Financing Order of the BPU issued June 8, 2006


     

    Exhibit
      10(d)

     

    Agenda
      Date: 
6/7/06

    Agenda
      Item: 
2C  

    

    STATE
      OF NEW JERSEY

    Board
      of Public Utilities

    2
      Gateway Center

    Newark,
      NJ 07102

    www.bpu.state.nj.us

    


    


     

    
      	
              IN
                THE MATTER OF THE PETITION OF JERSEY CENTRAL POWER & LIGHT COMPANY FOR
                A BONDABLE STRANDED COSTS RATE ORDER IN ACCORDANCE WITH N.J.S.A.
                48:3-49
                ET SEQ.;
                TO
                AUTHORIZE THE RECOVERY OF ITS
                BASIC
                GENERATION
                SERVICE (“BGS”) TRANSITION COSTS (INCLUDING FEDERAL,
                STATE AND LOCAL TAX LIABILITIES ASSOCIATED
                THEREWITH);
                TO
                AUTHORIZE THE
                IMPOSITION OF A NON-BYPASSABLE BGS
                TRANSITION BOND CHARGE; TO AUTHORIZE THE
                ISSUANCE AND SALE
                OF
                NOT MORE THAN $204
                MILLION AGGREGATE PRINCIPAL AMOUNT OF BGS
                TRANSITION BONDS IN ONE OR MORE SERIES WITH A
                SCHEDULED AMORTIZATION UPON ISSUANCE OF UP TO
                FIFTEEN (15) YEARS;
                TO
                APPROVE
                THE
                USE OF TRANSITION BOND PROCEEDS TO
                REFINANCE OR RETIRE OUTSTANDING DEBT AND/OR EQUITY AND TO APPROVE
                THE
                FORMULA FOR THE
                CALCULATION AND ADJUSTMENT OF THE
                BGS
                TRANSITION BOND CHARGE AND
                THE
                BGS
                MARKET TRANSITION CHARGE-TAX
                RELATED THERETO.

               

            	
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              OFFICE
                OF THE

              ECONOMIST

               

              BONDABLE
                STRANDED 

              COSTS
                RATE ORDER

               

              BPU
                DOCKET
                NO.

              ER03020133

            


    

    (SERVICE
      LIST
      ATTACHED)

     

    BY
      THE BOARD:

     

    On
      February 14, 2003,
      Jersey Central
      Power & Light Company (“Petitioner” or “JCP&L”)
      filed a
      Petition
      with the Board of
      Public Utilities (“Board” or “BPU”),
      pursuant
      to
      the
      Electric Discount and Energy Competition Act, N.J.S.A.
      48:3-49
et seq.,
      (“EDECA”),
      requesting that the BPU issue an irrevocable Bondable Stranded Costs Rate Order
      (“BSCRO”) for recovery of JCP&L’s Basic Generation Service (“BGS”)
      Transition Costs incurred during the period (“Transition Period”)
      from August 1,
      1999 through July 31, 2003 (“Deferred
      BGS
      Balance”), as well as related tax liabilities, and other related costs.
Specifically,
      Petitioner requested that the BPU
      authorize: (i) the
      imposition of a non-bypassable Transition
      Bond
      Charge (“TBC”),
      as provided in
N.J.S.A.
      48:3-67, and the
      collection of such charge (the “BGS Transition Bond Charge” or “BGS

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    TBC”)
      by JCP&L
      or another entity approved by the Board; (ii) the imposition of a non-bypassable
      BGS
      Market Transition Charge-Tax (“BGS MTC-Tax”)
      to
      recover the federal, state and local tax liabilities associated with the receipt
      of revenue
      from
      billing the
      BGS Transition
      Bond Charge;
      (iii) the sale of
BGS
      Bondable Transition Property (as defined below) to an approved financing entity
      (the “SPE”); (iv) the issuance and sale of not more than $204 million aggregate
      principal amount of transition bonds (“BGS
      Transition
      Bonds”
      or “transition bonds”)
      by the SPE to
      recover JCP&L’s net-of-tax Deferred
      BGS
      Balance,
      as recorded on
      its books as of the end of the month preceding the issuance of the BGS
      Transition Bonds, together with Upfront Transaction Costs (as defined below)
      associated therewith; and (v) the formula for the calculation and adjustment
      of
      the BGS TBC
      and BGS
      MTC-Tax to
provide
      for
      the
      recovery of the principal
      and
      interest on the BGS Transition Bonds, associated costs and
      related tax
      liabilities.

     

    Petitioner
      asserts
      that the proceeds
      of the BGS Transition Bonds (net of Upfront Transaction Costs (as defined below)
      will be used by or on behalf of JCP&L solely for the purpose
      of
      recovering its unamortized
      BGS Transition
      Costs, through the refinancing or retirement of its debt or equity, or
      both.

     

    
      	
              I.

            	
              BACKGROUND
                AND
                PROCEDURAL HISTORY

            


    

     

    Basic
      Generation
      Service
      (“BGS”)
      is a regulated
      electric generation service provided, pursuant to N.J.S.A.
      48:3-57, to any
      electric utility customer that has not chosen an alternative power supplier.
      N.J.S.A.
      48:3-51.
Since
      August 1, 1999, the state’s four electric public utilities (sometimes referred
      herein as “electric distribution companies” or “EDCs”) have been responsible for
      the provision of BGS.
      BGS Transition
      Costs
      are the amounts
      by which
the
      payments
      by an
      EDC for
      the procurement
      of BGS
      supply
      and related
      ancillary and administrative costs have exceeded
      the net revenues
      from the BGS charges
      established by the
      Board,
      pursuant to EDECA, during the Transition Period. Such payments include
      payments
      made
      by an EDC
      pursuant to power
      purchase agreements (“PPAs”) with non-utility generators (“NUGs”), PPAs with
      other utilities and transition power purchase agreements (“TPPAs”) with
      purchasers of an EDC’s generating stations or to suppliers pursuant to a
      competitive procurement process for BGS supply during the Transition
      Period,
      and related
      administrative costs.

     

    The
      Board’s Summary
      and Final Restructuring Orders as to JCP&L1 
      (collectively,
“Restructuring Orders”) provided, among other things, that for the first three
      years of the Transition Period, JCP&L
      would obtain its
      BGS supply from any remaining Company-owned generating assets and purchase
      power
      commitments, including NUG PPAs, utility PPAs and TPPAs, as well as a strategy
      that considered a combination of products including, but not limited to, spot
      market purchases and short-term advance purchases, including financial
      instruments. The Restructuring Orders further provided that JCP&L’s
      BGS supply for
      the fourth and final year of the Transition Period (August 1, 2002-July 31,
      2003) (“Year 4”) would be procured via a competitive bidding process. To the
      extent that JCP&L’s
      prudently
      incurred BGS supply costs exceeded the pre-established BGS prices reflected
      in
      rates during the Transition Period, such costs would be subject to deferral
      and
      subsequent recovery with interest at a Board-approved rate at the end of the
      Transition Period.

     

    
      
        

      

    

    1    I/M/O
      Jersey
      Central Power & Light Company, d/b/a GPU Energy - Rate Unbundling, Stranded
      Cost and Restructuring Filings,
      BPU Dkt. Nos.
      EO97070458 et
      seq.
      (May 24, 1999,
      March 7, 2001).

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    By
      Order dated June 6, 2001, the Board directed JCP&L
      and the other
      three New Jersey EDCs to each file, by June 29, 2001, specific proposals to
      implement a Request for Proposals (“RFP”) process for Year 4 of the Transition
      Period.2 
      On June 29, 2001,
      the four EDCs filed a generic proposal, with individual company-specific
      addenda, recommending that BGS supply be secured by means of a simultaneous,
      multi-round, descending clock auction. By
      Order dated
      December 11, 2001,
      the Board approved
a
      State-wide
      auction process
      for obtaining
      BGS
      supply for
      Year 4
and
      directed New
      Jersey’s four
      EDCs,
      including JCP&L,
      to make
      compliance filings in
      response
      thereto. On December 12, 2001, JCP&L
      made its
      compliance
      filing,
      which
      included,
      among other
      things, a request for approval of its
      proposed
      accounting and cost recovery
      for
      its Year
      4
      BGS
costs,
      including, but
      not limited to, a determination that:
(i)
the
      difference
      between its
      BGS revenue and
      BGS costs would be deferred; (ii)
      interest on
this
      deferral
would
      be accrued pending recovery at a
      rate equal to
the
      yield on seven-year
      constant-maturity
      U.S. Treasury
      notes
      plus 60 basis points;
      and (iii)
there
      existed
      a
presumption
      of
      prudence with respect to the
      reasonableness
      of its
      Year 4
      BGS supply
      costs. By
      Letter Order dated December 14, 2001, the
      Board approved
JCP&L’s
      compliance filing,
      including a presumption of prudence and reasonableness of its Year 4 BGS supply
      costs.

     

    The
      Year 4 BGS
      auction was held in February 2002. By Order dated February 15, 2002, the Board
      certified the final results of the BGS auction in their entirety and approved
      the closing price for each EDC, including JCP&L.

     

    On
      August 1, 2002, JCP&L
      filed a
      petition for
      review and approval of its deferred balances (“deferred balances case”), Docket
      No. ER02080507. In its petition, among other things, JCP&L
      sought
      the
      recovery of its Deferred
      BGS
      Balance
      accumulated during
      the Transition Period.
JCP&L’s
      deferred
      balances case
      was transmitted by
      the Board to the
      Office of
      Administrative Law (“OAL”), and
      was consolidated
      with
      its petition for an increase in and adjustments to its unbundled rates and
      charges for electric service and other charges (“base rate case”), Docket No.
      ER02080506, which was also transmitted to the OAL for hearings. The
      Board
      retained independent
      auditors
      (“Auditors”)
      to perform an
      audit to
      verify the
      amount of
JCP&L’s
deferred
      balances,
      including its Deferred BGS Balance. The Audit was to be performed in two phases,
      the first phase covering the first three years of the Transition Period, and
      the
      second phase (the “Phase II Audit”) covering Year 4.

     

    On
      September 9, 2002, amendments to EDECA were enacted (P.L. 2002, c.84), which
      granted the Board the authority to permit the issuance of transition bonds
      for
      the recovery of up to the full amount of an EDC’s reasonably and prudently
      incurred BGS Transition Costs, as defined in N.J.S.A.
      48:3-51, subject
      to certain criteria being met.

     

    Consolidated
      public
      hearings in JCP&L’s
      base rate,
      deferred balances and related cases were held
      on December
      10,
      2002 and January
      6, March 13 and March 21, 2003.
      Evidentiary
hearings
      concerning the
      deferred balances case
      were held
      on March
5
      and April 28,
      2003. On
      July 2, 2003,
      the Administrative
      Law
      Judge (“ALJ”)
      rendered
an
      Initial
      Decision
      for
      the
      Board’s
      consideration,
      in which she adopted
      the terms of a
      non-unanimous Stipulation of Settlement (“Settlement Proposal”) among
JCP&L
      and various
      parties to the deferred
      balances
      case, the base rate case and certain other proceedings that had been
      consolidated with these cases, which proposed to
      resolve all
      matters in the consolidated dockets (other than a proceeding dealing with
JCP&L’s
      remediation
      adjustment clause, which was the subject of a separate

     

    
      
        

      
2    I/M/O
      the
      Provision of Basic Generation Service pursuant to the Electric Discount and
      Energy Competition Act, N.J.S.A. 48:3-49
      et
      seq.
      BPU Docket Nos.
      EX01050303, EO01100654, EO01100655, EO01100656, and EO001100657 (June 6,
      2001).

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    


    Stipulation
      of
      Settlement), including the deferred
      balances
      case. Supporting Comments, Exceptions and Reply Exceptions to the Initial
      Decision were filed with the Board.

     

    By
      Summary Order in Docket Nos. ER02080506 et
      al.,
      dated August 1,
      2003 (“Summary
      Order”),
the
      Board rejected the Initial Decision and the Settlement Proposal and, instead,
      made various summary findings. Among other things, the Summary Order
      disallowed $152.5
      million of JCP&L’s
      Deferred BGS Balance and authorized JCP&L
      to
      recover
      through
its Market
Transition
      Charge
      (renamed Non-Utility
      Generation Charge (“NGC”)
      effective
      September 1, 2004), on an interim basis, its
      remaining
      projected Deferred
      BGS
      Balance
      of $465.5
      million,
      at an annual
      amount of $48.5 million, exclusive of sales and use tax, subject to a true-up
      to
      reflect
      actual data
      through July
      31,
2003,
      and
      to
      reflect the findings
      of the
Phase
      II Audit
      and a
      recalculation of the
      return on
      Company-owned generation, as well as a
      recalculation of
      interest necessitated by the disallowance and by certain adjustments provided
      for in the Summary Order. Amendments No. 1 and 2 to the Petition filed on
      September 19 and December 1, 2003, respectively, generally reflected the
      foregoing adjustments.

     

    The
      Board issued a
      more detailed Final Order in the consolidated dockets on May 17, 2004 (“Final
      Order”). The Final Order, which superseded the Board’s Summary Order, provided a
      fuller discussion of the issues, as well as the reasoning in support of the
      Board’s determinations.

     

    On
      August 18, 2003, JCP&L had filed with the Board a Motion for Rehearing,
      Reconsideration and Partial Remand of the Summary Order (“Initial Motion”), and
      on June 1, 2004, after issuance of the Final Order, JCP&L filed a
      Supplemental and Amended Motion for Rehearing, Reconsideration and Partial
      Remand (“Supplemental and Amended Motion” and, together with the Initial Motion,
      the “Motion of Rehearing”). Opposing briefs and related submissions in
      connection with both the Initial Motion and the Supplemental and Amended Motion
      were also filed. By a Secretary’s letter dated July 16, 2004, the Board
      confirmed the granting, in part, of JCP&L’s Motion for Rehearing. All of the
      outstanding issues with respect to these proceedings, including the deferred
      balances case, were resolved by a Stipulation of Settlement, dated May 25,
      2005,
      that was approved, with certain modifications, by Board Order dated May 31,
      2005. Among other things, the Stipulation of Settlement and approving Board
      Order provided for JCP&L to provide a rate reduction of $8.0 million
      annually, effective June 1, 2005, “in anticipation of the savings to be realized
      from the securitization” of the Deferred BGS Balance. Thus, JCP&L has
      already passed on to its customers a portion of the savings from the issuance
      of
      the Transition Bonds.

     

    After
      JCP&L
      filed the instant Petition to securitize its Deferred BGS Balance, the Board
      initially retained Bear Stearns & Co. as its financial advisor (“Financial
      Advisor”
      or
“FA”)
      to assist the Board and its Staff in analyzing the petition, and fulfilling
      its
      statutory responsibilities under EDECA with respect to the potential issuance
      of
      BGS Transition Bonds.

     

    At
      a conference convened by Board Staff on November 20, 2003, Board Staff,
      JCP&L and the Division of the Ratepayer Advocate (“Ratepayer Advocate” or
“RPA”) agreed to a procedural schedule. Pursuant to that schedule, as part of
      the filing of Amendment No. 2 to the instant Petition on December 1, 2003,
      JCP&L attached and incorporated by reference excerpts from three pieces of
      testimony that had been previously filed by Michael J. Filippone (direct and
      rebuttal) and Thomas C. Navin (rebuttal), both from JCP&L, in connection
      with its deferred balances and base rate cases. The Ratepayer Advocate prefiled
      the direct testimony of its consultant, James A. Rothschild, on January 16,
      2004.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    On
      or about January 15, 2004, Petitioner published notice of the filing and of
      a
      public hearing to be held on February 5, 2004 in Newark in newspapers circulated
      within its electric service territory.

     

    A
      public hearing was conducted before Commissioner Alter on February 5, 2004.
      No
      members of the public appeared at the public hearing. At the hearing, Messrs.
      Filippone, Navin and Rothschild testified, as did Curtis Probst of Goldman,
      Sachs & Co., the lead underwriter of the proposed bonds, and Ellen Lapson of
      Fitch Ratings, a credit rating agency. In addition, David Rush of Bear Stearns
      & Co., the Financial Advisor to the Board and its Staff in this matter, made
      a brief statement. An opportunity for questioning of the above-referenced
      witnesses by Commissioner Alter and Board Staff was provided. On February 27,
      2004, JCP&L and the Ratepayer Advocate filed post-hearing
      comments.

