REMARKS OF BLOSSOM A. PERETZ, ESQ.

DIRECTOR, DIVISION OF THE RATEPAYER ADVOCATE

 

PRESENTED BY JUDITH APPEL, ESQ.

ASSISTANT DEPUTY RATEPAYER ADVOCATE

DIVISION OF THE RATEPAYER ADVOCATE

 

In the Matter of the Petition of Public Service Electric and Gas

Company for Approval of an Increase in Gas Rates and for

Changes in the Tariff for Gas Service.

BPU Docket No. GR01050328

 

In the Matter of the Petition of Public Service Electric and Gas

Company for Authority to Revise its Gas Depreciation Rates.

BPU Docket No. GR01050297

 

PUBLIC HEARING

Hackensack, New Jersey

October 9, 2001

 

Public Service Electric and Gas Company (APublic Service@ or the ACompany@) is a combination gas and electric utility which provides natural gas utility services to more than 1.6 million customers located in Bergen, Hudson, Passaic, Essex, Morris, Somerset, Hunterdon, Mercer, Monmouth, Ocean, Burlington, Camden and Gloucester Counties.

On May 25, 2001 the Company filed a petition before the Board of Public Utilities (ABPU@ or the ABoard@) requesting Board approval of an increase in its gas rates and for changes in its tariff for gas service.  The overall rate increase proposed is approximately 7.06%, which the Company claims will yield an increase in revenues of approximately $170 million. 

However, the rate increase will be greater for certain classes of customers.  Furthermore, the proposed increase will only affect the non-gas commodity portions of a customer=s bill, including charges assessed on a per-therm and monthly basis, such as the per-therm distribution  charge and the monthly customer charge.  For example, for residential customers the Company is proposing an rate increase of approximately 10.96%.  A typical residential customer with monthly usage of 200 therms of natural gas per month during the Winter months, and an annual usage of 1,260 therms of natural gas, such as a gas heating customer, would face an annual increase of approximately $120.42, or 11.16% under the Company=s proposal.  The General Service class of customers, which includes most small businesses, will face an overall increase of approximately 6.07% under the Company=s proposal.  The Ratepayer Advocate has analyzed the Company=s proposal and, based upon careful review, we oppose the Company=s rate increase request.

Under the laws of New Jersey, regulated utilities, such as Public Service, are permitted to charge rates that are Ajust and reasonable.@  The law also allows a utility company a fair opportunity to earn a profit on its investment.  We, at the Division of the Ratepayer Advocate, have intervened in the proceedings associated with the proposed increase now before the New Jersey Office of Administrative Law and the Board of Public Utilities.  In these proceedings, as in all proceedings in which the Ratepayer Advocate participates, the ratepayers= best interests are our primary concern.  However, it is important that you are aware that the ultimate decision regarding all rate modifications in New Jersey is made by the Board of Public Utilities. 

            The Ratepayer Advocate has its own staff attorneys and several expert witnesses analyzing data from the Company to effectively address the critical issues raised by the Company=s rate increase request.  We directed numerous formal written inquiries to the Company, seeking detailed information regarding the need for investment, the financial structure of the Company, its expenses, its financial obligations, and other areas.  The Ratepayer Advocate expert witnesses have also prepared and filed testimony in opposition to various portions of the Company=s proposal to increase your rates.  Copies of our testimony are available on our website, www.rpa.state.nj.us.  In hearings before the Office of Administrative Law, we have cross-examined Company executives and witnesses. 

The critical focus of our investigation is the level of revenue needed by the Company to to provide utility service and provide a reasonable return on the investment in its physical plant.  The rates ultimately implemented should be the lowest possible, consistent with the requirement that the Company provide safe, adequate and proper utility service.

Specifically, we are focusing on certain critical issues affecting rates and service.  Significantly, our experts have found that instead of an increase, a rate decrease of approximately $20 million is due ratepayers.  Our review of the Company=s filing encompassed many areas, including the following key issues:

·        The appropriate valuation and measurement of the Company=s assets used in the provision of utility service, also known as Arate base,@ upon which its return on investment is applied.  Rate base assets includ distribution mains and service connections to customers, as well as a certain level of working capital.  We found that the Company overstated its rate base amount and required rate of return on investment.  Among other items, we found that the Company overstated its gas inventory amount, a component of rate base.  Additionally, we challenged the rate of return on equity that the Company sought in its filing.  Our expert witness recommended a rate of return on equity of 9.85%, versus the 12% sought by the Company.   

·        The appropriate level of expenses and revenues associated with the provision of utility service.  The Ratepayer Advocate=s witness challenged many components of the Company=s claimed operating expenses, including the Company=s accounting for consolidated income taxes, its labor cost estimate, and its marketing expense deferral.  The net result of our proposed adjustments adds $101 million to the Company=s estimate of pre-increase operating income, which refutes the Company=s claim that a rate increase is needed at this time.  

·        The appropriate level of depreciation expenses, based on a reasonable estimates of service lives and removal costs.  We found that the Company unreasonably truncated the estimated services lives of certain groups of assets and inflated removal costs associated with certain assets, thereby claiming an unreasonably large depreciation expense.  The depreciation expense estimate calculated by our expert witness was approximately $61 million less than that claimed by the Company.

·        The impact of the Gas Contract Transfer Case now before the Board of Public  Utilities.  The Company=s proposed rate increase is conditioned upon the Board=s  approval of the Company=s proposal to transfer the gas contracts now held by the regulated gas utility to an unregulated affiliate.  The Ratepayer Advocate opposes the Company=s gas contract transfer proposal, which would transfer control of the Company=s essential gas supply resources to an unregulated affiliate, thus impeding competition and subjecting consumers to high and volatile natural gas prices.  We have advocated a position which is based on the presumption that the gas contracts will not be transferred to an affiliate.  Adopting the Ratepayer Advocate=s position would reduce the Company=s proposed increase by approximately $17 million.  

·        The reasonableness of the Company=s allocation of the overall rate increase to the individual rate classes, as well as the reasonableness of the proposed increases for  other rate and bill components.  The Ratepayer Advocate recommends the  adoption of a rate allocation whereby ratepayers would benefit from certain margin adjustment revenues, as well as other positions which will enable residential ratepayers to switch gas suppliers without penalty, and foster competition in the gas commodity market.  We also oppose the Company=s proposal to increase the reconnection charge for customers whose service is  terminated for non-payment, from $25 to $75.  

·        The Ratepayer Advocate also recommends the adoption of an interim universal service program to help low-income customers meet their gas heating bills.  The program supported by the Ratepayer Advocate calls for a rate affordability program and arrearage forgiveness, in addition to the implementation of other mechanisms and programs to provide additional assistance to low income customers in the future. 

 The Company=s rate increase proposal is now in litigation before the Office of Administrative Law.  In the coming weeks, the Ratepayer Advocate and other parties will summarize their positions in legal briefs submitted to the Office of Administrative Law Judge, who will issue a decision which will be, in turn, considered by the Board of Public Utilities.