REMARKS OF BLOSSOM A

REMARKS OF BLOSSOM A. PERETZ, ESQ.
DIRECTOR, DIVISION OF THE RATEPAYER ADVOCATE

PRESENTED BY KURT LEWANDOWSKI, ESQ.
ASSISTANT DEPUTY RATEPAYER ADVOCATE

In the Matter of the Petition of Jersey Central Power and
Light Company for a Bondable Stranded Cost Rate Order
in Accordance with Chapter 23 of the Laws of 1999
BPU Docket No. EF99080615

PUBLIC HEARING
Newark, New Jersey
January 9, 2002

My name is Kurt Lewandowski. I am an attorney representing the New Jersey Division of the Ratepayer Advocate ("Ratepayer Advocate"), appearing on behalf of the Director, Blossom A. Peretz, Esq. The Ratepayer Advocate represents the interests of all utility customers, including residential, small business, commercial and industrial ratepayers. The Division is also a party in every case where New Jersey utilities seek changes in their rates or services. The Ratepayer Advocate gives customers a voice in setting long-range energy, water and telecommunications policy that will affect utility services for many years to come.

The New Jersey State Legislature enacted the Electric Discount and Energy Competition Act ("EDECA," codified at N. J. S.A. 48:3-49 et seq.) so that energy consumers may enjoy the benefits of a competitive market, with the prospect of greater choices and lower prices. The EDECA also provided electric public utilities with the opportunity to recover their stranded costs, the above market power generation and supply costs associated with the restructuring of the electric industry in New Jersey. One of the mechanisms available to utilities to recover their stranded costs is through the issuance of transition bonds, which is often referred to as securitization. N.J.S.A. 48:3-62.

However, the EDECA also subjected the issuance of transition bonds to certain statutory requirements. For example, the EDECA requires that the net proceeds of the transition bonds shall be used solely for the purpose of reducing the amount of eligible stranded costs. N.J.S.A. 48:3-62(a). One application of the proceeds specifically noted by the EDECA is the refinancing or retirement of electric public utility debt or equity, or both. Id. Significantly, the EDECA also requires that the entire amount of cost savings attributable to bonding shall be passed on to the customers of the electric public utility in the form of reduced rates for electricity. Id.

In considering applications for bondable stranded cost rate orders, such as Jersey Central Power & Light Company's ("JCP&L," "GPU Energy," or "the Company") instant application, the Board of Public Utilities's ("BPU" or the "Board") must be guided by these statutory requirements to ensure that ratepayers may ultimately benefit from securitization, as intended by the Legislature. Securitization has the potential to impact the rates for electric service for many New Jersey electric customers. JCP&L is an electric utility which provides electric service to many thousands of customers located in the northern and central portions of the State, including Passaic, Essex, Morris, Sussex, Warren, Hunterdon, Somerset, Ocean and Monmouth Counties.

The instant application has its genesis in the Board's ruling in JCP&L's rate unbundling, stranded cost, and restructuring proceeding (Dkt. Nos. EO97070458, EO97070459, and EO97070460), rendered on May 19, 1999. The Board then ruled that the Company may securitize a portion of its stranded costs, up to $420 million. On August 25, 1999, JCP&L filed an application for an irrevocable Bondable Stranded Cost Rate Order for authorization to issue up to $420 million of transition bonds, pursuant to the EDECA and the Board's earlier ruling in its unbundling case.

In its original filing the Company requested securitization of $400 million of stranded costs, plus transaction costs totaling approximately $20 million. Since the date of its original filing, GPU filed two amendments to its petition. In December, 1999, GPU filed an amendment seeking to securitize more than $100 million in additional costs associated with its pending sale of the Oyster Creek nuclear plant. In May, 2001, GPU filed a second amendment to its petition wherein it withdrew its request for additional Oyster Creek-related securitization amounts, thereby reducing the total amount of Transition Bonds that it intends to issue. As result of the amendments, GPU is now seeking $320 million in Transition Bonds, rather than $420 million originally proposed.

Our office took an active role in this proceeding. In the course of this proceeding, we propounded numerous discovery requests and met with the parties to gain further information.

We also engaged the services of an expert witness, Mr. James Rothschild, to assess the Company's filing.

As Mr. Rothschild will discuss in more detail later this afternoon, our analysis shows that, based on certain assumptions, the savings attributable to securitization might only amount to $14 million, rather than the $117 million or so projected by JCP&L. The actual saving are dependent on changes in interest rates and the cost of capital. Our office does not oppose the proposed securitization transaction. However, steps must be implemented to ensure that ratepayers receive all of the benefits of securitization, as required by the EDECA, including benefits tied to (1) the lowering of JCP&L's embedded cost of debt and stock, (2) servicing fee savings, and (3) working capital savings. Ratepayers should see tangible reductions in their rates as a result of securitization. The identified savings should operate immediately to reduce the Company's Deferred Balance for the benefit of ratepayers.

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