United States: Op-Ed: BPU – Energy Right

Taking a go-slow approach and vetting every surcharge and suggestion is the only sensible approach to PSE&G's $4 billion upgrade

In the wake of Superstorm Sandy, utility ratepayers face the prospect of paying many billions of dollars in storm-recovery and infrastructure improvements designed to "harden" utility distribution systems in preparation for the "next Sandy". While no one questions the need for more weather-resistant utility distribution systems, concerns have been raised that Sandy could provide a convenient pretext for unrestrained, opportunistic utility spending that could result in windfalls to utilities and unwarranted, long-term financial burdens to ratepayers.

The Board of Public Utilities deserves kudos for its response to these concerns. In a March 20 ruling, the BPU struck an appropriate balance between utility proposals to fortify the state's energy infrastructure and the interests of New Jersey ratepayers who will fund these improvements. The ruling rebuffed PSE&G's attempt to obtain expedited approval of its proposed Energy Strong program, which calls for an unprecedented $3.9 billion in investments over the next ten years to further fortify PSE&G's award-winning distribution infrastructure.

It is noteworthy that in addition to Energy Strong, PSE&G has petitioned for an additional $1.5 billion in upgrades to its transmission system and another $1 billion to $2 billion to expand PSE&G's existing solar programs. Together with pending smart-meter legislation and two utility rate cases that together seek to recover hundreds of millions in storm recovery and upgrade costs, total potential ratepayer exposure has reached a breathtaking $10 billion to $12 billion, equivalent to one-third of the state's annual budget.

The sheer magnitude of these proposals and their potential financial impact on ratepayers requires a cautious approach involving detailed analysis of the effectiveness, reasonableness, and prudence of the proposed investments and rigorous cost-benefit analysis. The BPU agrees with this cautious approach. This past January, the BPU issued a comprehensive storm-response order as part of its ongoing Hurricane Irene investigation. The order approved more than 100 potential storm-response measures for implementation by the state's electric and natural gas utilities to mitigate the effects of extreme weather events. The order directed each utility to conduct a detailed six-month investigation regarding five proposed categories of infrastructure improvements -- including critical analysis of ongoing smart-grid pilot programs -- and to report to the BPU regarding the potential benefit and cost-efficiency of each proposed category of improvements.

However, barely three weeks after the January order issued, rather than preparing the required reports and analyses, PSE&G instead filed the Energy Strong petition. The petition largely lacks detail and does not include the required analysis of the effectiveness of the proposed measures or any cost-benefit analysis. PSE&G's wide-ranging proposals also relied on untested, expensive technologies that are not yet commercially available, although the company professes "a high level of confidence" that the technologies would work if implemented.

PSE&G backed its Energy Strong petition with an aggressive PSE&G public relations campaign that insisted the proposed improvements would create about 5,800 jobs, "all without asking customers to pay more." These dubious, free-lunch-type claims should compel a rational person to ask: when was the last time the State spent $10 billion without taxpayers having to pay more taxes? And what about the many jobs -- as well as the businesses and investment capital -- that are lost each year due to the high cost of energy in New Jersey? 

Indeed, Division of Rate Counsel experts have estimated that the pending PSE&G proposals would annually cost the average residential ratepayer about $100 and industrial ratepayers $700,000 or more, depending on their level of energy usage. In fairness, PSE&G does not claim that Energy Strong would be free to ratepayers, only that utility rates would remain "flat" vis-à-vis prior years after program implementation. This would occur because natural gas prices and interest rates are at historic lows -- situations that certainly will not continue indefinitely -- and because certain utility surcharges currently paid by ratepayers will soon be phased out. These surcharges include billions of dollars in stranded costs that have been paid to PSE&G since 1999 based on the false premise that the State's deregulation of power generation would diminish the value of its fleet of power plants. In fact, these power plants have been enormously profitable over the years and have contributed handsomely to the company's bottom line. Thus, the now-expiring surcharge -- which creates the rate "gap" that PSE&G now seeks to "fill" with Energy Strong costs -- has proven to be an unwarranted subsidy that has been a significant burden on ratepayers for almost fifteen years.

Thus, when PSE&G states that rates will remain flat, what it means is that it wants to transfer the benefits of lower gas prices, reduced interest rates, and the discontinued stranded-cost surcharge from ratepayers to shareholders. Energy Strong's significant new costs would deprive ratepayers of an estimated 8 percent decrease in rates that ratepayers would otherwise enjoy but for PSE&G's opportunistic spending proposals.

In addition, PSE&G would lock in this wealth transfer through a "clause" mechanism that would provide guaranteed, accelerated recovery of Energy Strong program costs, and would reward itself with a proposed 10.3 percent return on equity. In an era of 3 percent mortgages, a return of this magnitude on the utility's proposed risk-free Energy Strong investment is unquestionably excessive. Moreover, PSE&G requested the BPU to approve the petition in a perfunctory three-month proceeding that would deny ratepayers the due process protections that are the hallmark of BPU rate proceedings.

To its credit, the BPU rejected these overreaching PSE&G proposals. The BPU reiterated the view expressed in its January order that the interests of the state and ratepayers will best be served by addressing storm-response and energy infrastructure resiliency issues in the context of a generic proceeding involving each of the state's electric and gas utilities. The BPU made clear that it properly regards the issues relating to the strengthening of the state's energy infrastructure to be of critical importance, requiring the methodical and informed review of all stakeholders to assure that the infrastructure measures that are ultimately approved for implementation will be necessary, effective, and financially prudent. Ratepayers deserve nothing less. Thanks to the BPU, ratepayers will get the regulatory protections they deserve.

Originally published on NJ Spotlight


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions