IN THE MATTER OF THE BOARD'S REVIEW OF THE APPLICABILITY AND CALCULATION OF A CONSOLIDATED TAX ADJUSTMENT (NEW JERSEY BOARD OF PUBLIC UTILITIES)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1153-14T1

IN THE MATTER OF THE BOARD'S
REVIEW OF THE APPLICABILITY
AND CALCULATION OF A
CONSOLIDATED TAX ADJUSTMENT.
_____________________________

Argued October 25, 2016 – Decided September 18, 2017

Before Judges Fisher, Ostrer and Vernoia.

On appeal from the New Jersey Board of Public
Utilities, Docket No. EO12121072.

Diane Schulze argued the cause for appellant
Division of Rate Counsel (Stefanie A. Brand,
Director, attorney; Ms. Schulze and Christine
M. Juarez, on the briefs).

Carolyn A. McIntosh, Deputy Attorney General,
argued the cause for respondent New Jersey
Board of Public Utilities (Christopher S.
Porrino, Attorney General, attorney; Andrea M.
Silkowitz, Assistant Attorney General, of
counsel; Ms. McIntosh, on the brief).

Stephen B. Genzer argued the cause for
respondent Aqua New Jersey, Inc., and United
Water New Jersey, Inc. (Saul Ewing LLP,
attorneys; Mr. Genzer, on the brief).

Lawrence S. Lustberg argued the cause for
respondent Atlantic City Electric Company
(Gibbons PC, attorneys; Mr. Lustberg and
Amanda B. Protess, on the briefs).
 Gregory Eisenstark argued the cause for
respondent Jersey Central Power & Light
Company (Windels Marx Lane & Mittendorf, LLP,
attorneys; Mr. Eisenstark, on the brief).

Ira Megdal argued the cause for respondent New
Jersey-American Water Company, Inc. (Cozen
O'Connor, PC, attorneys; Mr. Megdal and Mark
Lazaroff, on the brief).

James C. Meyer argued the cause for respondent
New Jersey Utilities Association (Riker Danzig
Scherer Hyland & Perretti, LLP, attorneys; Mr.
Meyer, of counsel and on the brief; Diane N.
Hickey, on the brief).

Fox Rothschild LLP, attorneys for respondent
New Jersey Large Energy Users Coalition
(Steven S. Goldenberg, of counsel and on the
brief).

Cullen and Dykman LLP, attorneys for
respondent Pivotal Utility Holdings, Inc.,
(Kenneth T. Maloney, on the brief).

Janine G. Bauer argued the cause for amicus
curiae AARP (Szaferman, Lakind, Blumstein &
Blader, PC, attorneys; Ms. Bauer, on the
brief).

PER CURIAM

The Director of the Division of Rate Counsel appeals the

Board of Public Utilities' final order revising its policy for

calculating the consolidated tax saving adjustment (CTA) the Board

utilizes in part to determine just and reasonable utility rates.

2 A-1153-14T1
Rate Counsel and other interested parties1 argue the revised CTA

is not supported by adequate findings of fact, is not founded on

sufficient evidence in the record, and constitutes a rule that was

not enacted in accordance with the Administrative Procedure Act

(APA), N.J.S.A. 52:14B-1 to -15, and due process requirements. The

Board, and respondents, the New Jersey Utilities Authority and

various utility companies2 contend the Board's adoption of the

revised CTA did not constitute rulemaking requiring compliance

with the APA, is supported by the evidentiary record, and

constitutes a proper exercise of the Board's discretion. Because

we conclude the Board's adoption of the CTA constitutes rulemaking

and the Board failed to comply with the APA's requirements, we

reverse.

I.

The Board is charged with supervising and regulating public

utility companies, N.J.S.A. 48:2-13(a), and setting "just and

reasonable" rates for those utilities, N.J.S.A. 48:2-21(b)(1).

1
Respondent New Jersey Large Energy Users Coalition and amicus
American Association of Retired People (AARP) filed briefs
supporting Rate Counsel's appeal. The Coalition participated in
the proceeding before the Board. We granted AARP leave to
participate in the appeal as amicus curiae.
2
The respondent utility companies are Aqua New Jersey Inc., United
Water New Jersey Inc., Atlantic City Electric Company, Jersey
Central Power & Light Company, American Water Company, Inc., and
Pivotal Utility Holdings, Inc.