     

    Subsequently,
      the
      Board determined that it would be advisable to issue a Request for Proposals
      (“FA RFP”) for a Financial Advisor to assist the Board and its Staff during the
      remainder of the process leading to the issuance of the BGS Transition Bonds.
      The FA RFP was issued in December 2005 and, after evaluating the submitted
      proposals, the Board, at its agenda meeting on February 1, 2006, selected Bear
      Stearns & Co. as the Financial Advisor for the remainder of the process.
To
      ensure that the issuance of BGS Transition Bonds would produce maximum benefits
      for JCP&L’s customers, including
      the lowest
      transition bond charges
      consistent with
      market conditions and the terms of this
      Bondable Stranded
      Costs Rate Order,
      the Board
      determined that its Financial Advisor, under the supervision of Board Staff,
      should participate directly and in advance with JCP&L and its underwriters
      in all discussions and negotiations regarding the structuring, marketing, and
      pricing of the BGS Transition Bonds. Notwithstanding the above, the Board,
      acting through its designee pursuant to N.J.S.A.
      48:3-62(c),
      retains ultimate and final authority to approve or disapprove the proposed
      structuring, marketing, and pricing of the BGS Transition Bonds and related
      transactions.

     

    Following
      the
      selection of the Financial Advisor (“FA”), Board Staff met with JCP&L and
      the Ratepayer Advocate and JCP&L was required to update all pertinent
      information with regard to its deferred balance and securitization request.
      In
      light of the time that had lapsed since parties had filed comments in February
      2004, the Ratepayer Advocate was permitted to file additional comments on April
      6, 2006 and JCP&L filed its response to those comments on April 10,
      2006.

     

    
      	
              II.

            	
              THE
                PROPOSED TRANSITION
                BOND TRANSACTION

            


    

     

    
      	 	
              a.

            	
              Proposed
                Structure-Overview

            


    

     

    A
      general description of the Transition
      Bond
      Transaction structure, as proposed by JCP&L
      in its Petition,
      as amended, follows. This proposed structure is subject to modification, subject
      to the terms and conditions of this Order, and depending on the requirements
      of
      tax authorities, input from the Board’s Financial Advisor, input from
      underwriters in conjunction with the marketing of the Transition Bonds, and
      input from the rating agencies selected to assign credit ratings to the
      Transition Bonds. Pricing of the Transition Bonds will be determined by
JCP&L
      in consultation
      with its underwriters and the Financial Advisor, subject to ultimate and final
      approval by the Designee of the Board (the “Designee”), pursuant to the
      requirements of EDECA. The structure and terms of the Transition Bond
      Transaction will be fixed based on such approved pricing.

     

    Pursuant
      to
N.J.S.A.
      48:3-62(a),
N.J.S.A.
      48:3-62(c) and
N.J.S.A. 62(g),
      Petitioner
seeks
      the issuance of a BSCRO, authorizing it
      to securitize the
      unamortized balance of its July 31, 2003 Deferred BGS
Balance,
      net of
      tax,
      together with its
      reasonable
      costs
      incurred in
      issuing
      the

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    


    BGS
      Transition
      Bonds,
      including the Financial Advisor’s fees
      (“Upfront
      Transaction Costs”).3   Petitioner
      requests
      that the BSCRO provide, among other things, for:
      (1)
      the imposition
      of the BGS
      Transition Bond
Charge
      by Petitioner or
      another entity approved by the Board; (2) the imposition of the
related
      BGS
      MTC-Tax to
      recover
      the federal, state
      and local tax
liabilities
      associated with the receipt
      of
revenue
      from
      billing
      the BGS Transition
      Bond Charge; (3) the sale of BGS
      Bondable
      Transition Property
      (as defined
      below),
      together with
      related rights, to
      a
      bankruptcy-remote, special purpose financing entity (“SPE”); (4) the
      issuance and sale of BGS Transition Bonds by the SPE, in the amount approved
      by
      the Board,
      the proceeds of
      which are to be applied to the recovery of
      the unamortized
      balance of
      Petitioner’s
      July 31, 2003
      net-of-tax Deferred
      BGS
      Balance,
      together with
      Upfront Transaction Costs associated
      therewith; and (5) approval of the
      formula
for
      the calculation and adjustment of the
      BGS Transition
      Bond Charge
      and the
BGS
      MTC-Tax to
      provide for
      recovery of the principal
      and
      interest on the BGS Transition Bonds
      and related tax
      liabilities. Petitioner
      requests
      that
      adjustments to the BGS
MTC-Tax
      be made in
      the same manner and at the same time as the BGS
      TBC is
      adjusted.

     

    N.J.S.A.
      48:3-62(c)(3)
      provides that the Board may authorize the issuance of transition bonds for
      the
      recovery of up to the full amount of an EDC’s reasonably and prudently incurred
      BGS Transition Costs based on the criteria that such amount will produce
      benefits to ratepayers, including the lowest BGS transition bond charges
      consistent with market conditions and the terms of the BSCRO. The net proceeds
      of the transition bonds must be used by or on behalf of the EDC solely for
      the
      purpose
      of reducing the
      amount of
      BGS Transition
      Costs through the refinancing or retirement of electric public utility debt
      or
      equity or both. N.J.S.A.
      48:3-62(a).

     

    N.J.S.A.
      48:3-62(g)
      provides that an EDC may make a filing to request the Board to authorize the
      issuance of BGS Transition Bonds and to issue a BSCRO for the recovery of BGS
      Transition Costs. After notice and the opportunity for hearing, the Board may
      render a determination authorizing the issuance of BGS Transition Bonds if
      the
      statutory criteria are met. Prior to such bonds being issued, after the
      structure and pricing of the bonds are known, the Board’s Designee must certify
      that the structure and pricing of the BGS Transition Bonds assure the lowest
      transition bond charges consistent with market conditions and the terms of
      the
      BSCRO. Such certification, when made by the Board’s Designee after the pricing
      of the bonds, is final and uncontestable as of its date.
Id.

     

    On
      February 6, 2002, the Board issued an Order
      in Docket No.
      EF99080615 (the “2002
      BSCRO”),
      authorizing JCP&L
      to recover a
      portion of its stranded generation costs, pursuant to N.J.S.A.
      48:3-62(b) and
      (c), through
      the issuance and
      sale of up to $320 million aggregate principal amount of transition bonds by
      a
      special purpose financing subsidiary of Petitioner.
      The 1999 BSCRO
      also authorized
      the sale of
      Bondable Transition Property,
      as defined by
      EDECA,
      and the imposition of a non-bypassable
      TBC and MTC-Tax,
      and approved a formula
      for the
      calculation and adjustment
      thereof. On June
      11, 2002, Petitioner sold its right, title and interest in the Bondable
      Transition Property to JCP&L
      Transition
      Funding
      LLC (“Transition
      Funding”), a special purpose, bankruptcy remote subsidiary of Petitioner formed
      for
      such purpose,
      and Transition
      Funding issued and sold $320 million of its Transition Bonds,
      Series 2002-A in
      payment therefore (the “2002 Transition Bond Transaction”). JCP&L
      asserts that the
      structure and terms and conditions for which approval is requested in this
      Petition are substantially similar

     

    
      
        

      

    

    3    Petitioner
      initially requested recovery of up to $3.7 million in costs (including, but
      not
      limited to, redemption premiums, unamortized costs of issuance, interest and
      preferred dividends accruing on or after the issuance of the Transition Bonds
      and other fees, costs and charges relating thereto) that it would incur to
      retire its debt or preferred equity, or both (“Capital Reduction Costs”).
      However, Petitioner has since withdrawn its request to securitize its Capital
      Reduction Costs.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    to
      those approved by the Board in the 2002 BSCRO.
      The Board
      emphasizes, however, that its experience with BSCROs has been evolving since
      2002, and that several BSCROs have been issued for other EDCs in the interim
      period. Thus, the Board’s review of this Petition is a de novo review, and its
      Order in this matter will address the specifics of this Petition, as spelled
      out
      and discussed in this Order, and the record developed in this case, without
      reference to, or reliance upon, the 2002 BSCRO.

     

    JCP&L
      asserts that the
      entire amount of the net proceeds received from
      the issuance of
      the BGS Transition Bonds shall be used
      to refinance or
      retire its outstanding debt or equity or both and to pay any accrued interest
      and accrued preferred dividends from the date of issuance of the BGS Transition
      Bonds to the date of retirement, and to pay any premium, unamortized discounts
      and other fees, costs and charges associated with such retirement. Petitioner
      will
      account to the Board for the use of the net proceeds, so as to assure that
      the
      entire savings from the bond issuance is passed on to Petitioner’s electric
      customers, in accordance with N.J.S.A.
      48:3-62(a),
      recognizing that $8 million of annual savings relating to the securitization
      have already been passed on to customers as part of the May 25, 2005 Stipulation
      of Settlement, as discussed above.

     

    
      	 	
              b.

            	
              Proposed
                Structure
                of
                the Transition Bonds
                Transaction

            


    

     

    JCP&L
      asserts that the
      structure of the BGS Transition Bonds proposed in its Petition is
      subject to
      modification, depending upon the requirements of the
      taxing
      authorities, and
input
      from
      underwriters in connection with the marketing of the BGS Transition Bonds and
      credit
      rating
      agencies
      selected by
      Petitioner to assign ratings
      to the BGS
      Transition Bonds. This proposed structure is also subject to modification,
      depending upon input from the Board’s Financial Advisor, and subject to the
      terms and conditions of this Order. Petitioner asserts that the proposed
      structure is intended to minimize debt service costs
      and
      correspondingly
      maximize ratepayer
      savings by
      obtaining the
      best possible rating for the BGS Transition Bonds as asset-backed
      securities
      (“ABS”).

     

    JCP&L
      requests authority
      to securitize
      its July 31, 2003
      net-of-tax
      Deferred
BGS
      Balance
      as recorded
      on its books as of the end of the month preceding the issuance of the BGS
      Transition Bonds, as
      well as its
Upfront
      Transaction
      Costs, as described more fully in Section (c) below.
      Petitioner also
      seeks to recover in the BGS TBC the
      principal and
      interest on the BGS Transition Bonds, together with the costs of paying,
administering
      and
      servicing, credit enhancing
      and
      over-collateralizing
      (if
      necessary)
      the BGS Transition
      Bonds (“Ongoing BGS
Transition
      Bond
      Costs”
      as more fully described in Section (d) below), and in the BGS MTC-Tax, all
      federal and state tax liabilities associated with the BGS Transition Costs
      and
      the collection of the BGS TBC
      (the “Tax
      Component”), as more fully described herein. Petitioner requests
      authority to
use
      the proceeds of
      the BGS Transition Bonds
      to
      recover
      its BGS
      Transition
      Costs, plus
      Upfront
      Transaction Costs. JCP&L
      proposes that the
      BGS Transition Bond Charge be a separate, non-bypassable charge assessed and
      collected from all its customers and/or the customers of any successor
      distribution company within its
      service
      territory
      as such service
      territory exists
      as of the date of
      this Petition, except as provided in N.J.S.A.
      48:3-77.

     

    Petitioner
      asserts
      that the principal
      asset securing
      the BGS Transition
      Bonds will
      be
      the BGS Bondable
      Transition Property created pursuant to this BSCRO.
For
      convenience of
      usage in this BSCRO, there are numerous references to the holding and transfer
      of BGS Bondable Transition Property by JCP&L and others. However, BGS
      Bondable Transition Property arises, and constitutes a vested, presently
      existing property right, only upon (i) its transfer to an assignee and
      (ii) receipt of consideration therefore. It will be vested in the SPE as an
      original

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    right
      and not by assignment from any other entity.
      Petitioner further
asserts
      that pursuant to
N.J.S.A.
      48:3-65, this
BSCRO
      and the BGS
      Transition Bond Charges authorized
      hereby
will
      become irrevocable upon this Order
      becoming
      effective
      in accordance with
      its terms, upon certification by the Designee, and upon written consent of
      Petitioner,
      pursuant to
N.J.S.A.
      48:3-68, and
that
      after it becomes effective, this BSCRO
      cannot be
      rescinded, altered, repealed, modified or amended by the Board or any other
      governmental entity,
      nor impaired by
      the State of New Jersey, pursuant to N.J.S.A.
      48:3-66.

     

    Petitioner
      asserts
      that
      the SPE has been formed as a new,
non-utility,
      bankruptcy-remote special purpose entity,
      wholly owned by
      JCP&L, and that JCP&L will provide the initial capitalization of such
      SPE. Petitioner states that it will sell the BGS Bondable Transition Property
      (as
      herein
      defined)
      to the SPE in a
      transaction which, under N.J.S.A.
      48:3-72, will be a
      legal true sale and absolute transfer to such SPE, and that the SPE will
      constitute a “financing
      entity”
as
      defined in
N.J.S.A.
      48:3-51.

     

    Petitioner
      proposes
      that, in order to
      raise the funds to
      purchase the BGS Bondable Transition Property from JCP&L, the SPE will issue
      and sell BGS Transition Bonds, the net proceeds of which will
      be paid to
      Petitioner. The SPE will issue and
      sell,
as
      asset-backed securities,
      the BGS Transition
      Bonds in one of the following ways: 1) as a negotiated underwritten public
      sale
      in a public offering; 2) in a
      private
      placement;
      or 3) in a limited
      public offering under Rule 144A adopted by the Securities and Exchange
      Commission (“SEC”) under the Securities Act of 1933 (the “Securities Act”).
 JCP&L
      asserts
      that essentially
      all prior securitizations of utility stranded costs or BGS Transition Costs
      in
      New Jersey, including its 2002 Transition Bond Transaction, have been or are
      proposed to be structured as ABS and sold as a negotiated, underwritten public
      sale . To
      the extent that
      it may be more cost-effective to market
      the BGS Transition
      Bond Transaction as a private placement
      or as a
      limited public offering
      under Rule
      144A, Petitioner indicates
      that it
will
      do so. Petitioner
asserts
      that the expertise
      of an underwriter is critical to the structuring, pricing and marketing of
      securities in the ABS market, and, accordingly,
      that such
      underwriter(s)
      will be engaged to
      perform these
      functions,
      subject
      to
      the
      approval of the Board,
      acting through
      its designated Staff with input from the Financial Advisor.
The
      Financial
      Advisor and Goldman, Sachs & Co., the lead underwriter of the
      proposed bonds, have advised Board Staff that each believes an
      underwritten, negotiated public sale is the most common form of marketing
      for highly structured securities like the BGS Transition Bonds and that a
      competitive bid process would not provide a lower BGS TBC than a negotiated
      sale.

     

    Petitioner
      asserts
      that all of the
      assets of the SPE, including, without limitation, the BGS Bondable Transition
      Property and the other collateral of the SPE (the “Other SPE Collateral”), will
      be pledged as collateral to secure the BGS Transition Bonds. Petitioner asserts
      that the Other SPE Collateral may include (without limitation): (1)
      the rights of
      the SPE under the BGS Transition Bond Transaction documents, including a sale
      agreement by which the SPE acquires the BGS Bondable Transition Property and
      receives certain indemnification from the Petitioner; (2)
      a servicing
      agreement by which Petitioner or any successor in that capacity acts as servicer
      of the BGS Bondable Transition Property and
      is responsible
      for the related billing, collection and remittance of the BGS TBC and BGS
      MTC-Tax (the
“Servicer”);
      (3)
      an agreement
      by which
      the SPE will be administered; (4)
      various trust
      accounts and subaccounts held by a Bond Trustee in
      which
      pledged funds of
      the SPE
      will be deposited,
      including, but not limited to, the general subaccount; the capital subaccount,
      the reserve subaccount and the overcollateralization subaccount (if any), which
      together with any additional accounts and subaccounts comprise the collection
      account; (5)
      any investment
      earnings on amounts held by the Bond Trustee (as defined below); (6)
      the equity
      capital of the SPE;
      and (7) any
      hedging agreements entered into in connection with any variable rate
      bonds.
      Petitioner has provided Board Staff and the Board’s

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Financial
      Advisor
      with drafts in substantially final form of the sale agreement, the servicing
      agreement, the administration agreement and the Indenture.

