IN THE MATTER OF THE VERIFIED PETITION OF JERSEY CENTRAL POWER & LIGHT COMPANY

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1073-07T21073-07T2

IN THE MATTER OF THE VERIFIED

PETITION OF JERSEY CENTRAL

POWER & LIGHT COMPANY SEEKING

APPROVAL OF THE SALE OF THE

FORKED RIVER GENERATING STATION

PURSUANT TO N.J.S.A. 48:3-7

AND A WAIVER OF THE

ADVERTISING REQUIREMENT OF

N.J.A.C. 14:1-5.6(b).

__________________________________

 

Argued October 8, 2008 - Decided

Before Judges Stern, Rodr guez and Waugh.

On appeal from a Final Administrative Decision of

the New Jersey Board of Public Utilities, Agency

Docket No. EM07010026.

Diane Schulze, Assistant Deputy Public Advocate,

argued the cause for appellant Department of the

Public Advocate, Division of Rate Counsel

(Ronald K. Chen, Public Advocate, attorney;

Ms. Schulze and Ami Morita, on the briefs).

Marc B. Lasky argued the cause for respondent

Jersey Central Power & Light Company (Morgan,

Lewis & Bockius LLP, attorneys; Mr. Lasky,

on the brief).

Alex Moreau, Deputy Attorney General, argued the

cause for respondent New Jersey Board of Public

Utilities (Anne Milgram, Attorney General, attorney;

Andrea M. Silkowitz, Assistant Attorney General, of

counsel; Mr. Moreau, on the brief).

PER CURIAM

The Public Advocate, Division of Rate Counsel (PA), appeals from the September 17, 2007 final administrative determination of the Board of Public Utilities (BPU) which approved the sale of Jersey Central Power & Light's (JCP&L) generating facility in Forked River.

I.

On January 17, 2007, JCP&L submitted a "verified petition" to the BPU seeking "approval of the sale" of its Forked River generating station to Forked River Power, LLC (FRP), and "a [w]aiver of the [a]dvertising [r]equirement set forth in N.J.A.C. 14:1-5.6(b)," which required that the sale be advertised. JCP&L proposed that "the net proceeds of the sale . . . be credited to reduce [its] Market Transition Charge [and] Non-Utility Generation charge ('MTC/NGC') deferred balance," in accordance with a prior restructuring order issued by the Board. In addition, JCP&L sought to recover operating losses incurred ninety days after the filing of the purchase and sale agreement, and that any such operating losses be applied to the net proceeds from the transaction. Furthermore, JCP&L sought to hold ratepayers responsible for any pre-sale environmental remediation costs. After a plenary hearing, the BPU approved the petition and sale.

Following an evidentiary hearing, the BPU found that JCP&L had "substantially met the requirements" of both the Electric Discount and Energy Competition Act (EDECA), N.J.S.A. 48:3-59(c), and the Board's prevailing auction standards. The Board also approved the waiver of the advertising requirement; directed JCP&L to work with rate counsel and staff "in evaluating the best strategy for maximizing the value of the remaining land for the benefit of rate payers"; denied "the [c]ompany's request to recover operating losses incurred 90 days after the filing of the petition" and its request "to recover future environmental and remediation costs," and directed a future filing, "in the next NGC filing," of closing costs, thereby reserving on the application for assessment.

PA argues that "the Board's approval of the sale of Forked River as proposed by JCP&L did not meet the conditions for divestiture of utility generation assets set by the Legislature in the EDECA." Specifically, the PA asserts that the BPU failed to consider the impact of revenues which would flow from JCP&L's continued operation of the facility, the sale failed to comply with the Board's requirement for auctions, the determination that the sales price represented fair market value did not take into account the lack of "a competitive solicitation," and the "after-the-fact waiver of the advertisement requirements" was inappropriate.

Stated differently, the PA contends that the EDECA has not been complied with because full market value was not realized, the best interests of the ratepayers were not respected, and the auction standard, designed to achieve both full market value and the best interests of the ratepayers, was not honored. According to the PA, the BPU did not respect these three requirements, and he challenges both the approvals of the advertising waiver and the sale. The PA argues that the sale will generate an immediate $2,000,000 loss for the ratepayers, and ultimately cost the ratepayers as much as $66,000,000.

