STATE OF NEW JERSEY
Department of The Public Advocate
240 West State Street
P. O. Box 851
Trenton, N.J. 08625-0851
Phone: (609) 826-5090 Fax: (609) 984-4747
April 26, 2006
Further Information Contact
and Rate Counsel Oppose
Currently Proposed PSEG-Exelon Merger
“Positive Benefits” Still Lacking For New Jersey Consumers
Trenton, N.J. — Public Advocate Ronald K. Chen announced today that the Division of Rate Counsel (formerly the Ratepayer Advocate) has filed a brief urging the Board of Public Utilities (BPU) and the Administrative Law Judge hearing the case to reject the merger of Public Service Enterprise Group (PSEG) with Exelon Corporation as currently proposed.
“Every New Jersey ratepayer should be concerned about the potential impact of the Exelon and PSEG merger as it is currently proposed,” Public Advocate Chen said. “By consolidating so much generating power under one company, the proposed merger would reduce competition and could lead to dramatic increases in electric and natural gas prices for all New Jersey ratepayers, not just PSE&G customers, because all New Jersey utilities buy power from the same energy generators. The merger also could reduce the reliability and quality of service for PSE&G customers, which is a significant issue for homeowners and businesses.”
The initial brief was filed by New Jersey Division of Rate Counsel Director Seema M. Singh with Administrative Law Judge Richard McGill, who is hearing the matter on behalf of the Board of Public Utilities (BPU). The BPU must ultimately decide whether or not to approve the merger.
“We thoroughly reviewed the proposed merger, 17 days of hearings were held, and expert witnesses for all parties testified. The Administrative Law Judge and the Board of Public Utilities should reject the merger as it is currently proposed for failing to establish “positive benefits” for the citizens of New Jersey,” Singh said. “The rewards are too small and the risks are too great for the proposed merger.”
The Division of Rate Counsel, formerly the Ratepayer Advocate but now a division of the Department of the Public Advocate, was charged with reviewing the merger under the positive benefits standard of review adopted by the BPU. This standard of review means that to be approved the merger must be found to have a positive impact on competition, rates, service and employees. Rate Counsel also examined the overall impact of the merger on New Jersey’s economy, as well as its impact on low-income ratepayers.
“The issues being debated in this merger are technical and complex, but the impact they could have on families and businesses are very real and straightforward," said Chen. "People need to understand how this merger could impact their pocketbooks and their day-to-day lives."
To help educate the public on the significant issues at stake, the Public Advocate and Rate Counsel released a Citizen’s Guide to the Exelon-PSEG merger. The guide describes in plain language the issues being debated with regard to this merger, including how it could impact the cost of energy, customer service, reliability, and New Jersey's economy.
“Rate Counsel, which by statute is automatically a party to the proceedings, will not agree to the merger as currently proposed, and will reserve all its legal options in order to protect the interests of ratepayers. As Public Advocate, I also think it is important to educate ratepayers about the potential consequences of this proposal,” Chen said. “The Citizens’ Guide explains our concerns in a simple and understandable way, and will be posted on our web site and distributed at outreach events. Seema Singh and I will continue to make every effort possible to ensure that ratepayers are educated and protected.”
Throughout the hearing process, Rate Counsel has advocated changes to protect New Jersey ratepayers, but the companies refused to incorporate recommendations made by Rate Counsel, as well as by BPU staff and more than 20 other organizations and companies that have weighed in on the proposal.
“This is unacceptable for ratepayers and for New Jersey, particularly in light of rising gas prices and the overall rise in the cost of all forms of energy,” said Singh.
In examining the case, the experts retained by Rate Counsel agreed that the proposed merger, which would create the largest utility in the nation, should not be approved as filed by the companies.
The largest single concern is that the proposed merger would result in a company that is so large, and controls such a significant segment of the gas and electric generation markets, that it could exert market power to drive up energy prices for all New Jersey ratepayers. To address the concerns about market power, the companies have proposed a “virtual divestiture” under which they would simply sell off some of the output from their power plants for a period of time. Rate Counsel contended in the brief that the proposed “virtual divestiture” is an untested concept that would leave ownership of the power generating facilities in the control of the companies, which does not address the problem of market power. Rate Counsel contended that the only way to adequately address the market power problem is through a concrete plan by the companies to divest themselves of power-generating facilities.
In addition to market power, Rate Counsel’s concerns focus on service quality, the impact on low-income consumers, whether ratepayers would share in some of the economic benefits of the merger, job losses, the impact on the New Jersey economy, and the loss of a major New Jersey-based corporation. Specifically, Public Advocate Chen and Singh cited the following key recommendations and concerns:
• The merger proposal contains no proposed rate freeze and inadequate rate reductions. Rate Counsel has recommended these be included as part of the shared savings from the merged companies.
• The proposed merger would result in the loss of at least 950 jobs in New Jersey and the possible transfer of a number of additional jobs to Illinois-headquartered Exelon.
• PSEG and Exelon fail to make adequate commitments to continuing assistance for low-income ratepayers. For example, Rate Counsel recommended that PSE&G commit to keeping its neighborhood walk-in service centers open for at least 10 years, and maintain support of programs designed to assist low-income ratepayers.
• There are no guarantees of continued levels of reliability and customer service. For example, Rate Counsel has recommended that the company commit to implementing a service quality maintenance plan that would ensure there is no deterioration in customer service in areas such as the speed with which emergency calls are answered, the frequency of power outages, and the speed with which power is restored after outages. The brief notes that Exelon’s two utility subsidiaries, ComEd in Illinois and PECO in Pennsylvania, both have comparatively worse track records when compared to PSE&G’s customer service.
After making the merger proposal, the companies indicated they would pass along some of the benefits of the merger by providing $120 million in rate reductions over a three or four year period. “A rate reduction of $30 million a year over four years would amount to about $1 per month for PSE&G ratepayers. That is simply not a fair share of the benefits that the companies would realize from the merger,” Singh said.
Rate Counsel will continue to participate in this proceeding before the Administrative Law Judge. The Administrative Law Judge is expected to issue an initial decision in June, and the BPU will then make the final decision on whether the proposed merger should be approved. For the filed Rate Counsel initial brief, please go to www.rpa.state.nj.us or www.state.nj.us/publicadvocate
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