     

    In
      its Petition, JCP&L
      requested
      that
      the Board approve
      the
      issuance of BGS Transition
      Bonds
      with a scheduled amortization not exceeding 15
      years at
the
      time of issuance,
      as permitted
      by N.J.S.A.
      48:3-62(d),
      and with a final
      legal maturity beyond such scheduled maturity in order to comply with the
      structural requirements of the rating agencies, minimize overcollateralization
      requirements (if any) and enhance the prospects of securing the highest possible
      credit rating for the BGS Transition Bonds.
      Petitioner
      proposes to assign different maturities to portions of the bonds (called
“tranching”) to provide a level overall annual cost and permit investors to
      select their preferred investment term. Petitioner asserts that this should
      result in lower interest costs and thus provide a benefit to ratepayers.
      Petitioner
      further
      requests
      that
      the duration of
      the
      BGS
      MTC-Tax be identical to the duration of the BGS Transition Bond
      Charge.

     

    
      	 	
              c.

            	
              Recovery
                of Upfront Transaction
                Costs

            


    

     

    Petitioner
      asserts
      that,
      in order to issue
the
      BGS
      Transition Bonds and to produce benefits
      for its customers,
      it will incur Upfront Transaction Costs.
Upfront
      Transaction
      Costs
      include, among other items, the underwriting spread, marketing expenses,
      advisory fees,
      rating agency
      fees, accounting fees, any SEC registration
      fees
      (assuming a registered public offering), printing and marketing expenses,
      trustee fees, legal fees, the servicer
      set-up fee and the
      administrative cost of forming the SPE. Petitioner
      has
      estimated
      that
      Upfront
      Transaction Costs of up to approximately $3.5
      million would be
      incurred, which amount
      may vary, in part,
      based on the factors described below. 

     

    Petitioner
      requests
      authority to recover the Upfront Transaction Costs from the proceeds of the
      sale
      of the BGS Transition Bonds,
      as authorized by
N.J.S.A.
      48:3-64, and to
      include such costs as Bondable Stranded Costs. JCP&L further asserts
      that
      the right to recover such amounts is
      conveyed
      by
      the
      BGS Bondable Transition Property.
      BGS Transition
      Bond proceeds will be set aside by Petitioner to pay Upfront Transaction Costs,
      exclusive of underwriters’ discount, which will be netted from the proceeds of
      the bonds. Petitioner asserts that actual Upfront Transaction Costs will depend
      upon, among other variables, whether the BGS Transition Bonds are registered
      with the SEC, how many credit ratings are obtained, final legal and trustee
      costs, and final compensation of the Board’s Financial Advisor. Petitioner
      proposes to credit back to ratepayers any excess bond proceeds set aside to
      pay
      Upfront Transaction Costs and not applied for such purpose or to the recovery
      of
JCP&L’s
      Deferred BGS
      Balance
      within 12 months
      of the bond
      issuance
      date.
      To the extent prior payment of
      such costs
is
      made
      by Petitioner,
      Petitioner will
      be
      reimbursed from the proceeds of the BGS Transition Bonds.

     

    
      	 	
              d.

            	
              Recovery
                of Ongoing
                BGS Transition Bond Costs

            


    

     

    Petitioner
      requests
      recovery of the Ongoing
      BGS
      Transition Bond
      Costs through the BGS TBC. Petitioner asserts
      that the primary
      Ongoing BGS
Transition
      Bond
      Costs are the principal and interest on the BGS Transition Bonds. Other Ongoing
      BGS
      Transition
      Bond
      Costs include
      the servicing fee
      of .125% of the initial principal amount of the Transition Bonds (the “Servicing
      Fee”) paid to JCP&L as the Servicer (as defined below), or such higher fee
(of
      up
      to 1.25%) as
      may be payable
      to a successor Servicer subject to Board approval4 ,
      the ongoing cost
      of any

     

    
      

    

    4  Pursuant
      to
N.J.S.A.
      48: 3-71 (f), the
      Board may, at its discretion, establish criteria for the selection of any entity
      that may become a servicer of bondable transition property upon default or
      the
      adverse material change in financial condition of the electric public
      utility. 

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    credit
      enhancement
      and any overcollateralization authorized in this BSCRO and required to obtain
      the highest ratings, and the
      net costs of
      any hedging arrangements entered into in connection with any variable rate
      BGS
      Transition Bonds. 

     

    Petitioner
      asserts
      that there will be
      a small amount of additional Ongoing BGS
Transition
      Bond
      Costs,
      i.e.,
      an administration fee, legal and accounting fees, directors’
      or managers’ fees,
      rating agency fees, and
trustee
      fees,
      an accounting of which will be provided to the Board.
      Petitioner
      asserts that
      such costs are
“bondable stranded costs” pursuant to N.J.S.A.
      48:3-51, and that
the
      right to recover these costs is
      conveyed
      by
      the
      BGS Bondable Transition Property.
      Thus, JCP&L
      contends that
      these costs are includable in
      the BGS TBC in
      accordance with
N.J.S.A.
      48:3-64.

     

    
      	 	
              e.

            	
              Approval
                of Final Terms and Conditions: BGS Transition Bond
                Transaction

            


    

     

    Pursuant
      to the
      2002 amendments to EDECA (P.L. 2002, ch. 84), the Board may authorize the
      issuance of transition bonds for the recovery of up to the full amount of an
      EDC’s reasonably and prudently incurred BGS transition costs, based on the
      criteria that such amount will produce benefits for customers of the EDC, which
      include the lowest transition bond charges consistent with market conditions
      at
      the time of pricing and the terms of the BSCRO. N.J.S.A.
      48:3-62 (c) (3).
      After the
      pricing of the
BGS
      Transition Bonds, when the final terms and pricing are known, in order for
      the
      transaction to proceed,
      the Board or its
      Designee must
      approve the final
      terms and conditions of the BGS Transition Bonds, and must certify that the
      structure and pricing of the BGS Transition Bonds assure
that
      JCP&L’s
      customers will pay the lowest BGS TBC consistent with market conditions at
      the
      time of pricing and the terms of this BSCRO.  N.J.S.A.
      48:3-64(a)(3).

     

    In
      order to assure that the Board and its Designee have all the information that
      they deem necessary to fulfill
      their
      statutory mandates,
      Petitioner will
      fully cooperate with and promptly
      provide
      any
      requested
information
      to
      the
      Board’s
      Designee, Board
      Staff and the
      Financial Advisor.
On
      the day
      the BGS Transition
      Bonds
      are priced,
Petitioner
      will
      file with the Board’s
      Designee a Pricing
      Advice Certificate in
      the form
      of
      Appendix D attached
      to
      this Order.

     

    On
      the day of the Designee’s receipt
      of
      the
      Pricing Advice Certificate,
      the Designee will
      also receive a certification
      from
      the Financial Advisor in a form acceptable to the Designee. In addition, the
      Designee, upon the advice of the Financial Advisor, shall receive certifications
      from the lead underwriter that, in its judgment and subject to the assumptions,
      qualifications and limitations contained therein, the marketing, structuring
      and
      pricing of the BGS Transition Bonds (and any such hedging arrangement) are
      reasonable in the light of then current market conditions and the terms of
      this
      Order and will result in ratepayers paying the lowest BGS TBC consistent with
      then current market conditions and the terms of this Order. Petitioner
      requests
      that after the Board’s Designee has reviewed the filed Pricing
      Advice
      Certificate and other
      certifications required by the Designee
      (at the time of
      the pricing of the BGS Transition Bonds
      and as described
      herein or at such other time as directed by the Designee),
and
      finds them to
      be satisfactory, the
      Board’s
      Designee file with the Board a Certification
      stating
      that the structure
      and pricing of the BGS Transition Bonds assures
      that Petitioner’s
      customers will
pay
      the lowest
BGS
      Transition
      Bond
      Charge consistent with market conditions at the time of pricing and the terms
      of
this
      Order. The proposed Certification by the Designee would also approve
      the terms and
      conditions of the
      BGS
      Transition Bonds,
including
      scheduled
      amortizations of
up
      to 15
      years and final
      legal maturities of up to 17
      years,
if
      required to obtain
      the highest possible credit

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    ratings
      for the BGS
      Transition Bonds;
      semi-annual or
      quarterly payments on the BGS Transition Bonds, depending upon input from rating
      agencies and the FA, tax considerations and market conditions at the time of
      the
      pricing of BGS Transition Bonds; and the
      structuring of
debt
      service on the BGS Transition Bonds upon
      issuance,
      so that the sum of
      the principal
      and
      interest payments on the BGS Transition Bonds, together with certain other
      components of the BGS TBC, will be approximately levelized as in a mortgage
      amortization. The associated BGS MTC-Tax may be adjusted from time to time
      to
      reflect the changing principal and interest components of the debt service
      on
      the BGS Transition Bonds.

     

    
      	 	
              f.

            	
              BGS
                Transition Bond Charge

            


    

     

    Upon
      the issuance of
      the BGS Transition Bonds, Petitioner will include
      the BGS TBC
in
      its charges
      to
ratepayers.
      Petitioner asserts
      that the
right
      to recover
      the
      BGS TBC will constitute
      separate Bondable
      Transition Property and for purposes of Petitioner’s tariff
      will
      be
      separate and
      distinct from the Transition Bond Charge authorized
      by the
      Board’s 2002
      BSCRO. JCP&L
      proposes
      that the
      TBC from the
      2002 BSCRO and the BGS TBC be combined for customer billing and administrative
      purposes, but
      such amounts
will
      be
      separately recorded on its books pending payment to the Bond
      Trustee.
      Similarly,
JCP&L
      proposes that the
      MTC-Tax from the 2002 BSCRO and BGS MTC-Tax be combined for administrative
      and
      billing purposes, but separately recorded on its books and available to the
      Board and its Staff.

     

    Petitioner
      asserts
      that,
      from time to time,
      the BGS TBC will be reset
      by a
      formula to
      a level intended
      to recover the sum of the Ongoing BGS
Transition
      Bond
      Costs, including, without limitation: (i) the principal of (in accordance with
      the Expected Amortization Schedule approved by the Designee after
      the
      pricing of the BGS
      Transition Bonds), and interest on,
      the
      BGS Transition
      Bonds authorized by the Board pursuant
      to
      this
      Order; (ii) the costs of
      administering the
      SPE; (iii) the costs of servicing the BGS Transition Bonds, including servicing
      and trustee fees, expenses and indemnities; (iv) amounts required to fund or
      replenish the overcollateralization account (if any) in accordance with the
      overcollateralization schedule (if any) approved at pricing of the BGS
      Transition Bonds, as
      well as
      reimbursement of any amounts drawn from the SPE’s capital account; and (v) the
      ongoing expenses of any other credit enhancement agreement,
      including any
      amount or termination payment that might become due and payable by the SPE
      as a
      result of any interest hedging agreement entered into in connection with
      floating rate BGS Transition Bonds, if issued. The
      required periodic
      payment of all such amounts, including deficiencies on past due amounts for
      any
      reason, is hereinafter referred
      to
      as
      the
“Periodic Payment Requirement” and the total of such requirements,
      until paid in
      full, is hereinafter referred to as the “Total Payment Requirement.”
      See Appendix
      F.

     

    Petitioner
      proposes
      that the
      BGS MTC-Tax be adjusted at the same time and substantially in the same manner
      as
      the BGS TBC, to recover all taxes incurred in billing the BGS TBC. Petitioner
      proposes
      that the formula used to adjust the BGS TBC and the BGS MTC-Tax consider
      assumptions as may need to be adjusted from time to time, including but not
      limited to energy sales forecasts, customer payment and charge-off patterns,
      defaults by third party suppliers (as described herein), the Periodic Payment
      Requirement and, with respect to the BGS MTC-Tax, the applicable state and
      federal income tax rates in effect from time to time.

     

    Petitioner
      requests
      that the
BGS
      Transition Bond
      Charges remain
      in effect
      until the
      SPE, as owner of
      the BGS Bondable Transition Property, has
      received
sufficient
      funds
      from the
BGS
      Transition Bond
      Charge to
      discharge the
      Total Payment Requirement,
      and
      that the BGS MTC-Tax remain in effect until all associated tax liabilities
      have
      been recovered.

     

    Petitioner
      proposes
      that
      the TBC from the 2002 BSCRO and the BGS-TBC, together with their related MTC-Tax
      charges, be combined with the non-utility generation charge on each
      non-

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    residential
      customer’s bill as a single separate line item. For residential customers, the
      two TBCs, together with their related MTC-Tax charges would be combined with
      the
      customer’s electric distribution charges as a single item. All bills would, in
      addition, contain in text or in a footnote a statement that such
      combined
      charges represent
      Bondable
      Transition Property
      sold pursuant to
      the 2002 BSCRO and BGS Bondable Transition Property sold pursuant to this BSCRO,
      and that such property is
      being collected
by
      Petitioner on
      behalf of the
      SPEs,
      as owners of their
      respective Bondable Transition Property.

     

    
      	 	
              g.

            	
              Periodic
                Adjustments to the BGS Transition Bond Charge and
                MTC-Tax

            


    

     

    N.J.S.A.
      48:3-64(b)
      requires
a
      BSCRO
      to provide
      for
      mandatory periodic adjustments by
      the Board
of
      the
      BGS
      TBC (“True-Up
      Mechanism”) upon
      petition of
the
      affected EDC,
      its assignee or
      financing entity, to conform
      the
      transition bond charges to the schedule of payments and principal and interest
      on the transition bonds previously approved by the Board or its Designee
      pursuant to N.J.S.A.
      48:3-64(a).
      Such
      periodic formulaic
      adjustments
      must be
      made at least annually.
JCP&L
      asserts
      that, as servicer
under
      the Servicing Agreement,
      it will be
      responsible for filing documentation with the Board for any necessary periodic
      adjustments
      which it may
      request the Board to authorize pursuant to this BSCRO. JCP&L
      as
      servicer under the Servicing Agreement and any lawful
successor
      to
      JCP&L as servicer is
      hereinafter
      referred to as the “Servicer.” 

     

    Although
      Petitioner
      expects
      to file for annual
      adjustments,
      it also
      requests
      authorization to
      file more
      frequently
      than annually, i.e.,
      quarterly,
      if
      necessary for
      credit rating purposes. Under
N.J.S.A.
      48:3-64(b),
      the Servicer
      shall propose such
an
      adjustment
      in a filing with
      the Board
      made
      at least 30 days
      in advance of the date upon which the
      adjustment
      is requested to
become
      effective.
      Petitioner
      proposes that any such proposed adjustment shall become effective on an interim
      basis on the date that it is requested to become effective, absent a
      determination of manifest error by the Board, and
      shall become final
      60 days after
      filing,
      absent a Board
      Order to
      the contrary
      finding a
      manifest error.
“Manifest
      error”
means an arithmetic error evident on the
      face
      of the
      filing.

     

    Petitioner
      also
      requests that
      the Board
      authorize
      periodic
      adjustments of the
      BGS
      MTC-Tax.
Such
      adjustments would
      be made at least
      annually to reconcile the revenue
      received
      for income
taxes
      to the income
      taxes required to be paid on the taxable net revenue received
      from
      billing
      the
      BGS Transition Bond Charge. Petitioner
      requests
      that the adjustments be made at the same time and in the same manner as
set
      forth in the
      True-Up
      Mechanism for the BGS Transition Bond Charge
      in order to
assure
      receipt of
sufficient
      funds to
      recover tax liabilities incurred in billing
      the BGS Transition
      Bond Charge. Petitioner also requests that, upon its petition, the BGS
MTC-Tax
      be adjusted based
      upon assumptions described in the formula
      described
      herein,
      as those
      assumptions are adjusted from time to time in accordance with the
      formula
      described
      herein.
      (See Attachment
      3a to Appendix F.) Petitioner asserts
      that a
      delay in the
periodic
      adjustment of the
BGS
      MTC-Tax
      will
      not
      in
      any way adversely affect or
      delay
      implementation of the
      periodic
      adjustment of the
      BGS
      Transition Bond
      Charge described in the preceding paragraph.

     

    Petitioner
      also
      requests authorization to petition
      the Board
      for permission to make
“non-routine”
      adjustments, to accommodate changes to the formula described herein,
      if deemed
      appropriate by Petitioner to remedy a significant and recurring variance between
      actual and expected BGS Transition Bond Charge collections. Petitioner states
      that any such filing would have
      to be


    made
      at least 90
      days prior to the proposed effective date, and could not be implemented without
      prior written Board approval.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Petitioner
      asserts
      that it intends to
      make routine annual and
      quarterly
true-up
      filings for
      the BGS
TBC
      and
the
      BGS
      MTC-Tax.
      By way of
      example, currently, pursuant to the 2002 BSCRO, Petitioner intends to file
      for
      adjustments with respect to the 2002 Transition Bond Transaction annually
      through May 1, 2016, and will file quarterly thereafter commencing August 1,
      2016.

