The New Jersey Board of Public Utilities (BPU), in an order dated May 8, with an effective date of May 18, said that it adopts a stipulation executed by Jersey Central Power & Light (JCP&L) and others regarding the company’s petition for approval of an infrastructure investment program.
As noted in the order, FirstEnergy‘s (NYSE:FE) JCP&L experienced several major storm events in its service territory of unprecedented severity, destructive force, and customer impact, including Hurricane Irene in August 2011, a snowstorm in October 2011, and Superstorm Sandy in October 2012.
The BPU also noted that in December 2017, under subchapter N.J.A.C. 14:3-2A. 1 et seq. (II&R Rules), it established a regulatory mechanism supporting Infrastructure Investment Programs (IIPs), which allows a utility to accelerate its investment in the construction, installation, and rehabilitation of certain non-revenue producing utility plant and facilities. The II&R Rules allow a utility to accelerate recovery of qualifying incremental investments, subject to the terms of the subchapter, and any other condition set forth by the BPU in approving an individual utility’s IIP. The BPU added that the II&R Rules – which became effective in January 2018 – provide for IIP costs to be recovered through a separate clause of the utility’s BPU-approved tariff.
JCP&L in July 2018 filed a petition with the BPU seeking approval to implement its proposed Reliability Plus Infrastructure Investment Program, including its cost recovery mechanism, under the II&R Rules and any other provision deemed applicable by the BPU.
The BPU added that the company proposed to invest $386.8m over a four-year period from 2019 through 2022, in 15 eligible electric distribution infrastructure projects, which were grouped into four categories:
- Overhead circuit reliability and resiliency, with an estimated capital cost of $132.9m
- Substation reliability enhancement, with an estimated capital cost of $85.9m
- Distribution automation, with an estimated capital cost of $108.4m
- Underground system improvements, with an estimated capital cost of $59.7m
The company proposed cost recovery through a separate clause of its tariff, Rider RP-JCP&L Reliability Plus Charge (Rider RP), the BPU said, adding that the company proposed to make semi-annual filings to recover revenue requirements for plant placed in-service, but not yet placed in rates. Based on the petition, the maximum cumulative bill impact on a typical residential customer over the program’s entire duration is about $1.89, or 1.8% of the current average monthly bill. However, the BPU added, according to the petition, the average incremental bill impact from any individual rate adjustment over the course of the program should be considerably lower.
Following the review of discovery and testimony, parties to the proceeding held meetings to discuss issues in the matter, the BPU said, noting that the parties executed the stipulation on April 23 – those parties are JCP&L, BPU staff, the New Jersey Division of Rate Counsel, and the New Jersey Large Energy Users Coalition.
The BPU said that the stipulation provides that the parties agree that the company may implement the JCP&L Reliability Plus under certain terms and conditions and that, among other things:
- JCP&L Reliability Plus is to consist of the capital investment of up to $97.01m in the company’s electric distribution system beginning on June 1, 2019, and continuing through Dec. 31, 2020. The company is to seek recovery of that capital investment through the stipulated cost recovery mechanism that includes a revenue adjustment calculation and a process for two rate adjustments
- The program includes 10 incremental projects in three categories with capital investment levels up to certain amounts, for which the company is to seek to recover through the JCP&L Reliability Plus Rate Mechanism. Those amounts are about $55.1m for the Overhead Circuit Reliability and Resiliency Category; about $16.1m for the Substation Reliability Enhancement Category; and about $25.8m for the Distribution Automation Category. Projects in the Substation Reliability Enhancement Category, for instance, include the Substation Enhanced Flood Mitigation project, through which JCP&L will add permanent flood walls and automatic flood gates to the Canoe Brook and Sussex substations, which have previously flooded
- In addition to the JCP&L Reliability Plus Program expenditures described in the stipulation, over the program period June 1, 2019, through Dec. 31, 2020, the company agrees to maintain an average annual baseline capital expenditure level of at least $141m based on the five-year historical distribution spending represented by the company in direct testimony
- The company may file for two rate adjustments to effectuate cost recovery for JCP&L Reliability Plus capital investments through the JCP&L Reliability Plus Rate Mechanism, with the first filing to request recovery of no less than six months of JCP&L Reliability Plus capital investments, and the second filing to request recovery of JCP&L Reliability Plus capital investments through the remainder of the program term, provided that each rate filing includes plant in-service additions during the filing period of at least 10% of the total amount authorized to be recovered via the JCP&L Reliability Plus Mechanism, and the company’s return on equity (ROE) calculated in accordance with the stipulation does not exceed the allowed ROE from its last base rate case by 50 basis points or more
The BPU said that it “agrees that replacement of aging infrastructure, as well as the implementation of certain investments in the company’s system, if properly executed, should mitigate potential damage to the system, as well as enhance public safety and result in increased long-term reliability.”
The BPU said that it believes that the cost recovery mechanism adopted in the stipulation strikes an effective balance between giving the company a reasonable opportunity to earn its allowed rate of return over the life of the investment, while still protecting ratepayers from paying more than reasonably necessary. No rates will be charged to customers until the facilities for which the rates are being charged are in service, the BPU said, adding that the stipulation also mandates JCP&L to maintain certain reporting requirements, which provides for additional protection to ratepayers.