3 A-1153-14T1
The Division of Rate Counsel is a quasi-independent agency

authorized by statute to represent the interests of utility

ratepayers in rate-setting matters before the Board. N.J.S.A.

52:27EE-48(a); I/M/O Provision of Basic Generation Serv., 205 N.J.

339, 360 (2011).

To obtain an increase in utility rates, a utility company

must petition the Board and prove that an increase is just and

reasonable. N.J.S.A. 48:2-21(d). To sustain its burden of proof,

a utility must establish "(1) the value of its property or the

rate base, (2) the amount of its expenses, including operations,

income taxes, and depreciation, and (3) a fair rate of return to

investors." In re N.J. Am. Water Co., 169 N.J. 181, 188 (2001).

A company's "rate base" is "the fair value of the property

of the public utility that is used and useful in [providing the

regulated] public service." In re Petition of Pub. Serv.

Coordinated Transport, 5 N.J. 196, 217 (1950). Reasonable rates

for the service are generally set at an amount meant to "cover the

utilities' expenses plus a return on the shareholders'

investment," that is, an amount that permits "the public utility

to earn a fair return on its rate base." Penpac, Inc. v. Passaic

Cty. Utils. Auth., 367 N.J. Super. 487, 506 (App. Div.), certif.

denied, 180 N.J. 457 (2004).

In an assessment of a utility's claimed expenses, a reasonable

4 A-1153-14T1
rate shall be based only on "actual operating expenses . . . , and

not for hypothetical expenses which did not and foreseeably will

not occur." In re N.J. Power & Light Co., 9 N.J. 498, 528 (1952).

The calculation of a utility company's tax expenses for use in the

determination of its rate base is controlled "only by [its] real

tax" expense, "rather than that which is purely hypothetical."

Lambertville Water Co. v. N.J. Bd. of Public Util. Comm'rs, 153

N.J. Super. 24, 28 (App. Div. 1977), rev'd in part on other

grounds, 79 N.J. 449, 458 (1979).

The Board has used a CTA to calculate the real tax expenses

of utility companies whose federal tax returns are filed as part

of the consolidated tax returns of their parent companies. The

filing of a consolidated tax return permits the parent to offset

the tax liability resulting from the profits of one or more of its

affiliates against the losses of other affiliates. This reduces

the tax obligations of each member of the group and saves each

member a portion of the tax obligation they would have incurred

if they filed their returns separately. Our Supreme Court has made

clear that ratepayers must share in the resulting benefit to the

utility. N.J. Power & Light Co., supra, 9 N.J. at 528. Otherwise,

ratepayers would pay a utility's hypothetical and not real tax

expenses. Ibid.

The Board has "the power and function to take into

5 A-1153-14T1
consideration the tax savings flowing from the filing of [a]

consolidated return and determin[e] what proportion of the

consolidated tax is reasonably attributable to" the utility.

Lambertville Water Co., supra, 153 N.J. Super. at 28. The Board

is not bound by any particular methodology and may exercise its

sound discretion to determine and make appropriate adjustments for

a company's actual tax liability and thus ensure the reasonableness

of the resultant rates. In re Revision of Rates Filed by Toms

River Water Co., 158 N.J. Super. 57, 60-61 (App. Div. 1978), rev'd

on other grounds, 82 N.J. 201 (1980). The Board has exercised its

authority by using the CTA as the means to share with the company's

ratepayers the benefits of the tax savings resulting from the

consolidated tax filings.

The CTA Methodology

Prior to the Board's order challenged on appeal, the Board

used what has been characterized as "the Rockland methodology"3 to

determine the CTA. Under the Rockland methodology, calculation of

the CTA first requires a determination of the net taxable gains

3
The Rockland methodology was developed in a series of rate cases
culminating in I/M/O The Verified Petition Of Rockland Electric
Company, BPU Docket No. ER02100724 (Apr. 20, 2004) (slip op. at
62-64); see also In re Petition of Jersey Cent. Power & Light Co.,
BRC Docket No. ER91121820J (June 15, 1993) (slip op. at 8); In re
Petition of Atlantic City Elec. Co., BRC Docket No. ER90091090J
(Oct. 20, 1992) (slip op. at 6).