     

    
      	 	
              h.

            	
              Remittance
                of BGS Transition Bond
                Charges

            


    

     

    Petitioner
      proposes
      to remit, in its capacity as Servicer, at least monthly, to the BGS
Transition
      Bond
      trustee (“Bond Trustee”) the revenue
      received
      from billing the
BGS
      Transition Bond
      Charge, based on the collection methodology described
      by
      Petitioner. Petitioner asserts that this methodology is similar to that
approved
      in the
      2002 BSCRO;
      however,
      Petitioner proposes that, in the instant case, if collections are remitted
      less
      frequently than daily, Petitioner will credit ratepayers, not less frequently
      than annually, with an amount equal to the earnings (calculated using the
      average daily federal funds rate during the monthly remittance period) on the
      average daily balances of such collections to (but not including) the remittance
      date to the Bond Trustee. Petitioner asserts
      that, as Servicer,
      it will receive the BGS Transition Bond Charge collections daily and, as
      authorized by N.J.S.A.
      48:3-64(e),
      it
      may commingle BGS
      Transition Bond Charge collections with the 2002 Transition Bond Charge
      collections and with other customer payments until the remittance date to the
      Bond Trustee.

     

    Petitioner
      proposes
      that
      BGS Transition
      Bond Charge
      collections from
      each customer will be applied first to the
      payment of the
      New Jersey Sales and Use Tax, which
      Petitioner
      will collect for
      remittance
      to
      the
      State and not for its own account or that of the SPE, and which are not
“charges” for purposes of the following allocations,
      then to charges
      in arrears, if any, and then to current charges. With respect to each billing
      period, partial payments of a customer’s total electric charges will be
      allocated pro rata, based on the proportions that the aggregate transition
      bond
      charges, the related MTC-Tax and the Petitioner’s other charges bear to the
      total of such electric charges billed, (i) to the BGS Transition Bond Charge
      (or
      for so long as more than one series of transition bonds remains outstanding,
      to
      the aggregate transition bond charges for all series of transition bonds),
      (ii)
      to the BGS MTC-Tax (or for so long as more than one series of transition bonds
      remains outstanding, to the aggregate MTC-Tax for all series of transition
      bonds) and (iii) to the Petitioner’s other charges. For so long as more than one
      series of transition bonds remains outstanding, the portion of the payment
      that
      is allocated to the aggregate transition bond charges and the aggregate MTC-Tax
      will be further allocated among those respective series, pro rata, based on
      the
      amounts owed in respect of the transition bond charge and MTC-Tax related to
      each such series.

     

    Petitioner
      asserts
      that the Bond
      Trustee will retain BGS Transition Bond Charge collections received from
Petitioner,
      as Servicer,
      until the Bond
      Trustee
      pays to the
      appropriate parties scheduled principal and interest payments and all servicing
      fees and ongoing expense payments as well as any unpaid amounts from prior
      payment dates related to the foregoing and any required additions to or
      replenishments of the collection account referred to below. These distributions
      are expected to be made on a quarterly or semi-annual
      basis. Petitioner
      further states that, as described in the Indenture provided to Staff and the
      FA,
      the Bond Trustee will hold all BGS Transition Bond Charge collections received
      between the remittance date and distribution date in the general subaccount
      of a
      collection account, and will invest the funds in the collection account in
      securities that mature on or before the next scheduled distribution date, in
      accordance with rating agency criteria for investment of such funds. The
      investment income

    earned
      in the trust accounts held by the Bond Trustee may be used to satisfy currently
      scheduled interest and principal payments on the BGS Transition Bonds and
      related expenses,
      to distribute to
      the SPE (as a return on equity) an amount equal to interest earnings on the
      

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    capital
      subaccount
      and to satisfy
      scheduled overcollateralization amounts
      (if
      any).
      Any earnings in excess of required amounts in such trust accounts (and
      not
      required to be
      remitted to the SPE as a return on equity)
      will be held in
      the reserve subaccount and will reduce the BGS TBC through the True-Up
      Mechanism.

     

    Petitioner
      proposes
      that, upon
      retirement of all outstanding BGS
Transition
      Bonds
      and payment of any related Ongoing
      BGS
      Transition Bond
      Costs, any remaining amounts held by the Bond Trustee will be released to the
      SPE and ultimately returned to the Petitioner as an equity distribution. At
      that
      time, Petitioner will credit to its customers against their distribution
      charges,
      or in such other
      manner as determined by the Board,
any
      amounts so
      received from the SPE that exceed the sum of (i) the initial amount of the
      equity contribution to the SPE, (ii) the investment earnings on funds in the
      capital subaccount, and (iii) the amount of any unpaid charges in respect of
      the
      BGS MTC-Tax.

     

    
      	 	
              i.

            	
              Credit
                Enhancement

            


    

     

    Petitioner
      proposes
      that the
      BGS Transition
      Bond documents incorporate the True-Up Mechanism authorized by N.J.S.A.
      48:3-64(b),
      as described
      above,
      and
      overcollateralization amounts (if any) or other means of credit enhancement
      as
      required by the rating agencies or taxing authorities, as approved by the Board
      or its Designee.

     

    Petitioner
      proposes
      that
      the Board
      authorize within the BGS TBC an overcollateralization amount to be collected,
      if
      necessary, over time in addition to the principal (in accordance with the
      expected amortization schedule) and interest payable on the BGS
Transition
      Bonds
      and the other Ongoing BGS
Transition
      Bond
      Costs. JCP&L
      proposes
      that it be permitted to determine the overcollateralization amount (if any)
      needed to satisfy the rating agencies, with input from the rating agencies
      and
taxing
      authorities, as
      well as the FA and the underwriter, prior to the time BGS
Transition
      Bonds
      are priced,
      subject to the
      approval of the Designee.
      Petitioner
      anticipates that the overcollateralization amount will not be greater than
      0.5%
      of the initial aggregate principal amount of the BGS Transition
      Bonds.5 
      It is possible
      that the rating agencies may require additional credit enhancement, the terms
      of
      which will be set forth in the Issuance Advice Letter and will be subject to
      the
      approval of the Designee. As with other components of the BGS TBC, the
      overcollateralization component, if any, (and any other credit enhancement)
      will
      be incorporated into each periodic adjustment to the extent necessary using
      the
      True-Up Mechanism to the extent practicable.

     

    Petitioner
      asserts
      that customers
      will receive credit against other
rates
      then in
      effect equal
      to the amount
      of any collateral remaining after satisfaction of the Total Payment Requirement
      less any amount of
      any unpaid charges in respect of the BGS MTC-Tax (and after return of
      Petitioner’s equity, together with interest earnings thereon, as discussed
      above). As a result, overcollateralization, if any is included in the TBC,
      would
      not significantly reduce customer benefits from the BGS Transition Bond
      Transaction.

     

    
      
        	 	
                j.

              	
                Formation
                  of the SPE

              


      

       

    

    Petitioner
      has
      formed the new SPE as a Delaware limited liability company and a wholly-owned,
      non-utility special purpose subsidiary of JCP&L.

     

    
      
        

      

    

    5    JCP&L
      advises
      that its understanding is that under current market conditions
      overcollateralization will not be required. Therefore, at this time it is
      expected that there will not be overcollateralization.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Petitioner
      asserts
      that the
      fundamental organizational documents of the SPE will impose
      significant
      limitations upon the activities of the SPE and the ability of Petitioner to
      take
      actions as the holder of the equity interest therein. For example, the SPE
      will
      be formed for the limited purpose of acquiring the BGS Bondable Transition
      Property and Other SPE Collateral and issuing and selling the BGS Transition
      Bonds and entering into agreements and engaging in other activities that are
      related or incidental to the foregoing and necessary, convenient or advisable
      to
      accomplish the foregoing. It will not be authorized or permitted to engage
      in
      any other activities, and will have no substantial assets other than the BGS
      Bondable Transition Property (as defined below) and the
Other
      SPE
      Collateral.
      If rating agency
      criteria permit, there may only be one independent manager of the
      SPE.

     

    
      	 	
              k.

            	
              BGS
                Bondable Transition
                Property

            


    

     

    Consistent
      with the
      definition in N.J.S.A.
      48:3-51,
      Petitioner’s bondable BGS transition property (the “BGS Bondable Transition
      Property”) will consist of: (1)
      the irrevocable
      right to charge, collect and receive, and be paid from collections of, the
      BGS
      Transition Bond Charge in the amount necessary to provide for the full recovery
      of the
      Total
      Payment Requirement;
(2)
      all rights of
      Petitioner under this BSCRO,
      including without
      limitation,
      all rights to
      obtain periodic adjustments of the BGS TBC pursuant to the True-Up
      Mechanism;
and
      (3)
      all revenues,
      collections, payments, money and proceeds arising under, or with respect to,
      the
      BGS Transition Bond Charge. Pursuant to N.J.S.A.
      48:3-65 and
      48:3-71, only upon receipt of payment for the BGS Bondable Transition Property
      by the Petitioner from the SPE will the BGS Bondable Transition Property
      constitute a vested,
      presently existing
      property right which will continuously exist as property for all purposes until
      the BGS Transition Bonds are paid as provided in EDECA
      and this
Order,
      whether or not the revenues and proceeds arising with respect thereto have
      accrued,
      and
      notwithstanding the fact that the value of the property right may depend upon
      consumers using electricity or the Servicer performing services. The validity
      of
      any sale, assignment or other transfer of the BGS Bondable Transition Property
      will not be defeated or adversely affected by the commingling with
      the
      other funds of
      Petitioner
the
      revenues
      received on
      account of the BGS Bondable Transition Property.

     

    
      	 	
              l.

            	
              Sale
                of BGS Bondable Transition Property to
                SPE

            


    

     

    Petitioner
      requests
that
      the
      Board
      approve the sale of the BGS Bondable Transition Property to the SPE in a
      transaction which, under N.J.S.A.
      48:3-72, will be a
      legal true sale and absolute transfer to the
      SPE,
      notwithstanding any other characterization for federal or state tax, financial
      accounting or other purposes. Petitioner
      proposes
      that the SPE will
      have the statutory rights inherent in the BGS Bondable Transition Property,
      including, among others, the right to exercise, through Petitioner or its
      successor electric public utility,
      any and all rights
      and remedies to collect any amounts payable by any customer with respect to
      the
      BGS TBC and related BGS MTC-Tax.  For
      that purpose,
      the
      SPE will have
      the right to
      direct JCP&L or any successor utility to shut off
      electric power
      to the extent permitted in accordance with law and any applicable
      regulations
      and Board
      Orders.
      The SPE and other
      third parties, however, will not have any right to exercise any direct control
      over the distribution and transmission system of JCP&L or any successor
      electric public utility.

     

    Petitioner
      notes
      that the sale agreement provided to Staff and the FA, which provides for the
      sale and transfer of the BGS Bondable Transition Property to the
      SPE, will include
      representations and warranties with respect to, among other things, the validity
      of this Order
      and the BGS
      Bondable Transition Property and the title thereto, and will
provide
      specific


     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    covenants, indemnities
      and/or
      repurchase obligations in connection with such transfer for the benefit of
      the
      holders of BGS Transition Bonds.

     

    
      	 	
              m.

            	
              Issuance
                of BGS Transition Bonds

            


    

     

    Petitioner
      requests
      that the
      Board approve
      the
      issuance of up to $204 million of BGS Transition Bonds by the SPE. Petitioner
      asserts
      that the
holders
      of the
BGS
      Transition Bonds will, by the
      terms
      of the BGS
      Transition Bonds and the associated transaction documents, have
      recourse only to
      the SPE’s credit and assets, and that
      the BGS
      Transition Bonds will
      be secured
      only by a pledge to the Bond Trustee of all of the rights, title and interest
      of
      the SPE
      in its BGS
      Bondable Transition Property and Other SPE Collateral. Petitioner notes that
      the
      BGS Transition Bonds may be issued in series and classes with different
      maturities.

     

    
      	 	
              n.

            	
              Non-Bypassable
                BGS
                Transition Bond Charge and
                MTC-Tax

            


    

     

    Pursuant
      to
N.J.S.A.
      48:3-67,
      the BGS Transition
      Bond Charge
      and the BGS
      MTC-Tax
      established by the
      Board in this BSCRO will be non-bypassable and will be assessed against and
      collected from all customers of JCP&L or any successor electric public
      utility, except as provided in N.J.S.A.
      48:3-77, within
JCP&L’s
      electric service area (as
      such service
      area exists as of
      the date of
this
      Order),
      until the Total
      Payment Requirement
      is
      discharged in full, even past legal maturity. The
      BGS Transition
      Bond Charge will
      apply equally to
      each customer, regardless of class, based on the amount of electricity delivered
      to the customer through the transmission and distribution system of JCP&L or
      any successor electric public utility that may take over all or a portion of
      JCP&L’s electric service area,
      including
      electricity sold to customers by any third party supplier (“TPS”), as described
      below.
      With respect to on-site generation, N.J.S.A.
      48:3-77(b)
      provides that the BGS TBC will not be imposed on the electricity sold solely
      to
      the on-site customer of an on-site generator. However, N.J.S.A.
      48:3-77(c)
      provides that the BGS-TBC shall be imposed on the generation from on-site
      generation facilities to the extent that on-site generation from facilities
      installed subsequent to July 31, 1999 has displaced customer purchases from
      an
      EDC by an amount such that the kilowatt hours distributed by the EDC have been
      reduced to an amount equal to 92.5 percent of the 1999 kilowatt hours
      distributed by the EDC.

     

    
      	 	
              o.

            	
              Third
                Party Suppliers

            


    

     

    Petitioner
      asserts
      that the billing,
      collection and remittance of the BGS Transition Bond Charge by a third party
      supplier may increase the risk of shortfalls in collections of the BGS
      Transition Bond Charge and
      the
      BGS
      MTC-Tax due
      to
      a
      potential
      default,
      bankruptcy or insolvency of the TPS. It asserts that this could
      increase
      risks to investors, potentially increasing the required credit enhancement
      or
      reducing the credit rating of
      the BGS
      Transition Bonds, thereby potentially
      increasing the
      rate of interest on the
BGS
      Transition
      Bonds that would be required by investors,
      and
      ultimately
      the BGS Transition
      Bond Charge and
      BGS
      MTC-Tax.
In
      order to
      mitigate these
alleged
      risks,
      satisfy rating agency concerns and minimize
      the cost to
      ratepayers, JCP&L proposes that all
      TPSs
      should be required
      to comply with the
      billing, collection and remittance procedures and information access
      requirements set forth below. Petitioner requests that
      the
      Board
      only authorize a TPS to bill and collect the BGS Transition Bond Charge and
      associated BGS
MTC-Tax
      with
      respect to power sold by it for remittance to the Servicer if:  (1)
      such TPS agrees
      to remit the full amount of all charges it bills to customers for services
      provided by Petitioner, together with the BGS Transition Bond Charge
      and
      the BGS
      MTC-Tax,
      regardless of whether payments are received from such customers, within 15
      days
      of Petitioner’s (or any successor Servicer’s) bill for such charges; (2) such
      TPS provides the 

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Servicer
      with total
      monthly kWh usage information for each customer in a timely manner for the
      Servicer to fulfill its obligations, as such information is the basis of such
      remittance; and (3) the Servicer is entitled, within seven days after a default
      by the TPS in remitting any charges payable to Petitioner, including the BGS
      Transition Bond Charge and the
BGS
MTC-Tax
      billed, to
      assume responsibility for billing all charges for services provided by
      Petitioner or any Servicer, including the BGS
Transition
      Bond
      Charge and
      the
      BGS
      MTC-Tax, or to transfer responsibility to a qualifying third party. In addition,
      if and so long as
      such TPS does not
      maintain at least a “Baa2” and “BBB” or
      the
      equivalent
      rating on
      its
      long term unsecured debt
      from Moody’s
      Investors Service or Standard & Poor’s Rating Services, such TPS should be
      required to maintain, with the Servicer or as directed by the Servicer, a cash
      deposit or comparable security equal to two months’ maximum estimated
      collections of all charges payable to the Petitioner, including the BGS
      Transition Bond Charge and the BGS
MTC-Tax,
      as agreed
      upon by Petitioner (or any successor Servicer) and the TPS. In the event of
      a
      default in the remittance of any such charges by a TPS, any shortfall in
      collections of the BGS Transition Bond Charge or the
BGS
MTC-Tax
      by a TPS
      would be included in the periodic adjustment of the BGS Transition Bond Charge
      and
      the
      BGS
      MTC-Tax.