II.

JCP&L is a subsidiary of GPU, Inc. Forked River is an 86 megawatt gas-fired combustion turbine power plant in Lacey and Ocean Townships. It was placed into service by JCP&L in 1989. According to the petition, "Forked River is essentially a peaking facility [that] operates a limited number of hours during the year, primarily due to its relatively high operating costs."

In light of the recommendations of the New Jersey Energy Master Plan Phase I report, in April 1997 the BPU issued a report recommending that New Jersey energy customers be given the ability to choose their electric power supplier directly and that electric utilities be allowed to sell their generation assets and functions. The BPU then directed New Jersey's four investor-owned utilities, including JCP&L, to submit a restructuring plan. GPU indicated its intention "to divest its fossil fuel and hydroelectric generation facilities." This led to BPU orders and decisions in May 1999 and March 2001 approving JCP&L's restructuring.

In the meantime, in February 1999 JCP&L filed a petition with the BPU seeking approval of the sale of its non-nuclear generation assets, including Forked River and other facilities, to Sithe Energies, Inc. On November 4, 1999, the BPU issued a decision and order approving the sale. Significantly, however, prior to closing, Sithe decided not to purchase Forked River, and the overall sales price of the agreement with Sithe was reduced by $15 million.

In April 2000, JCP&L entered into a "blackout agreement" with AmerGen Energy Company, LLC (AmerGen), which called for at least one combustion turbine of the Forked River plant to be made available to provide electric service to the Oyster Creek Nuclear Generating station, which AmerGen had purchased from JCP&L in July 2000, in the event of a station blackout or loss of energy supply. This was an effort to comply with the federal requirement that nuclear generating stations have appropriate arrangements in place in the event of a blackout. JCP&L received approximately $140,000 per year from this agreement.

After the restructuring orders, JCP&L continued its endeavor to sell Forked River as part of the divestiture of all of its generation assets. However, Forked River was one of two non-nuclear plants JCP&L could not sell as part of its 1999 divestiture. According to testimony before the BPU, JCP&L decided that, because of the blackout agreement and the plant's operating characteristics, Forked River's value as a "merchant facility" was limited and a "targeted search" for an interested buyer "would be more successful" than a general auction. The company was concerned that if an auction failed, there would be no market for a sale of the facility. JCP&L approached "fifteen potential purchasers" in an effort to sell Forked River, including AmerGen and its parent, Exelon Corporation. JCP&L then contacted "nine additional medium to small energy project developers and operators," only one of which, FRP, expressed any interest in purchasing the plant. FRP is a Delaware limited liability company owned by Maxim Power USA, Inc. (Maxim).

On December 20, 2006, JCP&L and FRP entered into a purchase and sale agreement providing for the sale of Forked River to FRP for $20 million, $5 million more than the value assigned when Sithe purchased the JCP&L generating plants after excepting Forked River. The sale to FRP included all the assets used or necessary for generation purposes, and for the ownership, operation and maintenance of Forked River. The sale conveyed 43.53 acres of the total 600 acre site, and FRP assumed all responsibilities for the ownership, operation and maintenance of Forked River, including post-closing environmental liabilities, operation failures, and the station blackout agreement. Pre-closing environmental liabilities were to remain JCP&L's responsibility. In accordance with the existing collective bargaining agreement, FRP was required to enter into a separate two-year agreement with the unions on the same terms as set forth in the existing collective bargaining agreement.

In addition, FRP agreed to enter into a ten-year tolling agreement with First Energy Solutions Corp. (First Energy), an affiliate of JCP&L, whereby First Energy agreed to make certain payments to FRP in exchange for the exclusive right to the capacity of Forked River, subject to Forked River's reliability and blackout agreement obligations. Maxim/FRP insisted on this arrangement in order to ensure that it would receive a certain level of revenue from the plant following its purchase from JCP&L.

