The Star-Ledger

Bill To Alter Regulations Pits PSE&G Vs. Business, Consumer Groups

The Star-Ledger — Saturday December 6, 2008

BY TOM JOHNSON / The Star-Ledger

A legislative bid to allow utilities to recover their investments more quickly is shaping up as a huge battle pitting New Jerseys largest power company against an unlikely coalition of consumer advocates, business groups and environmentalists.

Public Service Electric & Gas, an operating unit of Pubic Service Enterprise Group., is backing a draft bill that critics say would radically overhaul the existing regulatory system, leaving consumers vulnerable to higher bills at a time when utility costs have skyrocketed.

The changes would allow PSE&G and other power companies to recover costs more quickly. This, PSE&G contends, would permit the utilities to access capital more cheaply and make the needed investments to modernize its electric and gas system, while creating new jobs by investing in energy conservation and cleaner sources of energy, such as solar and wind power.

While the bill has united a formidable array of business and consumer groups against it, the measure is attracting keen interest from lawmakers who view it as a way to jump start an economy that is shedding jobs by the thousands each week.

Maybe it's a time to roll back regulations if it is stifling economic growth in New Jersey, said Sen. Raymond Lesniak, the powerful Union County Democrat who is planning on holding a hearing on the yet-to-be-introduced bill this Thursday in the Senate. It may be a tradeoff that is worth making.

The prospect of a rollback of the current regulatory system, however, is alarming to opponents, which include the New Jersey Ratepayer Advocate, New Jersey Citizen Action, a coalition of large energy users, the Chemistry Council of New Jersey and Environment New Jersey.

The Board of Public Utilities is reportedly lobbying against the measure, too, but calls to the agency asking for a comment were not returned.

This bill — which wraps itself conveniently in the flag of green jobs and energy efficiency — constitutes a blatant end-run around the BPU and normal stakeholder review, and offers nothing tangible in return to consumers who will be hurt by higher rates this bill will produce, wrote Steve Goldenberg, an attorney representing large energy users in a letter urging Assembly Speaker Joseph Roberts to hold off action on the measure.

The proposed regulatory scheme is modeled in part after a system used on the federal level which allows electric companies to recover costs for investments in high-voltage transmission lines. Called formula-based rates, it would allow utilities to recover certain expenses, such as labor and equipment, more quickly than under the current rate scheme, which can lag up to two years.

Based on the experience in other jurisdictions, AARP New Jersey argued, formula rates would lead to higher costs for consumers. Under a new and similar ratemaking formula adopted by the Federal Energy Regulatory Commission earlier this year, it noted PSE&G won a 35 percent increase in its transmission rates, or saw revenue jump by $60 million, it argued.

With borrowing costs skyrocketing, a quicker recovery of expenses would help bring stability to capital markets, lowering the cost of those investments for the utility and ultimately ratepayers, according to PSE&G. They dispute the notion it eliminates regulatory review of those costs.

The intent is to allow the BPU to set up whatever rules they want,said Ralph LaRossa, president of PSE&G.

If policymakers want to create jobs by rebuilding the energy infrastructure and to access the capital markets at lower cost, we think this a potential solution. Were totally open to other approaches.

But Stefanie Brand, New Jersey's ratepayer advocate, argued the utility does not need formula-based rates to invest in renewable energy or conservation, noting a global climate bill passed last year at PSE&G's urging gives utilities the ability to quickly recoup their investments there.

What this is about is traditional utility investments, she said, referring to the poles, wires, substations and pipelines that deliver gas and electricity to customers. What this does is remove any review of the prudency of their investments. It takes away any ability to decide whether they need to go ahead with any project.

Under a formula-based system, that could lead to utilities spending as much money as they could afford, knowing they would get a return on any investment they make, critics said.

Tamara Linde, vice president of regulatory affairs for PSE&G, argued otherwise. The formula isn't a blank check. It (the investments) still have to be prudent. It still has to be reasonable.

Assemblyman Upendra Chivukula, another sponsor of the bill, noted the bill allows both the BPU and Rate Counsel the opportunity to evaluate the formula and establish its parameters. Chivukula criticized the current regulatory scheme, arguing it takes 13 months or more to decide a rate case.

To be honest, the BPU is out of control, he said. They haven't done their job. They lack leadership.

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