6 A-1153-14T1
and losses of all of the companies on the consolidated federal tax

return for each year during a review period which begins in 1991

and ends in the most recent tax year. The companies that

experienced net taxable gains are grouped together and their net

taxable gains are aggregated. The companies that experienced net

taxable losses are grouped together and their net taxable losses

are aggregated. The aggregated losses are then multiplied by the

applicable federal income tax rate to determine the group's

consolidated tax benefit. The amount of the consolidated tax

benefit is then allocated proportionately to the companies that

experienced net taxable gains based on their proportionate share

of the total aggregated gains.

If application of the Rockland methodology establishes that

a New Jersey utility experienced net taxable gains during the

review period, its proportionate share of the consolidated tax

benefit constitutes its CTA. The amount of the CTA affects the

utility's rate base because the larger the tax savings adjustment

under the CTA, the greater the reduction in the utility's rate

base.4

4
The CTA does not result in a dollar-for-dollar reduction in the
utility's tax expenses that are used to calculate the rate base.
The CTA tax savings are treated as a loan from ratepayers, whose
payments contributed to the profits that would otherwise have been
taxed if not for the consolidated filing. Jersey Cent. Power &

7 A-1153-14T1
 The Board Modifies the Rockland Methodology

In January 2013, the Board approved an order opening a generic

proceeding to review the CTA. The Board noted that its current CTA

methodology had been used for approximately twenty years and that

federal tax laws and many of the companies' corporate structures

had changed. The Board sought "input from stakeholders, including

the utilities, customers, and . . . Rate Counsel" to determine the

Board's use of the CTA, the calculation of tax savings from the

filing of consolidated returns, the manner in which the savings

should be shared with the utility companies and ratepayers, and

if a rulemaking proceeding should be initiated. The order was

posted to the Board's website and circulated to those on its

generic stakeholder service list.

In March 2013, the Board posted an official Notice of

Opportunity to Comment on its website and circulated it to

stakeholders on its service list. The notice requested comments

concerning the CTA and responses to requests for information about

the stakeholders' respective positions on whether a CTA should be

Light Co., supra, slip op. at 8. The parent company gains use of
those profits earlier than it otherwise would have, and the CTA,
in turn, compensates ratepayers for the time-value of their money
by adjusting the company's rate base in an amount intended to
prospectively credit ratepayers for the carrying costs of the
loan. Petition of Atlantic City Elec. Co., supra, slip op. at 6.

8 A-1153-14T1
utilized and what changes should be made to the CTA. The Board

requested that the utility companies calculate their current CTA

using the Rockland methodology and include, if applicable, the CTA

included in the company's last rate base case. The notice advised

that following the Board's review of the responses, it would

announce a schedule of hearings to provide all interested parties

with the opportunity to provide testimony on CTA issues.

The New Jersey Utilities Authority (NJUA) submitted comments

on behalf of its members and various utility companies also

submitted written comments. They advocated for the abolition of

the CTA, arguing that the adjustment had become arbitrary due to

an ever-expanding review period that used 1991 as its fixed

starting point, and due to the CTA calculation's inclusion of

companies that no longer participated in the consolidated income

tax filings. They also asserted that application of the CTA

adversely affected the utility companies' ability to attract

capital and other investments necessary to ensure the safe and

efficient provision of their regulated services.

The utility companies and the NJUA further noted that the

relatively small CTAs that resulted from application of the

methodology when it was first implemented had been replaced by a

CTA that in one case was more than forty times higher. They urged

the elimination of the CTA and argued that if the Board continued

9 A-1153-14T1
its use, the review period should be reduced to as few as three

years, electric company transmission assets and other operations

should be removed from the analysis because they are not regulated

by the Board, and companies that have been divested, dissolved,

or are otherwise inactive should be excluded from the calculation.

Rate Counsel also submitted comments acknowledging that the

length of the review period could result in inappropriately large

adjustments and that changes in the tax code during the twenty

years since the adoption of the methodology might impact the

propriety of the calculation. Rate Counsel recommended that the

CTA be reevaluated and adjusted based on utility specific data in

fourteen different areas. Rate Counsel also urged that adoption

of a revised CTA be completed through formal rulemaking.

In July 2013, the Board issued a Notice of Opportunity to

Provide Additional Information, requesting that the utility

companies provide data in each of the fourteen areas suggested by

Rate Counsel. The notice further advised that following its review

of the requested data, the Board would schedule a hearing to

provide interested parties with an opportunity to testify

concerning the CTA.

