Congressman Pallone's Statement on JCPL Mid-Altantic Transmission
Statement of Rep. Frank Pallone, Jr.
Before the New Jersey Board of Public Utilities
Freehold Township Municipal Building
August 30, 2016
Thank you, Chairman Mroz and Members of the Board of Public Utilities (BPU) for holding this second public hearing on Ohio-based FirstEnergy Corporation’s proposal to transfer all the transmission assets of its Jersey Central Power and Light (JCP&L) subsidiary to a multi-state transmission-only company called Mid-Atlantic Interstate Transmission (MAIT). While, as you know, at the previous meeting in Morristown, I was able to submit and have read into the record a letter expressing some of my thoughts, I am pleased to be here in person to more fully present my views on this proposal.
To be clear, I share the concerns that the Board voiced in its objections to the Federal Energy Regulatory Commission (FERC) regarding FERC’s approval of this proposal earlier this year. The BPU’s stated concerns over this effort in part center on whether the newly formed entity would even be subject to New Jersey’s authority. As I have stated previously, this is particularly prescient in the face of a recent U.S. Supreme court ruling – Federal Energy Regulatory Commission v. Electric Power Supply Association — which called into question many previous assumptions about what aspects of our electricity grid were under the jurisdiction of the federal versus state government.
More importantly, perhaps, for the purpose of this hearing, I also strongly agree with the concerns raised by the state’s rate counsel regarding the potential impact to customers and the impact this restructuring would have on the company's priorities and performance. I commend the compelling argument that Director Brand and her office have put forward in opposition to this transaction generally, as well as in specific regard to the effort to have MAIT recognized as a public utility under New Jersey’s laws. Conferring upon MAIT the legal status of public utility would allow it to use eminent domain and circumvent local zoning laws and boards in building new assets.
In New Jersey, public utilities must have local customers that receive electricity over a distribution network and submit to the BPU. A transmission-only company could not meet this test, so FirstEnergy appears to be trying to gain for MAIT all the benefits of a utility by transferring five distribution customers from JCP&L to MAIT in a convoluted effort to meet the most minimal definition required for a public utility. The Division of Rate Counsel has correctly raised bright red flags around this effort. One of the Division’s expert witnesses, Gregory Booth, went so far as to label the effort a “sham transaction” because it serves no business purpose and doesn’t provide any economic benefit, stating further that “reliability and safety can only worsen, while it will cost more to provide the distribution service.” Another of the Division’s expert witnesses, Scott Hempling, noted that the customers would be transferred without their consent in service of the asset transfer signaling “that public utilities can be shells, customers can be commodities, and the…government-granted privilege of providing life-enabling service to loyal customers, free from competition— can be obtained for reasons other than merit.”
There are numerous other significant issues raised by allowing JCP&L to transfer all its transmission and some of its distribution assets and customers to MAIT. Rate Counsel expert witness David Peterson succinctly sums up one of the concerns I previously raised regarding a potential future sale by MAIT of these JCP&L asset. Mr. Peterson notes that in such a sale, the benefits would accrue to FirstEnergy stockholders, “JCP&L’s customers, who have been paying for those assets all along, would not share in the profits” despite the fact that it’s the JCP&L customers who have been paying for those assets. Similarly, another Rate Counsel witness, Matthew Kahal, is troubled by the potential that
The asset transfer to MAIT and its planned capital expansion may be a prelude to a future MAIT transaction – a sale of MAIT to a third party, a spinoff to shareholders or even the sale of hard assets. It is unclear how such a transaction (if it were to occur) would affect JCP&L customers.
Mr. Hempling echoes these concerns in his submission and goes further to raise questions about BPU’s ability in this scenario to protect New Jersey customers from unjust and unreasonable transmission costs and even BPU’s jurisdiction over the quality of transmission planning, construction and operation.
These are all matters with which I’m particularly concerned given that FirstEnergy has filed an application to construct a new 10-mile transmission line in my district known as the Monmouth County Reliability Project (MCRP) as part of the company’s multi-state “Energizing Our Future” effort. JCP&L has stated that the reason for the MCRP is “to enhance service and modernize the electric system.” The fact that FirstEnergy is using “Energizing Our Future” in comments as part of its justification for the MAIT transaction raises warnings in my mind about its true purpose. Certainly, JCP&L has had major issues with reliability and service for more than a decade. However, the addition of a new transmission line isn’t the only way to achieve resilience: technological advances have spurred new ways to guarantee reliability in the electric system including using cleaner, less expensive distributed technologies. Yet, a transmission-only company would have no real incentive to look at such an option since building a new line would make money for MAIT, while substituting alternatives would not appear to provide such benefit to MAIT shareholders.
Moreover, a number of the Division of Rate Counsel’s experts who filed testimony in opposition to the transfer of the transmission assets to MAIT assert that JCP&L’s reliability issues have more to do with management issues that won’t be solved by building more infrastructure. Mr. Booth, who I cited earlier, is very pointed in his criticism regarding the poor reliability of the JCP&L system and notes that “[t]echnology alone will not solve the reliability deficiencies.” He specifically points to the role that non-infrastructure issues play in the excessive duration of outages on JCP&L’s system, stating that the company is “deficient” in areas such as the quantity of personnel available to respond to an outage and the adequacy of the personnel dispatched for outage restoration, travel time to the affected location, and the communication processes to establish the location of the outage. He notes further that “JCP&L has downsized staff and closed and consolidated operating centers in hopes that technology can overcome some of these deficiencies.”
In closing, I hope BPU will give serious attention to the concerns that I, the Division of Rate Counsel, and many others have raised about FirstEnergy’s efforts to transfer JCP&L’s transmission assets to MAIT and to have MAIT recognized as a public utility. Furthermore, I believe that the final disposition of this matter is a critical factor for consideration in any decision regarding the approval or disapproval of FirstEnergy’s proposed Monmouth County Reliability Project. At a minimum, I urge the Board to refrain from taking any further action to consider the MCRP until all the issues surrounding MAIT and JCP&L’s assets have been completely resolved. Setting aside the numerous concerns I cited in my statement, the questions over jurisdiction alone raised, not only by the Rate Counsel, but also the BPU itself in its FERC filings, should be reason enough to justify that linkage.
Thank you again for holding this hearing and for your attention to this matter.