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State Advised to Reject PSE&G Clawback of Revenues from Customers

Expert testifies against utility’s request to recover monies lost helping people reduce their use of energy

energy efficiency

The state should reject a new regulatory mechanism sought by Public Service Electric & Gas to recover lost revenue when it helps customers reduce energy use, according to the New Jersey Division of Rate Counsel.

In comments filed in an ongoing rate case before the Board of Public Utilities, the Rate Counsel’s expert opposed a proposal for “revenue decoupling’’ by the state’s largest utility, a tool it has long lobbied for as an incentive for investing in energy-efficiency projects that reduce customers’ bills and pollution.

The issue is significant to the Murphy administration’s clean-energy agenda of ramping up the state’s efforts to cut back energy usage and achieve meaningful reductions in greenhouse-gas emissions that contribute to climate change.

The utility filed for a “green energy mechanism’’ (GEM) in January as part of a rate-case request that’s still being reviewed by the board. Without such a tool, the utility likely would scale back plans to make significant investments in energy efficiency. This past June, PSE&G executives said they planned to file a request this year to spend roughly $2.5 billion on energy-saving measures for businesses and residents.

Environmental groups for, consumer groups against?

Revenue decoupling has been around for decades, with similar mechanisms adopted by a couple dozen other states. Environmental groups typically support such provisions as a means of encouraging increased energy-saving measures while consumer advocates oppose decoupling because it increases customers’ bills.

David Dismukes
Credit: LSU
David Dismukes testified that revenue decoupling is not needed.

In a brief submitted on behalf of the Rate Counsel, David Dismukes, an expert retained by the office, noted other factors beyond energy-efficiency projects can result in a drop in a utility’s revenue, ranging from weather fluctuations, the performance of the economy, to changes in commodity prices. Others argue decoupling transfers all risks encountered by a utility in its business operations to the ratepayer.

In his testimony, Dismukes also argued the proposed decoupling mechanism is not needed because it is inconsistent with the New Jersey Clean Energy Act signed by Gov. Phil Murphy this past spring. The law mandates that electric utilities reduce customer use by 2 percent a year and gas utilities decrease customer usage by at least 0.75 percent annually.

The legislation creates a board-administered system of financial incentives and penalties to reward or penalize a company for its energy-efficiency measures while limiting the recovery of lost revenue for specific energy-saving projects only, Dismukes said.

“Thus, the new legislation directly addresses utilities’ incentives for energy efficiency, eliminating the need for the GEM or any other type of revenue decoupling mechanism,’’ he added. Atlantic City Electric recently filed for a decoupling provision in its own rate-case filing, which the BPU ended up dismissing for insufficient data.

Dismukes also argued PSE&G is seeking approval for the new provision in the absence of any specific energy-saving programs and savings targets. “This makes GEM a solution in search of a problem,’’ he said.

Finally, the proposed mechanism is inconsistent with other revenue-adjustment measures adopted by the BPU previously, which are more performance-based than the PSE&G proposal, Dismukes said.

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