PA Petition -- Like NJ Initiative -- Seeks to Recover Billions in Stranded Charges

The issue may be moot in New Jersey, but consumer advocates in Pennsylvania are urging regulators to decide whether utilities in that state over-collected billions of dollars from ratepayers during the more than decade-long deregulation of the industry.

In a petition filed with the Pennsylvania Public Utilities Commission, Citizen Power and the Pennsylvania Steel and Cement Manufacturers Coalition argued the utilitities overcharged consumers by as much $9 billion for so-called stranded costs stemming from deregulation. Stranded costs are the differences between what the utilities would have collected from customers in a regulated environment and what they expected to recover in a more competitive landscape.

The case is similar to one decided by the New Jersey Board of Public Utilities this past June when it rejected a petition filed by an Oradell resident who argued Public Service Electric & Gas has collected nearly $3 billion in stranded costs when, in fact, their fleet of power plants are more valuable than ever. The petition, backed by consumer groups and business interests, languished for three years at the agency before being dismissed in a manner of minutes by the five commissioners without comment.

BPU Dismisses Petition

Although the BPU dismissed the petition, it has yet to issue a written order on the decision. Daniel Sponseller, the attorney for the Oradell man, said when it does, he will either ask them to reconsider or appeal the decision. “It ain’t dead yet, you can quote me on that,’’ Sponseller said when asked about the New Jersey case.

In rejecting his petition, the BPU staff said other state statues prevent the agency from revisiting the stranded bond issue because the money was recovered through bonding and the state cannot interfere with repayment to investors who fronted the money to the utility.

Sponseller, however, argued the agency never addressed the core of his argument: the failure of the BPU to review stranded bond costs annually as stipulated in the legislation allowing for the breakup of the state’s gas and electric monopolies.

“They devoted about 90 seconds to this and still haven’t entered an order after two-and-a-half months after sitting on this issue for three years. Where is the accountability?’’ asked the Pittsburgh attorney, who is not affiliated with the Pennsylvania case. BPU did not return calls for comment.

A Decade of Deregulation

Pennsylvania, which passed a deregulation law more than a decade ago, is just now lifting caps on bills, which led to a 30 percent spike in electric bills of one major utility, according to David Hughes, executive director of Citizen Power. Pennsylvania allowed utilities to collect $12 billion in stranded costs, and Hughes contends at least $6 to $9 billion of those costs are overcharges.

His group and others have been pressing the Legislature to look into the issue, but lawmakers told them to first have the PUC address the issue, Hughes said. When asked about the likelihood of success, Hughes replied, “It all depends on whether the public does anything about it and begins pressing their legislators.’’

Paul Patterson, an energy analyst for Glenrock Associates in New York, said stranded costs is a periodic issue that comes up in states where deregulation has occurred, but so far, nothing really has been done about it.

“It was part of the bargain that was made as part of deregulation deal,’’ Patterson said. “It’s basically Monday-morning quarterbacking.’’

Pennsylvania Petition

The Pennsylvania petition recounts many of the same arguments and conditions, which consumer advocates in New Jersey made in their so far unsuccessful fight to reduce stranded costs.

Central to the issue was the assumption that “robust competition would lower electricity prices and that because retail prices would fall, Pennsylvania utilities needed to be fairly compensated for costs they had incurred under the old regulatory paradigm,’’ the petition said. “Robust competition did not occur and prices didn’t in fact actually fall as expected.’’

The same proved true in New Jersey. Few new power plants were built, too, so as demand for electricity grew, PSE&G’s now deregulated power affiliate raked in record profits, accounting for nearly 70 percent of its parent’s net income. While a handful of consumer and business groups protested about stranded costs in New Jersey, the issue never received much traction from lawmakers or the mainstream press, even when the board dismissed the petition.

Karen Johnson, a spokeswoman for PSE&G, said: “We can’t speak to the facts and the laws in Pennsylvania. In New Jersey, the stranded costs issue has been litigated numerous times and has been resolved.”