In November 2013, the Board issued a letter request for data

concerning the taxable gains and losses for the utility companies

and their affiliates for each calendar year from 1991 through

10 A-1153-14T1
2012, and similar information from electric and gas companies

broken down into gains and losses attributable to their separate

electric and gas operations.

Based on the information and comments received during the

process, at the Board's June 2014 meeting its staff recommended

the retention of the Rockland methodology for calculation of the

CTA with the following three revisions: (a) reduction of the review

period to a fixed span of five calendar years; (b) an allocation

of the benefits of consolidated tax savings with the utility

company receiving seventy-five percent of the savings and the

ratepayers receiving twenty-five percent; and (3) the exclusion

of electric company transmission assets from the CTA calculation.

The Board published notice of the proposed policy on its website

and in the New Jersey Register, 46 N.J.R. 1657(a) (July 7, 2014),

and distributed the notice to its service list, advising that

public comments would be received until August 18, 2014.

The NJUA, the utility companies, Rate Counsel and the New

Jersey Large Energy Users Coalition submitted comments. At its

October 2014 meeting, the Board considered the recommended

revisions and issued a final decision adopting them. The Board

ordered that the CTA Rockland methodology would remain in effect

with the following modifications:

11 A-1153-14T1
 1. The review period for the calculation shall
be for five calendar years including any
complete year that is included in the test
year.

2. The [CTA] based on that review period shall
be allocated so that the revenue requirement
of the company is reduced by 25% of the
adjustment; and

3. Transmission assets of the [electric
distribution companies] would not be included
in the calculation of the CTA.

The Board further ordered that the modified CTA would be utilized

in all pending and future rate cases. The Board permitted the

reopening of cases to permit recalculation of the CTA where the

record was closed but the Board had not yet rendered a final

decision. The Board's decision and order was entered on October

22, 2014. Corrective orders were entered on November 3, 2014 and

again on December 17, 2014. Rate Counsel appealed.

II.

Rate Counsel, the Coalition and amicus AARP assert that the

Board's decision and order must be reversed because the Board was

obligated to promulgate the CTA modifications through formal

rulemaking in accordance with the APA. N.J.S.A. 52:14B-4. They

contend the Board's order establishes a uniform policy defining

the CTA methodology and, therefore, it establishes a rule that can

only be adopted in accordance with the APA. In its decision, the

Board found that rulemaking was not required because it had

12 A-1153-14T1
"flexibility to determine how to proceed in matters presented to

it, and [could] use its discretion to choose the most appropriate

manner, including by contested case, rulemaking or informal

process, based on the issues raised and the potential effects of

the resolution." The Board, the NJUA and the utility companies do

not dispute that the Board did not comply with the APA's procedures

for rulemaking, but they contend rulemaking was not required

because the CTA does not establish the rates, and application of

the CTA can be adjusted in rate cases to ensure that the Board

fulfills its obligation to set fair and reasonable rates. See

N.J.S.A. 48:2-21(b)(1).

"Administrative agencies possess wide latitude in selecting

the appropriate procedures to effectuate their regulatory duties

and statutory goals." In re Auth. For Freshwater Wetlands Statewide

Gen. Permit 6, Special Activity Transition Area Waiver For

Stormwater Mgmt., Water Quality Certification, 433 N.J. Super.

385, 413 (App. Div. 2013); accord In re Request for Solid Waste

Util. Customer Lists, 106 N.J. 508, 519 (1987). "[A]gencies enjoy

great leeway when selecting among rulemaking procedures, contested

hearings, or hybrid informal methods in order to fulfill their

statutory mandates." Provision of Basic Generation Serv., supra,

205 N.J. at 347. However, "[a]n agency's ability to select

procedures it deems appropriate is limited by 'the strictures of

13 A-1153-14T1
due process and of the [APA].'" In re Consider Distrib. of Casino

Simulcasting Special Fund, 398 N.J. Super. 7, 16 (App. Div. 2008)

(quoting Request for Solid Waste Util. Customer Lists, supra, 106

N.J. at 519).

