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Utility Recovers Buyout Costs of QF

Fortnightly Magazine - July 1 1997

The New Jersey Board of Public Utilities has approved a settlement plan authorizing Jersey Central Power and Light Co. to recover up to $149 million in purchased power contract buyout costs.

Settlement of the longstanding, buyout-recovery dispute was part of a "global" agreement involving a number of cost items:

•  potential recovery of stranded costs;

•  accelerated depreciation of nuclear plant assets;

•  slower depreciation of transmission and distribution facilities;

•  recovery of costs for demand-side management and coal tar cleanup; and

•  offsetting rate adjustments to address an alleged "double recovery" of purchased power capacity costs by the utility.

Overall, the agreement will produce a rate decrease of $5 million annually.

Under the approved agreement, JCP&L will recover $14 million over two years through its energy cost adjustment clause. The buyout, totaling $17 million, was paid to Crown Energy L.P. and Vista Energy L.P., the developers of a 362 MW coal-fired independent power producer project. The utility also will recover up to $135 million associated with the termination of its obligation to purchase 100 MW of power from Freehold Cogeneration Assoc., the developer of a cogeneration facility planned for construction. Recovery of the Freehold costs is authorized through the adjustment clause over seven years.

The board could only grant approval of the Freehold rate-recovery plan on an interim basis, however, noting that it was not clear whether the project was viable at the time of its termination. It said that further investigation of the issue was necessary to resolve the conflicting statements.

As part of the settlement, the utility agreed to a $12-million reduction in base rates. The agreement settled claims that the utility had over-recovered costs by including the capacity component of power purchases from several nonutility generators in its adjustment clause filings. The utility had already recovered those costs through base rates. It also agreed to refrain from proposing adjustment clause or base-rate increases during the term of the settlement, except under limited circumstances.

The utility will also track financial performance during the settlement period and apply a portion of any earnings in excess of the 12.2-percent authorized return on equity to reduce rates. The earnings will also help accelerate the recovery of any stranded costs associated with changes in the state's electric market. Re Jersey Cent. P&L Co., Docket Nos. PUCRA12423-95N et al., March 24, 1997 (N.J.B.P.U.).

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