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In re Provision of Basic Generation Service for the Period Beginning June 1

November 25, 2009

IN THE MATTER OF THE PROVISION OF BASIC GENERATION SERVICE FOR THE PERIOD BEGINNING JUNE 1, 2008


On appeal from a Final Decision of the New Jersey Board of Public Utilities, Docket No. ER07060379.

The opinion of the court was delivered by: Carchman, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued October 6, 2009

Before Judges Carchman, Parrillo and Ashrafi.

Appellant Department of the Public Advocate, Division of Rate Counsel (Rate Counsel), is the statutorily designated representative of the State's utility ratepayers. N.J.S.A. 52:27EE-49. Rate Counsel appeals from a portion of the New Jersey Board of Public Utilities' (BPU or the Board) January 25, 2008 order (the Order), approving the pass-through to utility ratepayers of a portion of the costs of solar renewable energy certificates (SRECs). Rate Counsel challenges the Order on both constitutional and procedural grounds and also asserts that the BPU's decision was arbitrary and capricious. We reject these arguments and affirm.

To place the issues in context, we briefly present an overview of the legislative underpinnings of the dispute as well as the relevant facts related to the issues before us. In 1999, the New Jersey Legislature enacted the Electric Discount and Energy Competition Act (EDECA), N.J.S.A. 48:3-49 to -98.1. In re Ownership of Renewable Energy Certificates, 389 N.J. Super. 481, 487 (App. Div. 2007). The BPU is the agency charged with regulating the manner in which energy is supplied and upholding the goal of EDECA, which is to ensure the provision of safe, adequate and proper services at reasonable prices. N.J.S.A. 48:3-50c.

Under EDECA, electricity consumers have the option of obtaining electricity from alternative energy suppliers, defined as "electric power suppliers." N.J.S.A. 48:3-51. Customers who do not choose this alternative option receive a "default" service, defined in EDECA as a basic generation service (BGS), which is provided by electric distribution companies (EDCs).

N.J.S.A. 48:3-57. EDCs do not generate their own electricity but rather obtain it from suppliers involved in a competitive bidding process at annual auctions held by the BPU. The winning bidders then enter into Supplier Master Agreements (SMAs) with the EDCs to supply a set amount of electricity during the applicable contract period.

Providers who sell to residential and small business BGS customers bid for three-year contracts supplying one-third of the total required electric load. Since these auctions are held annually, one-third of the total electrical load is replaced each year, one-third of the load is under a two-year contract and one-third is under a one-year contract.

In addition, EDECA mandates the BPU to adopt Renewable Portfolio Standards, which, in essence, require utilities to annually increase their reliance on renewable energy, N.J.S.A. 48:3-87d, here, solar power. Pursuant to BPU regulations, suppliers are required to ensure a certain percentage of the electricity they supply is derived from solar power. These required percentages are called renewable energy portfolio standards (RPS). N.J.S.A. 48:3-87d. Under these regulations, SRECs can be used to assist in meeting the RPS. N.J.A.C. 14:8-2.8. If a supplier does not hold enough SRECs to comply with the regulations, it can meet its requirements by purchasing higher priced Solar Alternative Compliance Payments (SACP).

N.J.A.C. 14:8-2.3(e) and N.J.A.C. 14:8-2.10. Previously, the SACP level was set at $300 per megawatt-hour (MWH).

The BPU issued a January 19, 2007 order directing "the Office of Clean Energy to conduct a public stakeholder process to solicit comments" on various solar power issues, including whether the SACP levels should be maintained at $300 per MWH. Interested parties submitted comments, reports and various proposals. One such comment, submitted by joint respondent*fn1 Jersey Central Power & Light Company*fn2 (JCP&L), "requested that current BGS auction contract holders not be held to paying solar costs higher than those which existed at the time when the auction contracts were established." During a September 12, 2007 public agenda meeting, the BPU announced its decision regarding changes to RPS regulations, which was subsequently memorialized in an order dated December 6, 2007. In relevant part, the Board established a new eight-year SACP schedule with different levels for each year. Effective for the June 1, 2008 to May 31, 2009 reporting year, the SACP level was set to $711. Effective in the reporting year beginning on June 1, 2009 to May 31, 2010, the SACP level was set to $693. The Board did not address JCP&L's suggestion that these raised levels do not apply to 2006 and 2007 auction contract holders, who had made their bids when the SACP level was $300.

