STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES

Transcription

1 STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES In the Matter of the Joint Petition of Public Service Electric and Gas Company And Exelon Corporation For Approval of A Change in Control of Public Service Electric and Gas Company, And Related Authorizations OAL Docket No. PUC BPU Docket No. EM INITIAL BRIEF On Behalf of Intervenor New Jersey Public Interest Research Group Citizen Lobby, Inc. April 26, 2006

2 I. STATEMENT OF THE CASE TABLE OF CONTENTS II. III. IV. PROCEDURAL HISTORY (WITH RESPECT TO NJPIRG) CONSISTENT WITH BOARD PRECEDENT, REGULATIONS AND ITS RECENT ORDER, THE COURT SHOULD APPLY THE BEST INTERESTS OF THE PUBLIC STANDARD WHEN REVIEWING THIS PROPOSED ACQUISITION NJPIRG URGES REJECTION OF THE JOINT PETITIONERS REQUEST V. THE ALLEGED BENEFITS OF THE TRANSACTION ARE INCONSEQUENTIAL RELATIVE TO THE HARMS VI. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON THE PROVISION OF SAFE AND ADEQUATE UTILITY SERVICE AT REASONABLE RATES A. Summary and Conclusions Regarding the Impact on Service Quality B. There Will Be a Negative Impact of the Proposed Merger on PSE&G s Electric Service Reliability C. There Will Be a Negative Impact of the Proposed Merger on Public Safety D. There Will Be a Negative Impact on Customer Service and Billing E. There Will Be a Negative Impact on Low Income Energy Users F. The Proposed Service Quality Plan is Negligible VII. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON THE RATES OF AFFECTED CUSTOMERS A. There Will Be A Negative Impact on Generation Rates B. Joint Petitioners Rate-Related Proposals Are Inconsequential VIII. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON COMPETITION A. Relevant Markets B. There Will Be a Negative Impact on Horizontal Market Power C. There Will Be a Negative Impact on Vertical Market Power

3 IX. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON LOCAL MANAGEMENT AND THE BOARD S REGULATORY AUTHORITY A. There Will Be a Negative Impact on Local Management B. There Will Be A Negative Impact on the Board s Regulatory Authority X. CONCLUSION

4 I. STATEMENT OF THE CASE The provision of electricity service has long been recognized as a natural monopoly. Integrated utility companies have historically held complete control over defined service territories, and in the absence of regulation, these companies would possess unmitigated power to dictate energy prices and terms of service to their customers. Thus, government oversight has been essential to protecting the public interest in affordable, safe and reliable electricity generation and service. During the past decade, however, there have been massive changes to the electric power business serving New Jersey. In 1999, policy makers restructured the electric industry on the assumption that market forces would lead to lower costs, and at the same time, reaffirmed the goal of providing safe, affordable and reliable electricity to all consumers. The Board of Public Utilities (the Board ) also created a bulk wholesale auction, called the Basic Generation Service (BGS) auction, with the notion that electricity suppliers would be encouraged to compete for the right to serve groups of customers in each major service area within the state. Unfortunately, this restructuring has not led to increased competition in New Jersey s electricity market. Out of state holding companies have acquired three of New Jersey s four electric utilities. Public Service Electric and Gas Company ( PSEG ) continues to control the vast majority of electric supply in the state and a significant portion of the supply in the PJM East regional electricity grid. And despite the efforts of the BGS auction, consumers have experienced annual rate increases since rate caps were lifted in The Joint Petitioners request for approval of Exelon Corporation s ( Exelon ) acquisition of PSEG and its affiliated utility, PSE&G, would drastically exacerbate this trend. Combining the two companies operations and assets would create the single largest utility entity

