Trying to Find a Fair Price for Consumer Power

BPU, Christie Administration, Utility All Have a Target -- a different target -- in mind

The state wants to slice a proposed $90 million rate increase sought by Atlantic City Electric in half, recommending the utility increase its revenues by only $45 million.

In a filing made last Friday with an administrative law court judge, the staff of the New Jersey Board of Public Utilities also suggested the utility’s return on equity be reduced from the 10.75 percent it sought in its original filing, made back in August 2011.

The agency’s stance comes at a time when the Christie administration has made a top priority of holding back, and even reducing electric bills in New Jersey, which consistently rank among the top 10 most expensive in the nation.

Atlantic City Electric is the state’s third biggest electric utility, serving more than half a million customers in southern New Jersey.

The rate case is far from settled. The administrative law court judge can accept, modify or reject the BPU’s proposal. Or, the various parties in the case, including the utility, the state Division of Rate Counsel and the BPU can reach a stipulated settlement that would go before the latter agency for review.

At this point, there is a pretty big gulf on what the utility should be granted.
In its brief, the Division of Rate Counsel suggested the company be granted only an $8 million boost in its revenue.

While Atlantic City Electric sought a 10.7 percent return on equity, the BPU staff recommended a 10.15 percent return and the Division of Rate Counsel suggested a return on equity of 9.50 percent.

In its filing, the staff of the BPU argued Atlantic City Electric is a must less risky distribution utility, and “therefore, it follows that its equity risk premium” should be less than the industry average. Unlike Public Service Electric & Gas, the state’s largest utility, whose parent owns a fleet of unregulated power plants, Atlantic City Electric is solely a distribution company, delivering electricity to customers.

Pepco Holdings Inc. (PHI), the parent of Atlantic City Electric, is predominantly an owner of regulated utilities, no longer an active participant in the unregulated market of supplying power to distribution companies.

The recommended slash in what the utility gets from its original rate request is not unusual for the BPU. Two years ago, PSE&G settled an electric rate case, agreeing to an increase of $73.5 million in revenue, instead of the $133.7 million it originally sought when it filed the case.

Under the utility’s latest filing in February, it said its proposal would increase customers’ bills by $5.45 a month or 3 percent, raising the typical residential customers monthly bill to $180.63.

Lendel Jones, a spokeswoman for Atlantic City Electric, said the state’s filing is part of an ongoing litigation and the company would not have any response until it filed its own brief.

Among other issues challenged by the state is the staff’s position that consolidated tax savings ought to be shared by customers. ACE is included in the consolidated tax filing of the parent, PHI. As a result the holding company pays less federal income taxes than it would have paid if each subsidiary filed separately, producing savings for the parent.