Court Rules — Again — That PSE&G Can Keep Nearly $3 Billion in Breakup Costs

Tom Johnson | June 21, 2012 | Energy & Environment
Three-judge panel affirms 1999 BPU decision to award utility so-called stranded costs

A state appellate court yesterday rejected attempts to recover more than $2.9 billion in costs customers paid Public Service Electric & Gas in a case stemming from the deregulation of the energy industry.

According to a unanimous ruling by the three-judge panel, the New Jersey Board of Public Utilities acted properly to dismiss a petition seeking to recover so-called stranded costs from the state’s largest utility, which were believed to be incurred by the breakup of its monopoly.

The 19-page ruling hardly was surprising, given that courts, including the New Jersey Supreme Court, have repeatedly upheld the state agency’s original order in 1999 allowing the utility to recover from ratepayers the costs for losing its monopoly and having to face competition in producing power.

The latest case, brought by Joseph Murphy, an Oradell resident, revolved around the claim that the utility is collecting so-called stranded costs that it actually has not incurred. Murphy has been pressing the issue in courts and before the state agency since 2007, never once successfully.

At the time of deregulation, the general consensus was that the utility’s fleet of power plants, many of them decades old, would not be able to compete with a new generation of more efficient generating units that would emerge to compete in a deregulated market.

But few new power plants were built, particularly in New Jersey, making the old PSE&G units, since transferred to an unregulated affiliate, even more profitable. With New Jersey consumers saddled with some of the highest electric bills in the country, the outcome rankled consumer and business groups, some of which had intervened in the case in the past.

In its ruling, the appeals court sided with the BPU, which argued that the 1999 deregulation law prevented the agency from revisiting its original order establishing the stranded costs at $2.94 billion.

The utility has recovered most of that money in two separate charges on customers’ bills. In a so-called transition bond charge, customers have been paying off the $2.45 billion in bonds the utility was allowed to float to recover the bulk of its stranded costs. Customers also paid market transition charge totaling $540 million.

In the appeal, Murphy’s lawyer, Daniel Sponseller argued that the state agency failed to periodically review whether the stranded cost charges were re-examined as the energy deregulation law required.

The court again sided with BPU on this issue. It noted the agency had twice revisited whether the utility was overcharging customers on the market transition charge, and had ordered refunds amounting to $227.4 million to be returned to customers.

As for the rest of the stranded costs, the court said the energy deregulation law “does not require the board to reconsider the amount of stranded costs previously determined.’’

Karen Johnson, a spokeswoman for PSE&G, said: “We are obviously pleased with the court’s finding that the BPU acted appropriately in dismissing the petition.’’

Sponseller lamented that the state agency never held a full hearing on Murphy’s petition. “The board, however, refused to order any correction and refused to hold a hearing or allow full evidence on the issue, thus allowing the double collection to continue in its entirety at customers’ expense, and granting no relief to customers on the resident claims,’’ he said.