5 in business today, with more than 7 million electric customers and 2 million natural gas customers in a service territory comprising of 18 percent of the entire population in the PJM region, $79 billion in assets, a gross annual revenue of $27 billion and a net annual profit of $3.2 billion. The size of the acquisition is about two and a half times the size of the Unicom acquisition of PECO which formed Exelon the next largest energy utility acquisition and predecessor to the currently proposed acquisition of PSEG. If this petition is approved, one behemoth company would be allowed to dominate the regional electricity market by controlling the lion s share of electricity supply, creating a stranglehold over rates for New Jersey consumers. The same company would also have incredible control over the regional natural gas markets. And to make matters worse, the Board would loose a significant amount of regulatory authority and the public would have to bear the burden of worse reliability, service quality and safety. In order to protect the public, this Court must ensure that there will be 1) no harm and 2) positive benefits to rates, competition and the provision of safe, adequate and proper service. There is no question that Exelon s proposed acquisition of PSEG does not meet the Board s standard. The Joint Petitioners request, therefore, should be rejected. II. PROCEDURAL HISTORY (WITH RESPECT TO NJPIRG) In February 2005, Exelon and PSEG filed a Verified Joint Petition with the Board requesting an order approving the acquisition and control of PSE&G. In March 2005, NJPIRG filed a motion to intervene in the proceeding before the Board. The Board granted NJPIRG s motion to intervene the following June. In November 2005, NJPIRG pre-filed direct testimony of Suzanne Leta and the following December, NJPIRG pre-filed surrebuttal testimony of Suzanne Leta and Diana Moss. In January 2006, Suzanne Leta was cross-examined by the

6 petitioners before the court and Leta s direct and surrebuttal testimony and related exhibits were moved into the record. Moss s surrebuttal testimony and related exhibits were moved into the record in March III. CONSISTENT WITH BOARD PRECEDENT, REGULATIONS AND ITS RECENT ORDER, THE COURT SHOULD APPLY THE BEST INTERESTS OF THE PUBLIC STANDARD WHEN REVIEWING THIS PROPOSED ACQUISITION In its Order, dated November 9, 2005, the Board determined that it would use a positive benefits standard of review when considering the Joint Petitioners request for approval of the acquisition and control of PSEG and the transfer of its common capital stock. Pursuant to this standard, the Joint Petitioners have the burden to establish that affirmative benefits will flow to customers and the State as a result of the proposed change in control, and, at a minimum, that there are no adverse impacts on any of the criteria delineated in N.J.S.A. 48: (BPU 11/9/05 Order on Standard of Review, at p.25). The Board also cited to its previous decisions in New Jersey Natural Gas, 80 P.U.R. 3d 337, 339 (September 11, 1969) and New Jersey Resources, 57 P.U.R. 4 th 709 (January 31, 1984) to further explain the several factors that bear on this standard (Id. at 17-18). It is to these factors, where appropriate, that this Court must also look when applying the positive benefits standard. In particular, NJPIRG contends that it urgent for this Court to carefully scrutinize and evaluate the proposed transaction to determine whether there will be any benefits to customers from a change in the current structure of PSEG to one that on its face appears to present substantial risks with expected benefits flowing only to corporate management and shareholders.

7 IV. NJPIRG URGES REJECTION OF THE JOINT PETITIONERS REQUEST There is no question that Exelon s proposed acquisition of PSEG does not meet the Board s positive benefits standard in terms of rates, competition and the provision of safe, adequate and proper service. In fact, it is reasonable to assume that this proposal will cause significant and long-term harm to rates, competition and the provision of safe, adequate and proper service. The Joint Petitioners request thus should be rejected. V. THE ALLEGED BENEFITS OF THE TRANSACTION ARE INCONSEQUENTIAL RELATIVE TO THE HARMS NJPIRG contends that given the significant and long-term harm to rates, competition and the provision of safe, adequate and proper service, explained below, there are no overall benefits of Exelon s proposed takeover of PSEG. VI. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON THE PROVISION OF SAFE AND ADEQUATE UTILITY SERVICE AT REASONABLE RATES 1 A. Summary and Conclusions Regarding the Impact on Service Quality Exelon has a history of cost-cutting that has resulted in reduced reliability and service quality of the electric system and a management style of operating nuclear power plants that risks public safety. Considering this history, it is reasonable to assume that the Joint Petitioners proposal will reduce reliability and quality of service and risk public safety. B. There Will Be a Negative Impact of the Proposed Merger on PSE&G s Electric Service Reliability Exelon has a history of cost-cutting in transmission maintenance that has resulted in reduced reliability. 1 The factors that bear upon the Board s positive benefits standard include 7) The impact of the planned merger on service standards and continued provision of safe, adequate and proper service. New Jersey Resources, 57 P.U.R. 4 th 709 (January 31, 1984)