An agency's "discretion to act formally or informally is not

absolute." In re N.J.A.C. 7:1B-1.1 Et Seq., 431 N.J. Super. 100,

133 (App. Div.), certif. denied, 216 N.J. 8 (2013). "If an agency

determination or action constitutes an 'administrative rule,' then

its validity requires compliance with the specific procedures of

the APA that control the promulgation of rules." Auth. For

Freshwater Wetlands Statewide Gen. Permit 6, supra, 433 N.J. Super.

at 413 (quoting Airwork Serv. Div. v. Div. of Taxation, 97 N.J.

290, 300 (1984), cert. denied, 471 U.S. 1127, 105 S. Ct. 2662, 86

L. Ed. 2d 278 (1985)); accord Provision of Basic Generation Serv.,

supra, 205 N.J. at 347.

"Agencies should act through rulemaking procedures when the

action is intended to have a 'widespread, continuing, and

prospective effect,' deals with policy issues, materially changes

existing laws, or when the action will benefit from rulemaking's

flexible fact-finding procedures." Provision of Basic Generation

Serv., supra, 205 N.J. at 349-50 (quoting Metromedia, Inc. v. Div.

of Taxation, 97 N.J. 313, 329-31 (1984)). To determine if the APA

14 A-1153-14T1
rulemaking requirements are implicated, we apply the following

analysis:

[A]n agency determination must be considered
an administrative rule . . . if it appears
that the agency determination, in many or most
of the following circumstances, (1) is
intended to have wide coverage encompassing a
large segment of the regulated or general
public, rather than an individual or a narrow
select group; (2) is intended to be applied
generally and uniformly to all similarly
situated persons; (3) is designed to operate
only in future cases, that is, prospectively;
(4) prescribes a legal standard or directive
that is not otherwise expressly provided by
or clearly and obviously inferable from the
enabling statutory authorization; (5)
reflects an administrative policy that (i) was
not previously expressed in any official and
explicit agency determination, adjudication
or rule, or (ii) constitutes a material and
significant change from a clear, past agency
position on the identical subject matter; and
(6) reflects a decision on administrative
regulatory policy in the nature of the
interpretation of law or general policy.

[Metromedia, supra, 97 N.J. at 331-32.]

"The factors need not be given the same weight, and some

factors will clearly be more relevant in a given situation than

others," Doe v. Poritz, 142 N.J. 1, 97 (1995), and "[n]ot all

factors need be present for an agency action to qualify as an

administrative rule," Provision of Basic Generation Serv., supra,

205 N.J. at 350. "The pertinent evaluation focuses on the

importance and weight of each factor, and is not based on a

15 A-1153-14T1
quantitative compilation of the number of factors which weigh for

or against labeling the agency determination as a rule." Ibid.

Based on our review of the record, we are satisfied that the

Board's order satisfies all of the Metromedia factors and thereby

constitutes a rule requiring adoption through rulemaking in

accordance with the APA. See Auth. For Freshwater Wetlands

Statewide Gen. Permit 6, supra, 433 N.J. Super. at 413. With regard

to the first Metromedia factor, the modified CTA applies to all

of the utility companies whose tax returns are filed as part of

the consolidated returns of their respective holding companies.

Cf. Deborah Heart & Lung Ctr. v. Howard, 404 N.J. Super. 491, 506

(App. Div.) (finding rulemaking was not required in part because

the nine of eighteen cardiac surgery facilities subject to the

policy change constituted a "narrow, select group," and not a

"large segment of the regulated public"), certif. denied, 199 N.J.

129 (2009). In addition, because the utility company respondents

serve a significant portion of the regulated public and the CTA

modifications will "impact the general public in its rate-paying

capacity, the first Metromedia factor . . . support[s] closer

adherence to rulemaking procedures." Provision of Basic Generation

Serv., supra, 205 N.J. at 350-51; see also In re Attorney General's

"Directive on Exit Polling: Media and Non-Partisan Public Interest

Groups," 402 N.J. Super. 118, 134 (App. Div. 2008) (finding first

16 A-1153-14T1
Metromedia factor supports rulemaking where the agency's order "is

intended to affect a large segment of the public"), aff'd in part

and modified in part on other grounds, 200 N.J. 283 (2009).

The second Metromedia factor also favors rulemaking because

the modified CTA generally and uniformly applies to all regulated

utilities whose tax returns are filed as part of consolidated

returns. Metromedia, supra, 97 N.J. at 331. Moreover, the Board's

order directs that the modified CTA applies prospectively,

including in those cases that were not yet decided but where the

record remained open at the time the order was entered. Thus,

application of the third Metromedia factor supports a finding that

the modified CTA constitutes a rule. Ibid.

