OPENING STATEMENT OF BLOSSOM A. PERETZ, ESQ.
I/M/O THE JOINT PETITION OF FIRSTENERGY CORP. AND JERSEY
CENTRAL POWER
AND LIGHT COMPANY, D/B/A GPU ENERGY,
FOR APPROVAL OF A CHANGE IN OWNERSHIP AND
ACQUISITION OF CONTROL OF A NEW JERSEY PUBLIC UTILITY AND OTHER RELIEF
BPU DOCKET NO. EM00110870
OAL DOCKET NO. PUCOT-1585-01N
APRIL 30, 2001
Good morning, Judge McAfoos and counsel. My name is Blossom A. Peretz, and I am the Ratepayer Advocate for the State of New Jersey. We are here today to begin the evidentiary hearings to consider the proposal to merge GPU, Inc., the parent company of GPU Energy (formerly Jersey Central Power and Light), into FirstEnergy Corporation. If this petition is granted, GPU, Inc., will become a wholly owned subsidiary of FirstEnergy, which is headquartered in Akron, Ohio.
Our primary focus in reviewing a merger petition is determining whether and how the merger can achieve positive benefits to New Jersey ratepayers. If parties to a merger can demonstrate positive benefits, then my office will recommend that the Board of Public Utilities approve the merger. After carefully reviewing the petition, we have concluded that the Administrative Law Judge should recommend, at this time, that the Board not approve the merger proposed by FirstEnergy and GPU (collectively, the "Joint Petitioners").
We have analyzed a number of issues to determine whether positive benefits for New Jersey ratepayers would result from approving the merger. I’d like to highlight a few of the issues that we believe the Joint Petitioners must address to demonstrate that the proposed merger will achieve positive benefits for New Jersey ratepayers.
The first issue is whether the proposed merger will benefit competition in the New Jersey electric market. The Joint Petitioners have not proved that the merger will benefit competition, or even that competition will not be harmed by the merger. We recommend that before approving the proposed merger, the Board should require the Joint Petitioners to present a detailed assessment of market concentration and market power, including the use of an energy system simulation model to look at the hourly behavior of the market under a wide variety of external conditions and bidding behaviors. We also recommend that the Board should require FirstEnergy to keep GPU’s transmission facilities within the PJM for a period of at least ten years following merger approval unless continued PJM membership would result in financial distress to the merged companies or unless FirstEnergy can show that early termination would provide significant benefits to GPU Energy New Jersey’s ratepayers. Furthermore, FirstEnergy should be required to file for Board approval of early termination.
The second issue is that of financial benefits for GPU Energy’s New Jersey customers. After reviewing the petition, we have concluded that the Joint Petitioners have not quantified the specific benefits to be achieved and have not stated a plan for achieving the benefits. Assuming net merger benefits can be achieved, the Joint Petitioners have not quantified the expected impact of the merger on regulated rates and have not stated a plan for integrating merger benefits into the rate structure for New Jersey ratepayers.
The Board should require the Joint Petitioners to prepare a definitive calculation, with supporting documentation, of what financial benefits will come from the merger. If there is a net positive benefit, GPU Energy’s New Jersey customers should have their rates reduced by the full amount of the cost savings.
Third, New Jersey ratepayers should not subsidize FirstEnergy’s unregulated or regulated operations in other states. In order to protect New Jersey ratepayers, we recommend that the Board set the overall cost of capital for a post-merger First Energy’s New Jersey regulated subsidiary based upon either the capital structure of the consolidated company or the regulated subsidiary, whichever of the two has the lowest percentage of common equity.
As the merger is currently structured, New Jersey ratepayers could be exposed to significant financial risks resulting from FirstEnergy’s ownership of nuclear power plants and its responsibility for cleaning up polluted sites as well as Clean Air Act-related lawsuits. We recommend that the Board require, as a condition of the merger, that New Jersey ratepayers not be exposed to financial risks resulting from Clean Air Act litigation, cleaning up polluted sites or nuclear plant operations.
Fourth, although the Joint Petitioners have stated that there will be a corporate presence in New Jersey, specific details of that commitment are not provided. We are concerned that out-of-state utility management will not place sufficient emphasis on the local issues of providing high quality service and affordable rates to New Jersey customers. Although GPU Energy’s parent company is largely based in Pennsylvania, there is still an issue concerning local service quality and rates when the parent company is moved even further away. Therefore, we recommend to the Board that FirstEnergy should be required to maintain a corporate office in New Jersey, and that the corporate office should be maintained and staffed with high level decision makers knowledgeable in New Jersey affairs. Furthermore, GPU, Inc., should be granted equal representation on FirstEnergy’s Board of Directors.
We are of course concerned about what will happen to GPU Energy’s New Jersey employees after a merger. The Joint Petitioners do not indicate that they will protect GPU Energy’s New Jersey employees from unreasonable or disproportionate treatment in any downsizing effort that may be necessary to achieve merger savings. GPU Energy’s employees deserve to know more about how the proposed merger will affect their future. We recommend to the Board that any employee displacement that occurs as a result of the merger because of downsizing or job consolidation be distributed proportionately to pre-merger employee levels of each respective company so that GPU Energy’s New Jersey employees are not disproportionately affected by the merger.
Fifth, to ensure improved service reliability, we recommend that the Board approve a Reliability and Service Quality Index (SQI) as a condition of the merger. Adoption of a SQI will prevent a deterioration of service quality and reliability for New Jersey ratepayers following the merger. The SQI should impose firm baseline performance standards as well as customer restitution payments for failure to maintain the performance standards.
Finally, we believe the Joint Petitioners should offer a commitment to assist low income ratepayers and customers in financial need. To that end, we recommend that the Board require FirstEnergy to adopt as a condition of the merger a universal service program similar to the Customer Assistance Program, or CAP, implemented in Pennsylvania by GPU Energy. That program provides eligible customers with a monthly subsidy and debt forgiveness. Under this program, an eligible customer’s bills are based on a certain percentage of household income for electric service. Low income customers should be automatically considered for participation in CAP, GPU Energy’s existing WARM program, and arrearage forgiveness programs by financial assistance agencies. Furthermore, the Board should require FirstEnergy to explore and implement a heat-related moratorium on disconnection in severe summer weather for New Jersey customers. The Board should also require FirstEnergy to explore and implement a low income aggregation program so that low income customers participating in universal service programs can obtain access to the lowest cost electric service.
In sum, the proposal filed by the Joint Petitioners does not, at this time, clearly establish that this merger is in the public interest. We have, in the direct testimony of our consultants filed on April 16, made various proposals that, if implemented, could bring positive benefits to New Jersey ratepayers, thereby making the proposed merger in the public interest. We ask the Board to order the Joint Petitioners to implement these proposals as conditions of approval, so that the merger will be in the public interest and will benefit GPU Energy’s New Jersey customers.
Thank you.