8 According to the Illinois Commerce Commission 2002 report on the reliability record of ComEd, Exelon s electricity transmission and distribution subsidiary in Illinois, The most serious recommendation concerns how ComEd will maintain or improve reliability and customer satisfaction with future projected distribution capital investment amounts less than the levels in the mid-1990s Staff noted a decline in the annual compounded growth rate of 6.48%...The second most serious recommendation concerns the number of interruptions that ComEd classified as being controllable. Staff found it absurd that in 2002 ComEd classified only 2.6% of the total interruptions as controllable. Staff believes most service interruptions are controllable.staff remains concerned by ComEd s poor ranking compared to other jurisdictional utilities in 2002 for worst performing circuit. ComEd reported 114 worst performing circuits in 2002, nineteen of which represented repeats from one of the four previous years. (SL-19 at i) In the Illinois Commerce Commission s 2003 report noted many of the same problems, stating that [i]n recent years, a pattern of year-to-year decline in forecasted transmission and distribution capital plus O&M spending continues to concern the Commission. The Commission remains concerned because the declining pattern is reminiscent of the decline in the power delivery infrastructure and maintenance in the 90s that contributed to the outages of 1999.(SL-20 at i) The Commission notes that the actual spending for total Transmission Capital plus O&M in 2003 was about 30% below the amount projected in the 2002 report. The projected spending for 2005 and 2006 has declined substantially compared to projections in earlier reports. (Id. at 22) Similarly, the Commission noted that While ComEd states that it is constantly striving for ways to improve operating efficiencies and internal processes, the

9 Commission is concerned about the trends because of their potential reliability implications towards the end of this decade. (Ibid) The Commission also reported that the number of interruptions increased from 30,243 to 36,222 in ComEd s service areas (Id. at 5), an increase of 17 percent. In addition, ComEd s reported 106 worst performing circuits in 2003, fourteen of which represented repeats of the previous four years, and for the first time, ComEd had two worst performing circuits that made the annual worst performing circuits list three years in a row. (Id. at i) These findings echo cost-cutting in Pennsylvania after Exelon acquired PECO in October After the acquisition, PECO further reduced transmission maintenance investment by onethird, from $11,874,556 to 8,370,887. (NJPIRG-1 at 22-23) In stark contrast, PSEG s Transmission and Distribution Subsidiary ( PSE&G ) has had the best reliability record in New Jersey over the past decade, as compared to the other utilities that operate in New Jersey, all of which have been acquired by out-of-state holding companies. (Id. at 24) And during 2004, PSE&G was the recipient of the Mid-Atlantic region Reliability One Award for the third consecutive year. (S-1 at 13) Between 1994 and 2003, PSE&G has had a consistently low number of interruptions, and the lowest frequency of disturbances among New Jersey utilities. (NJPIRG-1 at 24) And unlike ComEd and PECO, PSE&G has been generally increasing levels of investment in its transmission network. (Ibid) During the period 2000 through 2004, PSE&G increased its annual distribution infrastructure capital investment from $172.1 million to $208.0 million, an increase of 21%, or about 5% per year. (S-1 at 12) This is considerably more than the annual inflation and the average annual growth rate of 1.2%. (Ibid) The petitioners have made no concrete commitments to retain PSE&G s current level of

10 electricity transmission reliability or to continue or increase PSE&G s levels of investment in its transmission network. C. There Will Be a Negative Impact of the Proposed Merger on Public Safety It is reasonable to assume additional risk to public safety if the proposed merger is approved. Exelon would have sole ownership and control over all of New Jersey s four nuclear reactors--the Salem I, Salem II and Hope Creek nuclear power plants in Salem County and the Oyster Creek nuclear plant in Ocean County. Although Exelon has increased its nuclear plant net capacity factors to above 90 percent (similar to the top nine nuclear fleet operators in the country, whose net capacity factors range from percent 2 ), the Exelon Way of operating inherently dangerous nuclear technology is unnecessarily aggressive and increases the risk of a catastrophic accident that would have long-term detrimental effects on public health and safety. Specifically, the Exelon Way focuses on major cost-cutting efforts and the standardization of management and operations throughout the company. (NJDEP-RP at 5) Exelon has a history of cutting on-site staffing levels (NJPIRG-1 at 26 and NJDEP-RP at 6-15), firing whistleblowers from raising safety concerns and instilling a work culture in which staff are restricted from raising safety concerns (NJPIRG-1 at 26-67) 3, extending or seeking to extend the license of aging plants with 1960 s-era technology (NJPIRG-2 at 10), experimenting with increases in nuclear plant output (Ibid) and delaying critical maintenance projects. (NJPIRG-1 at 28) 4 The Joint Petitioners have made no commitments to retain on-site staffing levels, protect whistleblowers who raise safety concerns or improve safety work culture, retire and 2 Blake, Michael E. U.S. Power Reactor Performance American Nuclear Society SL also refer to this issue. 4 SL-11 and SL-16 also refer to this issue.