As set forth in the Board's order, the modified CTA

"prescribes a legal standard [and] directive that is not otherwise

expressly provided by or clearly and obviously inferable from the

[Board's] enabling statutory authorization." Ibid. The Board is

required to set "just and reasonable rates," N.J.S.A. 48:2-21, but

there is no statutory directive establishing the methodology for

calculating a utility's real, as opposed to hypothetical, tax

payments to determine its rate base, and no statute directs the

use of a CTA. See Airwork, supra, 97 N.J. at 301 (holding

rulemaking is not required for an agency order directing the form

of a tax assessment where tax statute is specific concerning the

17 A-1153-14T1
underlying tax obligation). We are therefore satisfied the fourth

Metromedia factor favors a finding that rulemaking is required.

Application of the fifth Metromedia factor also favors

rulemaking. Although the use of a CTA and the Rockland methodology

were previously expressed in the Board's determinations in

adjudicated cases, the shortened and finite review period, the

allocation of the tax savings, and the elimination of electric

transmission assets constitute "material and significant

change[s]" to the Board's prior CTA policy. Metromedia, supra, 97

N.J. at 331. The Board never before employed a finite review period

or a defined allocation, and never previously excluded a class of

a utility company's assets from its CTA calculation. Further, it

is not disputed that the modifications constitute material and

significant changes to the CTA. Indeed, Rate Counsel, the

Coalition, the NJUA and the utility companies argued before the

Board that the CTA required material and significant changes, and

the Board's order achieved that result.

Last, the modifications reflect the Board's decision on a

regulatory policy "in the nature of an interpretation of law or

general policy." Id. at 331-32. The Board acknowledges as much in

its decision and order, stating that the modifications are required

to recognize "the fact that a fundamental tenet of utility

regulation is that any methodology used by a regulator must result

18 A-1153-14T1
in an end result that is just and reasonable for both ratepayers

and shareholders." The Board adopted the modifications based on

its finding that the prior CTA methodology "may not be the

appropriate means of achieving that fundamental principle." See

Provision of Basic Generation Serv., supra, 205 N.J. at 352

(finding the Board's decision to "pass through" certain costs to

ratepayers could be viewed as a regulatory policy which was to be

applied later in individual rate-recovery hearings).

In sum, all of the Metromedia factors favor rulemaking here.

The Board's order constitutes a "statement of general

applicability and continuing effect that implements [and]

interprets" the Board's "policy" concerning the calculation of tax

adjustments to a utility company's rate base, N.J.S.A. 52:14B-

2(e), and therefore is a rule within the meaning of the APA. See,

e.g., Auth. For Freshwater Wetlands Statewide Gen. Permit 6, supra,

433 N.J. Super. at 413 (finding agency's adoption of a computer-

based program used to determine the sufficiency of proposed

nonstructural stormwater management measures constituted

rulemaking); N.J. Animal Rights Alliance v. N.J. Dep't of Envt'l.

Prot., 396 N.J. Super. 358, 369-70 (App. Div. 2007) (finding

agency's policy detailing requirements for a public bear hunt

constituted a rule requiring APA rulemaking).

19 A-1153-14T1
 Rate counsel, the Coalition and amicus AARP argue the Board's

failure to comply with the APA requires reversal of the Board's

order. They contend the Board's failure to engage in formal

rulemaking deprived the stakeholders of APA procedural safeguards

and an opportunity to present evidence and testimony at an

evidentiary hearing.

For example, Rate Counsel argues the Board failed to comply

with the following APA requirements: publish a proposal containing

"a clear and concise explanation of the purpose and effect of the

rule, the specific legal authority under which its adoption is

authorized, [and] a description of the expected socio-economic

impact of the rule," N.J.S.A. 52:14B-4(a)(2), and prepare and

distribute "a report listing all parties offering written or oral

submissions concerning the rule, summarizing the content of the

submissions and providing the agency's response to the data, views,

comments, and arguments contained in the submissions," N.J.S.A.

52:14B-4(a)(4). The record supports Rate Counsel's position. These

APA requirements were not satisfied in the generic proceeding.

