On May 9, 2017, the New Jersey Boroughs of Milltown, Park Ridge, and South River (collectively, “New Jersey Boroughs”) filed a Federal Power Act (“FPA”) Section 206 complaint against Public Service Electric & Gas Company (“PSE&G”) seeking to reduce PSE&G’s current base return on equity (“ROE”) of 11.18 percent to a base ROE of no higher than 8.3 percent. Additionally, the New Jersey Boroughs requested that FERC order refunds and establish the date of the complaint as the refund effective date.
The New Jersey Boroughs have a combined load of approximately 50.8 MW, which equals about 0.5 percent of PSE&G’s total transmission load. The New Jersey Boroughs have taken network integrated transmission service from PSE&G since the PJM Interconnection, L.L.C. (“PJM”) Open Access Transmission Tariff was first implemented. PSE&G’s current base ROE of 11.18 percent was accepted by FERC in 2008 pursuant to an FPA Section 205 formula rate proceeding.
In the complaint, the New Jersey Boroughs claimed that the accompanying expert witness testimony of Mr. Parcell provides prima facie evidence that PSE&G’s existing base ROE is unjust and unreasonable. In preparing his testimony, Mr. Parcell examined changes in general economic conditions since PSE&G’s existing base ROE was established in 2008. Mr. Parcell concluded that the cost of capital for regulated utilities has declined in recent years. Further, Mr. Parcell’s testimony included a discounted cash flow analysis that yields a base ROE zone of reasonableness of 7.52 percent to 9.34 percent, which is well below PSE&G’s existing base ROE of 11.18 percent. According to Mr. Parcell, his discounted cash flow analysis was based on a national proxy group of nine utilities with similar risks. Mr. Parcell testified further that setting the base ROE at 8.30 percent – the median of the zone of reasonableness – complies with FERC precedent because it reflects the cost of equity for a single electric utility of average risk. The New Jersey Boroughs claimed that their overpayments based on the existing base ROE total approximately $927,000 annually.
The New Jersey Boroughs’ complaint is available here.