New Jersey's Ratepayers Are Not For Sale
In December 2004, Exelon Corporation, an energy giant based in Chicago,
announced plans to takeover take over PSEG--the last state-based
utility in New Jersey. If this deal is approved, Exelon will be the
largest, most powerful utility in the nation, with over $79 million in
assets and 9 million electric and gas customers. But when it comes to
meeting the needs of New Jersey's ratepayers, bigger has nothing to do
with being better.
Allowing Exelon to take over PSEG would add to a growing wave of investor-owned utility takeovers across the country but especially in New Jersey. In the past five years, all of New Jersey’s four electric utilities, two of four gas suppliers, and four of the largest water companies have been involved in mergers or takeovers by out-of-state corporations in $35 billion worth of deals.
If Exelon gobbles-up PSEG, it would create an energy giant strong enough to put a stranglehold over electricity rates in New Jersey at a time when New Jersey consumers are already struggling with high home heating and electricity rates this year. If Exelon gets away with this, ratepayers will be hit with a one two punch on their utility bills, while shareholders and corporate executives line their pocketbooks.
Corporate Executives Will Make Millions While Ratepayers Suffer
Since the takeover was announced in December 2004, PSEG’s top
executives have made out like bandits. So far, seven PSEG executives
have cashed in stock options worth $54 million.
Since December, E. James Ferland, CEO of PSEG, has netted more than $12 million in stock options sales. And if this takeover is approved, Ferland will be the Chairman of Exelon's Board of Directors, in name only, with "no executive duties," and get paid at least his annual salary of $1.5 million until March of 2007. When he actually leaves the company in 2007, he will get at least an additional $2 million in pension and stock options.
The Takeover Could Raise the Average New Jersey Electric Bill by $45 a Month
If Exelon is allowed to takeover PSEG, Exelon will own 56 percent of
the electricity generation in the regional electricity grid. Exelon
will also dominate the natural gas market when natural gas power plants
set the price of electricity in our region 50 percent 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.
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 electric customer accounts in New Jersey (one customer account for every two New Jersey residents), the average ratepayer could be forced to pay a $45 increase on their monthly electricity bill.
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 Exelon must sell the power plants’ electricity output to wholesale electricity marketers through long-term contracts—this is essentially no different than how the company is allowed to operate currently.
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.
The Takeover Could Reduce Reliability, Harm Quality of Service and Risk Public Safety
Large holding companies, driven by pressure to reduce costs in order to
produce larger returns to shareholders, have a history of making cuts
that lead to reduced reliability of the electric system. Exelon is no
exception. Exelon subsidiary ComEd operated the “worst-performing
circuit” in Illinois in 2002, and 2003, the company received the lowest
customer satisfaction rating of all utilities in the state. And after
Exelon took over Pennsylvania-based PECO in 2000, Exelon reduced
transmission maintenance by one-third. In 2003, PECO had the worst
overall customer satisfaction rating out of seven state electric
utilities with 90 percent higher justified customer complaints than the
average utility.
In contrast, PSE&G has the best reliability record in New Jersey. If Exelon chooses to cut investments in transmission maintenance and customer service, as it has in other states, it could reduce the reliability and quality of service in New Jersey.
In addition, the “The Exelon Way” of operating nuclear power plants risks public safety. “The Exelon Way” involves cutting on-site staff, firing safety whistleblowers, and pushing nuclear reactor output to its limits and delaying necessary repairs. This leaves a much smaller margin for error when it comes to safety. Exelon’s business strategy also depends upon extending the life of aging nuclear power plants, including the Oyster Creek plant on the Jersey Shore—the oldest operating nuclear power plant in the country. Exelon pushes 1960’s-era technology 20 years beyond its intended life, increasing the risk of a catastrophic accident.
New Jersey Regulators Would Lose the Power to Protect Consumers
If Exelon takes over PSEG, PSEG would become part of a federally
regulated holding company subject to federal jurisdiction over its
financial practices. New Jersey regulators would lose any power to
regulate risk in PSEG’s investment decisions, such as non-utility
business ventures. These ventures can put pressure on a company’s
credit rating and lead to higher interest rates, which are then passed
on to New Jersey ratepayers.
To make matters worse, Congress recently repealed the Public Utility Holding Company Act. As a result, the federal government has far less ability to protect consumers from any risky investment decisions Exelon chooses to make.
The Takeover Should Be Rejected
Exelon hasn’t proven that the takeover will meet the New Jersey Board
of Public Utilities (BPU)-ordered positive benefits standard in terms
of competition, rates, jobs and the provision of safe, adequate and
proper service. In fact, the takeover will cause real and tangible harm
to the state.
Fortunately, Governor Corzine and the BPU can stop Exelon's takeover from becoming a reality by rejecting Exelon’s proposal. In the past year, Arizona and Oregon's utility regulators stopped out-of-state businesses from buying state-based energy companies because the deals did not provide any public benefit.
It is the responsibility of Governor Corzine and BPU President Jeanne Fox to put ratepayers first. They should follow the lead of Oregon and Arizona and reject Exelon’s takeover of PSEG.