On June 22, 2007, the Board directed the EDCs to file proposals for procuring BGS supply for the energy year beginning on June 1, 2008. It also directed the EDCs to file comments to a Final Report made by the Boston Pacific Company, Inc., BPU's auction consultant, which "provided recommendations for changes to be considered by the EDCs, stakeholders and the Board through the BCG proceedings process in an attempt to improve future BGS Auctions." It further directed the parties to follow an attached procedural schedule, setting forth all the filing deadlines, and directed interested parties to "file discovery and comments with the Board's Secretary and circulate them electronically through the electric list server used by [the Board] Staff. . . ."

Pursuant to the Board's schedule, on July 2, 2007, the EDCs filed a joint proposal for BGS requirements addressing the specific issues set forth in the Board's June 22, 2007 order. Additional comments were filed on August 24, 2007, by Rate Counsel and three other EDCs. On September 20, 2007, the Board held a "legislative type" hearing where various EDC, Rate Counsel and other interested parties "presented comments for the record, and were questioned by the Commissioners and Board staff." On September 24, 25, 26 and 27, 2007, the BPU also held public hearings at various locations to solicit comments.

Final comments were filed on or about September 28, 2007. Allegedly, Independent Energy Producers of New Jersey (IEPNJ), a "trade association for the power generation industry in New Jersey," at some unspecified time, sent an e-mail to BPU Staff, indicating it planned to file comments, but "notif[ied them] that the comments would be a little late. . . ." On September 30, 2007, the IEPNJ e-mailed its comments to Frank Perrotti, a BPU staff member, commenting that it "could not get the list server to work for [IEPNJ]." IEPNJ admits that contrary to the Board's June 22, 2007 order, it did not file a paper copy with the Secretary of the Board. Although PSE&G claims that IEPNJ's comments were "available from the list server," Rate Counsel states that it did not receive these comments "until well after the Board's [November 8, 2007] agenda meeting."

One of IEPNJ's comments responded to the Board's September 12, 2007 decision (memorialized in the December 6, 2007 order) to increase the SACP levels beginning June 1, 2008. IEPNJ commented that because the Board "significantly increased future SACP levels, [it] should protect winners of tranches*fn3 in previous auctions from this increase. . . ." It reasoned that the 2006 and 2007 auction winners should "be insulated . . . because this increase results from a regulatory action that was wholly unanticipated and not predictable at the time of those previously held auctions." Therefore, it suggested two alternatives: 1) "grandfathering those tranches at the previous SACP level of $300/MWH"; or 2) "allow the BGS suppliers to pass through those costs for solar supply, or SACP payments, above the previously expected level of $300." The IEPNJ argued that these options "would maintain confidence in the BGS process and not leave suppliers facing the possibility of paying for regulatory charges that were not known at the time of their bids" since "providing regulatory consistency is a key factor in maintaining confidence in the auction and will result in lower auction prices than would otherwise occur."

PSE&G also submitted a comment on September 30, 2007 regarding the Board's September 12, 2007 order increasing the SACP rates. PSE&G's proposal echoed IEPNJ's first suggestion: that the Board "grandfather" the existing tranches and keep them at the $300 level. PSE&G made the same argument that a failure to do so "would possibly have the effect of undermining confidence in the BGS auction process and raising the bids in upcoming auction as bidders include a risk premium for lack of regulatory certainty."

On November 8, 2007, the Board held an agenda meeting where Perrotti presented various issues, comments and recommendations as directed by the Board's June 22, 2007 order. The Board also discussed the issue that had been raised by IEPNJ and PSE&G, regarding the SACP increases. Perrotti presented the suppliers' concerns regarding the 2006 and 2007 auction winners. He stated that "[s]taff estimates that the SACP could lead to an aggregate increase in costs up to $50 million for the two BGS auctions . . ." The "[s]uppliers [were] seeking to have those prior contracts grandparented so that the ratepayers, rather than suppliers, will bear the additional cost associated with the SREC price above [$]300." Perrotti noted, "[i]n theory the suppliers [were] on notice that the SACP should be changed since the BPU's current regulation[s] provide for the Board to reevaluate the SACP at least annually; however, requiring the suppliers to bear this cost, could discourage them from participating in future auctions." Therefore, he recommended "passing through to ratepayers the cost of the SRECs above $300" per MWH for the 2006 and 2007 contracts which would expire in 2010 at the latest.

The Board president questioned Perrotti as to the reasons behind his recommendation. Perrotti noted the prior change in SACP rates from $300 to $711 but did not specify whether it applied to ...


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