In re Centex Homes, LLC

• Decision Date: 30 December 2009
• Docket Number: No. A-2207-07T3,A-2207-07T3
• Citation: 411 N.J. Super. 244,985 A.2d 649
• Parties: In the Matter of CENTEX HOMES, LLC Petition for Extension of Service and/or for Exemption from Main Extension Rules N.J.A.C. 14:3-8.1 et seq. Pursuant to N.J.S.A. 48:2-27 and N.J.A.C. 14:3-8.8(A)(4) or (a)(6).
• Court: New Jersey Superior Court

985 A.2d 649

411 N.J. Super. 244

In the Matter of CENTEX HOMES, LLC Petition for Extension of Service and/or for Exemption from Main Extension Rules N.J.A.C. 14:3-8.1 et seq. Pursuant to N.J.S.A. 48:2-27 and N.J.A.C. 14:3-8.8(A)(4) or (a)(6).

No. A-2207-07T3

Superior Court of New Jersey, Appellate Division.

Argued March 5, 2009.

Decided December 30, 2009.

Kevin J. Coakley, Roseland, argued the cause for appellant Centex Homes, LLC (Connell Foley LLP, attorneys; Mr. Coakley, of counsel and on the brief; Joseph A. Villani, Jr., on the brief).

Geoffrey R. Gersten, Deputy Attorney General, argued the cause for respondent New Jersey Board of Public Utilities (Anne Milgram, Attorney General, attorney; Sharon M. Joyce, Assistant Attorney General, of counsel; Mr. Gersten, on the brief).

Before Judges CARCHMAN, R.B. COLEMAN and SABATINO.

The opinion of the court was delivered by

R.B. COLEMAN, J.A.D.

Centex Homes, LLC (Centex) appeals a November 30, 2007 order of the New Jersey Board of Public Utilities (the BPU or the Board), denying Centex's petition for an order directing various public utilities to pay for or contribute to the cost of service extensions pursuant to N.J.S.A. 48:2-27. The BPU denied the petition because the requested service extensions do not comply with the BPU's Main Extension Regulations, N.J.A.C. 14:3-8.1 to -8.13, and the petitioner failed to prove entitlement to an exemption. In effect, the Main Extension Regulations, which became operative on March 20, 2005, prohibit regulated utilities from paying for or financially contributing to extensions in certain areas not designated for growth according to the New Jersey State Planning Commission State Plan Policy Map (State Planning Map), unless the applicant for the extension proves that it qualifies for one of the exemptions in N.J.A.C. 14:3-8.8. N.J.A.C. 14:3-8.6.

In the published notice for a March 2, 2004 public hearing at which proposed amendments to the then-existing rules were to be considered, the BPU summarized the effect of the amendments as follows:

The Board of Public Utilities (Board) is proposing amendments, repeals and new rules to ensure that programs reflect the smart growth policy goals of the State. The amendments, repeals and new rules will govern the responsibility borne by regulated entities for the costs of certain investments in infrastructure, based on whether the development served by the infrastructure is in an area designated for growth under the State Development and Redevelopment Plan (State Plan).

The proposed amendments and new rules replace various existing rules governing extensions of service with one consolidated, comprehensive set of new extension rules that reflect the State's smart growth policies for addressing the problems of sprawl development. The existing extension rules [sic] primary focus is on when the regulated entity must provide extensions free of charge to applicants, and when and how it may charge applicants for new extensions. The existing rules make no distinction between extensions serving smart growth development in areas designed for growth under the State Plan, and extensions serving sprawl development.

This has resulted in subsidies to development in outlying areas, and has perpetuated barriers to development and redevelopment in areas designated for growth under the State Plan. The proposed amendments, repeals and new rules are intended to replace this outdated regulatory scheme with one that ensures that the cost of all extensions of infrastructure will reflect State smart growth policy.

[36 N.J.R. 276-77 (January 20, 2004).]

Without equivocation, the BPU has made it clear that its amendments to the previously existing rules are intended to "ensure[ ] that the cost of all extensions of infrastructure will reflect State smart growth policy." Id. at 277. In this case, Centex argues that the resulting Main Extension Regulations adopted by the BPU exceed the narrowly circumscribed authority delegated pursuant to N.J.S.A. 48:2-27 and are therefore void. Centex argues that the Main Extension Regulations inappropriately give regulatory effect to the State Plan because the regulations were expressly adopted to implement the State Plan and smart growth principles. Centex further argues that the BPU ignored relevant facts in denying Centex an exemption from the Main Extension Regulations pursuant to N.J.A.C. 14:3-8.8(a)(4) and -8.8(a)(6) (2004)¹, and also that the BPU violated due process and the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -25, by failing to provide Centex with an opportunity to be heard at the meeting at which the petition was considered and by failing to provide Centex with certain evidence on which the order was based.

