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
My name is Judith Appel.
I am an attorney representing the New Jersey Division of the Ratepayer
Advocate. The Division of 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.
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.
We
are litigating this case on your behalf in evidentiary hearings.
The purpose of today=s
open public hearing is for you, the customer, to voice your opinion,
relate your experiences with the Company and offer comments about the Company=s
gas rates and any service problems you may be experiencing.
It is important that you express your views, because they will become
part of the record on which the Administrative Law Judge and the Board of Public
Utilities make their decisions. The
Ratepayer Advocate also needs to hear your views in order to represent your
interests in this legal process. We
strongly encourage your participation, which will help us evaluate the Company=s
proposal and prepare for the evidentiary hearings.
This
public hearing is being transcribed and your comments will become part of the
record. The Judge will instruct you
to give your name and address before you speak.
I would like to reiterate the importance of your input so that the
Ratepayer Advocate can have a clear record of your concerns and interests.
On
behalf of the Ratepayer Advocate, I thank you for attending this public hearing.
Your participation is important.