Forked River was operating at a loss at the time of the agreement, having lost $2.6 million from 2003 to 2005. As projected, JCP&L's investment in the plant would not be fully recoverable until 2019. The amount of the total return on the plant investment will be approximately $25.5 million.

In conjunction with the sale, Michael Hyrnick, director of business development for First Energy, undertook a thirty-year discounted cash flow valuation of Forked River which, in his view, supported the $20 million figure as the plant's fair market value. Based on recent auction results, the capacity prices (i.e, fixed costs passed on to ratepayers) Forked River was eligible to receive were set at $72.15 per kilowatt hour, which was substantially higher than in prior years. Hyrnick utilized an eleven percent discount rate.

Hyrnick also made "a comparison to similar transactions [which] indicated that the Forked River sales price, which is about $232/kW is reasonable in relation to the sales prices in other transactions and should therefore be deemed to be a fair market value." In addition, Hyrnick noted the $15 million deducted purchase price with respect to the proposed sale to Sithe, and a less than $10 million value suggested by JCP&L's "stranded cost proceeding," wherein the company indicated a stranded cost for Forked River of $23.2 million in relation to a net book value of $30.9 million. Also, Hyrnick did not believe a formal advertising of the sale was required because the previous efforts to sell Forked River, "which entailed contact with a wide range of potential purchasers," were the "functional equivalent of advertising."

Matthew Kahal, an economist engaged in energy and utility consulting, conducted a valuation analysis on behalf of the PA. Kahal claimed that the sale would result in a net loss to ratepayers of $2,000,000, once the $20,000,000 purchase price was reduced by the cost recovery of JCP&L's "net investment, certain expenses, and claimed income tax effects." Kahal concluded that ratepayers would obtain "greater benefits from JCP&L's retaining the plant and selling its output into the wholesale market" than from JCP&L's proposed sale. According to Kahal, "[t]he stranded cost/standard benefit impact on ratepayers from continued ownership will depend on the plant's net operating income . . . from selling power into the wholesale market as compared with [its] approximately $2 million per year in capital revenue requirements." Kahal noted that, although the plant-retention proposal would require a continuous capital revenue stream, ratepayers would receive a "stream of market net revenue," and he predicted that "capacity revenue [would] increase dramatically for Forked River compared to recent historic amounts."

Kahal estimated "a nominal ratepayer benefit of $66 million and a present value benefit (at a 7 percent consumer discount rate) of $32 million" to ratepayers compared to the $2 million loss if the plant were sold. Kahal claimed that the seven percent discount rate was the rate typically used for utilities. He based this value in large part on the "very robust capacity prices" included in Hyrnick's analysis.

Kahal conceded that "long-term projections of markets are inherently uncertain," and that the risks of lower capacity prices in the future were real. Thus, he conducted a second, more conservative, analysis which resulted in "a nominal benefit of $30 million and a present benefit of $14 million" to the ratepayers. Kahal did not do a traditional fair market value analysis, but rather compared the impact of retaining the plant versus the impact of selling it.

Kahal thought that JCP&L "did their best" in marketing Forked River because he believed the facility's sale was hampered by the blackout agreement. In addition, he stated that his analysis was essentially the same as Hyrnick's, except for the discount rate, and that Hyrnick's analysis was "not unreasonable."

In rebuttal testimony, Hyrnick disagreed with Kahal's conclusion that ratepayers would derive more benefit if JCP&L did not sell Forked River. Hyrnick claimed that long-term projections, such as those contained in Kahal's discounted cash flow analysis, were subject to "uncertainties." Specifically, Hyrnick claimed that there was no certainty going forward regarding "a fixed price for capacity" in the market place and "uncertain and volatile" energy markets. Thus, Hyrnick disputed the seven percent discount rate utilized by Kahal, which he believed was too low due to the high degree of uncertainty going forward regarding capacity prices, future environmental obligations, and other market conditions.

Hyrnick also believed there was a "risk" of a significant downside in JCP&L's continued ownership of Forked River that "far outweighed" any "modest" customer benefit in continued ownership. He cited the blackout agreement as an impairment of the plant's value, as well as possible significant future expenses and uncertainty regarding the level of future cash flow. He conceded, however, that the sale itself would result in an immediate net loss of $2 million to JCP&L.

