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JCP&L Parent Admits to Not Planning for Major Storms

Tom Johnson | December 13, 2012

In phone transcript, top official calls extreme weather like Hurricane Katrina, Sandy '100-year storms.'

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Eight months before Hurricane Sandy left more than 1 million customers of Jersey Central Power & Light without power, a top executive of its parent company told analysts during an earnings call, “there are literally events that I don’t think we should plan for.’’

The pronouncement by Chuck Jones, president of FirstEnergy Utilities, is explosive because JCP&L is under increasing fire from local officials and state regulators over its response to the devastation wreaked by Hurricane Sandy. More than one hundred thousand of its customers lost power twice during the more than 11 days it took the utility to restore electricity.

The comments also might prove troublesome to the state’s second-largest utility because it already is facing a proceeding spurred by the New Jersey Division of Rate Counsel over allegations that JCP&L was earning above the amount granted by state regulators, bringing in more than $90 million in profits.

Todd Schneider, a spokesman for FirstEnergy, the parent company of JCP&L, disputed any assertion that the company had not planned for Hurricane Sandy, a storm that utility officials noted was twice as big as Hurricane Katrina, which devastated New Orleans and the Gulf Coast.

“We did more for this storm than we did ever before planning for such an event,’’ Schneider said. “We threw every possible resource at Hurricane Sandy.’’

At the height of the storm, the utility has more than 13,000 people on the ground trying to restore power, Don Lynch, president of JCP&L, told the New Jersey Board of Public Utilities on Monday at a hearing to gauge the utility’s response to the storm.

On the February 29, 2012 earnings call, however, Jones suggested, that when extreme events, such as Hurricane Irene and the rare October snowstorm occur, the utility deals with them.

According to the transcript of the call, Jones said, “And I think we really understood that these storms are -- I mean I tell Tony [Anthony Alexander, chief executive officer and executive director of FirstEnergy] they are 100-year storms.’’

“So he’s not going to have to worry about them again, hopefully. But they can’t be prevented and you can’t plan for them," Jones said.

"And I’ve gotten questions at the board [of directors] several times about how we’re going to increase our storm budget because of them and the answer is no. I mean, they are literally events that I don’t think we should plan for. When they come, we will deal with them,’’ Jones said.

Not very successfully, according to local officials who testified at a BPU hearing on the utility’s response during Hurricane Sandy on Monday. They repeatedly complained of faulty communications, a failure to clear local roads clogged by downed trees, and critical facilities, such as police stations left without power for more than a week at a time.

In defending its actions, Lynch noted the utility planned to invest $200 million in 2012 to improve the reliability of its system and meet the increasing demands for electricity in it service territory.

Nonetheless, there are skeptics concerning how much the utility is willing to spend to improve its system. New Jersey Division of Rate Counsel Stefanie Brand urged the BPU to order the utility to initiate a rate case to determine whether the company is investing enough in its system and not overearning profits.

In her own testimony before legislative committees this past week, Brand noted that utility rates already include funds to allow them to respond to storms, adding that it is not that there are insufficient funds being paid by ratepayers for reliability and infrastructure upgrades. “It may be that more needs to be poured back into the business rather than being paid out to dividends,’’ Brand said in written testimony before the Assembly Telecommunications and Utilities Committee.

In the same earnings call in February, FirstEnergy CEO told analysts “we do not need to grow our business by expanding our rate base,’’ a suggestion some might read as not investing in one of its core businesses, the utility sector.

By and large, JCP&L has come under the most fire from state regulators for the series of outages caused by major storms in the past 14 months in New Jersey -- Hurricane Irene, the October snowstorm and Hurricane Sandy.

Earlier this month, the utility filed a rate increase of $31.5 million, a proposal that would boost most residents’ rates by about 1.4 percent each month, if approved. The proposed rate increase drew criticism from both local officials and legislators, who say given the utility’s problems with restoring customer power, the rate increase should be rejected by the BPU.

The agency has yet to establish a schedule for the JCP&L rate case.

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