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Murphy v. Public Service Electric and Gas Co.

February 6, 2009


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-2536-07.

Per curiam.


Argued November 17, 2008

Before Judges Carchman, R. B. Coleman and Simonelli.

Plaintiff Richard G. Murphy challenges the constitutionality of certain provisions of N.J.S.A. 48:3-49 to -98.1, the Electric Discount and Energy Competition Act (the Act) permitting "stranded costs" payments to defendants Public Service Electric and Gas Company and PSE&G Transition Funding, LLC (collectively "PSE&G") reimbursing PSE&G for losses it expected to suffer after the electricity market was opened to competition in 1999. Plaintiff appeals from the October 10, 2007 order granting summary judgment to PSE&G. We affirm.

The facts are derived from evidence submitted by the parties in support of, and in opposition to, the summary judgment motion viewed in a light most favorable to plaintiff. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Relevant facts are also derived from our opinion in In re PSE&G Co.'s Rate Unbundling, 330 N.J. Super. 65, 83 (App. Div. 2000), aff'd, 167 N.J. 377, cert. denied, 534 U.S. 813, 122 S.Ct. 37, 151 L.Ed. 2d 11 (2001).

Prior to 1999, electric public utility companies in New Jersey were "vertically integrated" and had "virtual monopolies over their geographically-defined service territories." Id. at 83. In 1992, Congress passed the "Energy Policy Act," 42 U.S.C.A. §§13201-13556, which supported competition in the electricity marketplace. Id. at 84. Beginning in 1995, the New Jersey Legislature, in conjunction with the New Jersey Board of Public Utilities (BPU), began investigating ways to transition to a competitive electricity market. Id. at 85-86.

After soliciting and receiving input from all stakeholders and interest groups, including PSE&G, in April 1997, the BPU issued a final report, dated April 30, 2007, recommending, in part, that New Jersey consumers should have a choice of electricity suppliers in a competitive market; utility companies should institute rate reductions while competition is phased in; and utility companies should have the opportunity to recover their stranded costs. Id. at 86-87. The BPU noted in the final report that New Jersey's move toward a restructuring of the electric power industry was intended "to expand the choice of services and products for all consumers," and "to ensure that New Jersey remains competitive in the regional, national and international markets."

Stranded costs related to amounts that the utility companies had already invested in assets and equipment they had purchased with the expectation that they would continue to provide electricity in a non-competitive marketplace. To avoid financial turmoil and possible job reductions at utility companies, the BPU recommended that they have an opportunity to recover their stranded costs through customer rates.

Determining the amount of stranded costs was one of the major hurdles in restructuring the electricity market. All utilities submitted stranded cost filings to determine the value of their generation assets. The BPU transferred those filings to the Office of Administrative Law (OAL). Id. at 88-89. Numerous parties and interest groups intervened and extensive hearings were held. Ibid.

In the meantime, on February 9, 1999, the legislature approved the Act, which became effective immediately and provided schedules for deregulating and restructuring electric utilities in New Jersey. Id. at 89. The legislature declared that "it is the policy of this State to . . . [p]rovide for a smooth transition from a regulated to a competitive power supply marketplace, including provisions which afford fair treatment to all stakeholders during transition." N.J.S.A. 48:3-50(a)(12).

The legislature also made specific findings regarding the propriety of stranded costs recovery by electric utilities. See N.J.S.A. 48:3-50(a)(1) and (12); N.J.S.A. 48:3-50(b)(2) and (3); N.J.S.A. 48:3-50(c)(4). The Act permitted the electric utilities the opportunity to recover their stranded costs through a "non-bypassable" charge of limited-duration. This meant that the charge was to be collected from all customers, including new customers, that use the utility's distribution service, regardless of whether or not those customers took advantage of the opportunity to acquire their generation service from an alternative provider. In re PSE&G Co.'s Rate Unbundling, supra, 330 N.J. Super. at 89-90 (citing N.J.S.A. 48:3-59, -61(a), -62(a)).

The BPU eventually validated the stranded costs. It authorized $2.94 billion for PSE&G's stranded costs as well as a "gross-up" to reflect the tax liability for those costs. We upheld that decision. Id. at 143. Our Supreme Court affirmed, finding that the evidence in the record supported the BPU's valuation of PSE&G's generation assets, and therefore, the quantification of PSE&G's stranded costs. 167 N.J. at 390-393.

Eight years after the BPU's decision, plaintiff filed an eight-count complaint challenging the stranded costs provisions. He alleged in counts one and six that those provisions grant PSE&G a monopoly in its market area in violation of Article 4, Section 7, Paragraph 9(8) of the New Jersey Constitution.*fn1 He argues that the provisions illegally: (1) grant PSE&G the right to extract a surcharge for its own benefits on all sales made in its market area by any new competitors; (2) grant an incumbent supplier, such as PSE&G, an exclusive right not ...

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