III.

PA argues that the Board's approval of JCP&L's sale of Forked River to FRP failed to meet the statutory requirements for divestiture of utility generation assets. Specifically, the PA claims that the Board failed to sufficiently consider the benefits of JCP&L's retention of Forked River, including the future revenue stream. In addition, the PA maintains that there is no support for the Board's conclusion regarding unforeseen operating and maintenance costs Forked River might incur in future years as a basis for finding benefits from the sale. Further, PA argues that there was insufficient competitive bidding to warrant upholding the Board's order, and that JCP&L provided information only to certain buyers. Moreover, appellant asserts that pre-closing environmental liabilities should be assumed by FRP, not passed along to ratepayers. Thus, PA seeks a remand for the institution of a competitive bidding process and a proper calculation of the net benefit of JCP&L's continued ownership of Forked River.

As the Board's decision and order is supported by substantial evidence and is not arbitrary, capricious or unreasonable, it must be affirmed. There is ample support in the record for the BPU's conclusion that the savings to the ratepayers from the sale outweighed the possibility of long term benefits if the sale was not approved. The ratepayers will no longer be exposed to the risks and uncertainties of the energy market as a result of the sale by JCP&L which has divested itself of its other non-nuclear generating facilities.

In 1999, the Legislature enacted the EDECA. The Act established the framework and time schedules for deregulation and restructuring of electric utilities in New Jersey. In re Pub. Serv. Elec. & Gas Co.'s Rate Unbundling Stranded Costs & Restructuring Filings, 330 N.J. Super. 65, 89 (App. Div. 2000), aff'd, 167 N.J. 377, cert. denied, Co-Steel Raritan v. N.J. Bd. of Pub. Utils., 534 U.S. 813, 122 S. Ct. 37, 151 L. Ed. 2d 11 (2001). Although the Act did not mandate total divestiture, it allows utilities functionally to separate their generation assets and to recover stranded costs, the costs which the utility was at risk of losing when the supply market was opened to competition. Id. at 90. In enacting the EDECA, the Legislature sought, among other things, to provide diversity in the supply of electric power, permit competition in the electric generation marketplace, assure access to affordable and reliable sources of energy, and to "[p]rovide for a smooth transition from a regulated to a competitive power supply marketplace." N.J.S.A. 48:3-50(a)(12). Thus, the BPU is permitted to require that an electric public utility "separate its non-competitive business functions from its competitive electric generation service or its electric power generator functions," or "[d]ivest to an unaffiliated company all or a portion of its electric generation assets and operations" in order to break up the utility's market control. N.J.S.A. 48:3-59(a)(1) and (2).

In approving the sale of a generating asset under EDECA, the Board must find that:

(1) The sale reflects the full market value of the assets;

(2) The sale is otherwise in the best interest of the electric public utility's ratepayers;

(3) The sale will not jeopardize the reliability of the electric power system;

(4) The sale will not result in undue market control by the prospective buyer;

(5) The impacts of the sale on the utility's workers have been reasonably mitigated;

(6) The sale process is consistent with standards established by the board . . . ;

(7) The sale, merger, or acquisition of the generation or other utility assets includes a provision that the purchasing, merging or new entity shall recognize the existing employee bargaining unit and shall continue to honor and abide by any existing collective bargaining agreement for the duration of the agreement. . . .;

(8) The sale, merger or acquisition of the generation or other utility assets includes a provision that the purchasing, merging or new entity shall hire its initial employee complement from among the employees of the electric public utility employed at the generating facility at the time of the sale, merger or acquisition; and

(9) The sale, merger or acquisition of the generation or other utility assets includes a provision that the purchasing, merging or new entity shall continue such terms and conditions of employment of employees as are in existence at the generating facility at the time of the sale, merger or acquisition.

[N.J.S.A. 48:3-59(c).]

EDECA further provides that the BPU "shall establish standards for the conduct of [a] sale by the utility. . . . to ensure a fair market value determination." N.J.S.A. 48:3-59(b).

