Petition of Jersey Central Power & Light Co.

• Decision Date: 08 April 1981
• Citation: 85 N.J. 520,428 A.2d 498
• Parties: In the Matter of the Petition of JERSEY CENTRAL POWER & LIGHT COMPANY for an Approval of an Amendment to its Tariff for Electric Service and for Amendment to the Energy Adjustment Clause and Factor in said Tariff for such Service.
• Court: New Jersey Supreme Court

Page 520

85 N.J. 520

428 A.2d 498

In the Matter of the Petition of JERSEY CENTRAL POWER & LIGHT COMPANY for an Approval of an Amendment to its Tariff for Electric Service and for Amendment to the Energy Adjustment Clause and Factor in said Tariff for such Service.

Supreme Court of New Jersey.

Argued Jan. 12, 1981.

Decided April 8, 1981.

William F. Hyland, Morristown, for appellant Jersey Central Power & Light Co. (Riker, Danzig, Scherer & Hyland, Morristown, attorneys; Jack B. Kirsten, Newark, and James B. Liberman, a member of the New York bar, New York City, of counsel and on the briefs; William F. Hyland, on the briefs).

Alfred L. Nardelli, Deputy Public Advocate, New York City, for cross-appellant Public Advocate (Stanley C. Van Ness, Public Advocate, attorney; Alfred L. Nardelli and Menasha J. Tausner, Deputy Public Advocate, on the briefs).

John C. Sahradnik, Asst. County Counsel, Toms River, relied on the brief and argument of the Public Advocate on behalf of the cross-appellant Bd. of Chosen Freeholders of the County of Ocean (Franklin H. Berry, Jr., County Counsel, Toms River, attorney).

Carla Vivian Bello, Deputy Atty. Gen., for respondent Bd. of Public Utilities (John J. Degnan, Atty. Gen., attorney; Erminie L. Conley, Asst. Atty. Gen., of counsel).

Nicholas W. Mattia, Jr., Newark, submitted a brief on behalf of respondent New Jersey Utilities Assn. (Conway, Reiseman, Bumgardner, Hurley & Kleinfeld, Newark, attorneys; Nicholas W. Mattia, Jr., and Douglas R. Kleinfeld, Newark, on the brief).

The opinion of the Court was delivered by

SULLIVAN, J.

This litigation by Jersey Central Power & Light Co. (JCP&L) over its tariffs (rates charged its customers) stems from the nuclear mishap at Three Mile Island (TMI) in Pennsylvania. On March 28, 1979 an accident occurred in the TMI nuclear-powered electricity generating station, Unit No. 2 (TMI-2), rendering the unit inoperable. It is problematic as to when, if ever, this unit can be returned to service. The TMI station also includes another generating unit (TMI-1) which was in "cold shutdown" for refueling at the time of the accident. TMI-1, although undamaged, has remained in the shutdown state by order of the Federal Nuclear Regulatory Commission (NRC) pending completed review of the unit design, the operator's technical, financial and managerial capability, its emergency procedures and the interaction between the damaged TMI-2 and TMI-1. To date, the NRC has not authorized TMI's operators to resume the generation of electrical power from TMI-1.

The TMI facility is operated by Metropolitan Edison Company, a Pennsylvania utility which is a subsidiary of the General Public Utility System (GPU), a large publicly owned utility holding company. JCP&L, a New Jersey utility, is also a subsidiary of GPU¹ and it owns a 25% undivided interest in the two generating units at TMI. Until the accident in March 1979, JCP&L obtained substantial amounts of electricity for its customers from TMI. Following the accident, however, it became necessary for JCP&L to purchase replacement electricity from other utilities. The estimated cost of this energy was $10 million per month. Since its filed tariff included no provisions for these additional costs, JCP&L, by petition filed on May 4, 1979, sought an adjustment in its tariff to produce additional revenues. It did not seek an increase in base rates at the time. Rather, it applied to the New Jersey Board of Public Utilities (Board) for the approval of a proposed $113 million increase in annual revenues under the Levelized Energy Adjustment Clause (LEAC) which is a part of its tariff. The LEAC is a regulatory device which is used to adjust consumer rates as a result of fluctuations in fuel costs. A constant LEAC charge is included in a utility's tariff based on estimated prospective 12-month energy costs. This charge is subject to periodic adjustment to reflect actual costs.

