Public Service Electric & Gas Restructuring Plan

This assignment was conducted by our consultants in response to the New Jersey Board of Public Utilities (BPU) Request for Proposal to review the Restructuring Plan filed by Public Service Electric and Gas (PSE&G). PSE&G filed a voluntary Restructuring Plan following their interpretation of the BPU’s Restructuring of the Electric Utility Industry in New Jersey (the "Green Book"). There were three separate areas established by the BPU for review which include unbundling of rates, stranded cost recovery, and restructuring plans policy issues. The Consultants were responsible for reviewing the Green Book’s guidelines and analyzing PSE&G’s filings and workpapers to determine whether the Company met the recommendations set forth by the BPU. The report is summarized by key topics as follows:

Securitization- This novel financing method can be a major factor in rate reductions. Our consultants developed a model that evaluated securitization alternatives and addressed a myriad of tax and procedural issues.
Review and Assessment of Capital Additions not Currently in Ratebase - Our consultants reviewed over $1.4 billion in capital additions, including repowerings, nuclear modifications, and regular plant additions, using both defined regulatory standards and common analytical methods to determine which additions should be included for stranded cost recovery.
Cost of Service Study (COSS) Assessment and Unbundling of Rates- Our consultants reviewed the Company's COSS submittal and then performed alternative model runs using methodologies that more accurately met the BPU's established guidelines. Our consultants, using the Cost of Service Study, unbundled rates by functional area and class of customers.
Market Price Forecast- This key variable in the calculation of stranded cost was developed using a comprehensive and proven model, ICF Resources Integrated Planning Model (IPM). This linear programming model determined optimal dispatch patterns and choices of resource options to meet electricity demand at the minimum cost. IPM addressed the entire PJM region with additional inputs from ECAR, NYPP, and the northeast.
O&M, Capital and Non-Utility Generation Cost Mitigation - Knowledge of historical O&M and capital costs is not enough to properly calculate go-forward costs. Our consultants developed mitigation estimates for all major cost areas in order to develop post-mitigation stranded cost estimates. The mitigation of NUG contracts is another key issue with many utilities and Commissions. Our analysis provided a perspective on options available, success levels elsewhere, and incentives needed for success.
Stranded Cost Calculation This critical analysis and comparison of our estimate of stranded costs and PSE&G's is a critical element of the report. Many of our tax, capital addition, market price, and energy and capacity estimates were part of the $1 billion difference between our calculation and the Company's.
Financial Analysis This chapter was a culmination of our analysis. Our consultants used a financial model that permitted development of a series of rate reductions while keeping ROEs and other financial measures at constant levels. Ultimately, we were able to present a recommended rate reduction that integrated all elements of our analysis.
FERC vs. Regulatory Book Audit and Tax Issues - Our accountants, starting with the last rate case in 1992, matched differences between FERC and regulatory books. These were updated to 1995, for the last cost of service study and then projected to 12/31/98 for calculating stranded costs at the time deregulation started. Our consultants made key recommendations on how complex tax issues such as deferred taxes and ITC normalization should be addressed.
Restructuring Policy Issues- This report section addresses a broad range of policy issues regarding the implementation of competition. Specific areas addressed include:
  1. Market Power
  2. Reliability
  3. Basic Generation Service
  4. Functional Separation of Generation
  5. Incentives for Divestiture
Restructuring Customer Processes - This report section addresses a broad range of issues regarding customer processes that require changes as competition is implemented. Specific areas addressed include:
  1. Phase-in Schedule
  2. Customer Enrollment Issues
  3. Customer Services
  4. Load Profiling
  5. Load Settlement/Balancing
  6. Support Infrastructure


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