JCP&L Rate Hike Request Doesn't Cover Costs Piled On by Sandy
The utility wants $31 million, with half a billion in superstorm-related costs coming in a future filing
Monday, December 03, 2012
When Jersey Central Power & Light filed a rate increase request late Friday, it was modest by utility standards. It seeks only a $31.5 million increase, a proposal that would boost monthly bills for most residents by 1.4 percent.
It is only the beginning, however, of rate hikes sought by the utility, one widely criticized for its failure to restore power during widespread outages affecting more than 1 million customers over the past two years.
The proposal, submitted to the New Jersey Board of Public Utilities, seeks to increase rates to its customers, effective August 2013. It does not include the half-billion dollar costs it incurred during Hurricane Sandy, a price tag utility officials concede is almost certain to rise. Those costs would be recovered in a future rate case.
It also does not factor in the costs of an accelerated reliability enhancement program, dubbed AREP, which the utility hopes will make its system more dependable.
Although those costs are not detailed in the filing submitted to the BPU, they would kick in less than six months after the August increases. And they include big-ticket items: capital investments intend to improve storm response and pilot projects to fund smart grid deployments.
In the wake of Hurricane Sandy, many legislator are calling for the state to put smart meters in homes and businesses, a step they believe will help utilities better cope with power outages.
JCP&L is in hot water with state regulators, more than any other utility. It filed the base rate increase as the result of a petition by the state Division of Rate Counsel, which argued the utility was earning more than what the BPU had approved.
Instead of the rate of return of 8.5 percent approved by regulators, the utility actually earned 12.37 percent in 2010, according to a consultant hired by the rate counsel's office. It projected JCP&L earned as much $90 million more than it should have that year.
JCP&L has disputed the rate counsel’s allegation, saying it is confident it can justify its rates. Even if the current rate increase is approved, JCP&L said it would continue to have the lowest residential electric rates among the four New Jersey electric distribution companies regulated by the BPU.
The rate increase would increase the bill for a typical residential customer by $1.51 a month, according to the utility’s press release. The company incurred $171 million in operation and maintenance costs in connection with restoration efforts following Hurricane Irene and an October snowstorm in 2011.
Ron Morano, a spokesman for the utility, said the costs of the storms are not recovered in one year, which accounts for the difference between the $171 million in storm expenses and the $31.5 million rate request. Capital costs, for instance, are recovered over the life of the equipment. JCP&L incurred $74.5 million in capital costs in storm restoration during 2011, according to its filing.
The utility also is proposing a program to enhance reliability, according to the filing. The program will “address increasing expectations of customers for higher service levels’’ following the two storm events of 2011, according to Mark Mader, director of rates regulatory affairs.
Beyond improving dependability, the AREP will stimulate economic activity in New Jersey, benefitting employees, contractors, and material and equipment suppliers, Mader said in the filing.
JCP&L, a subsidiary of FirstEnergy Corp based in Akron, Ohio, serves more than 1 million customers in 11 counties in the state. Its service territory includes much of the Jersey Shore, which was devastated by Hurricane Sandy.