Rate Counsel also argues, and the record shows, that the

Board's March 2013 Notice of Opportunity to Comment and July 2013

Notice of Opportunity to Provide Additional Information each

stated that following the collection of the requested data and

comments, the Board would "announce a schedule for hearings to

20 A-1153-14T1
provide all interested parties with the opportunity to provide

testimony on the CTA issues." The Board, however, never announced

such hearings or conducted any hearings providing interested

parties with the opportunity to present testimony.

Although agencies enjoy leeway to choose among rulemaking,

adjudicatory hearings, and hybrid informal proceedings to fulfill

their statutory mandates, Provision of Basic Generation Serv.,

supra, 205 N.J. at 347, leeway is not a license to ignore the

APA's requirements. The Board has discretion to utilize various

procedures to fulfill its statutory mandate, but our Supreme Court

has held that "administrative action, and an agency's

discretionary choice of the procedural mode of action, are valid

only when there is compliance with the provisions of the [APA] and

due process." Ibid.; see also Airwork, supra, 97 N.J. at 300 ("If

an agency determination or action constitutes an 'administrative

rule,' then its validity requires compliance with the specific

procedures of the APA that control the promulgation of rules.");

Consider Distrib. of Casino Simulcasting Special Fund, 398 N.J.

Super. 7, 16 (App. Div. 2008) ("An agency's ability to select

procedures it deems appropriate is limited by 'the strictures of

due process and of the [APA] . . . .'" (quoting In re Request for

Solid Waste Util. Customer Lists, supra, 106 N.J. at 519)). Where,

as here, the Board promulgates an administrative rule, it is

21 A-1153-14T1
required to comply with the APA's requirements. Provision of Basic

Generation Serv., supra, 205 N.J. at 347. Because the Board failed

to do so here, we are constrained to reverse the Board's order.

We are not persuaded that the Court's decision in Provision

of Basic Generation Service, requires a different result. There,

the Court applied the Metromedia factors to a Board order that in

part allowed utility companies to pass through increased energy

supplier costs to the ratepayers. Id. at 349-52. The Court found

that the first five Metromedia factors supported a finding that

the order constituted rulemaking and that the sixth factor "[did]

not advance the analysis in any compelling way." Id. at 350-52.

In weighing the factors, the Court determined that the

preponderance of the "factors favor[ed] treating the [order] as

akin to rulemaking" but that in adopting what the Court

characterized as a "quasi-rule, the [Board] was entitled to greater

flexibility with regard to procedural formalities than if this

process could only have been completed by way of a strict

rulemaking process." Id. at 352 (emphasis added).

Under those circumstances, the Court found the Board's use

of a hybrid proceeding "which had attributes of rulemaking and

adjudicative proceedings and included a legislative-type hearing,

two opportunity-to-comment periods, discovery periods, and public

hearings throughout the state, was sufficient to satisfy the

22 A-1153-14T1
requirements of the . . . APA." Id. at 353 (emphasis added). But

the Court expressly conditioned its conclusion upon the

requirement that "evidentiary rate-setting hearings take place

which apply to the cases of specific energy providers the

principles to be established in" an ongoing contested case before

the Board.5 Ibid. Thus, the court allowed a departure from the

APA's rulemaking requirements because the policy was going to be

further defined in an ongoing adjudicated case.

Here, all the Metromedia factors clearly favor rulemaking.

Therefore, unlike in Provision of Basic Generation Service, we

address the requirements for the adoption of an actual, and not a

quasi-rule, and the Board did not have the concomitant flexibility

to depart from the APA's requirements. See id. at 352. Moreover,

in its adoption of the modified CTA, the Board did not utilize the

hybrid process the Court found provided the flexibility to abandon

the requirements of formal rulemaking in Provision of Basic

Generation Service.6 The Board's order constitutes a general policy

5
The ongoing contested case cited by the Court was In re Provision
of Basic Generation Service for the Period Beginning June 1, 2008
– BGS SREC Recovery Mechanism Proceeding, BPU Docket No.
ER07060379. Ibid.
6
As an alternative to acting through rulemaking, adjudication or
a hybrid proceeding, an agency may act informally. Request for
Solid Waste Util. Customer Lists, supra, 106 N.J. at 518.
"[I]nformal action constitutes the bulk of the activity of most

23 A-1153-14T1
that will be applied in future cases without the benefit of any

of the adjudicatory proceedings the Court required in Provision

of Basic Generation Service. See id. at 353.