     

    
      	 	
              p.

            	
              Servicing

            


    

     

    Petitioner
      requests
      that,
      pursuant to N.J.S.A.
      48:3-71(f), it be
      authorized to enter into a servicing agreement (“BGS Servicing Agreement”) with
      the SPE, substantially in the form provided to Staff and the FA, to perform
      servicing functions on behalf of the SPE. Details regarding the BGS Servicing
      Agreement, including servicing compensation, are substantially as described
      in
      the Petition and/or in the registration statement filed with the SEC (“SEC
      Filing”), a copy of which in substantially final form has been provided to Staff
      and the RA, or will be described in any offering memorandum relating to the
      sale
      of the BGS Transition Bonds. The Petitioner states that under the Servicing
      Agreement, the Servicer is to receive an annual servicing fee equal to .125%
      of
      the initial aggregate principal amount of the BGS Transition Bonds (the
“Servicing Fee”). The Petitioner also requests that the Board approve a higher
      annual Servicing Fee of any successor Servicer of up to 1.25% of the initial
      aggregate principal balance of all BGS Transition Bonds that the SPE has
      issued.

     

    
      	 	
              q.

            	
              BGS
                MTC-Tax Recoveries

            


    

     

    Petitioner
      requests
      the right to recover the BGS
MTC-Tax
      associated with
      the BGS
Transition
      Bonds
      until the principal of the BGS Transition Bonds is repaid in full.
      The
      BGS
      MTC-Tax will be subject to mandatory periodic adjustments
      (at the same time
      and in the same manner as the BGS Transition Bond Charges) to reconcile the
      revenue
      received
      for the payment of income taxes and/or state corporation business taxes from
      the
      BGS MTC-Tax
      collections
      with the income taxes
      and/or state
      corporation business taxes
      required to be
      paid on the taxable revenue received
      from
      billing
      the
      BGS Transition Bond Charge.
      Petitioner states
      that it will maintain separate accounting for the BGS
MTC-Tax
      collections
      and the BGS TBC
      collections.
      Petitioner asserts that, pursuant to N.J.S.A.48:3-72(a)(4)(c),
its
      billing
      of the BGS MTC-Tax
      and retention thereof until remittance to the appropriate taxing authority
      will
      in no way affect or impair the legal true sale and absolute transfer of the
      BGS
      Bondable Transition Property to the SPE, or otherwise affect the legal rights
      and attributes of the BGS Bondable Transition Property under EDECA.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
      
        	
                III.

              	
                PETITION’S
                  ASSERTED RATEPAYER
                  BENEFITS

              


      

    

     

    As
      set forth in the March 10, 2006 update to Revised Exhibit A - Supplement
      and Exhibit A-1, which had originally been attached to Amendment No. 2 to the
      Petition, JCP&L estimates
      that the issuance
      and sale of the BGS Transition Bonds will produce benefits to its ratepayers
      in
      the form of lower costs than would have been achieved without the issuance
      of
      the BGS Transition Bonds.  Specifically,
      Petitioner
asserts
      that, in
      accordance with N.J.S.A.
      48:3-62(c)(3),
the
      BGS Transition
      Bond Transaction will produce ratepayer benefits by lowering Petitioner’s
      overall cost of capital and minimizing the rate impact as compared to the
      recovery of the Deferred
      BGS
      Balance over four years, even if such four-year recovery were at a debt rate.
      In
      addition, Petitioner asserts that the appropriate comparison for determining
      ratepayer benefits is to compare the costs of securitization as proposed by
      the
      Petitioner and the costs under standard rate base/rate of return recovery,
      i.e.,
      recovery with a carrying cost equal to JCP&L’s overall cost of capital.
      Petitioner argues that this comparison properly recognizes the capital structure
      boundaries that require the Petitioner to provide equity support to maintain
      an
      adequate credit rating and access to reasonably priced funds. JCP&L asserts
      that its proposed securitization transaction would save $52 million on a net
      present value basis (using a 6.87% discount rate), as compared to a four-year
      recovery at a debt rate, and would save $85 million on a net present value
      basis, as compared to an eight-year standard rate base/rate of return
      recovery
      mechanism.
Petitioner
      notes
      that the actual amount of ratepayer benefit resulting from the BGS Transition
      Bond Transaction will depend upon the actual amount of BGS Transition Bonds
      issued, prevailing interest rates, market conditions at the time the
      BGS
      Transition
Bonds
      are priced,
      and the actual
      amount of Upfront
      Transaction
      and Ongoing BGS
      Transition
      Bond
      Costs.
The
      final structuring, marketing, pricing, and
      terms and
      conditions of the BGS
Transition
      Bonds
      will be subject to the approval of the Board and the Designee pursuant to this
      Order.

     

    Petitioner
      also
      notes that $8 million of annual savings relating to the securitization have
      already been passed on to customers as part of the May 25, 2005 Stipulation
      of
      Settlement, as discussed above, and that additional revenue requirements savings
      of as much as approximately $11 million annually, depending on the final
      interest rate and other factors, will be available from the securitization
      to be
      applied to reduce JCP&L’s significant, and growing, post-July 31, 2003
      deferred balance, or as otherwise directed by the Board.

     

    
      	
              IV.

            	
              USE
                OF PROCEEDS

            


    

     

    Petitioner
      states
      that the proceeds, net of underwriting discount, from the sale of the
BGS
      Transition
      Bonds will be remitted to JCP&L
      in consideration
      of JCP&L’s
      sale of its BGS
      Bondable Transition Property. In accordance with N.J.S.A.
      48:3-62(a),
      Petitioner
proposes
      to
      use
      such proceeds, after payment of Upfront Transaction Costs, to refinance
      or
      retire
      its debt or equity, or both.
      Petitioner will
      account to the Board for the use of the net proceeds, so as to assure that
      the
      entire savings from the bond issuance is passed on to JCP&L’s electric
      customers, in accordance with N.J.S.A.
      48:3-62(a),
      recognizing that $8 million of annual savings relating to the securitization
      have already been passed on to customers as part of the May 25, 2005 Stipulation
      of Settlement, as discussed above.

     

    
      	
              V.

            	
              TESTIMONY
                OF THE RATEPAYER ADVOCATE

            


    

     

    In
      his January 16, 2004 testimony, RPA witness James A. Rothschild argued that,
      after taking into account transaction expenses, among other things, recovery
      of
      the Deferred BGS Balance over 15 years at an interest rate equal to 60 basis
      points over the seven-year treasury rate would be preferable to securitization.
      He also argued that a 15-year amortization would

     

    
      
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    produce
      a lower
      annual revenue requirement than a shorter amortization, even though a shorter
      amortization would result in lower total payments. Mr. Rothschild did not think
      that JCP&L’s comparisons of securitization to a shorter-term amortization or
      to a recovery calculation using JCP&L’s overall cost of capital were
      appropriate. Mr. Rothschild recognized that in other proceedings involving
      stranded costs that had previously been in rate base, he had acknowledged that
      a
      carrying cost equal to an EDC’s pre-tax overall cost of capital was appropriate,
      making securitization in such proceedings attractive, but argued that such
      a
      carrying cost was inappropriate for the Deferred BGS Balance. He further
      acknowledged that “knowing what the Board would do in the alternative [to
      securitization] is critical to the decision on whether or not to allow JCP&L
      to securitize” its Deferred BGS Balance, and recognized that securitization
      would produce savings if the alternative were JCP&L’s pre-tax overall cost
      of capital. Mr. Rothschild also argued that any net present value calculation
      could be misleading, but, even if relevant, should use the discount rate of
      customers, not a discount rate based on Petitioner’s cost of capital. Finally,
      Mr. Rothschild addressed the interest rate that should apply to any
      non-securitized amortization, including whether it should be fixed or floating,
      and emphasized benefits of the cash flow that JCP&L will realize from any
      such amortization.

    In
      supplemental testimony submitted on April 6, 2006, Mr. Rothschild reiterated
      most of the positions advanced in his 2004 testimony in the context of updated
      figures that had been provided by JCP&L. Specifically, Mr. Rothschild
      continued to argue that the cost of securitization should be compared against
      the cost of on-balance sheet debt carrying a cost rate equal to the seven-year
      Treasury rate plus 60 basis points.

     

    
      	
              VI.

            	
              COMMENTS
                OF THE PARTIES

            


    

    


    
      	 	
              a)

            	
              RATEPAYER
                ADVOCATE

            


    

    


    In
      its February 27, 2004 comments, the Ratepayer Advocate, relying primarily on
      the
      testimony of its witness, James A. Rothschild, which was summarized above,
      argued that JCP&L’s proposed securitization would not provide tangible
      financial benefits to customers and that JCP&L should, instead, amortize the
      Deferred BGS Balance over 15 years at a seven-year treasury rate plus 60 basis
      points. Again relying on Mr. Rothschild’s testimony, the RPA supported its
      position by arguing that Petitioner’s net present value analysis was based on a
      flawed premise and that Petitioner’s alternative recovery mechanisms based on a
      four-year recovery period or the use of its overall cost of capital as the
      carrying cost were “unreasonable”. The RPA also argued that, even if
      securitization is otherwise permitted, securitization of above market costs
      associated with NUG PPAs would be inconsistent with EDECA and should not be
      permitted. Finally, the Ratepayer Advocate argued that the Board should not
      decide the instant Petition until there was a final order in JCP&L’s
      deferred balances case and the appeal period with respect to such final order
      had expired.

    


    In
      supplemental comments submitted on April 6, 2006, the Ratepayer Advocate
      reiterated its earlier positions. The Ratepayer Advocate also argued that (i)
      the May 25, 2005 Stipulation of Settlement and approving Board Order should
      be
      interpreted to mean that in the absence of securitization JCP&L should be
      required to continue the current 10-year amortization of the deferred balance
      at
      an interest rate equal to the rate on seven-year constant maturity Treasuries
      plus 60 basis points and (ii) securitization should be delayed until the Board
      issued an order definitively adopting the Phase II Audit of JCP&L’s deferred
      balance, covering the period from August 1, 2002 through July 31,
      2003.

     

    
      
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                b)

              	
                JCP&L

              


      

       

    

    In
      its February 27, 2004 comments, JCP&L argued that securitization of above
      market costs associated with NUG PPAs is permitted by EDECA, particularly in
      light of the 2002 amendments to EDECA, because all of the energy purchased
      from
      the NUGs was used to provide BGS and therefore the associated costs, to the
      extent they exceed BGS revenue, constitute BGS Transition Costs. Based in part
      on the testimony of Messrs. Filippone and Navin attached to Amendment No. 2
      to
      the Petition, JCP&L also argued that securitization produces benefits to
      customers based on what it believes is a more appropriate comparison to a
      recovery at a carrying charge equal to the full cost of capital or a recovery
      over a four-year period at a debt rate. JCP&L also disputes Mr. Rothschild’s
      proffered distinction between stranded costs, for which he deems a full cost
      of
      capital recovery to be appropriate, and the Deferred BGS Balance, for which
      he
      argues only a debt rate should be used, noting that both the physical and
      regulatory assets are financed by JCP&L’s overall cost of capital. JCP&L
      also makes note of the credit quality implications of providing for a long-term
      recovery of the Deferred BGS Balance at only a debt rate, relying in part on
      statements made by Ms. Lapson of Fitch Ratings at the February 5, 2004 public
      hearing. Finally, JCP&L notes that, based on Mr. Rothschild’s analysis, it
      would never be economical to securitize any deferred balance, which would render
      the Legislature’s actions in passing, and the Governor’s actions in signing, the
      2002 amendments to EDECA meaningless.

    


    In
      its April 10, 2006 reply to the Ratepayer Advocate’s April 6, 2006 supplemental
      comments, JCP&L reiterated its arguments about the appropriate benchmark to
      which securitization should be compared and argued that, in the context of
      the
      updated figures, securitization produces benefits for customers. JCP&L also
      argued that the Ratepayer Advocate’s interpretation of the May 25, 2005
      Stipulation of Settlement was incorrect and that it meant only that on April
      1,
      2006 JCP&L would begin to earn a higher return, pending resolution of the
      instant petition or a determination of the permanent recovery mechanism in
      the
      event securitization were definitively and finally denied. Moreover, JCP&L
      provided an analysis that demonstrated that even if the Ratepayer Advocate’s
      interpretation (with which JCP&L does not agree) of the Stipulation were
      accepted, i.e., if one accepted the stipulation to mean that in the absence
      of
      securitization JCP&L should be required to continue the current 10-year
      amortization of the deferred balance at an interest rate equal to the rate
      on
      seven-year constant maturity Treasuries plus 60 basis points, securitization
      still produced benefits and net present value savings for customers. JCP&L
      also argued that the Phase II Audit was a financial audit only, without issues
      of prudence, and that confirmation of JCP&L’s figures by the Board-retained
      auditors was sufficient to permit securitization to proceed before definitive
      adoption of the Phase II Audit by the Board, as had been determined at the
      time
      of issuance of the Bondable Stranded Costs Rate Order, dated July 12, 2005,
      in
      Docket No. ER03070532 in connection with Public Service Electric and Gas
      Company’s (“PSE&G”) securitization.

    


    
      	
              VII.

            	
              DISCUSSION
                OF ISSUES

            


    

     

    In
      2002, the Legislature amended EDECA to permit, but not require, the Board to
      authorize the issuance of transition bonds to enable the EDCs to recover
      deferred BGS Transition Costs, as defined in N.J.S.A.
      48:3-51, which
      were incurred by the EDCs to satisfy their obligation to provide customers
      with
      Basic Generation Service, provided that certain conditions are met. N.J.S.A.
      48:3-62(c)(3)
      provides that “the board may authorize the issuance of transition bonds for the
      recovery of up to the full amount of an electric public utility’s reasonably and
      prudently incurred basic generation service transition costs based on the
      criteria that such amount will

     

    
      
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    produce
      benefits
      for customers of the electric pubic utility which include the lowest transition
      bond charges consistent with market conditions and the terms of the [BSCRO].”
 

    


    With
      regard to the
      RPA’s comments on the appropriate benchmark against which to compare
      securitization, the RPA’s proposed use of the seven-year Treasury Rate plus 60
      basis points as a benchmark against which the cost and benefits of
      securitization should be measured is inappropriate. Like previous stipulations
      involving deferred balances, the May 25,
      2005
      Stipulation
      provided that in the event securitization did not occur by March 31, 2006,
      the
      carrying costs would increase to the seven-year Treasury plus 60 basis points
      and be adjusted every year. This paragraph of the stipulation addressed a
      temporary rate of compensation to partially compensate the Company until such
      time as the Board approved securitization or another recovery method and it
      did
      not define or purport to define a benchmark. Furthermore, financing a long-term
      obligation with an adjustable rate as the RPA proposes appears risky in an
      increasing interest rate environment and could have deleterious ratepayer
      effects.

    


    It
      is not appropriate to compare the cost of securitizing stranded costs with
      the
      financing costs associated with issuing JCP&L corporate debt. Unlike
      securitized debt, corporate debt is an obligation of JCP&L and the rating
      agencies view it as such for credit quality purposes. The corporate debt would
      increase JCP&L’s leverage, lower its interest coverage ratios and contribute
      to an overall deterioration in credit quality. In order to maintain equivalent
      credit quality and provide an “apples to apples” comparison when amortizing and
      recovering deferred balances over an extended period of time, the cost of
      securitization debt must be compared to the Company’s weighted average cost of
      capital. The issue of financial integrity is currently of significant concern
      to
      JCP&L and the Board because of the concerns expressed by bidders in the BGS
      auction with regard to the stability of JCP&L’s bond ratings. Bidders have
      suggested that any decline in JCP&L’s credit quality could have a
      deleterious impact on the auction resulting in higher electricity
      prices.

    


    It
      is well-established by the Board’s prior securitization orders that the analysis
      of customer benefits should be based upon a comparison of securitization costs
      to the utility’s overall costs of capital. Recognizing that $8 million of annual
      cost savings have already been provided to ratepayers in anticipation of
      securitization, all cost savings achieved as a result of securitization must
      and
      will be fully and timely passed through to ratepayers, in the form of reduced
      rates or mitigated rate increases, by application to reduction of deferred
      balances or otherwise, consistent with N.J.S.A.
      48:3-62(a).

