PSE&G’s Largest Gas Customer Dodges Major Utility Fee

Critics say that by skirting millions of dollars in fees, unregulated affiliate PSEG Power receives subsidy and unfair competitive advantage

While New Jersey’s gas and electric customers have over the past decade paid more than $4 billion in a special surcharge funding special energy programs, an unregulated affiliate of Public Service Electric & Gas has paid nothing, even though it uses about one-third of the gas sold by the utility.

PSEG Power, a supplier of power and PSE&G’s largest gas customer, has avoided paying the fee, known as the societal benefits charge (SBC), even though critics say regulatory rules explicitly state that the charge cannot be bypassed.

By one industry lawyer’s account, the supplier should have paid $47 million into the SBC fund in 2009 alone. Last year, the fund raised $740 million from other customers to finance half a dozen energy-related programs, including reduction of energy consumption, promotion of solar and wind power, and assistance for the poor in paying their utility bills.

PSEG Power officials say the arrangement has been the subject of various proceedings before the state Board of Public Utilities and has never been contested before.

Credit: PSE&G
PSEG Power's Linden plant.
In a typical residential electric bill, the SBC amounts to about 3 percent of the total. But it can be a lot higher for businesses, particularly manufacturers that use large amounts of energy, some of which pay as much as $2 million, not counting the cost of the electricity or gas itself.

PSEG Power, the primary earner for parent company Public Service Enterprise Group, recorded record profits of $1.2 billion in 2009.

Critics say that by escaping the SBC, PSEG Power is in effect being subsidized by other rate payers and gaining an unfair advantage over competing energy suppliers The state has been collecting the SBC since it passed a deregulation law in 1999, adding a surcharge on utility gas and electric bills to pay for clean energy programs and energy efficiency and to help low income households pay energy bills.

Stefanie Brand, acting state Public Advocate and director of the state’s division of rate counsel, said she could not understand how PSEG Power avoids paying the surcharge. “Look at the statue,” she said. “It says the SBC is non-bypassable.”

Nonpayment of SBC Only Recently Discovered

So how has the power supplier managed to avoid the SBC? The circumstances are murky, involving a contract initially forged more than a decade ago and evolving over years of proceedings before the state Board of Public Utilities in rate cases not normally subject to much public scrutiny or review.

The contract, signed in 1995, laid out the terms by which PSEG Power would purchase gas from PSE&G — gas it would use to run its generating plants. That was four years before the institution of the SBC in 1999. The contract has been rolled over several times since then, but PSEG Power has never paid the surcharge, even though regulations clearly stipulate that all gas and electric customers must do so (nuclear co-generating plants are exempted). PSEG Power also in that time has become PSE&G’s largest gas customer, by some tallies accounting for one-third of the gas that PSE&G delivers.

PSEG Power’s nonpayment of the SBC came to light only recently, in testimony before an administrative law court judge regarding PSE&G’s proposed $230 million rate increase. It was then that Gerald Schirra, director of rates and regulation for PSE&G, said that the gas contract between the supplier and PSE&G has over the years been subject to comprehensive BPU review in a series of fully litigated proceedings.

When asked about the nonpayment, PSE&G pointed to Schirra’s testimony.

But Steven Goldenberg, an attorney representing the New Jersey Large Energy Users Coalition in the rate case, disputed that characterization. “PSEG swept this issue under the rug,” he said.

As for the BPU, it says it became aware of PSEG Power’s nonpayment of surcharges only during the rate hearing case.

‘Favorable Treatment’ a Subsidy?

Goldenberg said the failure to pay the various surcharges increases proportionately what PSE&G’s other customers must pay.

“From a ratepayer perspective, the favorable rate treatment afforded to PSEG Power represents a monumental subsidy” of the company by the utility’s other ratepayers, Goldenberg argued in a brief in the case.

David Brown, a vice president of NUS Consulting, an energy consulting company based in Park Ridge, agreed. “What you seem to have here is the state subsidizing a private entity,” he said. “Any time any business is provided a subsidy or a tax break, it puts them in a stronger position in the marketplace.”

That argument has been echoed by the Morris Energy Group, which operates four combined heat power plants in New Jersey. In an affidavit, Dennis Clarke, one of the three principals in Morris, said that the advantage gained by PSEG Power has forced his company to reduce operation of its plants by half, from 1,780 hours in 2007 to less than 800 hours in 2009 — even though they are more efficient than PSEG Power plants.

Ira Megdal, who represents the Morris Energy Group and who discovered the nonpayment issue, said his client in effect pays three times as much for the same fuel that is delivered to PSEG Power. In a hearing before an administrative law court judge, he described the rate as unlawful and discriminatory. Beyond the avoided surcharge fee, PSEG Power gets the gas at a discount rated not available to other suppliers, he argued.

“My clients are frequently shut out of the market,” Megdal said. “The end result is less efficient plants are dispatched, which pollute more.”

Ev Liebman, director of organizing and advocacy for New Jersey Citizen Action, the state’s largest consumer advocacy group, said it was “mind-boggling” that PSEG Power has not paid the surcharges that other customers do.

“The state is failing to protect ratepayers,” she said. “It’s a pattern of turning a blind eye to this giant energy corporation and its ability to take money out of the pockets of ratepayers.”

The BPU has now submitted a brief asking the administrative law court judge to order PSEG Power to make an accounting of the money that should have been paid into the SBC and other funds, a move that could lead to some relief for ratepayers.

We’re in this together
For a better-informed future. Support our nonprofit newsroom.
Donate to NJ Spotlight