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JCP&L: Earning too Much, Spending too Little?

Tom Johnson | July 19, 2012

State rate base case could lead to lower rates for customers, bigger investments in restoring service after storms.

The state yesterday ordered Jersey Central Power & Light to file a base rate case by November, a step that could lead to lower rates for its 1 million customers and could force the utility to spend more to restore customer service in the event of blackouts.

The order by the New Jersey Board of Public Utilities came in response to a request from the state Division of Rate Counsel, which last fall suggested the utility is earning more than justified from its customers.

The state’s second-largest electric utility has been under fire from local officials, ratepayers, and the Christie administration for months now, primarily because of its slow response in restoring power during Hurricane Irene last summer and a rare fall snowstorm, which left hundreds of thousands of customers without power for as long as a week.

The order by the BPU is unusual.

Typically, the state’s utilities file for base rate cases when they are seeking to increase their revenue and rate of return on the money they invest in ensuring their system is reliable. Some observers said it is unlikely the agency would order a new rate case if it thought it would lead to higher electric rates for consumers.

Some energy analysts said the order was a setback for the company. “In our view, it could lead to a downward rating for the company,” said Paul Fremont, an analyst for Jeffries & Company, which follows JCP&L’s parent, FirstEnergy Corp., based in Akron, Ohio.

In requesting the utility to file a base rate case, the Division of Rate Counsel and BPU are hoping to open company's books to see if JCP&L is earning more than is just and reasonable. Perhaps more importantly, rate case aims to determine whether JCP&L's parent is investing an adequate amount of resources in keeping its system reliable.

In voting for the new rate case filing, BPU President Bob Hanna said the two storm events raise questions as to whether JCP&L is investing enough in its infrastructure.

“I’m not prejudging anything, but we want to make sure whether the corporate parent structures that New Jersey is getting its fair share of the budgets,” he said. FirstEnergy owns other electric utilities in Ohio and Pennsylvania, as well as a fleet of unregulated power plants, including some nuclear units, which have had troubled recent histories.

Division of Rate Counsel Director Stefanie Brand said the agency was happy the board is ordering a filing. “It’s time to take a good look at what is happening with the company,” Brand said, adding she would not be surprised the utility might end up asking for a rate increase. “The indications we have is that they are overearning.”

JCP&L, while saying it will cooperate with the agencies, said it is confident it can justify its current rates, which it claimed are the lowest among the four regulated electric distribution companies in the state.

Ron Morano, a spokesman for the utility, said the company has spent $163 million in upgrading its infrastructure since the two storms. In addition, JCP&L earlier this year said it would spend $200 million to upgrade its system as well as another $200 million to improve its transmission system over the next five years.

Others disputed the utility’s assertions.

“Given the Rate Counsel’s very credible evidence, it’s imperative that the board take some action,” said Ev Liebman, associate state director for NJ AARP, which intervened in the case. Her organization has more than 400,000 members who are JCP&L customers, many of them living on fixed incomes, she said.

“We don’t think our members should be paying a penny more for a day more,” said Liebman, who questioned why it took so long for the BPU to act on the Division of Rate Counsel’s petition last year.

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