Public Service Enterprise Group PEG recently announced that its subsidiary PSE&G has made an agreement with the New Jersey Board of Public Utilities and the New Jersey Division of Rate Counsel for lowering its transmission rates. Through this accord, a typical electric residential customer of PSE&G will now be able to save approximately $3 on the monthly bill.
PSE&G will now seek the approval of the Federal Energy Regulatory Commission (FERC) for reducing its transmission rates. On approval, the new rates would reset the base return on equity for PSE&G’s transmission formula rate at 9.9%, down from 11.18%.
If the agreement is approved, customers would then receive the full benefit associated with this change from Aug 1. Customers to Benefit From Rate Reduction
Utility companies mostly require systematic investments for infrastructural developments. Maintained and upgraded infrastructure enables these companies to provide reliable services to their customer bases. The utilities recoup the invested amount through rate revisions approved by the commissions. So far, PSE&G’s transmission investments have saved customers hundreds of millions of dollars in congestion costs and increased the reliability and resiliency of the grid.
The aforementioned settlement, under which PSE&G has agreed to reduce its electric rates, is a balanced resolution that will deliver timely rate savings to customers. Once approved, the agreed transmission rates would save a typical electric residential customer about 3% on the total bill. On receiving the nod from FERC along with other components of the agreement, the company’s existing electric customers could save approximately $140 million a year. How Will This Agreement Impact PSE&G?
The reduction of its base transmission return on equity to 9.9% will lower the company’s annual transmission pre-tax revenue requirement by about $100 million, per year. The agreement also has the potential to lower annual depreciation expenses of approximately $42 million, without any impact on earnings.
It will also enable PSE&G to improve cost recovery methodologies regarding materials and supplies and reduce administrative and general costs. An increase in its equity ratio from 54% to 55% of total capitalization can also be expected. However, on the flip side, the financial impact of the settlement agreement, once completed, is expected to lower PSE&G’s net income by approximately 10-12 cents per share in the first 12 months
