NEW JERSEY BUSINESS & INDUSTRY ASSOCIATION

REMARKS OF SEEMA M. SINGH, ESQ.
PUBLIC ADVOCATE-DESIGNATE
ACTING RATEPAYER ADVOCATE AND DIRECTOR

NEW JERSEY BUSINESS & INDUSTRY ASSOCIATION
“ENERGY CHOICES AND OPPORTUNITIES EXPO”

JUNE 28, 2002

Thank you members of the New Jersey business and industry association for inviting me to speak today on energy and its impact on New Jersey businesses.

The division of the ratepayer advocate is very committed to protecting the interest of residential, small and commercial companies, specifically in the examination of the issues necessary for an effective transition to an open energy market. My division is also actively advising the administration on utility consumer policy and participating in various legal proceedings where New Jersey utilities seek changes in their rates or services.

As you are aware, energy is a very hot topic throughout the nation and I would like to give you my view of the horizon here in New Jersey, as it relates to current opportunities and challenges in the utility industry.

One cannot address the issue of energy without focusing on deregulation. As a result of the efforts of stakeholders, a lot has transpired over the course of the past three years since the electric discount and energy competition law was enacted in 1999. However, there’s much more work to be done.

The primary goals of electric restructuring are lowering energy costs faced by New Jersey’s business and residential community and increasing their options of energy services. We support these goals and we are working with the board of public utilities and other stakeholders to see that these goals are achieved.

The scope of the ratepayer advocates’ efforts clearly has been more wide-ranging than any previous attempts to open markets and deregulate utilities. However, our steadfast goal is to ensure that these changes are enacted in a transparent fashion for consumers.

Over the coming year, as we work to ensure that this new age of competition delivers benefits to consumers, the ratepayer advocate will continue to take an aggressive role in energy restructuring, while maintaining adequate regulatory oversight and ensuring that energy services are reliable, affordable and at safe service levels. We must make certain that a solid framework is created for protecting consumer interests by ensuring responsive and effective allocation of resources in relation to accelerating energy competition.

In addition, the ratepayer advocate will continue to participate in activities of new jersey’s regional transmission organization --- the PJM interconnection --- and the federal energy regulatory commission (FERC). The Ratepayer Advocate recently became a voting member of PJM and will continue to participate in the governance process on behalf of the consumers of New Jersey. PJM manages the electric transmission grid for the states of New Jersey, Pennsylvania, Delaware, and parts of Virginia, Maryland and the District of Columbia. PJM also facilitates the operation of the wholesale electric market in the Mid-Atlantic region.

In addition, we will closely monitor the actions and rulings of FERC as they affect energy interests of New Jersey ratepayers. By doing this, our state will continue to improve its economic position and increase our ability to attract and retain businesses.

Currently, we are approaching the end of the third year (2001-2002) of new jersey’s transition to a market-based rates environment. Several technical aspects of restructuring will have to be addressed. Many of these issues are important and complex. To illustrate this, let me turn to two specific examples, rate filings and basic generation service.

In compliance with the new jersey board of public utilities' restructuring orders for electric utilities, base rate cases must be filed to review their unbundled costs for distribution services and deferred balances as a result of the energy competition law (EDECA). Presently, PSE&G has been the first to make such a filing. The remaining electric utilities are expected to file their deferred balance cases by august 1, 2002. The ratepayer advocate will critically scrutinize all these filings and will vigorously advocate to ensure that the interests of new jersey's ratepayers are protected.

In the coming year, the BPU is scheduled to examine two major basic generation service or BGS issues: whether BGS service should be made available on a competitive basis and the establishment of a mechanism for market-based pricing of the post-transition period BGS. The BPU has initiated a proceeding to address these issues and my department remains actively involved in that proceeding.

Change in the energy industry is also being marked by utility consolidations. The BPU recently approved a settlement permitting the merger of Conectiv and the Potomac electric power company (PEPCO). The ratepayer advocate actively participated in the settlement and I believe that it is a well-balanced resolution proving positive benefits to consumers. This agreement will save New Jersey consumers $30.5 million in deferred energy costs and prevent the layoffs of any of the utilities’ New Jersey employees for at least four years. This is comparable to the merger savings the ratepayer advocate and the BPU have produced in other utility mergers. We’ve been quite vigilant in designing ways to achieve greater savings for consumers.

The Conectiv-PEPCO agreement that was negotiated among the various parties, including my office and BPU staff, brings many tangible and specific financial benefits to Conectiv’s ratepayers, while at the same time enables these companies to operate effectively in new jersey. For example, this translates into a direct financial benefit for Conectiv’s approximately 350,000 new jersey customers by reducing the effect of a potential rate increase expected in august 2003 due to the utility’s ever-increasing deferred energy balance, when the rate caps are lifted. Conectiv will also make a $1 million donation to the new jersey department of education for use within its southern new jersey service area where the commissioner of education deems appropriate.

Consolidation is also a fact of life in the water industry. New jersey is an attractive target for giant companies seeking a foothold in the American water industry. United Water was purchased by Suez Lyonnaisse, E’town by Thames, Thames by the German conglomerate RWE, and now N.J. American (and its parent, American Water Works) are being acquired by RWE/Thames. Such acquisitions promise to bring huge amounts of capital and worldwide water utility expertise to our state, and the purchasers have promised many benefits to the customers of their New Jersey utilities.

