N.J.A.C. 14A:20-1.1, Matter of

• Decision Date: 26 March 1987
• Citation: 216 N.J.Super. 297,523 A.2d 686
• Parties: In the Matter of N.J.A.C. 14A:20-1.1 et seq., In the Matter of N.J.A.C. 14A:20-1.9.
• Court: New Jersey Superior Court — Appellate Division

Page 297

216 N.J.Super. 297

523 A.2d 686

In the Matter of N.J.A.C. 14A:20-1.1 et seq In the Matter of N.J.A.C. 14A:20-1.9.

Superior Court of New Jersey Appellate Division.

Argued Feb. 25, 1987.

Decided March 26, 1987.

Richard B. McGlynn, Newark, on behalf of appellants (Stryker, Tams & Dill, attorneys; Richard B. McGlynn of counsel; Mark L. Mucci, on brief).

Carla Vivian Bello, Deputy Atty. Gen., on behalf of respondents Dept. of Energy and Bd. of Public Utilities (James J. Ciancia, Asst. Atty. Gen., of counsel; Carla Vivian Bello, on brief).

Before Judges DREIER, SHEBELL and STERN.

The opinion of the court was delivered by STERN, J.A.D.

Appellants, the New Jersey Utilities Association Inc. (NJUA) and seven major public utilities, appeal from the promulgation by the Department of Energy (DOE) of regulations concerning energy conservation (hereinafter "conservation regulations"). The regulations, codified as subchapter 1 ("Public Utilities Programs") of Chapter 20 ("Energy Conservation Program Development and Public Utility Planning Evaluations") of the DOE regulations, relate to energy conservation measures to be taken by utilities in the State with the costs either to be absorbed by the utilities or charged to their customers. See N.J.A.C. 14A:20-1.1 et seq.

The first of the two appeals concerns a claim regarding the virtual elimination of the Board of Public Utilities (BPU) from the approval process as evidenced by section 1.9 of the regulations. Appellants contend that the BPU has statutory jurisdiction in this area and that DOE operated beyond its legislative mandate. Appellants emphasize that this is particularly true because the costs might not be included in the rate base of the utilities.

The second appeal is from the readoption of section N.J.A.C. 14A:20-1.9 while the first appeal was pending. The amendment was designed to avoid or moot the arguments advanced on the first appeal.

We affirm the promulgation of the regulations in their present form, subject to the interpretation which we give to them herein.

I.

On December 3, 1984, DOE published its proposed conservation regulations in the New Jersey Register for public comment. 16 N.J.R. 3293. Following a public hearing on November 12, 1985, DOE filed with the Office of Administrative Law (OAL) a notice of adoption of the conservation regulations. The newly adopted regulations were published on February 3, 1986. See 18 N.J.R. 290.

Following publication appellants filed their appeal from the promulgation and obtained a stay of enforcement. Appellants amended their notice of appeal to include the BPU as a respondent. Subsequently, on May 19, 1986 DOE proposed readoption of section 1.9. See 18 N.J.R. 1092. Section 1.9 in its present form was adopted and published in the New Jersey Register on July 21, 1986. See 18 N.J.R. 1485.

Following the readoption of section 1.9, appellants filed a second notice of appeal challenging the DOE authority to proceed with the readoption process pending disposition of the original appeal. We consolidated the appeals.

II.

The energy conservation regulations require that all electric and natural gas public utilities in the state periodically submit to DOE a proposed plan for energy conservation containing certain specified program elements. These plans are to be reviewed and approved by DOE, which is to conduct an evaluation of the adequacy and feasibility of each plan. N.J.A.C. 14A:20-1.8(c). After DOE approval, the plans are to be submitted to the BPU "for review consistent with the BPU's statutory authority." N.J.A.C. 14A:20-1.9, as amended.

Section 1.1 sets forth the intent of the regulations:

The purpose of the regulations in this subchapter is to promote the rapid and effective installation and use of cost effective energy conservation measures, devices and innovations in the houses and apartments of New Jersey residents. The principal means employed by these regulations is a program of investments and loans by electric and gas utilities, marketing strategies, economic incentives, specified annual targets, and a requirement that utilities incorporate these conservation initiatives into their planning processes. [ N.J.A.C. 14A:20-1.1].

