The ultimate fate of solid waste flow control could be determined next month when the U.S. Third Circuit Court of Appeals in New Jersey rules in a challenge to the state's restrictive waste disposal laws.

According to several sources speaking at a conference last week in New York City, the ruling is expected to be a key indicator of whether lower federal courts will follow the lead of the U.S. Supreme Court, which issued a ruling in May on flow control that some considered a death knell for bond-financed solid waste issues.

"This case will tell how [flow control] is going to play out in New Jersey, absent federal legislation," Richard S. Dovey, president of the Atlantic County Utilities Authority, told the conference, which was sponsored by Rodman & Renshaw Inc. "It is the critical case [which] will certainly have repercussions across the country -- either way" it is decided.

In May, the Supreme Court ruled in Carbone v. Clarkstown, N.Y, that the town's flow control laws violated the interstate commerce clause of the Constitution.

The Carbone decision contained broad language, and lower courts have been "jumping on the bandwagon" in interpreting the ruling to mean that "every solid waste flow control ordinance is a violation" of interstate commerce laws, said Mark R. Zehner, a partner at Saul, Ewing, Remick & Saul. "However, if the Third Circuit Court finds that the New Jersey structure is different and doesn't follow Carbone, flow control may not be dead."

Arguments will be presented on Sept. 13 in Atlantic Coast Demolition & Recycling Inc. v. Atlantic County Board of Freeholders and Pollution Control Financing Authority, Camden County Board of Freeholders, Atlantic County Utilities Authority, and N.J. Department of Environmental Protection and Energy Commissioner Scott A. Weiner. The counties have agreed to be passive participants and the state's attorney general's office is handling the case on behalf of Weiner.

Atlantic Coast's attorney, Mark Rosen of Mesirov, Gelman, Jaffe, Cramer & Jamieson in Philadelphia, could not be reached for comment.

According to Zehner, the Supreme Court ruled in Carbone that Clarkstown did not meet either of the two exemptions that the court has traditionally given for interstate commerce violations: that the town had no other choice but to use restrictive flow control, or that the benefits of the local interest far outweighed the burdens it was placing on interstate commerce.

Because New Jersey's solid waste disposal industry is highly regulated and the system "requires flow control for implementation," the Garden State is in a "unique position" to be the first to have a court ruling that goes counter to the spirit of Carbone, Zehner said.

New Jersey's solid waste management act requires the state's municipalities to deliver their waste to designated facilities in the state, giving utilities a steady flow of waste that translates into revenues used to secure bond offerings. To compensate for the monopolizing effects of the system, New Jersey utilities are highly regulated in their rate structure.

"The state believes there is a significant difference between Clarkstown and the comprehensive system in the state of New Jersey," said Gail M. Lambert, deputy attorney general. "It is not clear that Carbone will automatically be used to invalidate the New Jersey system."

In its brief filed last week with the Third Circuit Court, the New Jersey attorney general's office argued that "Carbone neither mandates an automatic invalidation of, nor an abandonment of, traditional interstate commerce principles because the case still teaches that each challenged law must be judged by the lower courts on its own facts."

At the crux of the matter is an appeal to a ruling made on Sept. 8, 1993, by Federal District Court Judge Joseph Irenas. Irenas struck down Atlantic Coast Demolition & Recycling's challenge of Atlantic and Camden counties' law that prohibited the company from taking waste out of the state, processing it, and delivering it to landfills in Ohio.

But in the aftermath of the Supreme Court's May 16 Carbone ruling, Atlantic Coast Demolition & Recycling submitted an appeal to the Third Circuit Court, opening the door for what several sources are saying will be a precedent-setting ruling.

"Since Carbone came down, this will be the first test of New Jersey's system as it exists today," said Donna LoCascio-Birdsall, vice president at Rodman & Renshaw. "If the [Third Circuit Court] follows the spirit of Carbone, any credit within the state of New Jersey that relied on flow control will have to find an alternative means of subsidizing their facilities."

Many New Jersey utilities are already preparing for that eventuality.

"Since Carbone, we've been thinking about a contingency plan if waste flow control is modified or thrown out," Dovey of the Atlantic County Utilities Authority said at the conference.

If flow control is eliminated, public utilities will be forced to lower the cost of their services so they can compete with private industry, Dovey said.

To achieve that goal, however, entities like Atlantic County Utilities will have to decouple the services they provide, and pay for them another way or cease providing those services, he said.

"Similar to when they broke up Ma Bell and no longer could long distance subsidize local calls, we'll have to unbundle what's in our tipping fee and take things out that are not in the disposal fee," Dovey said.

For example, the authority plans to remove recycling from its rate structure if flow control is eliminated, which would cut $19 off its tipping fee.

Flow control proponents point to the Atlantic County authority's "contingency plan" -- which could eliminate recycling -- as evidence of the environmental damage eliminating flow control might bring about, in addition to the deleterious impact it would have on flow control bond financings.

Whatever the federal court decides in the Atlantic Coast Case, the ruling is expected to have a far-reaching impact, particularly for other pending lawsuits in New Jersey.

In the aftermath of the Carbone ruling, Jersey City in Hudson County and Northvale in Bergen County, N.J., joined with National Solid Wastes Management Association and Waste Management Association Inc. in challenging the validity of the state's flow control laws. Separately, Haddon Heights, N.J., has filed a suit against Department of Environmental Protection commissioner Robert C. Shinn challenging the state's waste disposal requirements.

Simultaneous to the legal proceedings since Carbone, "the real battle [on flow control] has shifted to Congress," Zehner said at the conference. In the wake of the Carbone decision, several bills have been introduced in Congress that support grandfathering as a way to protect existing credits that rely on flow control.

Yesterday, the House Energy and Commerce Committee was scheduled to mark up legislation that would grandfather existing fl0w control Jaws, contracts, and solid waste management plans. However, the session was postponed to give committee aides more time to negotiate a bill that represents a br0ader consensus among state and local interests, the solid waste industry, and the environmental and business communities. The committee is expected to address the issue today.

But with Congress scheduled to break for vacation from mid-August until after Labor Day and the session to conclude in early October, Zehner noted that "time is ticking away" for Congress to enact flow control legislation this year.

Martha Canan contributed to this article.

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