Surcharges Boost Utility Bills, But Where Does the Money Go?

SBC and other fees have consumers and businesses seeking answers

Ever wonder why your gas and electric bill keeps creeping upwards even though you don’t recall hearing anything about rate increases?

Pin some of the blame on the relatively unknown societal benefits charge (SBC), a decade-old surcharge on utility bills enacted by the legislature to pay for an array of programs, including promoting solar and wind power and energy conservation. The surcharge raised a relatively modest $139 million in its first year, but raked in a hefty $740 million last year.

Little wonder the new administration raided the fund to plug a budget gap.

Nonetheless, the SBC is a growing bone of contention in the business community, which pays much of the cost since it is based on energy consumption. With Gov. Chris Christie tapping the fund last month to help balance the current state budget, pressure is building to re-evaluate the program and to give businesses a greater share of its benefits. Few in the state realize just how much money the surcharge has raked in: nearly $5 billion since it was enacted (see the chart).

It is not, however, the only new cost incurred by utility customers since the state deregulated the energy sector in 1999. Time and again, policymakers have turned to utility bills to finance programs deemed worthy to the state.

Consumers are paying higher bills to keep the lights on because it is more expensive to produce electricity as a result of efforts to combat global climate change and improve the reliability of the regional power grid. Those higher costs were passed on to customers by legislators and a little known entity based in Valley Forge, Pa.

That organization is the PJM Interconnection, the independent operator of the regional power grid. Worried about having enough power plants available to meet growing electricity demand, the PJM two years ago imposed new fees on suppliers to improve reliability and to ensure the system does not collapse at times of peak demand. The fees, known as the reliability pricing modeling, are believed to add $7 billion to New Jersey customer bills over the next three years, averaging out to about 15 percent to 20 percent of a customer’s bill. The state opposed the rule, challenging it before the PJM, but was unsuccessful in preventing its passage.

Energy bills also have increased because of a new tax imposed on power suppliers to reduce emissions that contribute to global warming in a regional effort by New Jersey and nine other states. Customers also will pay more for new high-voltage power lines ordered by a federal agency, the Federal Energy Regulatory Commission, although those costs are tiny, amounting to about $5 per year for a typical residential customer.

Ratepayers also are footing the bill to pay off so-called stranded costs incurred by Public Service Electric & Gas arising out of the breakup of the electric and gas monopolies. As compensation, the utility was allowed to impose a monthly surcharge on customers—amounting to about $5 per month—to pay off the debt it incurred in building its fleet of power plants.

At the time, it was widely believed the power plants, spun off to an unregulated affiliate company, would be worth less in a competitive environment, an assumption that proved wrong. A petition to end the surcharge, which will remain on bills until 2017, has been pending before the state Board of Public Utilities for nearly three years.

New Jersey is not alone in using utility customers to pay for programs that otherwise might not be funded. In Wisconsin, for example, utility customers were hit with a surcharge to help pay the salaries of district attorneys in counties, according to Adam Pollock, a research analyst for the National Regulatory Research Institute.

Other states, such as New York and Ohio, have similar energy-related programs funded by ratepayers to promote energy efficiency and renewable energy projects, said Charles Gray, executive director of the National Association of Regulatory Utility Commissioners.

For the most part, the higher bills have not sparked a large outcry, although energy advocates and industry experts are unhappy that funds set aside for solar and wind projects and energy conservation are being used to balance the state budget. Besides diverting $158 million in money raised by the SBC for clean energy, the administration has also siphoned $128 million from a fund intended to build more efficient power plants, as well as $65 million in funds from the global warming initiative.

To date, however, much of the criticism has been focused on the SBC.

“I hear from businesses all the time who question where all the money is going to,” said Sara Bluhm, a vice president of the New Jersey Business & Industry Association. “The state needs to evaluate all these programs. Is this charge still necessary?”

When it was created, the SBC was used to fund six programs, including cleanup of contaminated gas manufacturing plants, decommissioning of nuclear power plants, consumer education programs, and recovery of uncollected utility bills. But more than three-quarters of the money now goes to fund clean energy programs and to help low-income households pay energy bills.

For the typical residential customer of PSE&G, the state’s largest gas and electric utility, the surcharge amounts to a bit more than $100 each year, according to the BPU.

With the state adopting more aggressive clean energy goals, the budget has grown, which has increased the cost to consumers and businesses. Some large manufacturers are especially hit hard, said Steve Goldenberg, a lawyer for the Large Energy Users Coalition. Some of his members pay up to $2 million annually in SBC charges, he said.

The state Office of Clean Energy establishes a budget for its clean energy program each year, which is the biggest factor in increasing the SBC. This year’s budget was set at $550 million initially. The state’s seven gas and electric utilities determine how much the low-income energy assistance program will need each year, submitting proposed budgets to the state, which has final approval.

The fund has swelled to such proportions that the Christie administration, following the lead of Gov. Jon Corzine, decided to divert money from the fund to help plug a hole in the current state budget.

In a move that also upset businesses, however, the administration raided the so-called Retail Margin Fund of $128 million. It is financed by a fee imposed on businesses that fail to shop around for alternative energy suppliers. Lawmakers had wanted most of that money to be set aside to build more energy-efficient power plants, which produce electricity and heat at the same time.

The escalation in utility bills, particularly for businesses, has been a frequent complaint to this and past administrations.

“It has become a large tax on the business community, which receive very little benefit from some of these programs,” Goldenberg said, particularly when it comes to energy conservation. For every $1 invested in energy conservation at commercial and industrial facilities, there is a $11 return on the investment, compared to $4 for residential projects, he said.

Even some proponents of the SBC have some concerns.

“Our concern is they are collecting more than they can spend,” said Stephanie Brand, Ratepayer Advocate. “There is a limit on how much you can spend in a year. I don’t think it is fair to collect more than you can you use. It is not an endless source of money.”

Victor Fortkiewicz, executive director of the BPU, said the staff is aware that the SBC program has grown significantly in recent years, and added that how the program proceeds from here is a policy decision the new BPU president and governor need to make.

Funding for two of the six programs, nuclear decommissioning and consumer education, is being phased out this year, Fortkiewicz noted.

To environmentalists, the issue of how to finance the clean energy program is less important than maintaining the gains that have been achieved in the past decade, such as New Jersey having the second-most solar installations in the nation, behind only California.

“There are lots of charges that consumers are paying that may be questionable benefit,” said Dena Mottola Jabronsky, executive director of Environment New Jersey, specifically citing the stranded costs surcharge. “But I don’t care how fund clean energy and energy efficiency project as long as we fund it at the current levels.”