Consumer Protection In The News

In View of evidentiary hearings this month before Administrative Law Judge Richard McGill, it is becoming clearer by the day that Exelon's proposed takeover of PSEG, the parent company of PSE&G, will only benefit shareholders and corporate executives. New Jersey ratepayers will be left to suffer the consequences of higher electric rates at a time when consumers are already struggling to pay their utility bills.

According to New Jersey Board of Public Utilities staff, the takeover could cost ratepayers as much as $2.3 billion annually. Assuming that there are approximately 4.25 million electricity customer accounts in New Jersey (one customer account for every two New Jersey residents), average ratepayers could be forced to pay a $45 increase on their monthly electric bill.

You are probably asking yourself, $2.3 billion annually? How is that possible?

It is simple economics. If Exelon is allowed to take over PSEG, Exelon will own 56 percent of the electricity generation in the regional grid. Exelon will also dominate the natural gas market when natural gas power plants set the price of electricity in our region so much of the time. This mix of ingredients will give Exelon a stranglehold over wholesale electricity rates that set retail rates for all New Jersey consumers.

In an effort to dispel fears of higher rates, Exelon has proposed a plan that includes the sale of some of the company's power plants. However, this plan has two primary flaws:

1) Exelon has not specified which plants it will sell and to whom, and

2) it includes "virtual divestiture" -- an Exelon-invented concept that has never been approved by the U.S. Department of Justice. Virtual divestiture allows Exelon to continue to own power plants with the caveat that it must sell the power plants' electricity output to wholesale electricity marketers through long-term contracts. This is essentially no different from how the company currently is allowed to operate.

In addition to a badly flawed divestiture plan, Exelon CEO John Rowe committed to giving a $120 million rate credit to PSE&G customers over three to four years. Assuming that $120 million is shared over three years with PSE&G's 2.1 million customer accounts, Rowe's credit shakes out to a paltry $1.60 a month for the average ratepayer.

In comparison to a potential rate hike of $45 a month for all New Jersey ratepayers, Exelon's $1.60 a month rate credit for PSE&G customers will provide next to no relief on utility bills.

Does this story of unjustified rate hikes sound familiar? Remember deregulation in 1999? After rate caps expired in 2003, consumers faced immediate rate hikes of more than 15 percent. Consumers also had to pay back fixed rate savings, with interest, and were forced to foot the bill for nearly $3 billion in stranded costs (i.e. utility debt) used to pay for new power plants.

Utilities sold the notion of deregulation based on an assumption that it would increase competition, but five years later, the market isn't competitive. An expert analysis filed by the New Jersey ratepayer advocate found that ratepayers are currently paying $500 million more annually than they would have if utilities were operating in a truly competitive marketplace. Exelon's takeover of PSEG will make this problem far worse.

Attorneys representing the staff of the New Jersey Board of Public Utilities and the ratepayer advocate have made it clear to Judge McGill that Exelon's proposal to take over PSEG is not in the public interest. Exelon hasn't proven that the takeover will meet the BPU-ordered positive benefits standard in terms of competition, rates, jobs and the provision of safe, adequate and proper service. And based on volumes of testimony and cross-examination, this takeover will likely cause real and tangible harm to the state.

Exelon is losing in court but Judge McGill won't make the final decision -- BPU President Jeanne Fox will. Since Fox is a Corzine appointee, Exelon and PSEG executives and their political allies will be coming out of the woodwork in an attempt to get Governor Corzine to pressure Fox into cutting Exelon a deal.

Last October, Corzine stated that the Federal Energy Regulatory Commission and the Bush administration reviewed this case too lightly.

"The burden is on Exelon and PSEG to demonstrate, in a clear and convincing way, that this merger will bring positive, long-term benefits to New Jersey," the governor said.

He was right on both counts, and the case for rejecting the takeover stands out like a deer in the headlights.

Suzanne Leta is an advocate with the New Jersey Public Interest Research Group. She may be contacted at sleta@njpirg.org. Send comments, along with your name and phone number, to opedpage@gmail.com.