11 decommission aging plants at the end of their current operating license, retain nuclear plant output levels or obligate the timely repair of critical maintenance projects. D. There Will Be a Negative Impact on Customer Service and Billing Exelon has a history of poor customer service, especially in comparison to PSE&G. In 2003, the Illinois Commerce Commission noted that ComEd, Exelon s transmission and distribution subsidiary in Illinois, ranked in last place in customer satisfaction surveys when ranked with other jurisdictional utilities in Illinois. (SL-19 at i) And according to the Pennsylvania Public Utility Commission customer service report in 2003, PECO, Exelon s subsidiary in Pennsylvania, had the worst overall customer service satisfaction rating out of seven Pennsylvania electric distribution utilities. (SL-21 at 32) PECO also ranked worst in the ease of reaching the company on the phone, in using the company s automated phone system, and in satisfaction with how a service employee handled the interaction. (Id. at 37) Also in 2003, PECO had the worst record of justified customer complaints in the state (SL-22 at 28), 90 percent higher than the average Pennsylvania utility. In 2004, PECO continued its record of having the most justified consumer complaints in the state, 106 percent higher than the average Pennsylvania utility. (NJPIRG-2 at 18) In addition, Exelon s ComEd has no walk-in, full-service customer service centers, relying on the Internet and telephone contact to resolve customer issues and has arrangements with 139 outsourced payment centers which provide only bill payment functions. Exelon s PECO has one walk-in, full-service service capability at its downtown main office, and 382 outsourced payment centers which provide only bill payment functions. (S-3 at 22) In contrast, PSE&G currently utilizes 16 customer service centers in which customers pay bills, perform inquiries and request service or assistance. In addition to these customer service centers, PSE&G

12 has arrangements with 233 outsourced payment centers that offer bill payment. (S-3 at 21) The petitioners have made no concrete commitment to improve customer service ranking or to continue to operate PSE&G s customer service centers. E. There Will Be a Negative Impact on Low Income Energy Users Low-income customers tend to rely on walk-in centers for a variety of services, and are disproportionately households without telephones. They also disproportionately lack checking accounts, and often require a bill payment option allowing for the payment of cash. In addition, a major function of walk-in centers for low-income customers is to provide a location to provide proof of identity and other required documentation. (RA-3 at 7) Exelon s ComEd has no walk-in customer service centers to serve the low-income customers that tend to rely on these centers. PECO s one walk-in customer service handled approximately 51,750 customer contacts in (Id. at 11) In contrast, PSE&G provided more than 100 company personnel and handled more than 2.5 million walk-in customer contacts in both 2003 and (Ibid) Exelon has made no commitments to continue to operate PSE&G s customer service centers; if the proposed acquisition is approved it is possible that PSE&G s customer service centers will be closed and will not longer be available to 2.5 million people, many of whom are low-income. F. The Proposed Service Quality Plan is Negligible Exelon has made no concrete commitments to retain or improve reliability and the provision of safe, adequate and proper service. To the contrary, it is reasonable to assume that the proposed acquisition will result in significant and long-term harm to reliability and the provision of safe, adequate and proper service.

13 VII. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON THE RATES OF AFFECTED CUSTOMERS 5 Considering the significant and long-term harm to competition, the petitioners proposal would cause significant and long-term rate increases for all New Jersey consumers. A. There Will Be A Negative Impact on Generation Rates The proposed merger would result in incredible market power which may cost New Jersey customers up to approximately $2.3 billion annually in increased electric supply costs as a result of an increase in the capacity markets of $2.1 billion and an increase in the electrical energy market of $234 million. (S-14 at 99, 101) This would result in significant harm to ratepayers. For example, if $2.3 billion was shared between New Jersey s estimated 4.25 million residential ratepayers, it would create an average increase of $45 a month or $540 a year. Although not quantified, there could also be significant rate increases in the BGS retail market (S-14 at 102) and, as a result of market power in the natural gas market, there could be significant increases in gas rates and, indirectly, electric rates. (NJPIRG-1 at 16-17) B. Joint Petitioners Rate-Related Proposals Are Inconsequential The Joint Petitioners commitment of a $120 million rate credit over three to four years to PSE&G customers is trivial. If $120 million was shared over three years to PSE&G s 2.1 million customers, the average customer would receive a $1.60 a month or $20 a year. This pales in comparison to the estimated $2.3 billion in rate increases that all New Jersey consumers would be required to bear as a result of the proposed acquisition. 5 The factors that bear upon the Board s positive benefits standard include 8) The effect of the planned merger on rates to be charged to the consumers both now and in the foreseeable future. New Jersey Resources, 57 P.U.R. 4 th 709 (January 31, 1984)