In view of the emergent nature of the situation, an immediate hearing was held on the JCP&L petition. On June 18, 1979 the Board allowed JCP&L to increase its LEAC factor to produce additional revenues of $74.7 million annually. At the same time, however, the Board ordered excluded from the rate base, the damaged and inoperable TMI-2, because it concluded that the unit would not be "used and useful" in providing electric generating service for a period of at least two to four years, if ever. This exclusion resulted in a reduction of JCP&L's base revenues by $29 million. The Board permitted TMI-1 to remain in the rate base on the expectation that it would be placed back in commercial operation by January 1, 1980. It also prohibited the payment of dividends by JCP&L to GPU, its parent corporation, for the remainder of 1979. As a result of the June 18, 1979 Order, JCP&L was to realize a net increase in annual revenues of approximately $45 million.

JCP&L's financial problems did not end with the approved increase in revenues. On September 5, 1979, after JCP&L petitioned for a LEAC adjustment unrelated to TMI, the Board authorized an annual increase of $70 million in the utility's LEAC charges. Still another request for a LEAC adjustment was made in a JCP&L petition filed on January 21, 1980. The greater part of this application covered fuel increases not directly related to TMI but did include substantial TMI replacement energy costs. The Board dealt with this application in two phases. On March 6, 1980, it authorized LEAC increases of $84 million annually for the non-TMI fuel increases. As to the TMI-related replacement energy costs, however, the Board deferred action and announced its intention to reopen the question as to whether TMI-1 should remain in JCP& L's rate base.

Following extensive hearings, the Board, on April 1, 1980, entered two Orders. One Order granted JCP&L an increase of $34.4 million in LEAC revenues to cover TMI replacement energy costs. The second removed TMI-1 from JCP& L's rate base on the ground that the unit had been out of service for more than a year and would remain so for at least another year. Because of the uncertainty as to the future availability of TMI-1, the Board found that the unit was no longer "used and useful" in supplying energy and that JCP&L should not be permitted to earn a return thereon. ² The Board pointed out that unless it did so, ratepayers would be paying for both the capital and operating expenses of TMI-1 as well as the replacement energy costs associated with the unit.

In the second Order the Board also noted that the removal of TMI-1 from the rate base would reduce JCP&L's base rate revenues by $17.9 million and aggravate the company's serious financial condition. It recognized that, because of this condition, JCP&L would for some time be unable to have access to traditional sources of capital and would be hard pressed to maintain a construction program required to provide safe, adequate and proper service. The Board, therefore, decided to address JCP&L's cash flow problem directly and included in its second Order a provision that recovery of JCP&L's deferred energy account³ be accelerated in an amount equivalent to offset the $17.9 million loss in base rate revenues. This resulted in JCP&L's rates being maintained at existing levels.

Finally, the Board noted that while JCP&L had not yet filed a petition for an increase in its base rate, when it did so, the Board would consider "the just and reasonable aspects of the utility's existing rate structure vis-a-vis its rate base, operating income and expenses." We are advised that immediately following the April 1, 1980 Orders, such a petition was filed and on May 13, 1980 JCP&L was granted an interim provisional base rate increase of $60 million annually. The hearing on that petition is now in progress.

JCP&L filed a notice of appeal from that part of the April 1, 1980 Order which removed TMI-1 from its rate base. The Public Advocate then filed a notice of cross-appeal from that portion of the Order which authorized the accelerated amortization of the deferred energy account. The Board of Chosen Freeholders of Ocean County also filed a cross-appeal from the authorization of accelerated amortization of the deferred energy account. ⁴ This Court granted direct certification while the matter was pending unheard in the Appellate Division. 85 N.J. 463, 427 A.2d 562 (1980).

Before considering each of the claims presented, we note the limits of our review of the Board's actions. In Public Service Coordinated Transport v. State, 5 N.J. 196, 74 A.2d 580 (1950), this Court observed that "rate making is a legislative and not a judicial function, and that the Board of Public Utility Commissioners, to which the Legislature has delegated its rate-making power is vested with broad discretion in the exercise of that authority." Id. at 214, 74 A.2d 580. Thus, the Board's rulings are entitled to presumptive validity and will not be disturbed unless we find a lack of "reasonable support in the evidence." In re New Jersey Power & Light Co., 9 N.J. 498, 509, 89 A.2d 26 (1952).

We deal first with cross-appellants' contentions that the Board erred in accelerating the amortization of JCP&L's deferred energy balance so as to produce $17.9 million of additional annual revenues. As stated by the Board, the reason for this acceleration was to offset the $17.9 million loss in base rate revenues caused by the removal of TMI-1 from the rate base. It is argued that (1) there was no evidence showing how or why the resulting increase in revenues was appropriate, and (2) no notice and opportunity to be heard on the issue was provided

Neither contention has merit. With regard to the first, we initially note that the Board's action did not result in an overall increase in JCP&L's annual revenues and it did not constitute the granting of a rate increase. The acceleration was intended to offset, exactly, the loss in base rate revenues caused by the removal of TMI-1 from...