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NJ Board of Public Utilities Wants JCP&L to Roll Back Rates by $200 Million

By: Tom Johnson |

Near-unprecedented decision could cut customer bills by one-third or more

Jersey Central Power & Light should slash rates collected from its more than 1 million customers by a staggering $207.3 million, according to the staff of the New Jersey Board of Public Utilities.

If adopted, the 131-page brief, filed with an administrative law court judge overseeing JCP&L’s pending rate case, amounts to a stunning rebuke to the state’s second-largest utility. By one estimate, it could cut bills for customers by at least one-third, if approved by the BPU, which ultimately has jurisdiction in the case.

The utility, owned by FirstEnergy Corp., based in Akron, Ohio, has come under prolonged criticism from customers, local officials, and regulators over its performance in restoring power to homes and businesses during extreme storms like Hurricane Sandy.

Ron Morano, a spokesman for JCP&L, did not address specifically the concerns raised by the BPU, which were echoed to a large degree by the state Division of Rate Counsel in an accompanying brief. “This is part of an ongoing regulatory process,’’ he said. “We’re going to evaluate the briefs and file our reply comments.’’

The state’s hard line with the utility is not totally unexpected. JCP&L’s reliability problems have been a recurring complaint ever since FirstEnergy took over the utility in 2001, with regulators and others questioning often whether the Ohio energy company was investing enough in its New Jersey utility.

That issue has surfaced repeatedly in recent years as New Jersey has been battered by several severe storms. Ninety percent of the utility’s customers lost power during Hurricane Sandy, some of whom were left without lights or electricity for 12 days or more.

Indeed, the current rate case stems from an assertion by the New Jersey Division of Rate Counsel in 2011 that the utility was overearning on what the state stipulated it could profit from its investments in its power grid. The claim led the BPU to order JCP&L to file a rate case to examine the issue.

According to a brief from the Rate Counsel, the testimony in the case, between 2008 and 2011, the utility’s spending was reduced and its tree-trimming budget was cut back significantly. “During the same period JCP&L was sending a whopping 170 percent of its earnings to FirstEnergy,’’ indicated the brief.

In the original filing, JCP&L sought to increase revenues by more than $31 million, a 1.4 percent increase in customers’ bill, but that amount was whittled down in hearings before the administrative law court judge.

The current case does not involve JCP&L’s efforts to recoup storm recovery costs stemming from extreme weather in 2010 and 2011. Those costs could exceed $600 million, according to regulatory officials.

More surprising, are the huge rate decreases sought by both the BPU and Rate Counsel. Typically, the state’s utilities file rate cases and the BPU shaves more than half of the requested increase, but rarely orders a reduction in rates.

Rate Counsel Director Stefanie Brand acknowledged the proposed rate reduction as “extraordinary. It doesn’t happen too often,“ she said.

Utility analysts agreed.

“This is a headline,’’ said Paul Patterson, an analyst with Glenrock Associates in New York. “If enacted, it would be one of the larger rate decreases in recent history.’’

Brand said the testimony provided by various witnesses confirmed that the division’s assertion that JCP&L was overearning was correct.

In the case that unfolded before the administrative law court judge, there was much debate over arcane utility issues involving depreciation of capital assets, what JCP&L should earn on its infrastructure, and whether tax policies were benefitting the utility’s parent company at the expense of ratepayers.

Beyond the cut in revenue advocated for the utility, the staff of the BPU suggested the agency require a study of the economic benefit of refunding customers up to $300 million from the company’s refinancing of unsecured notes, a method of raising capital.

Perhaps more importantly, the Rate Counsel is urging the BPU to order JCP&L to put together a reliability improvement plan and face sanctions if the utility fails to deliver.