14 VIII. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON COMPETITION 6 The Joint Petitioners proposed acquisition would make Exelon a behemoth company in the regional electricity and natural gas markets, effectively shutting out competition and allowing Exelon to dominate supply, threaten the viability of the BGS auction and increase rates for New Jersey consumers. A. Relevant Markets The petitioners own analysis indicates that the proposed acquisition would significantly increase concentration in all of the 30 relevant electric markets analyzed. (NJPIRG-3 at 4) These markets include 10 time periods for each of the three geographic markets PJM Interconnection, pre-2004 PJM and PJM East. However, based on geographic location, transmission constraints and current market concentration, the relevant electric and gas markets for New Jersey consumers is PJM East. B. There Will Be a Negative Impact on Horizontal Market Power It is undisputed that without mitigation, the proposed acquisition would significantly increase horizontal market power. PSEG currently owns 10.3 GW of generating capacity in PJM East, and Exelon owns 7.2 GW in PJM East. (S-4 at 15) The two companies would have a total of 33 and 23 percent, respectively, of the PJM East market, representing a total of 56 percent of the total PJM East generating capacity. (Ibid) This amount of market power would result in increases in concentration that sometimes exceed 1,200 HHI points in markets with concentration as high as 2,800 HHI. (NJPIRG-3 at 5) 6 The factors that bear upon the Board s positive benefits standard include 2) The effect of the merger upon the competitive situation of the gas [and, in this case, the electric] utility industry in this state; are there monopolistic concerns with respect to the planned merger? New Jersey Resources, 57 P.U.R. 4 th 709 (January 31, 1984)

15 In the case of a market with a pre-merger HHI above 1,800, the market is considered highly concentrated, and the post-merger increase in the HHI should be 50 or less. (S-4 at 18) The increases in concentration that would result from the proposed acquisition would significantly increase the ability and incentive of the merged company to restrict output and raise wholesale electricity prices through unilateral or coordinated conduct. (NJPIRG-3 at 5) The petitioners have proposed to divest or retire a total of 5,500 MW (megawatts) in PJM East, including 2,600 MW of nuclear capacity to be divested through so-called virtual divestiture or retired, 550 MW of coal-fired generation to be divested, 1,550 MW of mid-merit generation capacity to be divested, and 1,000 MW of peaking generation capacity to be divested. (S-4 at 22) After the petitioner s proposed divestiture, the combined market share of the companies in PJM East would be 35 percent to 46 percent, depending on where the additional divestiture occurs. (Ibid) However, there are several problems with the petitioners divestiture plan. First, the plan does not divest nearly enough generation capacity to meet the Board s positive benefits standard in terms of competition. Even if the petitioners divest 5,500 MW in PJM East, they would still own 11,900 MW of capacity, or approximately 28.7 percent, of the capacity in PJM East. Depending on which parties purchased the divested capacity, the merged company could still be three times as large as the next largest competitor in PJM East. (RPA-5 at 17) Second, the efficacy of the divestiture plan depends on what specific units are divested or retired and the characteristics of the buyers. PJM s Market Monitoring Unit s analysis notes, it is not possible to determine whether divestiture will in fact mitigate the issues without knowing the exact units and their distribution. (NJPIRG-1 at 34)

