Why You Might Soon Pay More for NJ Utilities

Advocates are warning a change to the way numbers are crunched for utility companies taxes could cost consumers a lot more.

In New Jersey, parent companies for utilities like PSE&G and JCP&L are allowed to file consolidated tax returns for the various companies they own — offsetting the profits from some with the losses from others, and lowering their overall tax liability. But they have to pass at least some of the savings to consumers.

Earlier this year, the state BPU approved a new regulation that changes the formula used to calculate what's known as the consolidated tax adjustment — and instead of passing 50 percent of those tax savings to consumers, the utilities would be able to keep the lion's share, in a 75-25 percent split.

Stefanie Brand, the director of the New Jersey Division of Rate Counsel — responsible for representing ratepayers in dealings with public utilities — is appealing the change in court, saying there’s been no explanation for it. She also argues the new regulation does not comply with the Administrative Procedures Act, the BPU won’t discuss the change and ratepayers might wide up paying a small fortune down the road as new rate increases are negotiated.

She said when rate increases are negotiated, the issue of the consolidated tax adjustment is a big one.

“And this reduction in our share of the savings takes away an important bit of leverage for ratepayers in trying to negotiate as low a rate increase as possible," she said.

So how much could the change really affect consumers?

Brand estimates it could run into the hundreds of millions of dollars, but “it’s hard to really pinpoint a dollar amount. It’s a case by case kind of thing, and it’s going to depend on how much taxes they did pay that year, how much was taken in, in rates.”

Likewise, she said it would be hard to estimate how much an average consumer would be affected.

Brand said leverage from the consolidated tax adjustment has helped the Rate Counsel negotiate down proposals for rate increases by at least 50 percent — "And with this we may not be able to do it. We may have to pay more.”

When asked to explain the consolidated tax adjustment rule change, a spokesman for the BPU said the agency does not comment on pending litigation.

When PSE&G was asked for a statement on the new regulation, a spokesperson issued the following statement:

“Customer bills are down 30 percent over the last 10 years. In our most recent base rate case, we returned to customers all of the benefits from federal tax reform, lowering customer bills by more than $200 million each year for the next several years. That rate case settlement reflected an adjustment for consolidated federal income taxes, and PSE&G continues to abide by the BPU’s regulations with respect to the Consolidated Tax Adjustment.”

Utility representatives have repeatedly called for the consolidated tax adjustment to be completely eliminated, arguing it has been discredited, and New Jersey is the only state in the nation that uses it.