    


    Rates
      to customers
      will not increase as a result of the issuance of the BGS Transition Bonds.
      In
      fact, as noted above and expressed by JCP&L throughout this proceeding, not
      only does securitization directly mitigate the level of ongoing customer rates,
      as evidenced by the $8 million annual rate reduction already provided to
      customers pursuant to the May 2005 Order, but the Board agrees with the Company
      that it also produces net present value savings as compared to any reasonable
      alternative recovery mechanism. It should also be reiterated that the $8 million
      annual rate reduction already reflected in customer rates was agreed to by
      the
      Company and Board Staff and approved by the Board “in anticipation of the
      savings to be realized from [this] securitization.” (May 2005 Order at 9).
      Moreover, according to the Company, additional revenue requirement savings
      of as
      much as approximately $11 million annually, depending on the final interest
      rate
      and other factors, will be available from securitization to be applied to reduce
      JCP&L’s post-July 31, 2003 deferred balance, or as otherwise directed by the
      Board. Based
      on the record
      that has been developed in this proceeding, the Board HEREBY FINDS, that,
      consistent with N.J.S.A.
      48:3-62(c)(3), the
      BGS Transition Bond Transaction, after taking into account a reasonable level
      of
Upfront
      Transaction

     

    
      
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    Costs,
      should produce
positive
      benefits
      to customers, including the lowest BGS Transition Bond Charge consistent with
      market 

    onditions
      and the
      terms of this Order. 

     

    With
      respect to the
      RPA’s concerns about securitizing certain portions of the deferred balance which
      it contends are still being reviewed in the context of the audit of JCP&L’s
      deferred balance for the fourth and final year of the transition period
      (JCP&L Phase II Audit), at the Board Agenda Meeting in which the Board
      considered this matter, the Board also adopted the recommendations of its
      auditors in the JCP&L Phase II Audit, bringing that proceeding to a close.
      To the extent the Phase II Audit proceeding is implicated here, the Board
HEREBY
      ORDERS
      that the final
      dollar amount securitized herein be consistent with the findings of its
      independent outside auditors in the JCP&L Phase II Audit. 

    


    The
      RPA has also
      raised concerns about the Board’s authority under EDECA to authorize the
      securitization of above-market NUG costs. Pursuant to N.J.S.A.
      48:3-62a., the
      Board is statutorily permitted to allow securitization of all BGS transition
      costs. “BGS transition costs” include costs associated with contracts entered
      into with NUGs. N.J.S.A.
      48:3-51. Moreover,
      in the definition of “BGS transition costs,” EDECA specifically indicates that
      the costs “shall include, but are not limited to,” the costs specifically
      identified in the statute. So long as the costs are “reasonable and prudent” and
      securitization will produce benefits for customers, EDECA authorizes the Board
      to allow securitization of NUG costs. N.J.S.A.
      48:3-62.


    


    Although
      in its
      February 27, 2004 post-hearing comments in this matter, the RPA contends that
      language in N.J.S.A.
      48:3-57 indicating
      that power procured for BGS must be purchased at prices “consistent with market
      conditions” somehow prohibits securitization of above-market NUG costs, the
      Board considers this to be a flawed reading of EDECA. This section of EDECA
      clearly deals with power purchases on a going forward or “continued” basis.
      EDECA and, by extension, the Board both recognize that the utilities entered
      into long-term NUG contracts pre-EDECA. Nothing in EDECA prohibits the Board
      from recognizing these costs which clearly were not entered into “consistent
      with market conditions” existing at the time of the passage of EDECA because
      they were entered into in most cases before EDECA was even drafted. In fact,
      as
      previously indicated, N.J.S.A.
      48:3-62 and
N.J.S.A.
      48:3-51
      specifically recognize these costs and allow for securitization where the Board
      deems it appropriate. As previously indicated, the record presented demonstrates
      clear benefits to the ratepayers from this securitization. The inclusion of
      the
      above-market NUG costs in the securitizable amount increases the financial
      integrity and, most importantly, the rate reduction benefits to customers.
      Accordingly, the Board HEREBY FINDS
      that the
      securitization of BGS Transition Costs, including the above-market NUG costs
      requested herein, are appropriate in this case.   

    


    It
      should be noted that, pursuant to the Board’s Order in I/M/O
      the Joint
      Petition of FirstEnergy Corp. and Jersey Central Power & Light Company,
      d/b/a GPU Energy, for Approval of a Change in Ownership and Acquisition of
      Control of a New Jersey Public Utility and Other Relief,
      BPU Docket No.
      EM00110870 dated October 9, 2001 at 23, para. 21, JCP&L remains obligated to
      submit quarterly reports documenting its progress in mitigating its NUG contract
      obligations. To date, the Board recognizes that JCP&L has been making
      efforts in this regard. Should these efforts not be pursued with the same level
      of diligence because JCP&L has received recognition of above-market NUG
      costs in this filing or for any other reason, the Board will address this either
      immediately or in the Company’s next rate filing. The Board HEREBY REAFFIRMS
      its order that
      JCP&L continue earnestly pursuing cost saving efforts associated with
      reducing or eliminating long-term NUG obligations entered into
      pre-EDECA. 

     

    
      
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    The
      full amount of
      JCP&L’s Deferred BGS Balance at July 31, 2003 constitutes Basic Generation
      Service Transition Costs eligible for securitization because such amount
      represents the amount by which JCP&L’s payments for the procurement of power
      for BGS and related ancillary and administrative costs exceed JCP&L’s net
      BGS revenues. In particular, JCP&L used the power purchased under its NUG
      PPAs, directly or indirectly, to provide BGS to its customers, as required
      by
      the Board in the Restructuring Orders [see ¶7, at 104 (“a portion of the energy
      and capacity for BGS will be obtained from . . . NUG PPAs”)].

     

    On
      April 21, 2006, in response to a verbal information request by Staff on April
      18, 2006, JCP&L provided a projection of its outstanding deferred balance
      through June 30, 2006. This projection included $9 million of Oyster Creek
      and
      Other Stranded Costs. Following discussions between Staff and the Company,
      the
      Company removed those costs from the securitizable balance. This exclusion
      is
      consistent with the securitizable balances allowed for PSE&G and Rockland
      Electric Company. Consequently, the amount JCP&L requests to securitize is
“up to” $180 million plus $3.5 million in transaction costs. 

     

    Thus,
      in light of
      the specific facts of this case, the Board considers it in the public interest
      to approve the securitization of the net-of-tax Deferred BGS Balance hereinafter
      discussed, pursuant to the relevant provisions of EDECA.

    


    Any
      issues
      regarding the carrying charge to be used in connection with the recovery of
      the
      Deferred BGS Balance if the Board rejects the concept of securitization have
      been rendered moot by the Board's findings below authorizing the securitization
      of the Deferred BGS Balance.

    


    Based
      on its review
      of the record in this proceeding, including the testimony, discovery,
      information developed in hearing and comments filed, the Board FINDS that
      securitization of the Deferred BGS Balance as described herein will result
      in
      lower costs to ratepayers than other methods of recovery and is in the public
      interest.

     

    
      	
              VIII.

            	
              FINDINGS
                WITH RESPECT TO PETITION

            


    

     

    Based
      on
its
      review of the record of proceedings in this matter,
      the
      Board HEREBY FINDS:

     

    Recovery
      of Costs

     

    1. 
The
      Board’s
      Restructuring Orders provided, among other things, that for the first three
      years of the Transition Period, JCP&L
      would obtain its
      BGS supply from any remaining Company-owned generating assets and purchase
      power
      commitments, including NUG PPAs, utility PPAs and TPPAs, as well as a strategy
      that considered a combination of products including, but not limited to, spot
      market purchases and short-term advance purchases, including financial
      instruments. The Restructuring Orders further provided that JCP&L’s
      BGS supply for
      Year 4 of the Transition Period (August 1, 2002-July 31, 2003) would be procured
      via a competitive bidding process. To the extent JCP&L’s prudently incurred
      BGS supply costs exceeded the pre-established BGS prices reflected in rates,
      such costs would be subject to deferral and subsequent recovery with interest
      at
      a Board-approved rate at the end of the Transition Period.

     

    
      
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    2. 
By
      Order dated
      December 11, 2001,
      the Board approved
a
      State-wide
      auction process
      for obtaining
      BGS
      supply for
      Year 4
and
      directed JCP&L
      to make a
      compliance filing in
      response
      thereto.

     

    3.      On
      December 12,
      2001, JCP&L made its
      compliance
      filing,
      which
      included,
      among other
      things, a request for approval of its
      accounting and
      cost recovery proposed
      for
      its Year
      4
      BGS
costs,
      including, but
      not limited to, a determination that:
      (i)
      the difference between JCP&L’s
      BGS revenue and
      BGS costs would be deferred; (ii)
      interest on
this
      deferral
would
      be accrued pending recovery at a
      rate equal to
the
      yield on seven-year
      constant-maturity
      U.S.
      Treasury
      notes
      plus 60 basis points;
      and (iii)
there
      existed
      a presumption of
      prudence with respect to the
      reasonableness
      of JCP&L’s
      Year 4 BGS supply
      costs. By Letter Order dated December 14, 2001,
      the Board approved
      Petitioner’s
      compliance
      filing, including the presumption of prudence and the reasonableness of its
      Year
      4 BGS supply costs. 

     

    4.     By
      Order dated
      February 15, 2002, the Board certified the final results of the BGS auction
      in
      their entirety and approved the closing prices resulting therefrom, including
      those for JCP&L.

     

    5.     On
      August 1, 2002,
JCP&L
      filed a petition
      to recover its deferred balances, including the recovery of its Deferred BGS
      Balance accumulated during the Transition Period. Shortly thereafter, the Board
      retained independent auditors to perform an audit to verify the amount of
      Petitioner’s deferred balances in two phases, the Phase I Audit covering the
      first three years of the Transition Period, and the Phase II Audit covering
      Year
      4.

     

    6.     By
      Summary Order
      dated August 1, 2003, as superseded by Final Order dated May 17, 2004, the
      Board, among other things, authorized Petitioner to recover through its Market
      Transition
      Charge
      (renamed Non-Utility
      Generation Charge (“NGC”)
      effective
      September 1, 2004), its
      projected
      Deferred
      BGS
      Balance
      of $465.5 million
      remaining after a mandated write-off, exclusive of sales and use tax, subject
      to
      a true-up to
      reflect
      actual data
      through July
      31,
2003,
      and
      to
      reflect the findings
      of the
Phase
      II Audit and a recalculation of the return on Company-owned generation, as
      well
      as a recalculation of interest necessitated by the disallowance and by certain
      adjustments provided for in the Summary Order. 
      The Phase II Audit
      has not been completed, and remains subject to comments from the Ratepayer
      Advocate; however, the outstanding issues do not include the prudence of
      Petitioner’s Year 4 BGS supply costs.

     

    7.     Petitioner
      seeks to
      recover the costs reflected in its Deferred BGS Balance through the proceeds
      of
      BGS Transition Bonds. All of these costs constitute BGS Transition Costs as
      defined in EDECA, as amended.

     

    8.     In
      addition,
      Petitioner seeks to recover through the proceeds of BGS
      Transition
      Bonds,
      Upfront Transaction Costs
      not to exceed $3.5
      million.

     

    9.     Pursuant
      to
N.J.S.A.
      48:3-62(c)(3),
      the Board may authorize the issuance of transition bonds for recovery of up
      to
      the full amount of an electric public utility’s reasonable and prudently
      incurred BGS Transition Costs, subject to certain conditions.

     

    10.    The
      amount which
      JCP&L is authorized to recover through the issuance of BGS Transition Bonds
      shall not exceed its actual July 31, 2003 net-of-tax Deferred BGS Balance,
      as
      recorded on its books as of the end of the month preceding the issuance of
      the
      BGS Transition

     

    
      
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    Bonds,
      projected to be $180 million as of June 30, 2006, plus Upfront Transaction
      Costs
      of no more than $3.5 million.

     

    11.    The
      Bondable Stranded
      Costs associated with the BGS Transition Bonds (including ongoing principal
      and
      interest on the bonds and other Bondable Stranded Costs discussed in this BSCRO)
      shall be recovered through the non-bypassable BGS TBC. Petitioner shall
      be
      entitled to recover all
      tax liabilities
      associated with the collection of the BGS TBC (including
      federal income and
      state corporate business taxes)
      through a
      separate BGS MTC-Tax until the BGS Transition Bonds and Bondable Stranded Costs
      have been paid in full, and the BGS MTC-Tax
      related to BGS
      Transition Bond Transaction
      shall be adjusted
      at the same time and in the same manner as the BGS TBC is adjusted as addressed
      in this Order.

     

    Benefits
      for Customers

     

    12.     In
      accordance with
N.J.S.A.
      48:3-62(c)(3),
      the BGS
      Transition Bond Transaction, after taking into account the Upfront
      Transaction
      Costs,
      will produce
positive
      benefits
      to customers, including the lowest BGS Transition Bond Charge consistent with
      market conditions at the time of pricing and the terms of this Order.
      Rates to
      customers will not increase as a result of the issuance of the BGS Transition
      Bonds. In fact, $8 million of annual savings relating to the securitization
      have
      already been provided to customers as part of the Board-approved May 25, 2005
      Stipulation of Settlement and additional revenue requirements savings of as
      much
      as approximately $11 million annually, depending on the final interest rate
      and
      other factors, will be available from the securitization to be applied to reduce
      JCP&L’s significant, and growing, post-July 31, 2003 deferred balance, or as
      otherwise directed by the Board. Benefits will also include lower costs than
      would have been achieved under certain alternative recovery scenarios in the
      absence of the issuance of the BGS Transition Bonds. Recognizing that $8 million
      of annual cost savings have already been provided to ratepayers in anticipation
      of securitization, all cost savings shall be fully and timely passed through
      to
      ratepayers, in the form of reduced rates or mitigated rate increases, by
      application to reduction of deferred balances or otherwise, consistent with
      N.J.S.A.
      48:3-62(a).

     

    13.    The
      formula used to
      calculate the initial BGS Transition Bond Charge and the periodic adjustments
      thereto as described in Attachments A-2 and A-3 to Appendix
      F attached
      hereto and
      in Appendix
F
      hereto are
reasonable,
      and
      adherence thereto will provide assurance that customers will pay the lowest
      BGS
      Transition Bond Charge consistent with market conditions at the time of pricing
      and the terms of this BSCRO,
      in compliance
      with N.J.S.A.
      48:3-62(c)(3).
The
      standard for
      the Board to use in making periodic adjustments of the BGS Transition Bond
      Charge final shall
      be
      the
      absence of a manifest error (i.e., an arithmetic error evident on the face
      of
      the filing) in the application of the BGS Transition Bond Charge adjustment
      formula, which standard the Board finds consistent with N.J.S.A.
      48:3-64(b)
      and the
      achievement of the lowest possible interest cost on the BGS
Transition
      Bonds.
The
      estimate of the initial BGS Transition Bond Charge, determined in accordance
      with Appendix F
      attached
      hereto,
      and the
      assumptions used in calculating the initial BGS Transition Bond Charge,
      are
      reasonable. The
      request of the
Petitioner
      that it
      be authorized
      to make
      non-routine adjustments of the BGS Transition Bond Charge formula as described
      in paragraph II(f) hereof,
      subject to
      Board approval,
      is
      reasonable.

     

    Structuring
      and Pricing

     

    14.    To
      ensure that the
      issuance of the BGS Transition Bonds will produce maximum benefits for
      Petitioner’s customers, including the lowest transition bond charges consistent
      with

     

    
      
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        25

        
          

        

      

      
        
        

      

    

     

    market
      conditions
      at the time of pricing and the terms of this Bondable Stranded Costs Rate Order,
      the Board has determined that its Financial Advisor, Bear Stearns & Co.,
      under the supervision of Board Staff and the Board’s Designee, will participate
      directly and in advance with Petitioner in all discussions and negotiations
      regarding the structuring, marketing, and pricing of the BGS Transition
      Bonds.

     

    15.    The
      Board, acting
      through its Designee pursuant to N.J.S.A.
      48:3-62(c),
      retains ultimate authority to approve or disapprove the proposed structuring,
      marketing, and pricing of the BGS Transition Bonds and related
      transactions.

