State Board Questions JCP&L Earnings

Is Jersey Central Power & Light earning too much and investing too little in its distribution system?

The state Board of Public Utilities (BPU) has decided to initiate a proceeding to look into allegations that the state's second-largest utility is earning significantly more than what the agency has established as a reasonable return on its investments.

The proceeding was initiated based on a petition filed by the Division of Rate Counsel, which argued that Jersey Central Power & Light (JCP&L) is earning a 12.37 percent rate of return, far in excess of the 8.5 percent approved by the state.

As a result, JCP&L overearned $86 million to $90 million in 2010, according to Robert Henkes, an energy consultant retained by the agency, who examined the company's financial data.

The new proceeding comes at a time when JCP&L, which serves 1 million electric customers in north and central New Jersey, has come under repeated criticism from the Christie administration, local officials, and customers for its slow response in restoring power after Hurricane Irene and a rare late October snowstorm. Those outages left hundreds of thousands of their customers without power, some for as long as eight days.

Essentially, the action taken by the board will require the utility to file a base rate case petition with the agency, a move that will examine in detail through administrative hearings the company's expenditures, revenue, and earnings.

Ron Morano, a spokesman for JCP&L, said the company would fully cooperate with the board. "We believe that Jersey Central Power & Light's electric rates are just and reasonable, and that the Rate Counsel's request does not provide sufficient reason for the NJ Board of Public Utilities to order JCP&L to file a base rate case at this time," he said.

In a filing by Division of Rate Counsel Director Stefanie Brand, her office argued otherwise. "A base rate case would also provide the opportunity to examine the company's earnings in the context of its investment in its rate base, the plant, and equipment needed to provide service to its customers," Brand argued, while also making note of the problems experienced by JCP&L with reliability.

"One way for a utility to increase its rate of return for its investors is to reduce its investment in the plant and equipment needed to provide its customers with safe, adequate and proper service," Brand said in the filing.

Unlike the state's three other electric utilities, JCP&L has not had a full-fledged base rate case for six years. A base rate case is important, according to the rate counsel, because it allows an opportunity to examine the utility's revenues and expenditures, including capital spending, and other aspects of its operations.

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