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State Argues that PSE&G Doesn't Qualify for Special Incentives

New Jersey's largest electric utility wants to start charging customers before work has begun on transmission project, along with other incentives.

The state is asking a federal agency to dismiss a request by Public Service Electric & Gas (PSE&G) to be awarded special incentives that would boost the utility’s earnings on more than $1 billion in transmission project upgrades.

In a filing Thursday, the state Board of Public Utilities (BPU) asked the Federal Energy Regulatory Commission (FERC) to dismiss a petition by the Newark utility seeking special rates for five separate transmission projects or to schedule evidentiary hearings on the request.

The case could set an important precedent, given that PSE&G, the state’s largest electric utility with nearly 2 million customers, is planning a series of major upgrades to its transmission system in the next few years, including a controversial 45-mile high-voltage line through the New Jersey Highlands.

The special incentives sought by the utility include permission to begin collecting rates from customers before construction work on the lines and upgrades have begun and assurances that it will be able to recover 100 percent of the project’s costs if it is canceled or abandoned due to circumstances beyond its control. Transmission costs account for about 8 percent of a customer’s bill.

The federal agency decides rates for a utility’s transmission lines. In states like New Jersey, where the industry has been deregulated, the BPU controls only the rates for delivering electricity over the utility’s distribution system. The transmission system carries electricity from power plants to substations; the distribution system from substations to homes and businesses.

In its filing, the BPU maintains that the five projects, all of them much smaller than the Susquehanna-Roseland line traversing 16 towns in the Highlands, are indistinguishable from other transmission projects or upgrades "constructed in the ordinary course of a utility’s transmission service obligation to provide safe and reliable service to its customers."

PSE&G insists the projects will reduce congestion and ensure reliability of the regional power grid. They were approved by PJM Interconnection through its regional transmission expansion process. New Jersey ratepayers pay much higher energy bills than customers in neighboring states, primarily because of congestion on the grid and steep costs to ensure there is enough power to meet peak demand.

That view was contested by the state agency, which argued each of the five projects has unique characteristics designed to remedy specific problems in the Burlington/Camden area; Gloucester/Camden areas; West Orange; Middlesex County; and Bayonne.

In addition, the state said PSE&G fails to demonstrate that the rate incentives are needed, or that the five separate and routine projects would not be built if not for such incentives.

"Without such a showing, rate incentives will serve no purpose other than burdening New Jersey ratepayers and bolstering PSE&G’s profits," the state argued.

PSE&G also contended that it deserved the incentive rates because the five projects, when combined with the utility’s other transmission investments, will require it to furnish significant outlays of cash, dramatically increasing its debt levels.

But the state countered with a 2009 Moody’s report that said "PSE&G’s rating is stable’" and noted that delays in the Susquehanna-Roseland project will allow the utility to stage its capital expenditures "more gradually."

Asked to respond to the state’s brief, a spokeswoman for PSE&G said the utility is currently reviewing the protests that were filed by the state. "However, we continue to believe that FERC should grant our request for incentive rates in accordance with FERC policy, and we plan on responding to the protests."

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