The state is looking into the recent downgrading of the credit rating of Jersey Central Power & Light, examining whether the action could affect the ability of the utility to pay for the power it delivers to its more than 1 million customers.
In a notice published by the New Jersey Board of Public Utilities this week, the regulatory agency is seeking comments from those in the energy sector and elsewhere on the downgrade, which was issued by Fitch Ratings at the beginning of the month.
In downgrading JCP&L and its parent, FirstEnergy Corp., based in Akron, OH, the ratings agency cited numerous problems. They included lower power prices from the generation fleet owned by FirstEnergy, higher environmental compliance costs for its coal powered plants, and uncertainty of the New Jersey utility winning any increase in electric bills in a rate case pending before the BPU.
The action adds to the utility’s multiple problems. It is currently involved in a rate case before the BPU, a proceeding stemming from assertions by the New Jersey Division of Rate Counsel that JCP&L is earning more than its state-approved rate of return. It also faces huge costs to be recovered from a string of extreme storm, which left some of its customers without power for a week or more.
Those costs ballooned to more than $600 million just from Hurricane Sandy, and are approximately $800 million all told dating back to 2011, according to the utility.
Beyond that, the lowered credit rating will increase borrowing costs for JCP&L at a time when it and other utilities are under pressure from the state and lawmakers to improve the resiliency of the power grid.
The BPU is apparently focusing on the effect the downgrade has on the ability of the utility, the state’s second-largest electric supplier, to pay for the power it delivers to customers — power that it purchases in annual auctions run by the agency. JCP&L’s customers, like the other three electric utilities, still get their power from their incumbent utilities, but it is produced by unregulated power plants. The utilities buy that power at an auction held each February by the BPU.
New Jersey broke up its electric monopolies in 1999, encouraging ratepayers to shop for cheaper sources of energy. Until the recent steep drop in natural gas prices, however, most customers did not, requiring their electricity suppliers to buy the power they need to light their homes.
In response to the credit downgrade, the utility submitted a mitigation plan to the state agency asserting it would have ample resources available to assure continued payment for the so-called Basic Generation Service (BGS) for its customers.
“This plan demonstrates that JCP&L has ample resources available to it to assure continued payments for the Basic Generation Service for its customers,’’ Gregory Eisenstark, an attorney for the utility wrote to the agency. “Therefore, no board action is required.’’
According to the plan, JCP&L’s current borrowing limit is $600 million. The utility also noted that JCP&L’s senior unsecured credit ratings from all three agencies — Fitch, Standard & Poor’s Rating Services, and Moody’s Investor Services — all remain investment grade.
The BPU, in its notice, said it is not committed to opening a proceeding on the issue. “After reviewing comments, it will be determined whether to hold a public hearing on this matter or take additional action,’’ the agency said.
In the midst of this latest controversy, the utility is seeking a $31.4 million increase in revenues, which would only boost customers’ bills by 1.4 percent.
BPU officials were not available for comment. A spokesman for JCP&L said it would allow the mitigation plan to speak for itself.