BPU Issues Written Order Explaining a $2.9 Billion Decision

Tom Johnson | April 27, 2011 | Energy & Environment
It took the state agency almost a year to issue an explanation of why it denied a request to recoup stranded costs

It took nearly a year, but a state agency has gotten around to issuing a written order explaining its rationale for dismissing a petition seeking to recover more than $2.9 billion in costs customers paid Public Service Electric & Gas (PSE&G) stemming from the deregulation of the electric industry.

Last June, the New Jersey Board of Public Utilities (BPU) unanimously dismissed a petition by Richard Murphy, an Oradell resident, who had questioned in court and before the state agency the $2.9 billion in so-called stranded costs awarded to the Newark utility more than a decade ago, when the state broke up its gas and electric monopolies.

The written order more fully spells out why the petition was rejected. The decision was made in a matter of minutes at a board hearing, with none of the five commissioners speaking to the specifics of the request. Daniel Sponseller, the attorney representing Murphy, had been pressing the agency for the written order so he could appeal the BPU’s decision.

“We are going to appeal to the courts, probably sooner rather than later,” Sponseller said yesterday. He had initially sought relief for Murphy and other ratepayers in Superior Court in Bergen County on constitutional grounds, but that petition was dismissed by the courts.

A Long History

In fact, the whole issue of stranded costs has a long history of agency review. It also has been heard by the Appellate Division of New Jersey Superior Court, and ultimately the state Supreme Court, which upheld the board’s final order.

Nonetheless, the issue continues to resonate with some parties, who have long argued the agency never fulfilled a requirement in the deregulation law to “periodically” review the utility’s stranded costs to ensure the amount it was recovering from ratepayers was justified.

At the time of deregulation, the utility successfully convinced lawmakers and regulators that the money it had invested in building power plants to provide reliable service to customers would be stranded because the onset of competition from new and more efficient facilities would make its older power plants obsolete.

PSE&G spun off the power plants as a new unregulated utility and won approval to recoup $2.9 billion from its customers over the next 15 years for stranded costs, a decision that was fought by the state Ratepayer Advocate and argued all the way to the Supreme Court, which sided with the utility and the board.

In the interim, however, few power plants have been built, making the Newark company’s facilities more valuable, and driving up energy costs to consumers because of congestion on the grid. The issue has spurred state officials to hand out subsidies to power suppliers to build three new power plants in the state, although those plans may be in jeopardy because of new rules adopted by a federal agency.

Recommendation to Dismiss

Last June, 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 $2.4 billion in stranded costs. The utility was fronted the money by investors, who are being repaid by payments from utility ratepayers on the debt.

The agency amplified that argument in its 17-page written order. Ironically, the order was issued on April 12, less than a month after the legislature gave final approval to a bill requiring the agency to issue written decisions on all of its orders.

More important, the law specifically cites the issue of bond securitization portion of PSE&G’s stranded costs, comprising $2.4 billion. The statute reads “each bondable stranded costs rate order and the transition bond charges authorized therein shall become irrevocable upon the issuance of such order and its acceptance by the utility.”

In the end, the agency said it did not matter that there was an expectation that restructuring New Jersey’s electric utilities would lead to competition and lower costs for ratepayers — an expectation that never materialized.

“The wisdom or lack of it in the legislature enacting [the law] has no bearing whatsoever, over a decade later, on the stranded cost determinations made by the board in the final order which were ultimately affirmed by the New Jersey Supreme Court,” the order concluded.