STATE OF NEW JERSEY
BOARD OF PUBLIC UTILITIES
OFFICE OF ADMINISTRATIVE LAW

Executive Summary of the Initial Brief of the Division of the Ratepayer Advocate ⁽¹⁾

• Standard of Review

The Ratepayer Advocate's position is that the proper standard of review of the proposed merger is the "of positive benefit to the public interest" test. Under this test, the petitioners would have to establish that GPU's customers and employees would receive affirmative benefits as a result of the merger. In contrast, petitioners have argued that the BPU should use the less stringent "no harm" test.

• Impact on Competition

The Ratepayer Advocate argued that the BPU should not approve the merger as filed, because petitioners have not established that the merger will benefit retail competition in New Jersey. In fact, some of petitioners' own studies show that the merger may harm competition. The Ratepayer Advocate therefore recommended that the Board require the petitioners to present a more detailed assessment of market concentration and market power, including an energy system simulation model.

• Impact on Customer Rates

The Ratepayer Advocate's position is that the proposed merger is not in the public interest because JCP&L'S customers would not receive any merger-related cost savings under the Joint Petition. Petitioners have not presented a study of the proposed merger's anticipated costs or associated savings. Accordingly, the BPU has not evidence to base a determination of whether or how the merger would effect JCP&L's customers' rates. Therefore, the Ratepayer Advocate recommended that the BPU: (1) Direct the Joint Petitioners to submit a comprehensive study of anticipated merger-related costs and savings; and (2) If, after the Board and all parties to this case have the opportunity to review (and respond to) this additional analysis (including evidentiary hearings), the Board determines that Joint Petitioners have demonstrated that the merger would result in a net positive benefit to New Jersey ratepayers (and if it meets all other statutory criteria for approval), the Board should then condition merger approval on the pass through of 100% of the annualized savings as a reduction to JCP&L's distribution rates contemporaneously with the closing of the merger transaction.

In no event should Petitioners be permitted to recover costs associated with the acquisition premium FirstEnergy will pay to GPU shareholders or the special bonuses ("golden parachutes") certain executives will receive as a result of the merger.

• Impact on Employees

Joint Petitioners have failed to present any credible evidence on the proposed merger's effect on GPU's New Jersey employees. Key decisions concerning post-merger employees, functions, and services have yet to be decided on. Therefore, the BPU cannot determine, based on petitioners' case, whether the merger would have a positive or negative effect on GPU's employees. Hence, the Ratepayer Advocate recommended that the BPU condition merger approval on the following: (1) any merger-related downsizing be done on a pro-rata basis, so that GPU's employees will not be disproportionately affected; (2) that GPU will maintain a New Jersey corporate headquarters, staffed by an adequate number of senior-level decision-makers who are familiar with New Jersey issues; and (3) that GPU have the right to nominate 50% of the Board of Directors of the new, post-merger company.

• Impact on the Provision of Safe and Adequate Utility Service at Just and Reasonable Rates
 

The petitioners failed to prove that the merger would not negatively impact JCP&L's reliability and customer service, particularly service to low-income customers. Accordingly, the Ratepayer Advocate recommended that the BPU require JCP&L to: (1) implement a service quality index (SQI), that measure and tracks key reliability and customer service indices, which monetary restitution to customers if JCP&L fails to satisfy the applicable criteria; and (2) that the BPU direct JCP&L to implement several low-income customer assistance programs in New Jersey, similar to programs that GPU's Pennsylvania utilities already have. These programs will ensure that low-income customers receive safe and affordable service post-merger.

• Issues Pertaining to Reliability and Operation of the Region's Bulk Power Transmission System
 

GPU is a member of the Pennsylvania-Jersey-Maryland ("PJM") Interconnection, the not-for-profit independent system operator ("ISO") for the mid-Atlantic region. GPU's transmission assets are under the control of the PJM ISO. FirstEnergy is one of the main supporters of the Alliance RTO, a for-profit regional transmission organization that stretches across the mid-west region. Several intervenors in this case, including PJM, are concerned that FirstEnergy may be planning to remove GPU's transmission facilities from PJM if the merger is completed. Such removal could have significant, detrimental consequences for electric service in New Jersey. Accordingly, the Ratepayer Advocate recommended that, if the BPU approves the merger, it require that GPU's transmission assets be left under the control of PJM for at least ten years. Furthermore, if FirstEnergy wants to remove the assets from PJM, it should first seek and receive BPU approval, in addition to any other necessary regulatory approvals.

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1. This Executive Summary has been created for the convenience of members of the public who may wish to read an overview of the Ratepayer Advocate's actual brief filed with the Office of Administrative Law. Please refer to the actual brief filed on May 25, 2001, which is also available on the Ratepayer Advocate's web site, for a complete discussion of this office's legal position on the proposed merger.