Rate Counsel Backs Court Decision to Cut JCP&L Annual Revenues by $107M

Consumer agency seeks additional action that would lower utility customers’ bills even more

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The state Division of Rate Counsel has endorsed a decision by an administrative law court judge to order a $107 million reduction in annual revenues for Jersey Central Power & Light. And the agency wants further reductions that could mean even lower bills for JCP&L customers.

In a brief filed in response to the court’s decision, Rate Counsel Director Stefanie Brand argued that the state’s second-largest electric utility has long suffered from unreliability, citing the number of major outages affecting JCP&L’s more than 1 million customers.

The case, originally brought by rate counsel alleged that the utility was earning more than state regulators had approved, has dragged on for more than three years. The administrative law court’s recommendation could be approved, modified, or rejected by the state Board of Public Utilities as early as next month.

JCP&L is the utility most under the scrutiny of both the BPU and rate counsel, both of which have been increasingly critical of the company’s performance during recent extreme weather. After Hurricane Sandy, for example, 90 percent of its customers were left without power, some for 12 days or more.

In the rate counsel’s brief, it urged the BPU to establish an improvement plan to deal with JCP&L’s reliability problems with specific deadlines and consequences, such as reducing the utility’s return on equity, a prospect that would hurt its bottom line — as well as reduce customers’ bills.

The number of major events — outages affecting more than 10,000 customers because of weather-related causes — has risen from four in 2004 to 62 in 2011, according to the brief.

“JCP&L customers have suffered poor reliability too long and should be provided a remedy immediately,’’ the brief said.

In addition, the office told the BPU that the utility should no longer benefit from a tax provision that allows its parent — FirstEnergy Corp. of Akron, OH, — to reduce its tax obligations by shifting some of the savings utilities accrue to their parent companies. The BPU recently adopted a new policy to revamp its approach to consolidated tax returns.

The filing of a consolidated tax return allows a utility to take advantage of tax losses incurred by unregulated affiliate companies owned by the parent to reduce its tax liability. Previously, 100 percent of those saving would accrue to customers of the utility, but that has been reduced by changes proposed by BPU. Rate Counsel is appealing that policy in the courts.

Brand argued at least $55 million of those savings from JCP&L should be returned to the utility’s customers by a reduction in revenue collected by the utility.

JCP&L declined to forward its own brief in the case despite repeated requests from NJ Spotlight.

“Obviously, JCP&L disagrees with certain areas of the ALJ’s initial recommendations,’’ Ron Morano, a spokesman for the utility said in a statement. Regarding reliability, he noted the court found JCP&L provides reliable service to its customers.

In its initial filing, JCP&L sought a $37.1 million increase in its rate base. By the end of the hearings before the administrative law court judge, the BPU staff was recommending a $170 million reduction in revenue while rate counsel sought a $190 million cut.

In a petition before the BPU, rate counsel is also advocating that if JCP&L’s rates are reduced, those savings should be passed on to customers beginning this past August, a proposal the BPU has not yet acted on.

That proposal has been endorsed by others who have intervened in the case, including AARP of New Jersey, which has been increasingly critical of how long it has taken to decide the case by regulatory officials.