The Board responds that its Main Extension Regulations are a proper exercise of its statutory authority and that it gives appropriate consideration to the State Plan and to comments and recommendations from the Office of Smart Growth. It contends that it properly determined that the Centex project was inconsistent with smart growth principles and that the benefits of smart growth outweigh any benefits presented by Centex.

We agree with Centex that the BPU's interpretation of N.J.S.A. 48:2-27 is inconsistent with the function of that statute, as clarified in prior decisions, and is ultra vires. We therefore vacate the November 30, 2007 order and remand the matter to the BPU for further proceedings. In light of that disposition, we do not reach Centex's additional arguments.

In August 2006, Centex, a Texas-based construction company, began developing Colts Neck Crossing, the property in Howell, involved in this appeal. The 555-unit age-restricted residential development is to be spread over 334 acres on several lots in Block 184 of Howell's tax map and is located at the corner of Colts Neck Road and Route 33. On the State Planning Map, Colts Neck Crossing falls within Planning Area 4B, Rural/Environmentally Sensitive, which is an "area not designated for growth" under the BPU's Main Extension Regulations. N.J.A.C. 14:3-8.2.

Colts Neck Crossing was first proposed by Centex's predecessor-in-title, Crawford Holdings (Crawford), in 2002. Colts Neck Crossing was rezoned in 2002 from Highway Development 2 Zone (HD-2) and Agricultural Rural Estate 1 Zone (AGE-6) to Planned Retirement Community Zoning District. In May 2002, Verizon New Jersey, Inc. (Verizon) agreed in writing to extend telephone services to Colts Neck Crossing at no cost to Crawford. Other utilities agreed to provide service, but no other public utility agreed in writing to cover the cost of service extensions. For example, Jersey Central Power and Light (JCP & L) voiced its acceptance of Crawford's plan and indicated that it could supply service, but it did not offer or agree to pay for the necessary extensions.

Although Howell's planning board had granted preliminary water and final sewer approvals and approved final site and subdivision plans by 2004, Howell revoked all its approvals and rezoning in or about the spring of 2005. Crawford sued Howell in January 2006, and, following a court order granting partial summary judgment in favor of Crawford setting aside the purported revocations, the parties reached a settlement agreement on July 2, 2006. Pursuant to that settlement, it was agreed that Colts Neck Crossing would include seventy-two age-restricted multi-family affordable housing units, and it would contribute to Howell's third round affordable housing obligation under the Fair Housing Act, N.J.S.A. 52:27D-301 to -329. Centex purchased the property from Crawford in July 2006 and began construction the following month.

On or about November 20, 2006, Centex filed a petition for utility service extensions pursuant to N.J.S.A. 48:2-27. Centex requested that the BPU order four regulated utilities—JCP & L, Verizon, New Jersey Natural Gas Company (NJNG) and New Jersey-American Water Company (NJAW)—to construct and pay for utility extensions to Colts Neck Crossing. The cost for such utility extensions was estimated to be $1,910,425 for electric, $919,000 for telephone, $2,876,635 for gas, and $3,193,716 for water. The BPU considered Centex's petition at a November 28, 2007 meeting.²

On November 30, the Board issued an order rejecting Centex's petition for an extension of services for natural gas, water, and electric service pursuant to N.J.S.A 48:2-27 and N.J.A.C. 14:3-8.8(a)(4) (2004) and N.J.A.C. 14:3-8.8(a)(6) (2004). The Board found that the project was located in an area not designated for growth. Hence, the regulated entities were not permitted to pay for or financially support the extension. The Board also found that Centex failed to establish that it qualified for the "significant public good" exemption set forth in N.J.A.C. 14:3-8.8(a)(6) (2004), and that Centex also failed to establish, as to all the utilities except Verizon, qualification for the exemption set forth in N.J.A.C. 14:3-8.8(a)(4) (2004) for voluntary extensions by the utility. Only Verizon, which had agreed in writing prior to March 20, 2005, to build and pay for a service extension, was required to pay for its extension of telephone wires to the development; all other utility extension costs would have to be borne by Centex.

Before examining Centex's arguments, we must set forth the standards for reviewing an agency's interpretation of legislation. Generally, an agency charged with enforcement of a statute is entitled to great deference in its interpretation of the statute. In re Distribution of Liquid Assets upon Dissolution Reg'l High Sch. Dist. No. 1, 168 N.J. 1, 10-11, 773 A.2d 6 (2001). Such deference is required because "agencies have the specialized expertise necessary to enact regulations dealing with technical matters...." N.J. League of Municipalities v. Dep't of Cmty. Affairs, 158 N.J. 211, 222, 729 A.2d 21 (1999). Thus, "agency rules are accorded a presumption of validity and reasonableness,...