The regulations require that the conservation plans submitted by the individual utilities contain annual goals for completion of energy audits; financial incentives provided by the utilities for customer purchase, installation and/or use of energy conservation or efficiency measures; load management plans with certain specified designs; promotion of alternative technology programs; and a marketing strategy with certain required elements. See N.J.A.C. 14A:20-1.4 and -1.5.

The initial version of the planning regulations, published in the New Jersey Register of December 3, 1984, limited input from the BPU to determining how the energy conservation investments, costs and expenses incurred by the utilities should affect their rates. As originally proposed N.J.A.C. 14A:20-1.9 demonstrated the BPU's limited role:

14A:20-1.9 Plan for proper rate treatment

The BPU shall, within 90 days of the effective date of this subchapter, and at least annually thereafter, prepare and submit a plan to the Department [of Energy] for the proper rate treatment of energy conservation investments, costs and expenses incurred by public utilities as they comply with this chapter. The plan shall include but need not be limited to financial incentives to promote the achievement of cost-effective energy conservation goals and targets, and financial penalties and disincentives for the failure to achieve these goals and targets. [16 N.J.R. 3296]

This section, subsequently revised and reproposed, is the main source of appellants' objection to the conservation regulations. Appellants are concerned that by honoring the DOE regulations they will be required to expend large sums of money which might not be included or approved by BPU in their rate base, at least without BPU approval of the plan. Appellants also contend that energy rates might ultimately be affected by implementation of the plans, and that rate setting is the exclusive function of BPU.

After the public hearing and a review of the conservation regulations, the Attorney General issued a formal opinion letter dated October 3, 1985 to then DOE Commissioner Leonard S. Coleman, Jr. questioning the limited role given to the BPU in evaluation and approval of the plans. After noting DOE's authority in energy conservation and development and BPU's responsibility for overseeing the financial integrity of the public utilities, the Attorney General advised that section 1.9 should be revised to provide for BPU's examination of the utility conservation programs after they have been approved by DOE. Specifically, the Attorney General stated,

... unilateral implementation by the D.O.E. of a mandatory utility incentive program may impair the financial integrity of a utility. The financial incentives embodied in the regulations are intimately connected with the financial structure and capital development of utilities in their primary and special function as part of the energy resource system of the State. The proposed incentive regulations, by their very nature, impact upon the pattern of investment and operating expenditures of the utilities involved. This management and oversight role is the essential responsibility of the B.P.U. in its ratemaking capacity. ... It would be inconsistent with these complimentary but distinct responsibilities of the D.O.E. and the B.P.U. for the D.O.E. to attempt to unilaterally mandate a particular form of investment or program of substantial operating expenses.

The opinion concluded by advising

that a mandatory utility conservation program, unilaterally implemented by the D.O.E., would exceed the D.O.E.'s statutory authority and intrude upon the competence and authority of the B.P.U. The D.O.E. may, however, require that utilities file certain plans and reports with it for review. The D.O.E. may then approve a utility's conservation plan. This approved plan must then be examined by the B.P.U. to determine its impact on the financial posture of the utility, its ratepayers and on the quality and adequacy of service and then implemented by it. A conservation plan should meet with the B.P.U.'s approval to the maximum extent reasonable and practicable; the burden being on those who seek to prevent implementation of the D.O.E. approved conservation plan. It is our opinion, that such designation of functions in the context of proposed D.O.E. rules will properly balance the legislatively authorized complementary roles of the D.O.E. and B.P.U. in the area of energy conservation.

On November 8, 1985 DOE adopted the regulations essentially as proposed, except for section 1.9 which contained new language that made no mention of BPU. As filed with the OAL on November 12, 1985, section 1.9 read as follows:

The [DOE] shall approve, approve with conditions, or not approve, each utility's energy conservation plans upon the completion of the report and evaluation required by [ N.J.A.C. ] 14A:20-1.8(c). The [DOE] shall then order each such utility to implement its plan as approved or as approved with conditions.

However, various communications occurred within the administration relating to the role of BPU, and section 1.9 was amended after the November 12 filing with OAL, to read as published on February 3, 1986:

The [DOE] shall approve, approve with modifications, or reject each utility's energy conservation plans upon the completion of the report required by N.J.A.C. 14A:20-1.8(c). The [DOE] shall then transmit the utility conservation plan to the BPU for review consistent with the BPU's statutory authority. The BPU shall have 90 days to take action on the plan. No utility conservation plan may be implemented during this 90 day period. However, if within 90 days of receipt of a public utility conservation plan, the BPU does...