BPU Dismisses Petition to Recoup $3 Billion in Stranded Costs from PSE&G

Tom Johnson | June 8, 2010
Board of Public Utilities dismisses without comment three-year old petition against Newark utility stemming from alleged overcollection of stranded costs

For most of the past decade, a coalition of business interests, consumer advocates and environmental groups have periodically railed about a decision that left customers of Public Service Electric & Gas saddled with nearly $3 billion in added costs stemming from the deregulation of the energy sector.

Yesterday, the state Board of Public Utilities dispensed with a nearly three-year-old petition seeking to redress the dispute. It took only a few minutes and occurred without comment from any of the five commissioners.

The case was just one of several regulatory issues involving PSE&G before the agency at its bimonthly meeting in Newark, but the one with the biggest potential bottom line for ratepayers. In other matters, the state’s largest utility won approval for a $73.5 million boost in electric rates, a rise that will be offset for the first two years by its agreement to refund $122 million to customers for overcollecting another surcharge stemming from deregulation.

The initial complaint arises out of one of the more contentious issues dealing with energy deregulation. It was approved by the legislature and signed into law by former Gov. Christie Whitman in 1999, and allowed PSE&G to recoup so-called stranded costs for its fleet of power plants. The Newark utility swayed lawmakers at the time by arguing the facilities would not be as valuable in the new competitive marketplace as their booked value.

State Supreme Court and Stranded Costs

PSE&G spun off the power plants to a new unregulated utility and convinced state regulators they ought to recoup $2.9 billion from its customers over next 15 years for the stranded costs, a decision that was fought by the state Ratepayer Advocate and argued all the way to the New Jersey Supreme Court. The court sided with the utility and PSE&G customers have been paying off those costs ever since.

Since then, however, few new power plants have been built in the region, making the Newark company’s power plants more valuable, a fact attested to by the new unregulated company, PSEG Power’s, bottom line. Last year, it earned a record $1.1 billion at a time when electricity prices were sharply down.

All of these factors led Richard Murphy, a resident of Oradell, to contest the stranded costs first in Superior Court in Bergen County in a case dismissed by the judge and then later in June 2007, before the BPU. The case attracted little attention from the mainstream media and less from policymakers, probably because of its complexity. Even yesterday after the vote, one of the commissioners, Nicholas Asselta, urged staff to come up with a definition of stranded costs.

The agency’s staff recommended the petition be dismissed, saying other statues specifically prohibit the state from revisiting issues dealing with stranded costs related to bonding, which was a mechanism used by the utility to initially recover $2.5 billion in stranded costs. The utility was fronted the money by investors, who are being repaid by payments from utility ratepayers on the debt.

Disagreeing with the Board

Dan Sponseller, a Pennsyvlania attorney who represented Murphy, was disappointed by the decision, saying “respectfully, we believe the board is in error.” He vowed to ask the agency to reconsider the motion.

“We are not trying to interfere with the collection of the bond payments,” Sponseller said. “They didn’t even address our petition. All we are asking is they take a periodic review of the stranded costs as the energy deregulation law stipulates.’’

But BPU President Lee Solomon noted the issue of stranded costs has been extensively litigated all the way up to the state Supreme Court. “We are not authorized by statute to revisit these issues. To do so, might be an abuse of our discretion,” he said.

That view didn’t satisfy Hal Bozarth, a lobbyist of the Chemistry Industry Council, which had been a party to the case. “Which of their assests were stranded; someone has to ask that question,’’ he said. “Since no assets were stranded or were any assets ever useless, they owe us money.”

PSE&G executives said they were glad to put the matter behind the company.

“The issue of whether we still owed customers money from these charges has been lingering for the past few years,” said Ralph LaRossa, president and chief operating officer of PSE&G “We believe it is in the best interests of the company to finally put these issues behind us.”

In the other cases before the board, it approved a rate settlement in an electric case, giving PSE&G a $73.5 million rate increase, which would increase the average residential monthly bill by about $12. The board said the increase would be offset by a $122 refund owed to ratepayers over two years, arising out of overcollection of other stranded costs by the utility.

Several commissioners praised the settlement even though it requires the utility to refund less than what the board and Division of Rate Counsel had argued was overcollected. Both said the utility owed $142 million, but settled for less.

In 2003, PSE&G acknowledged it had also over-collected the surcharge, known as the Market Transition Cost, and refunded $197.6 million to customers.