16 And finally, so-called virtual divestiture, or selling the output of a plant under a longterm contract while retaining ownership of the plant and control over its operation, has never been considered or approved by the Department of Justice and is, simply put, the petitioners made-up concept. Virtual divestiture is not divestiture at all, as it does not require an actual sale of a power plant to another buyer. In fact, the virtual divestiture of nuclear plants is no different from the normal marketing of power plant output. In the current market, the petitioners run their nuclear plants at near-constant output levels for over a year at a time and the plants serve baseload energy needs. Long-term baseload energy contracts for plant output are often drawn up for wholesale marketers and large energy users well in advance of actual needs. In essence, virtual divestiture will not create real competition. C. There Will Be at Negative Impact on Vertical Market Power The introduction of negotiated rates for open-access pipelines transporting gas over long distances, coupled with marketing of gas at the retail level by affiliate companies creates a clear potential for vertical price discrimination that the merged company could use to its advantage. The proposed acquisition would allow one company to be the dominant natural gas supplier in the region stretching from Philadelphia to northern New Jersey. The merged company would be capable of supplying more than 473 billion cubic feet of natural gas per year, more than threequarters of New Jersey s annual demand of 610 billion cubic feet. (NJPIRG-1 at 16) The merged company would also own 40 percent of firm natural gas supply capacity in the region, and the natural gas market concentration index would rise from 1,469 HHI to 1,942 HHI. (Ibid) Seemingly small decisions about the availability and the timing of use or timing of refilling reserves could have large impacts on the overall market price of gas, and could have a significant impact on the electricity market. In PJM East, gas-fired generators set the price for

17 electricity during 60 percent of the hours of peak demand and 40 percent of the time overall. (Ibid) During these periods, increased gas prices will directly translate into more expensive electricity. The merged company would have an incentive to use its control over the gas market to its advantage; by raising the price of gas to all users (including itself), the company could raise the cost of electricity. With higher electricity prices, the company would realize higher revenues from its continually-operating baseload generators and in effect earn payments in excess of their costs. (Id. at 17) IX. THE PROPOSED MERGER WILL HAVE A NEGATIVE IMPACT ON LOCAL MANAGEMENT AND THE BOARD S REGULATORY AUTHORITY 7 The proposed merger will cause significant and long-term harm to local and state management of the merged company and the ability of the Board to exercise effective regulatory control over the company on behalf of the public interest. A. There Will Be a Negative Impact on Local Management If the proposed acquisition is approved, bottom-line decision making power over PSEG s operations will be at the behest of a compilation of executives on the merged company s Board of Directors, many of whom live in Illinois and Pennsylvania and are not accountable to the New Jersey public. In addition, PSEG would become part of a federally regulated holding company, subject to federal jurisdiction over its financial practices and no longer subject to the Board s consumer protections. B. There Will Be A Negative Impact on the Board s Regulatory Authority 7 The factors that bear upon the Board s positive benefits standard include 1) The advantages of combined control as opposed to local management. and 11) The impact on the Board s regulatory authority to exercise effective regulatory control on behalf of the public interest. New Jersey Resources, 57 P.U.R. 4 th 709 (January 31, 1984)

18 Because PSEG is a New Jersey-based holding company, headquartered in Newark and primarily focused on domestic energy business in New Jersey, the Board currently has the authority over the company, including PSEG s non-utility investments. To limit ratepayer exposure to potentially risky investments, in May 1993 the Board issued an order that limited PSEG s non-regulated investments to a small percentage of its overall assets. (NJPIRG-1 at 30) The Board issued the rule in order to keep PSEG focused on serving New Jersey consumers at just and reasonable rates. In essence, the Board rule minimizes PSEG s investments in nonutility areas that carry higher financial risks that could effect the company s bond rating and result in higher interest rates that would be passed onto ratepayers. However, if the proposed merger is approved, the Board would loose its current jurisdiction over PSEG because the merged company would be a federally regulated utility holding company. The repeal of the Public Utility Holding Company Act (PUHCA) as part of the federal Energy Policy Act of 2005 makes matters worse for consumers, since utility holding companies now have more flexibility to engage in risky business activities which ratepayers could ultimately pay for. These activities include greater leeway for holding companies to manipulate and conceal their finances in order to gain favorable regulatory treatment in a rate setting, greater industry consolidation and greater financial instability for utilities. The petitioners have made no concrete commitments to ensure that PSEG s bottom-line decision making power lies in the hands of a New Jersey-based Board of Directors. The petitioners have also made no concrete commitments to ensure that the merged company will continue to comply with the Board s current regulatory statutes over PSEG that serve New Jersey consumers.

19 X. CONCLUSION For all of the foregoing reasons, Your Honor and the Board should reject the Joint Petitioners request. Respectfully submitted, //s// Renée Steinhagen Executive Director New Jersey Appleseed Public Interest Law Center Attorney for NJPIRG Dated: April 26, 2006