     

    16.    The
      procedures
      established in this BSCRO
      relating to the
      final approval of the structuring and
      pricing of the
      BGS Transition Bonds assure
      that, in
      accordance with N.J.S.A.
      48:3-62(c)(3),
      Petitioner’s
      customers will pay the lowest Transition Bond Charges consistent with market
      conditions at the time of pricing and the terms of this BSCRO.
      As authorized
      herein by the Board and in
      full
      satisfaction
      of the
requirements
      of N.J.S.A.
      48:3-62(g)
      and N.J.S.A.
      48:3-64(a)(3),
      the
      structuring
      and pricing of the
      BGS Transition Bonds will
      be
      conclusively deemed to satisfy the requirements of N.J.S.A.
      48:3-62(c)(3),
      and the terms
      and conditions of the BGS Transition Bond financing shall be conclusively
      approved if so certified by the Designee upon the pricing of the BGS
Transition
      Bonds.

     

    17.    In
      order to assure
      that the Designee has all the information that he or she deems necessary to
      issue its certification, Petitioner shall cooperate with and timely provide
      any
      and all requested information to the Designee, Board Staff and the Board’s
      Financial Advisor.

     

    18.    The
      formation of
      the SPE by Petitioner, the capitalization of the SPE by Petitioner, the sale
      by
      Petitioner to the SPE of its BGS Bondable Transition Property, the providing
      of
      overcollateralization (if necessary) as described herein and as approved in
      the
      Designee Certification
      and the entering
      into a servicing agreement, subject to our finding in paragraph 21 below, an
      administration agreement, a sale agreement, an Indenture, other agreements
      and
      transactions by Petitioner and the SPE,
      all
      substantially as
      described in the Petition and/or
      in the SEC
      Filing or offering memoranda, substantially final versions of the most
      significant of which have been provided to Staff and the FA, are
      reasonable and
      necessary.

     

    19.    The
      methodology for
      the remittance of the BGS Transition Bond Charge described in the
      Petition
      will satisfy the
      requirements of N.J.S.A.
      48:3-62 and is a
      reasonable means of undertaking the remittance of this charge.

     

    20.    Subject
      to other
      provisions of this BSCRO, the Servicing Fee to be paid to
      the Petitioner
in
      its
      role as
      Servicer as
      described herein
      appears to
      be reasonable. However,
      if the
      Servicing Fee is greater than the actual incremental costs to service the BGS
      Bondable Transition Property, other rates of the Petitioner shall be
      adjusted,
      or such amounts
      shall be applied to reduce
      JCP&L’s
      continuing deferred balance accumulation,
      to reflect the
      difference between actual servicing costs and the Servicing Fee. The
      Board finds the
      higher annual servicing fee of any successor Servicer of up to 1.25% of the
      initial principal balance of all BGS Transition Bonds that the SPE has issued,
      is
      reasonable.6 

     

    
      

    

    6    The
      naming of a
      Successor Servicer which may cause a higher Servicing Fee up to a maximum 1.25%
      (125 basis points) applies only in the case of a default by the original
      Servicer. It shall not be construed to be triggered by other changes in
      corporate structure or function such as the transfer of functions to sister
      or
      subsidiary companies, voluntary outsourcing or merger or acquisition of the
      Servicer.

     

    
      
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    21.     The
BGS
      TBC
      and MTC-Tax
      billing, collection and remittance procedures imposed upon any TPS as set forth
      in the Petition are reasonable.

     

    22.     The
Upfront
      Transaction
      Costs, not to exceed $3.5 million, are reasonable and recoverable by the
      Petitioner as Bondable Stranded Costs through the proceeds of the BGS Transition
      Bonds consistent with EDECA.

     

    23.     The
recovery
      of Ongoing
      BGS Transition Bond Costs through
      the BGS TBC
as
      described
      in
      this BSCRO
      is reasonable and
      consistent with
      EDECA. The
      collection of the BGS TBC (and the remittance thereof to the Bond Trustee on
      behalf of the SPE) until payment in full of the BGS Transition Bonds is
      reasonable and permitted under
      EDECA.

     

    24.     The
      scheduled
      amortization upon issuance for the BGS Transition Bonds of
      up to 15
      years and the
      stated maturity of the BGS Transition Bonds of
      up to two
      additional years following the scheduled amortization is
      reasonable and
      permitted under EDECA.

     

    25.     The
      issuance of
      series and classes of BGS Transition Bonds by the SPE in a negotiated
      transaction in an aggregate principal amount not to exceed Petitioner’s
      actual July 31,
      2003 net-of-tax Deferred BGS Balance
      as recorded on its
      books as of the end of the month preceding the issuance of the BGS Transition
      Bonds, plus Upfront
      Transaction
      Costs not
      to exceed $3.5
      million,
      is reasonable and
      consistent with EDECA and with this BSCRO.

     

    26.     The
      True-Up
      Mechanism to obtain adjustments to the BGS
Transition
      Bond
      Charge and the BGS MTC-Tax described hereinabove and set forth in Appendices
      C
      and F
      hereof is
      reasonable.

     

    Use
      of
      Proceeds

     

    27.     Petitioner’s
      proposed application of the net proceeds of the BGS
Transition
      Bonds as
      described herein is reasonable and consistent with EDECA. 

     

    Regulatory
      Compliance

     

    28.     In
      light of the
      specific provisions of EDECA governing the Transition Bond Transaction,
      JCP&L’s Petition is found to comply with N.J.A.C.
      14:1-5.6 and
      -14:1-5.9,
      to the extent
      either
      regulation
      might be deemed
      applicable.

     

    29.     Petitioner’s
      undertaking with respect to amortization of the discount, if any, on the
      Transition Bonds shall comply with N.J.A.C.
      14:1-5.9A.

     

    Periodic
      Adjustment of the BGS MTC-Tax

     

    30.     The
      MTC-Tax will be
      subject to mandatory periodic adjustment at the same time and in substantially
      the same manner as adjustments to the BGS Transition Bond Charge to reconcile
      the revenue received for income taxes to the income taxes required to be paid
      on
      the taxable net revenue received from billing the BGS Transition Bond Charge;
      provided, however, the Petitioner makes reasonable efforts to utilize any and
      all deductions to taxable income for which it may be eligible with respect
      to
      the securitization transaction, now or in the future, whether or not such
      deductions are contained in the formula presented by JCP&L in its Petition,
      so that the MTC-Tax does not result in the overrecovery or underrecovery of
      taxes to the

     

    
      
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      Petitioner. 
        The Board finds that if that the amortization of Upfront Transaction Costs
        creates one such deduction, the formula must be modified to incorporate such
        a
        determination.

       

      IX. ORDERS

       

      Based
        on the
        foregoing, the record of proceedings on the Petition, and the provisions
        of
        EDECA, the Board HEREBY ORDERS:

       

      1. 
             Petitioner's
        request for a BSCRO pursuant to N.J.S.A.
        48:3-62 is
        approved subject to the terms and conditions stated herein.

       

      2.  
            The
        Board hereby
        authorizes Petitioner to recover no July 31, 2003 net-of-tax Deferred BGS
        Balance, as recorded on its books as of the end of the month preceding the
        issuance of the BGS Transition Bonds, together with Upfront Transaction Costs
        not to exceed $3.6 million, through the issuance of BGS Transition
        Bonds.

       

      3. 
             The
        Board hereby
        approves the formula for the calculation and adjustment of the BGS Transition
        Bond Charge and the BGS MTC-Tax, in accordance with the Board's Findings
        herein.

       

      4. 
             The
        issuance of BGS
        Transition Bonds in an aggregate principal amount up to $180 million, not
        to
        exceed the Petitioner's July 31, 2003 net-of-tax Deferred BGS Balance as
        recorded on its books as of the end of the month preceding the issuance of
        the
        BGS Transition Bonds, plus Upfront Transaction Costs not to exceed $3.5 million,
        is authorized.

       

      Bondable
        Transition Property, BGS Transition Bond Charge and BGS
        MTC-Tax

       

      5. 
             The
        sale by the
        Petitioner to the SPE of the BGS Bondable Transition Property is
        authorized.

       

      6.       The
        BGS Transition
        Bond Charge and the BGS MTC-Tax will be assessed against all existing and
        future
        electric customers of Petitioner or any successor within the service area
        of
        Petitioner (as such service territory exists on the date of this Order),
        except
        as provided in N.J.S.A.
        48:3-77, and will
        apply equally to each customer of Petitioner, regardless of class, based
        on the
        amount of electricity delivered to the customer (whether purchased from the
        Petitioner or a TPS) through the transmission and distribution system of
        Petitioner or any successor electric public utility who may take over all
        or a
        portion of the Petitioner's service area. Pursuant to N.J.S.A.
        4B:3-77, the BGS
        TBC and the BGS MTC-Tax shall be imposed on the power produced by on-site
        generators only under the circumstances specified therein.

       

      7.       The
        BGS Transition
        Bond Charge will be set at a level sufficient to recover the Total Payment
        Requirements. The BGS MTC-Tax will be set at a level sufficient to recover
        the
        Tax Component. The BGS Transition Bond Charge and the BGS MTC-Tax will remain,
        in effect until the SPE, as owner of the BGS Bondable Transition Property,
        has
        received collections in respect of the BGS Transition Bond Charge sufficient
        to
        recover the Total Payment Requirements and Petitioner has recovered the Tax
        Component, even if past final maturity.

       

    

    
      
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    8.     Pursuant
      to EDECA,
upon
      transfer by JCP&L of its interest in BGS Bondable Transition Property,
      receipt of consideration therefore by JCP&L and acquisition of such BGS
      Bondable Transition Property by the SPE, and only upon such transfer, receipt
      and acquisition,
      there will be
      created and established for the benefit of the SPE in accordance herewith BGS
      Bondable Transition Property consisting of the irrevocable right to charge,
      collect and receive, and be paid from collections of, the BGS Transition Bond
      Charge in the amount necessary to meet the Total Payment Requirements, all
      rights of Petitioner to the BGS Bondable Transition Property under this Order
      with respect to the BGS Transition Bond Charge,
      including without
      limitation, all rights to obtain periodic adjustments of the BGS Transition
      Bond
      Charge pursuant to N.J.S.A.
      48:3-64, and all
      revenues, collections, payments, money and proceeds arising under, or with
      respect to, all of the foregoing.

     

    9.    Pursuant
      to
N.J.S.A.
      48:3-65, once this
      Order becomes effective pursuant to N.J.S.A.
      48:3-68, neither
      the Board nor any other governmental entity will have the authority, directly
      or
      indirectly, legally or equitably, to rescind, alter, repeal, modify or amend
      this BSCRO,
      to revalue,
      re-evaluate or revise the amount of BGS
Bondable
      Stranded
      Costs, to determine that the BGS Transition Bond Charge or the BGS MTC-Tax
      or
      the revenues required to recover
      BGS
      Bondable Stranded
      Costs are unjust or unreasonable, or in any way to reduce or impair the value
      of
      the BGS Bondable Transition Property, nor shall the amount of revenues arising
      with respect thereto be subject to reduction, impairment, postponement or
      termination, directly or indirectly, provided, however, that nothing in this
      BSCRO
      will preclude
      adjustments of the BGS Transition Bond Charge or the BGS MTC-Tax in accordance
      with the True-Up Mechanism and the corresponding true-up provisions for the
      BGS
      MTC-Tax, as set forth in this BSCRO, and of N.J.S.A.
      48:3-64.


     

    10.    Pursuant
      to
N.J.S.A.
      48:3-65, and
      notwithstanding any other provision of law, this BSCRO
      and the BGS
      Transition Bond Charge and the BGS MTC-Tax authorized herein will become
      irrevocable upon this BSCRO’s
      becoming effective
      pursuant to N.J.S.A.
      48:3-68.
      This
BSCRO,
      the BGS
      Transition Bond Charge and the BGS Bondable Transition Property will constitute
      a vested, presently existing property right only upon JCP&L’s transfer of
      its interest in the BGS Bondable Transition Property to the SPE and receipt
      by
      JCP&L of consideration for such interest in the BGS Bondable Transition
      Property.

     

    11.    Pursuant
      to
N.J.S.A.
      48:3-64,
      until the Total
      Payment Requirements have been fully satisfied, this BSCRO
      and the authority
      to meter, charge, collect and receive the BGS Transition Bond Charge and the
      BGS
      MTC-Tax will remain in effect and Petitioner shall be obligated to provide
      electricity to its customers and will have the right to meter, charge, collect
      and receive the BGS Transition Bond Charge
      and the BGS
      MTC-Tax,
      which rights and
      obligations may be assignable solely within the discretion of Petitioner,
      subject to any Board approvals which may be statutorily required.

     

    Sale,
      Pledge and Assignment of Transition Property

     

    12.    In
      accordance with
      EDECA and as described in the Petition, Petitioner is authorized to sell, pledge
      or assign any or all of its interest in BGS Bondable Transition Property that
      arises from this BSCRO
      directly, or
      indirectly through an assignee, to the SPE. The
      SPE is
      authorized to acquire the BGS Bondable Transition Property and is approved
      and
      designated as a “financing entity” (as defined in N.J.S.A.
      48:3-51) for such
      purpose, and for the purpose of issuing BGS Transition Bonds and pledging the
      BGS Bondable Transition Property and the

     

    
      
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        29

        
          

        

      

      
        
        

      

    

     

    Other
      SPE
      Collateral to the Trustee for the BGS Transition Bonds to secure the payment
      of
      the BGS Transition Bonds. The
      transfer by the
      Petitioner of the BGS Bondable Transition Property to the SPE will be treated
      as
      a true sale and absolute transfer to the SPE, even though such transaction
      may
      be treated as a financing, and not a sale, for federal and state tax purposes,
      for financial accounting purposes or for other purposes. Neither this Order
      nor
      the transfer of the BGS Bondable Transition Property nor the interest of the
      SPE
      in the BGS Bondable Transition Property shall be defeated or otherwise affected
      by the commingling of TBC collections with other funds of JCP&L, and the
      portion of such commingled funds allocable to BGS TBC collections may be
      determined by such methods of estimation as are set forth in the Servicing
      Agreement.

     

    13.    The
      SPE will pay
      the purchase price of the BGS Bondable Transition Property equal to the net
      proceeds from the issuance of the BGS Transition Bonds directly or indirectly
      to
      Petitioner, to be applied substantially as
      described in the
      Petition
      and as modified
      herein.

     

    14.    When
      JCP&L
      transfers its interest in the BGS Bondable Transition Property to the SPE as
      described in this BSCRO, and only upon such transfer, the BGS Bondable
      Transition Property will arise and constitute a valid, presently existing
      property right, and will be vested in the SPE as an original property right
      and
      not by assignment from any other entity. The SPE will have all of the statutory
      rights inherent in the BGS Bondable Transition Property,
      including, without
      limitation, the right to exercise any and all rights and remedies, including
      the
      right to direct the Petitioner or any successor electric public utility to
      shut-off electric power to the extent permitted by law and any applicable
      regulations then in effect, and to assess and collect any amounts payable by
      any
      customer in respect of such BGS Bondable Transition Property, notwithstanding
      any objection or direction to the contrary by the Servicer.

     

    15.    Upon
      the sale by
      Petitioner of its interest in the BGS Bondable Transition Property to the SPE,
      Petitioner or any successor Servicer will not be entitled to recover the BGS
      Transition Bond Charges other than for the benefit of the holders of BGS
      Transition Bonds in accordance with Petitioner’s duties as Servicer of such BGS
      Bondable Transition Property as authorized in this BSCRO.

     

    16.    The
      lien of the
      Trustee for the BGS Transition Bonds on the Bondable Transition Property shall:
      (A) attach automatically to the BGS Bondable Transition Property from the time
      of the issuance of the BGS Transition Bonds; (B) be continuously perfected
      through a filing made pursuant to the Uniform Commercial Code with the New
      Jersey Secretary of State; (C) be enforceable against JCP&L and the SPE and
      all third parties, including judicial lien creditors; (D) from and after the
      filing described in clause (B) above, constitute a continuously perfected
      security interest in, and lien on, all then existing or subsequent revenues
      and
      proceeds arising with respect to the BGS Bondable Transition Property, whether
      or not the electric power and energy included in the calculation of such
      revenues and proceeds have been provided; and (E) rank prior to any other lien,
      including any judicial lien, which subsequently attaches to the BGS Bondable
      Transition Property or any other rights created by this BSCRO or any revenues
      or
      proceeds of the foregoing.