Currently, RWE has bid $4.6 billion for American Water Works (AWW), which has a book value of approximately $2.3 billion. The shareholders stand to garner profits estimated to be about $1 billion from this transaction. In similar fashion, certain management agreements and bonuses are triggered by this transaction, and the upper management of AWW will realize about $45 million. The employees also benefit from having more career opportunities being part of a worldwide company. As a regulated utility company, however, one must keep in mind that the ratepayers of AWW have paid for all of the assets of the company. Therefore, it is only appropriate that the utility’s ratepayers, who are the third partner in any regulated utility, also realize benefits. The ratepayer advocate is vigorously advocating on behalf of the utility ratepayers to ensure that financial benefits, whether realized through economies of scale or other synergies, be passed on to ratepayers.

And, of course I cannot bring up the topic of water without discussing our drought condition. The Ratepayer Advocate has been very involved in the state’s response to the drought that continues to afflict New Jersey. Despite recent rains, the state continues to suffer from a rainfall deficit of approximately 11-12 inches over the past 12 months. The ratepayer advocate is aware of the financial burden that drought restrictions impose on the water industry and on businesses that rely on large quantities of water to operate. We are working closely with the department of environmental protection and the board of public utilities to ensure that the drought restrictions that limit the amount of water the utilities can sell are no more restrictive than necessary to ensure the continued safe supply of water to our state’s residents. The Ratepayer Advocate is actively engaged in helping to develop appropriate responses and mechanisms to effectively manage our state’s water supply.

Restructuring is also prevalent on the telecommunications front, with efforts to open the local exchange market following the passage of the 1996 federal telecommunications act. When congress passed the federal telecommunications act of 1996, many heralded the coming of a new paradigm in the telecommunications arena. The stated goal of the federal act is to promote competition and reduce regulation in order to secure lower prices and higher quality services for telecommunications consumers and to encourage the rapid deployment of new telecommunications technologies. The ratepayer advocate has been an active participant in the various proceedings aimed at opening the local exchange market in new jersey at both the state level at the board of public utilities, as well as the federal level at federal communications commission (FCC). Our sole interest in these proceedings is to ensure that all New Jersey ratepayers receive the promised benefits of a competitive local exchange market.

The board has issued several decisions critical to implementation of the goals of the federal act. In December, the BPU issued a summary decision where they reduced several of the rates charged by Verizon to competitors to lease parts of its network to provide service. These parts, known as unbundled network elements or UNES, provide the means for a competitor to interconnect with Verizon’s systems and offer service in New Jersey. The revised rates include a reduction in the statewide average loop rate by almost half, from $16.21 to $9.52.

The reduced UNE rates are consistent with the recommendations of the ratepayer advocate in the BPU’s proceeding reviewing the rates, which it set for Verizon back in 1997.

Last week, the board of public utilities recently ruled on Verizon’s petition seeking a new plan for alternative regulation (par-2), in which it made a finding in support of merger savings being passed on to New Jersey consumers. The decision provides New Jersey consumers with the benefits of savings and synergies that Verizon’s gained from its mergers with Nynex and GTE.

The board found that the merger savings would best serve new jersey consumers through increased benefits in the lifeline program, including automatic enrollment and expansion of the existing access new jersey program, which provides discounts for schools and libraries for equipment and high speed internet connections.

Under the new lifeline program, eligible customers will be automatically enrolled without having to certify their eligibility, and will receive a credit of up to $13 on their monthly phone bills. My office petitioned the BPU to require automatic enrollment to address the low subscribership levels for the lifeline program and to increase the existing lifeline benefit of $8.50 to the maximum available under the federal guidelines for lifeline. The new lifeline program will extend benefits to approximately 511,000 eligible customers. In addition, equipment and discounts for schools and libraries provided under the access new jersey program will be extended through 2014.

Verizon also sought to reclassify all of its multi-line business services as competitive in this proceeding. The BPU’s ruling will provide Verizon’s with regulatory freedom to adjust rates for services provided to business customers with 5 lines or more. The board’s decision includes commissioning a survey of business customers to determine whether the appropriate levels of competition exist for business customers with 5 lines or more. If the BPU finds that these customers are not receiving the benefits of competition, the BPU will reconsider its decision reclassifying those services as competitive.

As Ratepayer Advocate, I would’ve preferred to see the threshold for competitive services set at a higher level. However, i believe that the BPU’s decision to perform a survey to determine true competitive levels will provide the types of protections deemed necessary to ensure that small business customers are not left out of the competitive process.

And this past Monday, Verizon received approval from the FCC to offer long distance service in new jersey, a decision that is the culmination of the pivotal developments just described that are essential to the development of a fruitful competitive local exchange market in new jersey. The ratepayer advocate will continue working with the BPU to ensure that Verizon continues to meet the necessary federal requirements and provide a level playing field for effective competition to flourish in New Jersey.

New jersey has the unique distinction of being the most densely populated state in the nation. Although we do not yet have widespread competitive choice for residential consumers, our lucrative location between the two major metropolitan markets coupled with the BPU’s efforts should offer the winning combination needed to increase the levels of entry by competitive carriers in the new jersey local exchange market.

And one last note, the dedicated staff of the ratepayer advocate is quite central to creating innovative programs involving energy and increasing resources for new jersey consumers. No amount of technology can substitute for a team of resourceful and dedicated individuals serving the public in this new environment. The RPA’s growing responsibilities require new ways of allocating resources and developing policies. My goal is to continue and improve upon the successes and effectiveness of the division of the ratepayer advocate. I am confident that we can continue to achieve a significant transformation of the utilities industries that ushers in true competition and greater benefits and options for consumers.

Thank you.