Senate lawmakers advanced a bill Monday meant to enhance funding for waste and water utilities over the concerns of the state’s ratepayer advocate, who warned the legislation would lead to rate hikes every six months.
The bill unanimously approved by the Senate Budget Committee would allow utilities to more quickly be reimbursed by the state for money spent on infrastructure improvements, a move lawmakers said would allow utilities to better protect residents from waterborne pathogens, plastics pollution, and weather events.
“This is the right bill. It’s going to encourage the utilities to move these projects forward in a faster fashion,” said Sen. Patrick Diegnan (D-Middlesex), the bill’s prime sponsor. “That’s to everybody’s benefit.”
But the Division of Rate Counsel, an independent state agency that advocates for consumers on utility matters, warned the measure would curtail oversight of utilities’ capital investments while passing the risk of expansion off onto consumers.
Typically, utilities are reimbursed after the completion of what’s known as a base rate case that gives the rate counsel insight into an organization’s finances.
Utilities typically initiate a base rate case every two or three years to be reimbursed for capital spending made over that period, and under current law, utilities provide regulators with comprehensive financial information that is used to determine the reimbursement rate.
The bill would replace that process with biannual reimbursement requests that Brian Lipman, the rate counsel’s director, said would provide regulators with less information about utilities.
“In a base rate case, we get to look at all the expenses and, importantly, all the revenue. It is a nuts-to-bolts review of the utility. Significantly, we look at revenue to ensure the utility is not overearning. Essentially, we figure out how much the utility really needs. That will not happen under this bill,” he said in prepared remarks delivered to the committee.
He said the bill would allow utilities to present a shorter list of specific expenses without providing revenue that could show whether a utility actually needs the aid.
Reimbursements made under the bill would be capped at 5% of a given utility’s annual revenue.
Don Shields, director of engineering at New Jersey American Water, told the committee a biannual reimbursement process would help prevent sharp increases sometimes spurred by base rate cases.
Such cases are initiated by utilities and typically include capital costs spanning two or three years.
“This mechanism would allow water utilities to prioritize the most important projects to protect public health, enhance the quality of service, and implement those projects as cost-effectively as possible,” Shields told the committee.
Lipman argued that the bill should include a provision that would require utilities to see a lower return on investment, noting that most investor-owned New Jersey utilities received $1.096 for every dollar invested.
Because more frequent reimbursements defray the risk of costly investments, that rate should come down, Lipman said.
“This is taking away risk and shifting it to the ratepayers. If this is going to go over, one of the things the committee may want to consider is lowering the return on equity that these utilities earn on these investments,” he told the committee. “There’s less risk. There’s certainly less lag.”
He added the Board of Public Utilities already has surcharge programs meant to help utilities recoup investments toward certain water and waste system improvements.
Sen. Teresa Ruiz (D-Essex), the chamber’s majority leader, said she believes state funds should be used to defray the bill’s impact on rate hikes.
The measure’s Assembly companion has not advanced since its October introduction.
New Jersey already has money for water infrastructure improvements. When legislators approved the current fiscal year’s budget last June, they set aside $300 million in federal American Rescue Plan Act funds for water infrastructure improvements.
Gov. Phil Murphy has indicated he wants more money for that purpose in the coming fiscal year, but committee members expressed consternation over the handling of those funds, noting that none had been disbursed nearly three-quarters of the way through the fiscal year and indicating Department of Environmental Commissioner Shawn LaTourette would have to explain the additional need in budget hearings expected to begin next month.
“Before we give any more money, what about the $300 million you got last year? He’s going to answer that,” Sen. Paul Sarlo (D-Bergen), the Senate’s budget chair, told reporters Monday.