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PSE&G Says Gas Contract Lowered Costs to Consumers

Newark utility tells BPU that it saved consumers $32 million a year by not requiring affiliate to pay societal benefits charges.

Public Service Electric & Gas disputes allegations it gave an affiliate a break on a decade-old gas contract to produce electricity. Instead, it argues in a brief that the arrangement resulted in other gas customers saving $32 million annually.

The contract between the Newark utility and PSEG Power, one of the largest suppliers of electricity in the region, is at the heart of the contentious proceeding before the state Board of Public Utilities. Rival power suppliers contend PSE&G sold its affiliate gas at a much lower price than other customers paid, in part because PSEG Power did not have to pay surcharges most other customers are responsible for.

The dispute originally arose during a gas and electric rate case before the BPU earlier this year, which granted PSE&G a rate increase of $100 million. The agency, however, decided to hold another proceeding to determine if the PSEG Power gas rate discriminated against other generators and if the company ought to be paying the various surcharges, including the societal benefits charge, which last year raised $740 million from most other gas and electric utility customers.

Paying Attention to the Price

In its briefs, PSE&G hardly addressed the subject of not paying the surcharges, the issue originally reported by NJSpotlight that triggered calls for investigations by the Attorney General’s Office. Instead, it focused on the actual charges PSEG Power pays the utility for the gas transported to its nine power plants.

John Morris, a principal in Economists Incorporated, a Washington, D.C., consulting firm hired by PSE&G, said in a brief the rate was not unduly discriminatory to competitors, arguing that if the rate were any higher, PSEG Power could have simply chosen to purchase gas from another company since its plants are located near interstate gas pipelines traversing New Jersey.

"I believe PSE&G has done an excellent and perhaps unsustainable job of extracting revenue from a high-volume customer with bypass alternatives," Morris testified. If PSEG Power had left the utility and bypassed the system, it would have increased cost to other customers by $32 million a year because revenue from the company is treated as a credit to customers, Morris said. Essentially, it avoids customers picking up those costs to maintain the delivery system should a particular customer leave the system.

Dealing in Dekatherms

The rates paid by PSEG Power under its contract with PSE&G are greater than some of the other wholesale generators, Morris said, with the Newark company paying $0.425 per dekatherm, compared with $0.423 paid by other wholesale generators on average in 2009. A dekatherm is the unit which gas suppliers charge their large customers.

In some cases, however, even though PSEG Power paid lower rates than other wholesale generators, it does not mean the rates are unduly discriminatory, Morris said. "It has long been recognized that regulated utilities may discount rates to maintain the business of customers that have alternatives and would leave the regulated utility’s system but for the discount," the consultant added.

He also said other wholesale generators, without mentioning which they were, have negotiated lower gas rates with PSE&G than what PSEG Power pays to allow the utility to retain them as customers. Other customers may have lower rates than PSEG Power because their rates are based on fixed monthly charges or annual charges whereas the Newark supplier’s rates are based on volume.

Many of the other parties in the case declined to offer new briefs in the proceeding, including the New Jersey Division of Ratepayer Advocate and the New Jersey Large Energy Users Coalition, a group that has made nonpayment of the SBC and other surcharges a top priority in the proceeding. They have said the prior rate case provides enough material for the BPU to make a decision in the case.

Another Supplier Weighs In

In addition, another power supplier has intervened in the case, Ocean Peaking Power, the owner or part-owner of two gas-fired plants in Lakewood. It argues the nonpayment of the surcharges amounts to a competitive advantage for PSEG Power, but also recommends the state agency eliminate the surcharges for other power suppliers, a decision they insist could bring down energy prices in New Jersey.

Also, Dennis Clarke, a principal of the Morris Energy Group, which had intervened in the earlier rate case, submitted a new brief suggesting the preferential rates it says PSEG Power has obtained, have resulted in losses of approximately $890,000 because the group’s plants in Bayonne and Elmwood Park cannot compete with those facilities’ cheaper rates.

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