Is JCP&L Earning Too Much and Not Spending Enough?

Tom Johnson | April 27, 2012 | Energy & Environment
Utility is asked to file a base rate case to determine if rates are justified

Given the history of reliability problems endured by Jersey Central Power & Light customers, the state should require the utility to file a rate case to determine whether it is earning too much from ratepayers, according to the state Division of Rate Counsel.

In a brief filed with the New Jersey Board of Utilities, the office of Rate Counsel urges the regulatory agency to require the state’s second largest utility to file a base rate case to determine whether its current rates are justified.

The brief is advocating for the agency to order the utility, which serves one million customers, to file a rate case for the first time in six years to review its capital expenditures and other expenses to see if it is spending enough money to provide reliable service to its customers.

“A base rate case would ensure that JCP&L makes, and has made, the necessary capital improvements required to make safe, adequate and reliable utility service,” the Rate Counsel said in its brief filed yesterday. The state’s other three electric utilities have come in for base rate cases in the past two years, the office noted.

Those views were disputed by the utility in its own brief filed yesterday.

It argued the Rate Counsel’s petition for a new base rate case is “flawed and based on state 2010 data and contains a number of errors and omissions.” The fact that is has not had a base rate case for six years, the utility argued, is irrelevant, noting New Jersey Natural Gas, another utility regulated by the BPU, had not had a rate case between 1994 and 2007.

JCP&L has come under intense criticism from Gov. Chris Christie, local officials and utility regulators for a series of power outages in the past year, including a rare October snowstorm, which left some of its customers without electricity for up to a week.

The BPU also has launched an investigation into the four electric utilities’ response, including JCP&L, on how they handled the outages from Hurricane Irene, which left 1.8 million customers without power across the state in late summer.

But much of the focus has been directed to JCP&L, a subsidiary of FirstEnergy Corp., based in Akron, Ohio. The BPU also has hired a special consultant to help the utility fix problems in its Morristown system, where fires and underground explosions have been a frequent problem.

In December, the Division of Rate Counsel urged the BPU to investigate JCP&L, arguing it earned up to $90 million more than it should have in 2010, according to Robert Henkes, an energy consultant retained by the office. Henkes, in a filing with the BPU, suggested the utility earned a 12.37 rate of return, far in excess of the 8.5 percent approved by the state.

“Furthermore, JCP&L has a history of reliability problems, which have adversely affected its electric customers,’’ the Rate Counsel argued in its brief. “There is reason to believe JCP&L is earning in excess of its allowable rate of return.”

Again, that view was contested by the utility. It said the company’s return on equity was 10.1 percent, “which is not unreasonable and in line with the financial community’s projected expectations for similar utilities,” JCP&L argued in its brief.

Division of Rate Counsel Director Stefanie Brand disagreed. “We think there is enough there to take a look at what they are spending and what they are earning,” she said in an interview.

Ev Liebman, associate state director of the state AARP, which has intervened in the proceeding, agreed. “Our view is that the Rate Counsel already has submitted substantial evidence to the BPU to warrant the rate case filing,” she said. “Ratepayers should not be charged unreasonably high rates for even a day and the board needs to act as quickly as possible.”