse those who pay for utility extensions.

“For that reason, providing refunds should not be a significant burden,” in the words of Toll Brothers.

The court agreed. It said the state agency overstated the administrative burden that would result from applying its original ruling to all those affected by it.

The state agency adopted the smart growth rule in 2005 based on an executive order issued by former Gob. Jim McGreevey, trying to limit sprawl in New Jersey.

With the latest court decision, Jeff Tittel, director of the New Jersey Sierra Club, said lawmakers should deal with the issue by passing legislation to require developers in rural and environmentally sensitive areas to pay for infrastructure upgrades.

“We should not be subsidizing bad developments with sprawl-fare,” Tittel said. “This creates public subsidies that end up destroying our open spaces, adding more pollution, and causing higher property taxes.”

The decision comes at a time when the Christie administration is overhauling the State Plan, replacing it with a strategic investment plan, which targets growth in geographic industrial corridors where investment also would be targeted. It further proposes to eventually eliminate a map designating areas of smart growth and where development would be discouraged.