Prior to the adoption of the EDECA, the BPU issued an order on June 16, 1998, adopting certain auction standards for asset sales "resulting from the planned divestitures." Those "auction standards" remain in place, and include: (1) "[t]he auction process must be designed to foster competition among bidders"; (2) "[b]idder qualifications should be reasonable and not unduly restrictive"; (3) the list of bidders "must include enough participants to provide assurance that there is sufficient competition" in the process; (4) "[t]he divesting company must ensure that access to all relevant information is provided to all prospective bidders"; (5) "[t]he divesting company, upon completion of the auction, [is] required to submit a market power analysis for regulatory review" and "demonstrate that the sale of any generating facility will not create or enhance market power in the relevant market"; (6) "[t]he divesting company must demonstrate that it has adequately provided for system reliability and the provision of safe, adequate, and reliable service post-divestiture"; (7) "[a]bsent a showing by the divesting company that retention of such liabilities provides a substantial risk-adjusted benefit to ratepayers, all on-site environmental liabilities associated with the auctioned property shall be assumed by the purchaser"; (8) all bidders are required to provide notice of permit violations for the preceding five years; (9) the divestiture petition must include a reasonable transition plan; and (10) upon completion of the auction process the divesting company must submit "a complete and accurate summary of the auction proceedings and outcome."

In approving the sale of Forked River, the Board found "that JCP&L has substantially met the requirements of both N.J.S.A. 48:3-59(c) and the [a]uction [s]tandards." It concluded:

Forked River had been included in the sale of the non-nuclear generation assets previously approved by the Board. The sale of Forked River complies with the Board's goal in the Restructuring Order of utility divestiture of generation assets and will provide a net benefit to the ratepayers
. . . .

[A]s noted above, Forked River was included in the portfolio of non-nuclear generating assets to be sold to Sithe . . . . At that time, JCP&L used an auction approach to receive bids from interested purchasers. In that Order, the Board found that the sale of the Company's non-nuclear generation assets to Sithe reflected the full market value of the assets and was in the best interest of the Company's customers and thus approved the sale. . . .

The Board is persuaded by JCP&L's argument that the operating characteristics of Forked River along with its commitment under the Station Blackout Agreement and air permit limitations have limited the value of the plant in the market. . . . Thus, trying to sell Forked outside of a portfolio of other assets made the task very difficult. It was widely known that Forked River was available for sale. Even under JCP&L's exhaustive search for a buyer through a targeted approach, only one interested and viable buyer, FRP, responded. Moreover, when compared to the original $15 million price (as set in 1999) . . . the $20 million sale price offered by FRP . . . appears reasonable. Further, when compared to other similar assets recently sold around the country, the sale price also appears to reflect the full market value of the assets.

The sale is in the best interest of JCP&L's customers. Ratepayers are currently responsible for the return of and return on the investment in Forked River of approximately $25.5 million . . . until 2019, when the plant is fully depreciated. Upon approval of the sale, ratepayers will no longer be responsible for these costs. Although Rate Counsel contends that there is potentially greater ratepayer savings from JCP&L retaining ownership of the plant, this is highly speculative. The cash flow analysis provided by the Company is based on projections of capacity prices over the next 30 years. As no one can predict the results of the next RPM auction, it is impossible to predict with any certainty the results of the auction in 10, 15 or 30 years. In addition, there is also the risk of any unforeseen operating or maintenance costs that may be incurred while JCP&L retains ownership of Forked River. Moreover, the Board does not find cause to reconsider its previous authorization allowing the divestiture of Forked River and require that JCP&L retain ownership. The Board concludes that the guaranteed savings from instant sale of the Forked River plant is in the best interest of the ratepayers compared to the potential speculative benefit from forcing JCP&L to retain ownership of the plant.

The sale of Forked River will not jeopardize the reliability of the electric power system. FRP will assume all obligations under the Station Blackout Agreement. Also, the sale will not result in undue market control by either Maxim or FRP, as the only generating assets owned by Maxim in the Eastern Part of the United States are in Connecticut . . . .

