November 15, 1999
Before the Board of Public Utilities

REMARKS OF RATEPAYER ADVOCATE
BLOSSOM A. PERETZ, ESQ.

One of the primary objectives of competition, as set forth in the Electric Discount and Energy Competition Act (the AAct@) is to reduce the cost of electricity services. However, absent public policy initiatives, markets may not recognize the external environmental costs associated with electricity production and consumption. Some electricity sellers may seek to reduce all discretionary costs associated with environmental protection, to the detriment of the environment. Similarly, some retail suppliers may also seek to encourage the consumption of electricity in order to increase their revenues.

Nonetheless, the Act recognizes that, not only do we need energy efficiency programs, but that the development of renewable energy resources is critical to the welfare of this state. Renewable energy can decrease environmental impacts from traditional electricity production. At the same time, it can increase the diversity and reliability of the supply of electricity to the state. This is especially significant in an era of increased power demands such as New Jersey experienced this past summer and will offset increasing stresses on our electric system in the years to come.

To achieve the State=s objectives -- that is, to increase consumer choices and place greater reliance on the competitive market for energy services -- the Ratepayer Advocate strongly urges the Board to establish an independent statewide administrator to supervise distribution of funds for renewable energy projects. We recommend, that the funding dedicated to renewables should be placed in a renewable energy trust fund, where it would be available and would continue to be available, once the renewable programs are all in place. This is an important point, for the utilities propose that the renewable programs be placed under their control, as the DSM programs were. That would result in seven different administrators, with potentially seven different practices, and lead to fragmentation of programs.

Moreover for an efficient program the administration must be independent. First it is clear that distribution utilities have a business interest in increasing throughput on their systems. In contrast, some if not much of renewable energy represents distributed generation that reduces throughput and, hence, utility revenues. Also, conflicts of interest may arise from the fact that New Jersey=s utilities also have affiliates that supply electricity and some New Jersey utilities have affiliates in the business of providing renewable energy which may raise serious affiliate transaction and conflict issues, notwithstanding affiliate standards and codes of conduct which will be put in place.

And, of course, a primary issue here is the establishment of the appropriate amount of funding for both energy efficiency programs and renewable energy programs. The language in the statute requires that the funding for these programs be no less than 50% of the total statewide amount being collected in the utilities current rates. Since the total amount was approximately $256 million, the Act requires that at a minimum the utilities spent on a statewide basis $128 million on these programs, with 25% of that specifically devoted to renewable programs. It is the Ratepayer Advocate=s position that there be a uniform rate for the electric utilities and a uniform rate for the gas utilities, with a phase-in over four years for those utilities whose spending on DSM is significantly below the average.

The money allocated by the Act for these programs is substantial. To promote the best use of these funds, the Ratepayer Advocate also urges the Board to adopt certain performance-based incentives as well as penalties (i.e., two-way incentives), to encourage market transformation and to discourage unwise spending. The utilities have proposed significant incentives for themselves which they would be entitled to be based on a self-evaluation process. Self-evaluation cannot act as an incentive to avoid unwise spending.

Not only have the utilities requested significant performance incentives for themselves, they are also requesting recovery of Alost revenues.@ Unfortunately, it was this feature of the DSM plans that has led to greatly escalating costs for ratepayers, costs that consumers will be paying off for a long time to come. We should not repeat that mistake. Lost revenue recovery is certainly not necessary for the utilities, which directly benefit from energy efficiency and renewable programs by not having to expand their transmission and distribution plants. Those costs would remain wholly uncompensated until a subsequent rate case.

Most importantly, energy efficiency and renewables are now a societal benefit mandated by Act. If customers are required to contribute all the funding, it is entirely appropriate that utilities contribute as well to this legislatively-determined social goal. And, finally, the concept of lost revenues is no longer appropriate in a competitive environment, when utilities can benefit from competitive opportunities through their affiliates and need not rely on a rate case to earn returns for shareholders.

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