NJ Clean Energy Program Under Investigation

Published December 1, 2006

New Jersey’s Clean Energy Program (CEP), responsible for promoting energy conservation and the use of renewable energy in the state, is coming under heavy criticism for accounting irregularities, apparent cronyism, and gross mismanagement.

The latest salvo was fired on October 16 when Bob Ingle, the Trenton bureau chief for Gannett New Jersey newspapers, called for a stepped-up investigation of financial irregularities associated with the program.

An ongoing investigation by the state’s attorney general began in 2004 after the New Jersey Board of Public Utilities’ (BPU) chief financial officer discovered a secret private bank account opened by BPU officials containing more than $80 million in CEP money.

Two years have passed without any investigative finding being released, which has frustrated Ingle and many state legislators. Deputy Minority Leader Peter Inverso (R-Hamilton), for example, wrote an August 3 letter to the State Commission of Investigation asking it to step in.

The allegations not only have called into question the BPU’s competence and integrity, but have also prompted questions regarding the Clean Energy Program’s rationale and effectiveness.

Surcharge for Renewables

The CEP was established by state law in 2001. Its purpose is to implement the mandates of the state’s 1999 Electric Discount and Energy Competition Act, which deregulated New Jersey’s electric power and natural gas industries. The law required the creation of programs that encourage the use of energy-efficient and renewable energy technologies.

The programs are funded by a $10 to $20 monthly “societal benefits charge” assessed on every electric utility customer in the state, both businesses and individuals. Initially, the CEP was administered by the electric utilities themselves. In 2003, the BPU, the agency primarily responsible for implementing the deregulation law, decided to administer the CEP itself.

From the societal benefits fund CEP had a 2005 budget of $140 million, which will be incrementally expanded to $235 million in 2008. All money collected goes to CEP programs and administrative expenses. The energy conservation programs include energy use audits that show residential customers how they can become more energy efficient, and financial rebates for the purchase of energy-efficient home heating and cooling equipment.

The CEP also provides substantial rebates for the installation of residential and commercial renewable energy systems. Until recently, those rebates could be as high as 70 percent of the installation cost. Today, the rebates can be up to 60 percent.

The renewable energy program does not subject residential applicants to a means test. Since 2001, the CEP has spent more than $103 million on renewable energy systems, more than $99 million of which was spent on solar systems.

Public Mismanagement

The BPU justified its takeover of the CEP on the grounds that the program was being implemented too slowly. Advocates of renewable energy suggested the utilities were not disposed to aggressively promote a program that ultimately erodes their customer base.

Nevertheless, the BPU’s decision raised some concerns. It was a regulatory agency that had no experience at direct program management. And in an era of utility deregulation, it could be argued the BPU should be scaling back, not expanding its scope of activities.

Trouble began for the BPU in mid-2004 when its chief financial officer, Joseph Potenta, complained to state Treasury Department officials that his BPU superiors were violating standard financial practices. He had discovered that without his knowledge or approval, BPU officials had opened a bank account into which $83 million of CEP funds had been deposited.

Investigation Launched

The complaint triggered a Treasury Department audit that found, among other things, that the account should not have been opened, its balance could not be reconciled with expenditures, and the approval of expenditures did not follow standard procedures.

Other program management issues were raised in a Treasury Department audit of the Clean Energy Council, which was first made public in July 2006.

The findings of the Treasury audit prompted the state’s attorney general in late 2004 to launch an investigation of the BPU’s CEP management practices. The investigation is ongoing.

Expense, Inefficiencies Cited

Sara Bluhm, assistant vice president of energy and federal affairs for the New Jersey Business and Industry Association and a member of the Clean Energy Council, said the time has come to critically examine the CEP’s programs.

“Installing renewable energy systems is very expensive, so we need to think about whether greater energy efficiency can be achieved through other methods,” said Bluhm.

“The CEP’s emphasis on residential solar energy systems is particularly inefficient. Instead of building thousands of tiny solar systems, it would make more sense to encourage the construction of large-scale renewable energy systems.” Bluhm added.

It is counterproductive for a program that is supposed to be promoting greater energy efficiency to be pursuing initiatives that are themselves inefficient, Bluhm said.

Gregg M. Edwards ([email protected]) is president of the Center for Policy Research of New Jersey.