Additionally, the impact of the sale on the utility's employees has been reasonably mitigated. FRP will honor and abide by the existing collective bargaining agreement for the duration of the agreement. . . .

[Emphasis added.]

In addition, the Board concluded that JCP&L was not allowed to recover operating losses incurred ninety days after the filing of the sale petition or future environmental remediation costs other than through base rates.

In general, the judicial capacity to review administrative actions is severely limited. In re Musick, 143 N.J. 206, 216 (1996); Pub. Serv. Elec. & Gas Co. v. Dept. of Envtl. Protection, 101 N.J. 95, 103 (1985). Courts can intervene only where the agency action is arbitrary and unreasonable, namely, where the agency action violates legislative policies, where there is no substantial evidence to support the agency's findings, or where the agency reached a conclusion that could not reasonably have been made on a showing of the relevant factors. Musick, supra, 143 N.J. at 216; East Orange Bd. of Educ. v. N.J. Schools Constr. Corp., 405 N.J. Super. 132, 143-44 (App. Div. 2009). Moreover, the BPU has special expertise, and its rulings are entitled to "presumptive validity" and will not be disturbed absent a finding of a lack of "'reasonable support in the evidence.'" In re Pub. Serv. & Elec & Gas Co., 167 N.J. 377, 385 (2001) (quoting In re Petition of Jersey Cent. Power & Light Co., 85 N.J. 520, 527 (1981)). Moreover, "'[t]he Legislature has endowed the BPU with broad powers to regulate public utilities . . . . [and] considerable discretion in exercising those powers.'" Id. at 384-85 (quoting In re Elizabethtown Water Co., 107 N.J. 440, 449-50 (1987)). The Legislature has authorized us expressly to "review any order of the board and to set aside such order in whole or in part when it clearly appears that there was no evidence before the board to support the same reasonably or that the same was without jurisdiction of the board." N.J.S.A. 48:2-46. Deference must also be given to the BPU's interpretation of the EDECA. In re Pub. Serv. Elec. & Gas Co.'s Rate Unbundling, supra, 330 N.J. Super. at 98; See also Cooper University Hosp. v. Jacobs, 191 N.J. 125, 140 (2007).

As already noted, PA contends that the Board's finding that the sale was in the best interests of ratepayers was contrary to the evidence because the Board failed to consider the financial benefits to JCP&L if it retained Forked River. However, the Board did consider such evidence and found Kahal's income projections to be speculative and not as significant as the projected $25.5 million in future cost savings, even accounting for the less than two million dollar loss from the immediate sale of the facility. This cost savings represented JCP&L's remaining, unrecovered return on investment in Forked River.

Moreover, the sale is in line with the policy of this State, as expressed in EDECA, for public utilities to divest their generation assets, and is in accordance with the BPU's prior orders approving JCP&L's restructuring. The decision cannot therefore be deemed arbitrary, capricious, or contrary to public policy and, therefore, cannot be said to be against the best interests of ratepayers.

PA next contends that the sales price does not reflect Forked River's fair market value. EDECA does not specify the methodology to be used in determining the value of the assets to be transferred. In re Pub. Serv. Elec. & Gas Co.'s Rate Unbundling, supra, 167 N.J. at 392. Both sides agreed that there had been an increase in capacity prices, but disagreed as to whether that increase will last. Thus, Hyrnick utilized a higher discount rate than Kahal, which apparently was responsible for his lower valuation. In addition, the apparent $15 million price placed on Forked River by Sithe when the facility was removed as part of the 1999 auction sale makes the $20 million appear reasonable. Moreover, Kahal described Hyrnick's methodology as "not an unreasonable analysis." Hence, we cannot disturb the Board's determination that the $20 million sale reflected fair market value.

Both JCP&L and the BPU argue that the auction standards do not apply because they are not applicable to the sale of a single generation asset and JCP&L is not recovering any stranded costs. The PA contends, however, that JCP&L is "recovering costs associated with Forked River and has been recovering such costs through its Market Transition Charge since restructuring of the electric industry." See N.J.S.A. 48:3-51. In its decision, the Board did not address the question of whether the auction standards applied in any detail. Instead it merely found that the standards were "substantially met."

