In the Matter of Murphy, A-4758-10T2; Appellate Division; opinion by Yannotti, J.A.D.; decided and approved for publication June 20, 2012. Before Judges Messano, Yannotti and Espinosa. On appeal from the New Jersey Board of Public Utilities, EO 07050516. DDS No. 37-2-6710 [19 pp.]

The Electric Discount and Energy Competition Act (EDECA), N.J.S.A. 48:3-49 to -98.4, established a framework for deregulating and restructuring the electric utilities industry in New Jersey. It authorized such utilities to recover from ratepayers “stranded costs” it was at risk of losing when the market opened to competition. It defines stranded costs as: the amount by which the net cost of the utility’s generating assets or electric power purchase commitments, as determined by the Board of Public Utilities, exceeds the market value of those assets or contractual commitments in a competitive supply marketplace and the costs of buydowns or buyouts of power purchase contracts.

Utilities can collect eligible stranded costs through a market transition charge (MTC) imposed on ratepayers or through the issuance of transition bonds secured through an irrevocable bondable stranded cost rate order imposing a transition bond charge (TBC) on ratepayers.

The board authorized PSE&G to collect $2.94 billion in stranded costs — $540 million through a MTC and $2.4 billion through transition bonds. It also authorized PSE&G to impose a “MTC-Tax” on its ratepayers to reflect PSE&G’s anticipated tax liabilities associated with those costs. The board’s orders were affirmed on appeal.

Thereafter, the board audited the MTCs that PSE&G collected and determined that PSE&G had over-collected. It ordered PSE&G to refund that amount to the ratepayers.

Richard Murphy II filed an action against PSE&G challenging the constitutionality of EDECA’s stranded cost provisions. The trial court’s grant of summary judgment to PSE&G was affirmed on appeal.

Murphy then filed a petition with the board, alleging that PSE&G did not incur the stranded costs the board anticipated it would. The board dismissed the petition, finding that the amount of stranded costs it had permitted PSE&G to recover could not be adjusted retroactively and rejecting Murphy’s contentions that N.J.S.A. 48:3-61(g) required it to review and redetermine the amount of stranded costs PSE&G incurred as a result of the transfer of its generating assets.

On appeal, Murphy argues that the board erred by granting summary decision in favor of PSE&G.

Held: While the EDECA authorizes the board to periodically review and adjust the MTC in order to ensure that the utility is not collecting more than is permitted, it does not require the board to reconsider the amount of stranded costs previously determined and it precludes re-evaluation of the stranded costs that can be imposed by a TBC.

The panel says 48:3-61(g) does not require the board to periodically reconsider the amount of stranded costs that it determined in the stranded cost recovery order. That order represents the board’s final determination, rendered after notice and a hearing, of the stranded costs the utility is permitted to recover. Although 48:3-61(g) authorizes the board to periodically review and adjust the MTC in order to ensure that the utility is not collecting more than is permitted, it does not require the board to reconsider the amount of stranded costs previously determined. The periodic review contemplated by 61(g) is a review of the MTC, not a review of the stranded costs determined by the board.

The panel rejects Murphy’s claim that there is a disputed fact issue as to whether PSE&G paid the securitization-related taxes, saying he did not present any evidence that it has not and should not be permitted to recover the MTC-Tax charges that the board permitted it to impose. The panel says the record supports the board’s finding that PSE&G has not over-collected stranded costs through the MTC-Tax.

Moreover, Murphy’s claim regarding the MTC-Tax is based, in part, on a challenge to the board’s methodology in determining the amount by which the stranded costs would be “grossed-up” for securitization-related taxes, and that method was judicially affirmed.

Murphy also argues that there was a disputed issue of fact as to the $540 million of stranded costs that PSE&G was permitted to recover through the MTC. The panel says he essentially is seeking a revaluation of the generating assets that PSE&G had transferred to its affiliated company. However, once the transaction was consummated, there could be no change in the established value of assets that PSE&G no longer owned.

Murphy additionally argues that he raised a disputed issue of fact as to whether the board should adjust the TBC. He contends that the $2.4 billion PSE&G was permitted to collect through the TBC is more than the “actual” stranded costs that PSE&G has since incurred. The board found that this claim was barred by 48:3-65(a).

Agreeing, the panel says although 65(b) allows the board to adjust the TBC in accordance with 48:3-64(a)(2) and (b), it does not authorize the sort of reimbursement that Murphy was seeking. Moreover, the panel says the board correctly determined that Murphy was essentially seeking to alter the previously issued bondable stranded costs rate order and revalue PSE&G’s transferred assets. N.J.S.A. 48:3-65(a) bars any such relief.

Finally, the panel rejects Murphy’s argument that the board erred by converting PSE&G’s motion to dismiss to a motion for summary decision.

For appellant Murphy — Daniel J. Sponseller, of the Pa. bar (Sponseller, Michael J. Breslin Jr., and Robert F. Williams). For respondents: PSE&G — Matthew M. Weissman; New Jersey Board of Public Utilities — Carolyn McIntosh, Deputy Attorney General (Jeffrey S. Chiesa, Attorney General; Andrea M. Silkowitz, Assistant Attorney General, of counsel; McIntosh, Caroline Vachier and Babette Tenzer, Deputy Attorneys General, on the brief).