"The purpose of APA rulemaking procedures is 'to give those

affected by the proposed rule an opportunity to participate in the

process, both to ensure fairness and also to inform regulators of

consequences which they may not have anticipated.'" Id. at 349

(quoting In re Adoption of 2003 Low Income Hous. Tax Credit

Qualified Allocation Plan, 369 N.J. Super. 2, 43 (App. Div.),

certif. denied, 182 N.J. 141 (2004)). We find nothing in the

Court's decision in Provision of Basic Generation Service

supporting an abandonment of the well-settled principle that where

an agency adopts a rule, it must proceed through formal rulemaking

in accordance with the APA. Id. at 347; Airwork, supra, 97 N.J.

at 300; Auth. For Freshwater Wetlands Statewide Gen. Permit 6,

supra, 433 N.J. Super. at 413.

administrative agencies," "and the line between . . . rulemaking
. . . , and informal action, . . . can become blurred." Ibid.
However, informal action is defined as "statutorily authorized
agency action that is neither adjudication nor rulemaking." Id.
at 519. "[I]nformal agency action includes investigating,
publicizing, planning, and supervising a regulated industry."
Ibid. Here, the Board's order did not constitute informal action
because, as noted, it satisfied each of the Metromedia factors and
therefore constituted a rule that required rulemaking. Metromedia,
supra, 97 N.J. at 332. It is only where "the APA does not require
rulemaking [that] an agency may act informally." Ibid.; N.J.A.C.
7:1B-1.1 Et Seq., supra, 431 N.J. Super. at 133.

24 A-1153-14T1
 We are also persuaded that the Board's departure from the APA

requirements constituted an "irregularity or informality [that]

tends to defeat or impair the substantial right or interest of the

appellant." N.J.S.A. 48:2-46. In the first instance, the Board's

proceeding violated the ratepayers' right to have the new CTA

policy adopted in accordance with the APA.

Second, although the Board's process provided opportunities

for the submission of evidence and comment and the Board made

certain submissions available on its website, the Board failed to

comply with the APA's requirements that it publish "a description

of the expected socio-economic impact of the rule," N.J.S.A.

52:14B-4(a)(2), and prepare and distribute a report "summarizing

the content of the submissions and providing the [Board's] response

to the data, views, comments, and arguments contained in the

submissions," N.J.S.A. 52:14B-4(a)(4). We do not consider these

APA requirements to be insubstantial. They require more of the

Board than merely making information available on a website and

requesting comment.

Compliance with the requirements provides the stakeholders

with the Board's analysis and assessment of the economic impact

of a proposed rule and the Board's response to a stakeholder's

data, comments and arguments before a rule is adopted. Moreover,

compliance provides the stakeholders with the opportunity to

25 A-1153-14T1
present evidence and address the Board's economic impact

assessment and response to the stakeholder's data, comments and

argument. In other words, the statutory requirements guarantee

that Rate Counsel and the stakeholders are fully informed of the

Board's position concerning a rule's economic impact and the

Board's response to the submitted data, comments and arguments,

thus permitting Rate Counsel and the stakeholders an opportunity

to present further evidence and argument. When the requirements

are ignored, the Board gathers information and comment, but Rate

Counsel and the stakeholders are deprived of the right granted by

the APA to consider and contest the Board's assessment of economic

impact and responses to the submissions prior to the adoption of

a rule.

In our view, the Board's failure to comply with the

requirements deprived Rate Counsel of substantial rights and

interests under the APA: the right to obtain the Board's assessment

of the economic impact of the proposed modified CTA and responses

to Rate Counsel and the other stakeholders' submissions, and the

right to provide evidence and argument in opposition to them. The

failures are of particular significance here because of the

conflicting evidence presented concerning the modified CTA's

potential economic impact on ratepayers. We are therefore

convinced that the Board's failure to comply with the APA's

26 A-1153-14T1
requirements in its adoption of the modified CTA constituted an

irregularity that tended to defeat and impair the rights and

interests of Rate Counsel and the other stakeholders.

Because we reverse the Board's order, it is unnecessary to

address the arguments that the Board's decision and order lacks

sufficient support in the record or is otherwise contrary to

applicable law. Any remaining arguments that we have not addressed

directly are without sufficient merit to warrant discussion in a

written opinion. R. 2:11-3(e)(1)(E).

Reversed.

27 A-1153-14T1