Neither the EDECA provisions regarding the sale of "generating assets," N.J.S.A. 48:3-59(b) and (c), nor the Board's order establishing the auction standards address the issue. N.J.S.A. 48:3-59(b) and (c) specifically refer to "the sale of generating assets subject to recovery" of a "market transition charge" and "stranded costs" under N.J.S.A. 48:3-61 and 62. The statutes in question provide that the assets in question are subject to recovery of such charges, not that the existence of such recoverable charges is a prerequisite for the sale of the assets.

In this context it is important to emphasize the deference we must give to an agency's interpretation of the statute it is obligated to administer. In re Pub. Serv. Elec. & Gas Co.'s Rate Bundling, supra, 167 N.J. at 384; Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973); East Orange Bd. of Educ., supra, 405 N.J. Super. at 143-44. We note, as did the BPU, that the sale of JCP&L facilities to Sithe involved a bidding process. Given the lack of interest in the facility, a new auction may well have resulted in no bids or low bids, which would have reduced even further the fair market value of the facility to the determent of the ratepayers. As a result, because of the on-going endeavor to sell Forked River, the BPU could find there was "substantial compliance" with the auction standards, if they applied.

The PA contends that the sale also violated the auction standards because JCP&L will remain liable for pre-closing environmental remediation costs. However, the auction standards do not state that a purchaser must be responsible for pre-closing environmental remediation. Rather, they state that "[a]bsent a showing by the divesting company that retention of such liabilities provides a substantial risk-adjusted benefit to ratepayers, all on-site environmental liabilities associated with the auctioned property shall be assumed by the purchaser. . . ."

In sum, the Board's approval of the sale of Forked River was supported by credible evidence and was not arbitrary or capricious, and, given our limited scope of review, we must affirm the BPU's approval of the sale.

IV.

The PA, nevertheless, challenges this conclusion because of the procedural defect caused by the waiver of the advertising regulations. For similar reasons related to the on-going endeavor to sell the facility, we reject the contention that the BPU acted improperly in agreeing to waive the advertising requirement set forth in N.J.A.C. 14:1-5.6(b).

The Board concluded that "JCP&L's decision to not advertise was based upon its concern to not quell the market interest and that its targeted search was equivalent to an advertisement without the potential adverse effects of diminishing Forked River's market value."

The BPU now maintains that it granted the advertising waiver because JCP&L met the seven conditions for such a waiver set forth in N.J.A.C. 14:1-5.6(i), and that JCP&L's previous attempts to sell the plant were the equivalent of advertising.

The regulation in question, N.J.A.C. 14:1-5.6(b), provides:

Where the Board's approval of sale or lease is required by law and the property has a new book cost or fair market value of more than $500,000, the property shall be advertised for sale or lease at least twice, one week apart, in a daily newspaper published or circulated in the county in which the property is located, within 150 days immediately prior to the filing of the petition for the approval of the sale or lease, except that advertising shall not be required for sales or leases of property for public utility purposes to another public utility or other person or company subject to any jurisdiction of this Board.

The regulation goes on to set forth what information the advertisement should contain. In addition, the advertising requirement may be waived if

1. The waiver shall not adversely affect the public interest;

2. The subject property is no longer used or useful for utility purposes;

3. There is no prospective use of the property for utility purposes or no other likely prospective purchaser;

4. The sale of the property shall not affect the ability of the utility to render safe, adequate and proper service;

5. The selling price represents the fair market value of the property to be sold based on a current independent appraisal;

6. There is no relationship between the parties other than that of transferor and transferee, or lessor and lessee; and

7. The request states the reasons of the utility seeking the waiver which may include, but are not limited, to the following:

i. The subject property is unique and requires an unusual sales contract or represents an unusual transaction;

ii. The advertising and bidding shall not result in a higher sales price;

iii. The advertising and bidding shall be detrimental to the sale of the property;

iv. The unlikelihood of the existence of other bona fide purchasers who could meet the requirements of the proposed sales contract;

v. The development of the property for private use will require extensive environmental permitting due to an existing contamination condition; and

vi. The inability of any other bidder to obtain the necessary permitting authorization to develop the property.

