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Déjà Vu All Over Again with Another Challenge to Electric Breakup

Tom Johnson | April 30, 2012

Appellate court to hear latest argument against PSE&G in 10-year-old deregulation of monopolies.

The more than decade-old law breaking up electric monopolies is once again being challenged in the courts, with perhaps too familiar litigants lining up against each other this month before an appellate division court.

In an appeal of a decision by the New Jersey Board of Public Utilities, Joseph Murphy, a resident of Oradell, is contesting the state’s agency ruling to dismiss his case asking it to order Public Service Electric & Gas to refund more than $3 billion in rates it collected from its ratepayers stemming from the deregulation of the sector.

The case revolves around issues that have been litigated several times in the past, primarily involving whether the state’s largest utility collected stranded cost overcharges from its customers for losses it had not actually incurred. The state agency in 1999 ruled the utility could recover roughly $5 billion from ratepayers for losing its monopoly and having to face competition in providing the electricity to keep lights on for customers.

Time and again, courts have upheld the original decision, a fact both the utility and PSE&G make in occasional scathing briefs filed with the appellate division, prior to oral arguments on May 15 in Jersey City.

“No matter how many times Murphy challenges stranded costs on constitutional, statutory, or, as now, on ‘consumer protection’ grounds, the factual basis remains the same each time, leaving no basis to undo board’s decade-old valuation,” the state argued in its brief.

The utility echoed that argument: “This many-years-too-late challenge to the painstaking, transparent implementation of large-scale changes in land and public policy -- upheld in comprehensive decisions by this court and the Supreme Court of New Jersey has several fatal flaws.”

While the courts have repeatedly upheld the utility and BPU in the case, the issue has resonated among some consumer, environmental and business groups, some of which had intervened in the case in the past. With New Jersey customers paying some of the highest electric bills in the country, they, too, question whether ratepayers are unfairly paying for losses the utility never incurred.

At the time of deregulation, the general consensus was that PSEG’s fleet of power plants, many of them decades old, would not be able to compete with a new generation of more efficient generating units that would emerge to compete in the newly deregulated market. As it happened, few new power plants were built even as demand for power increased, greatly inflating the profits from the fleet of former PSE&G plants. During deregulation, they were transferred to an unregulated affiliate, PSEG Power.

There is some irony to PSE&G and BPU being on the same side of the deregulation case. Even as it defends its decisions over the past decade, most recently in April 2011 when the board dismissed the Murphy petition, the Christie administration is locked in a fight with PSE&G’s parent company over building new power plants in New Jersey.

PSE&G’s parent, Public Service Enterprise Group, is among several incumbent power suppliers, challenging a pilot program in federal courts by the state to subsidize power plant development as a way to lower electricity costs for homeowners and businesses. That issue could also come to a head this month, when an auction is held by the operator of the regional power grid to decide what power plants will provide the reserve capacity needed to keep electricity flowing.

Daniel Sponseller, the attorney for Murphy, said the losses projected by the opening up of competition, in fact, never occurred. In his brief, he also faults the BPU for never conducting a periodic review to determine whether the company was, in fact, incurring those stranded cost losses.

In the absence of the enforcement of that provision, his brief argued, “a utility could recover billions of dollars for future stranded cost losses from competition, at the expense of customers, which it does not actually incur or have to pay.” In its brief, PSE&G disputed that argument, saying it was based solely on a misinterpretation of a single sentence in the deregulation law. In fact, the utility, argued the sentence fails to apply in this case since the assets -- the power plants -- have already been transferred to an affiliate under a board-sanctioned proceeding.

The state agreed. “The valuation of PSE&G’s stranded costs was no less valid when the Supreme Court upheld the boar’s valuation determination ten years ago than which the board entered its April 2011 decision,” its brief argued.

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