The Board of Public Utilities (Board, BPU) is examining two proposals that have the potential to impact the way rates are calculated for electric, gas and water customers as well as the infrastructure that serves them. The first proposal would allow a process for utilities to invest in additional infrastructure projects that would be funded through another charge on the bill. The second is a provisional rate proposal which would allow a utility to charge a provisional rate before it is approved by regulators and allow for refunds if the final rate approved is lower. NJBIA is seeking further information on these topics from our members on the potential impacts and benefits to business. Please email Sara with any information you may have to share.
How BPU works:
The Board is considered a quasi-judicial body, meaning that it functions similar to a court or judge. Anyone may file a petition (or a request for action) asking the Board to consider a matter within its jurisdiction. Most often petitions are filed by the utilities, ratepayers or interested parties.
Once a petition is filed, the Board decides if it will retain the matter (which will become a case) or send the petition to the Office of Administrative Law (“OAL”). Regardless of whether the case is sent to the OAL or retained by the Board, the case goes through a legal process which may involve public hearings, briefs, discovery, and testimony.
The case is then decided by the Board at one of its public agenda meetings. The Board will issue an order setting forth the reason for its decision. The Board’s decision may be appealed to the Appellate Division of the New Jersey Superior Court.
New Jersey has aging infrastructure. Despite the fact that utilities regularly plan for maintenance for their systems, there is a need to upgrade for reliability and resiliency on a faster time table. As the state plans for the future, what is the best mechanism to rebuild/replace our systems so that we have reliable adequate and affordable service?
Currently utility capital plans are built into base rates. In recent years, utilities have filed for special infrastructure upgrades that are a separate charge on ratepayers’ bills, such as after Superstorms Irene and Sandy. In addition, water companies have had a separate program called the Distribution System Improvement Charge (DSIC) that allows them to accelerate infrastructure improvements and have an additional charge on the ratepayer’s bill to cover the increased upgrades.
To set up a process for additional infrastructure projects that are outside the scope of normal rate cases, the straw proposal sets up a mechanism for electric, gas and water utilities to apply for projects up to five years in length that would be on the bill as a separate charge. Cost recovery will be through a surcharge mechanism that will allow accelerated recovery. The maximum annual increase in rates attributable to an Infrastructure Program will be 2 percent.
NJBIA Information Gathering:
NJBIA understands that previous infrastructure plans were on an ad hoc basis and this straw proposal can provide guidelines for increased spending and upgrades to modernize our infrastructure. We need more information to fully understand how this new guideline would work. NJBIA appreciates any additional information or clarification from stakeholders and staff on the following parts of the straw proposal:
Item 1) Does the Board anticipate tracking the projects to help coordinate activities and realize cost savings?
Item 7) When would the cost recovery surcharge mechanism be added to the customer’s bill? What type of notice would be given to customers?
Item 8) Is there a cost benefit analysis contemplated in the process to help to understand a projects scope?
Item 9) What is the possible 2 percent increase based on—Is it CapEx distribution or something else? It is not clear to us what the increase in rates will be based upon.
Item 13) How would this type of proposal fit in with the provisional rate implementation? This proposal requires a provisional rate as well as a base rate case within 5 years of approval of the program. Is it possible to have two provisional rates at one time? Does this program only apply to the rate case filed first? Or is there a second true up opportunity?
Item 15) Is there any change to the Return On Equity (ROE) given the reduced time to cost recovery?
Item 16) Can water utilities qualify for both DSIC and the straw proposal? Or is it an option to only utilize one program? How would DSIC potentially impact the percentage of CapEx if it is rolled into the next rate case and that rate case is the required straw proposal rate case?
Provisional Rates for Utilities
Rates are filed by utilities in rate cases. Parties have the opportunity to review the filing and weigh in on the matter. Currently when a utility files a rate case, the rates charged to customers/ratepayers remain the same until a case is settled and approved by the BPU. Utilities do have the ability under statute to implement interim rates, but have not typically done this. Within the past five years, the settlement and approval process usually takes nine months, but in some instances it can take longer. Typically during the settlement process there is negotiation of the proposed rates, review of costs, and finally an agreement as to what charge is fair. Then the Board approves the case and a new rate goes into effect.
The draft straw proposal would allow for a utility to implement provisional base rates during the pendency of a rate case. This means it could start collecting the proposed rate when it files the rate case, as opposed to when the case is settled and approved. Ratepayers would pay the new proposed rate before it is approved and receive a refund if the Board later approves a lower rate. If the Board approves the new rate, it would remain in effect.
NJBIA Information Gathering:
NJBIA regularly participates in stakeholder working groups and appreciates the information exchange that results from them. The Association does not get involved in rate cases, so please understand that our questions are posed to help gather information related to this proposal. It is our intent to seek information on how the proposed change would impact our members.
The following are some of our questions with the proposals that we seek more information on:
Items 4 and 5:
How will ratepayers receive a refund? Will it be a lump sum? Spread out over a series of months? Via check or on-bill credit?
What is the process for a ratepayer to receive their refund if they have left the service territory?
Will the difference in rates be kept in an escrow-type of account so that interest is earned? Or will the utility keep track and determine the interest after the case has been settled?
In alerting customers, what qualifies as publication? Online vs. print? Is it on the utility website? Newsletter? In a newspaper?
Other general questions:
If a rate case is litigated, how does that impact this process? Are ratepayers informed of a possible delay in the decision and continued provisional rate?
Was the Delaware approach considered?