NJ utility backs down from discounting repairs

July 18, 2000
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Hurricane Floyd will not be a windfall for the Public Service Electric and Gas Co. (PSE&G) after all. The New Jersey-based utility backed away from discounts on flood-damaged hot water heaters and furnaces, due to tariff restrictions and concerns of cross-subsidization.

According to company spokesperson Paul Rosengren, PSE&G attorneys said that discounts were illegal because the utility is prohibited from subsidizing its service business with ratepayer money, which could happen if it lowered repair prices.

A recent analysis of the deregulated electric power industry showed that discounted services do affect cross-subsidization. The National Association of Regulatory Utility Commissioners, in its economic analysis, said that cross-subsidization occurs if the marketing affiliate (PSE&G) in the unregulated competitive market charges prices below marginal costs, thereby incurring losses in its operation.


PSE&G spokesperson Kathy Ellis said, “Our guys were out there assessing the work and saw the extent of the damage. We made the decision then to waive our normal charges and bill a nominal fee.”

The next day, company attorneys saw that discounts would be in violation of the repair rates set by the New Jersey Board of Public Utilities (BPU). These rates are intended to prevent PSE&G from undercutting prices charged by area hvacr contractors.

As a result of the decision to pull back discounts, homeowners were billed three or four times the amount for repairs they would normally have been charged.

In an interview with the The Record, Hackensack, NJ, Rosengren said his company honored a $50 repair price for anyone who had already received that as a quote, but that PSE&G was “required by regulations to go with our standard prices,” which averaged $150 to $200.

Good news for contractors

At least one New Jersey contractor applauded the news.

“The BPU is finally doing their job,” said Clint Crane, president of Reel-Strong Fuel Co., Cranford. “I don’t know how they [PSE&G] can come up with the pricing they’re charging. If they’re not allowed to discount their rate, they’ll have to raise their rates even higher to level the playing field.

“We hope that customers will come back to us.”

Bill Fraser Sr., president of FrasAir/Service Experts, Manville, whose own business suffered severe flood damage, said his company lost a lot of repair work to PSE&G because they were going door-to-door offering their services to flood victims.

“When we had a flood about four years ago, we had a lot of repair work,” he said. “This year they [PSE&G] have taken almost every bit of repair work away from us.”

Fraser said the pullback on discounting services will probably have little or no effect on his business.

“The utility is already in the home quoting a price. The people with damaged equipment don’t have time to shop for quotes. It’s good that PSE&G is helping people get back on their feet again but they are taking business away from us.

“If we went door-to-door, we’d probably be cited for solicitation.”

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