[N.J.A.C. 14:1-5.6(i).]

With respect to the request for the waiver, the Board found:

JCP&L's request for a waiver of the advertising requirements in N.J.A.C. 14:1-5.6(b) meets the seven conditions for the granting of a waiver . . . as follows. First, the sale of Forked River will not adversely affect the public interest. The Company and [BPU] Staff have made a compelling argument that there will be immediate savings to ratepayers resulting from the sale. Ratepayers would no longer be responsible for the return of and on the Company's investment, which amounted to approximately $3 million in 2006 or approximately $25.5 over the remaining depreciable life of the plant. This is a guaranteed ratepayer benefit that will not be subject to the whims of the capacity market that would occur if in the alternative, JCP&L chose to retain Forked River. Second, Forked River is no longer used and useful for utility purposes. Forked River is providing services directly to Oyster Creek and not directly to JCP&L or its customers. Third, with FRP assuming all responsibilities relating to operations and maintenance as well as those with respect to the Station Blackout Agreement, the Board finds that the sale will not affect the ability of the utility to render safe, adequate and proper service. Fourth, based upon JCP&L's extensive and varied efforts to sell Forked River over the last several years, the Board concludes that there is neither any prospective use of the property for utility purposes nor any other likely prospective purchaser. Fifth, the Board agrees with Staff and the Company that the targeted search by the Company as well as the previous attempts by the Company to sell Forked River to any interested buyer is the equivalent of advertising Forked River for sale of this particular plant. Furthermore, the Board is satisfied that the cash flow analysis conducted by the Company in support of the $20 million purchase price offered by FRP is reasonable and represents the fair market value of Forked River. Sixth, this is an arms length transaction given that there is no affiliate relationship between FRP and JCP&L. Seventh, JCP&L's decision to not advertise was based upon its concerns to not quell market interest and that its targeted search was equivalent to an advertisement without the potential adverse effects of diminishing Forked River's market value.

[Emphasis added.]

In In re Pub. Serv. Elec. & Gas Co.'s Rate Unbundling, supra, 330 N.J. Super. at 131-32, the BPU waived the advertising requirement because of the extensive nature of the record regarding valuation, and we found that the waiver was not an abuse of the BPU's discretion. The court further cited N.J.A.C. 14:1-1.2(a), which permits procedural regulations to be relaxed for good cause to secure the just and expeditious determination of issues presented to the Board. Id. at 132. The agency must be given discretion when not prohibited by statute to implement public policy and promote the best interest of the public. Circus Liquors v. Division of Alcoholic Beverage Control, ___ N.J. ___, ___ (2009) (slip op. at ___).

The record indicates that there was no likely purchaser other than FRP, and there is no dispute that the sale was an arms length transaction. Nothing in the record indicates that the sale will impinge on JCP&L's ability to provide safe, adequate and proper service, and, as we have noted, the BPU could find that the sale price represents fair market value. Finally, JCP&L's waiver request indicated that it was seeking the waiver because Forked River was "a unique asset for which there was a limited universe of potential buyers," and the Board so found. We therefore cannot upset the Board's grant of the waiver as arbitrary, capricious, or otherwise unlawful.

The final administrative determination is affirmed.

 

Some of the testimony was presented in writing as well as orally.

Maxim "has guaranteed the full and complete payment and performance by FRP of its obligation under the Purchase and Sale Agreement."

Forked River was close to the highest sales price of the comparable sales from 2004-2006.

"'Stranded cost' means the amount by which the net cost of an electric public utility's electric generating assets or electric power purchase commitments . . . exceeds the market value of those assets or contractual commitments in a competitive supply marketplace and the cost of buydowns or buyouts of power purchase contracts." N.J.S.A. 48:3-51.

Because we find no basis to disturb the finding we do not consider whether the regulations do not apply because JCP&L is not recovering "stranded debt."

(continued)

(continued)

29

A-1073-07T2

July 10, 2009