     

    Structure,
      Terms and Conditions and Marketing of BGS Transition Bonds; 

    Appointment
      of Designee

    


    17.    While
      the
      Petitioner should be afforded substantial flexibility in establishing the
      provisions of the BGS Transition Bonds, the final structure, pricing, terms
      and
      conditions of the

     

    
      
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        30

        
          

        

      

      
        
        

      

    

     

    BGS
      Transition Bonds,
      to the extent
      consistent with the provisions of this BSCRO, may be approved by the Designee
      pursuant to his or her
      delegation of
      authority from the Board, pursuant to N.J.S.A.
      48:3-62(c)(3)
      48:3-62(g), and N.J.S.A.
      48:3-64(a)(3),
      respectively, after the BGS Transition Bonds are priced. The
      scheduled
      amortization upon issuance of the BGS Transition Bonds will be up to
15
      years, and the
      final legal maturity will be up to two additional years. The
      BGS Transition
      Bonds may be issued in series and classes with different terms. Debt
      service on the
      BGS Transition Bonds shall be scheduled upon issuance so that the sum of
      principal and interest payments on the BGS Transition Bonds, together
      with
      certain other components of the BGS TBC,
      will be
      approximately levelized as in a mortgage amortization. The
      associated BGS
      MTC-Tax collections may be adjusted from time to time to reflect the changing
      principal and interest components of the BGS Transition Bond debt
      service.
      One or more
classes
      of
      BGS
      Transition Bonds may
      be issued as
      variable rate bonds, which variable rate debt will be hedged in accordance
      with
      the terms of hedging arrangements consistent with this BSCRO, such as interest
      rate caps, swaps or collars intended to minimize the adverse effects of rising
      interest rates on the variable rate debt. The Designee will determine whether
      to
      approve or reject the pricing of the BGS Transition Bonds following the receipt
      of the Pricing Advice Certificate in the form of Appendix D attached hereto
      to
      be delivered by Petitioner on the day the BGS Transition Bonds are priced,
      and
      as described herein such additional information
      as the Designee
      may deem necessary.
      The
      Pricing Advice Certificate shall demonstrate that, based upon the market
      conditions existing at the time of pricing, the proposed structuring, marketing,
      and pricing of the BGS Transition Bonds will result in the lowest BGS Transition
      Bond Charge consistent with such market conditions and the terms of this BSCRO.
      The Financial Advisor shall notify the Petitioner and the Board on the pricing
      date for each
      series of BGS
      Transition Bonds whether
      or not, in
      its opinion, the structuring, marketing and pricing of the BGS Transition Bonds
      complies with the criteria established in this BSCRO.

     

    18.    The
      Financial
      Advisor will: (1) provide advice to the Board and its Staff on the Petitioner’s
      filing; (2) provide financial advice to the Board, the Designee, and Board
      Staff
      with respect to the structuring, marketing and pricing of the BGS Transition
      Bonds, as authorized by this Order; (3) participate fully and in advance
      in all
      aspects of
      Petitioner’s structuring, marketing and pricing of the BGS Transition Bonds on
      behalf of the Board and its Staff; (4) advise the Board and its Designee via
      timely certification to be filed on the day that the Petitioner’s Pricing Advice
      Certificate is filed, whether or not, consistent with EDECA, the Petitioner’s
      proposed structuring, marketing, and pricing of the BGS Transition Bonds will
      assure that customers pay the lowest BGS Transition Bond Charges consistent
      with
      market conditions existing at the time the BGS Transition Bonds are priced
      and
      the terms of this Order; (5) attend Commissioner briefing sessions and other
      meetings and hearings as deemed necessary by Board Staff; and (6) provide a
      final report to the Board on the results of the financing process.

     

    19.     In
      support of his
      or her Certification, the
      Designee may
      conclusively rely without further investigation (i) on
      the Findings
      set forth above in
Findings
      Paragraph
      12 as
      to the benefit
      to Petitioner’s ratepayers from the proposed BGS Transaction as required by
N.J.S.A.
      48:3-62;
      (ii) upon
      the advice and
      certification of the Board’s Financial Advisor
      as described
      herein;
      (iii) upon the
      certification
      of the lead
      underwriter; and (iv) upon
      the
      certification of
the
      Petitioner. 
      The Designee
      Certification
      approving the
      terms of the BGS Transition Bonds
      shall be
      substantially in the form
      of Appendix A
      hereto, shall constitute a part of this BSCRO,
      shall constitute
      a full and complete record of the determinations and approvals made therein
      and
      full satisfaction of the requirements of N.J.S.A.
      48:3-62(c)(3),
      48:3-62(g)
      and N.J.S.A.
      48:3-64(a)(3),
      and shall be
      final and uncontestable as of its date. In furtherance
      of the
foregoing,
      the Board further
      orders that: 

     

    
      
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                (A)

              	
                 Commissioner
                  Butler be, and [s]he hereby is,
                  designated
                  to act as Designee in accordance with the terms of this Order or,
                  in his
                  absence or incapacity, each other Commissioner of this Board be,
                  and each
                  of them hereby is,
                  designated
                  to act as such Designee.
                  The
                  Designee
                  shall act in accordance with the terms of this Order and the Designee
                  Guidelines attached hereto as Appendix
                  E;

              


      

       

    

    
      	 	
              (B)

            	
              Petitioner
                is
                hereby directed to (i) afford
                Board
                Staff,
                the
                Designee
                and
                the Financial
                Advisor the opportunity to participate directly,
                fully and in
                advance, in
                all
                negotiations regarding the proposed structuring,
                marketing,
                and
                pricing
                of the BGS
                Transition Bonds; (ii) provide
                information regarding the proposed offering on a timely basis in
                order to
                enable each of them to discharge their responsibilities to this Board;
                (iii)
                promptly
                advise any person or entity
                interested
                in participating in the proposed offering as an underwriter of the
                above
                terms and conditions of this Order; and (iv)
                permit
                the Financial Advisor, on behalf of the Board and its Staff, subject
                to
                the supervision of Board Staff, to participate in the selection of
                underwriter(s), trustee(s) and any other credit or financial parties
                required to complete the BGS Transition Bond Transaction and to review,
                comment upon, and recommend approval of, the terms of all transaction
                documents.

            


    

     

    
      	 	
              (C)

            	
              The
                Board
                hereby directs its Financial Advisor to recommend the rejection of
                any
                aspect of the BGS Transition Bond Transaction that does not comply
                with
                all of the criteria established in this Order. The
                Board’s
                Financial
                Advisor shall promptly advise Petitioner and Board Staff and the
                Board’s
                Designee if, in its opinion, any aspect of the BGS Transition Bond
                Transaction including, but not limited to, the structuring, marketing,
                and
                pricing of the BGS Transition Bonds is unreasonable or unlikely to
                result
                in the lowest BGS Transition Bond Charge consistent with market conditions
                existing at the time the BGS Transition Bonds are priced and the
                terms of
                this Order.

            


    

     

    
      	 	
              (D)

            	
              The
                Designee
                is hereby
                directed
                to deliver,
                within 24 hours of pricing of the BGS Transition Bonds and delivery
                by
                Petitioner of its Pricing Advice Certificate, his or her certification
                substantially in the form of Exhibit
                A
                attached
                hereto
                approving
                the
                structuring
                and pricing of the BGS Transition Bonds
                or a
                notification to the Petitioner that the Designee does not approve
                the BGS
                Transition Bond Transaction and setting forth the
                reasons
                supporting its disapproval;
                and
                

            


    

     

    
      	 	
              (E)

            	
              No
                delay or
                error in any filing by the Designee, or error in any such certificate
                or
                any information received by the Designee from the Petitioner, the
                Board’s
                Financial Advisor, the underwriter or Staff, will affect the validity
                of
                this BSCRO, the BGS Bondable Transition Property or the BGS Transition
                Bonds, or the finality or incontestability of the Designee’s approval of
                the BGS Transition Bonds.

            


    

     

    20.     The
      issuance and
      sale of the BGS
Transition
      Bonds
      through negotiation with underwriters, either through a public offering, a
      limited
      public
      offering under Rule 144A adopted by the SEC under the Securities Act or a
      private placement, with or without registration rights, is approved.
      The delivery by
      the Designee of his or her certification in the form of Appendix A shall
      constitute conclusive approval of the manner of offering of the BGS Transition
      Bonds.

     

    21.     The
      SPE has the
      express authority to enter into interest rate swap arrangements in connection
      with any floating rate class of BGS Transition Bonds.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    Recovery
      of Bondable Stranded Costs

     

    22.   In
      accordance with
N.J.S.A.
      48:3-69, BGS
      Transition Bonds will be recourse only to the credit and assets of the SPE.
      Investment income earned on the trust accounts held by the Bond Trustee may
      be
      used to satisfy current scheduled interest and principal payments on the BGS
      Transition Bonds and related expenses,
      to distribute to
      the SPE (as a return on equity) an amount equal to interest earnings on the
      capital account, to replenish the SPE’s equity and to satisfy
      the scheduled
      overcollateralization amount (if any). Any earnings in excess of amounts
      required to be held in such trust accounts or
      required to be
      remitted to the SPE as a return on equity
      will reduce the
      BGS Transition Bond Charge annually through the True-up Mechanism.

     

    23.     Upfront
      Transaction
      Costs not
      to exceed $3.5
      million
      are authorized to
      be recovered through the issuance of BGS Transition Bonds
      and Petitioners
      shall keep an accounting of all Upfront Transaction Costs.

     

    24.     The
      Ongoing BGS
      Transition Bond Costs as described herein, including amounts owed under any
      interest rate cap, swap or collar arrangement which are not securitized, are
      authorized to be recovered through the BGS Transition Bond Charge.

     

    Issuance
      Advice Letter

     

    25.     Pursuant
      to
N.J.S.A.
      48:3-64(a)(3),
      not later than
      five business days after issuance and sale of the BGS Transition Bonds,
      Petitioner will notify the Secretary of the Board, in an Issuance Advice Letter
      substantially in the form of Appendix B hereto, of the initial BGS Transition
      Bond Charge and related BGS MTC-Tax (which are hereby approved), the expected
      amortization schedule approved in the Designee Certification and related
      matters. The Issuance Advice Letter will be automatically effective upon filing
      with the Secretary of the Board. No
      delay or error
      in such filing will affect the validity of this BSCRO,
      the BGS Bondable
      Transition Property or the BGS Transition Bonds.

     

    Servicing
      of Transition Bonds

     

    26.     Petitioner,
      as
      Servicer, is authorized to enter into a servicing agreement
      with the
      SPE,
      substantially as described in the Petition and as
      described in the
      SEC Filing or the offering memorandum and as provided to Staff and the
      FA,
      pursuant to which JCP&L agrees to continue to operate its distribution
      system to provide service to its customers, to impose, charge, collect and
      receive the BGS Transition Bond Charge with respect to BGS Bondable Transition
      Property for the benefit and account of such SPE or its assigns, and to account
      for and remit these amounts to or for the account of such SPE or its
      assigns
      in the manner
      described in the Petition.

     

    27.     The
      TBC from the
      2002 BSCRO and the BGS-TBC, together with their related MTC-Tax charges, will
      be
      combined with the non-utility generation charge on each non-residential
      customer’s bill as a single separate line item. In the case of residential
      customers, the TBC from the 2002 BSCRO and the BGS-TBC, together with their
      related MTC-Tax

     

    
      
        NJBPU
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        33

        
          

        

      

      
        
        

      

    

     

    charges,
      will be combined
      with the customer’s electric distribution charges as a single item. All
      bills will, in
      addition, contain in text or in a footnote a statement that such
      combined
      charges represent
      Bondable
      Transition Property
      sold pursuant to
      the 2002 BSCRO and BGS Bondable Transition Property sold pursuant to this BSCRO,
      and that such charges are
      being collected
by
      Petitioner on
      behalf of the
      SPEs,
      as owners of their
      respective Bondable Transition Property.

     

    28.     Collections
      from
      each customer will be applied first to sales taxes (which Petitioner will
      collect as trustee for the State and not for its own account or that of the
      SPE,
      and which are not “charges” for purposes of the following allocations), then to
      charges in arrears, if any, and then to current charges. With
      respect to
      each billing period, partial payments of charges will be allocated pro rata,
      based on the proportions that the aggregate transition bond charges, the related
      MTC-Tax and the Petitioner’s other charges bear to the total charges billed, (i)
      to the BGS Transition Bond Charge (or for so long as more than one series of
      transition bonds remains outstanding, to the aggregate transition bond charges
      for all series of transition bonds), (ii) to the BGS MTC-Tax (or for so long
      as
      more than one series of transition bonds remains outstanding, to the aggregate
      MTC-Tax for all series of transition bonds) and (iii) to the Petitioner’s other
      charges. For so long as more than one series of transition bonds remains
      outstanding, the portion of the payment that is allocated to the aggregate
      transition bond charges and the aggregate MTC-Tax will be further allocated
      among those respective series, pro rata, based on the amounts owed in respect
      of
      the transition bond charge and MTC-Tax related to each such series.

     

    29.     The
      conditions with
      respect to the resignation or replacement of
      the Petitioner as
      Servicer will be described in the SEC Filing or the offering memorandum.
Pursuant
      to
N.J.S.A.
      48:3-71(f),
      in the event of a
      default by a Servicer under any Servicing Agreement with respect to BGS
      Transition Bonds, upon application of the Bond
      Trustee, the
      Board will designate a successor Servicer for the BGS Bondable Transition
      Property, who will promptly assume billing and collection responsibilities
      for
      the BGS Transition Bond Charge and the BGS MTC-Tax. The
      Board will act
      on an expedited basis to designate within 30 days such successor Servicer.
      Such
      successor Servicer will assume all rights and obligations of the initial
      Servicer.

     

    30.     The
      Board will only
      permit any successor Servicer to replace Petitioner as Servicer in any of its
      servicing functions with respect to the BGS Transition Bond Charge and the
      BGS
      Bondable Transition Property authorized by this BSCRO
      upon determining
      that approving or requiring such successor Servicer will not cause the then
      current credit ratings on BGS Transition Bonds to be withdrawn or
      downgraded.

     

    31.     In
      the event that
      any gross negligence, recklessness, or willful misconduct by the Petitioner
      in
      the performance of its obligations under the Servicing Agreement results in
      any
      loss to Petitioner’s customers, the Board hereby expressly retains the authority
      to protect ratepayers through appropriate proceedings and, if justified, the
      adjustment of other rates of the Petitioner. As evidenced by its consent to
      the
      terms of this order, Petitioner agrees that it will not assert N.J.S.A.
      48:3-65(b) or
N.J.S.A.
      48:3-74, to
      prevent such adjustment of other rates in any such subsequent
      proceeding.

     

    32.     Any
third
      party
      supplier (“TPS”)
      that proposes to
      collect the BGS Transition Bond Charge or the BGS MTC-Tax must (i) meet the
      creditworthiness criteria to be established by the Board, and at a minimum,
      the
      criteria set forth and approved below in this BSCRO;
      and (ii) comply
      with the billing, collection and remittance procedures and information access
      requirements set forth below.

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    33.     The
      Board will only
      authorize a TPS to bill and collect the BGS Transition Bond Charge or the BGS
      MTC-Tax for remittance to the Servicer or the Petitioner, respectively, if
      (i)
      such TPS agrees to remit the full amount of all charges it bills to customers
      for services provided by the Petitioner or any successor electric public
      utility, together with the BGS Transition Bond Charge and the BGS MTC-Tax,
      regardless of whether payments are received from such customers, within 15
      days
      of Petitioner’s or the Servicer’s bill for such charges, (ii) such TPS will
      provide the Servicer with total monthly kWh usage information for each customer
      in a timely manner for the Servicer to fulfill its obligations, as such
      information is the basis of such remittance, and (iii) the Servicer will be
      entitled, within seven days after a default by the TPS in remitting any charges
      payable to Petitioner, together with the BGS Transition Bond Charge and the
      BGS
      MTC-Tax, to assume responsibility for billing all charges for services provided
      by Petitioner or any successor
      electric
      public utility, including the BGS Transition Bond Charge and the BGS MTC-Tax,
      or
      to transfer responsibility to a qualifying third party. In
      addition, if and
      so long as such TPS does not maintain at least a “Baa2”
and
      “BBB”
      (or the
      equivalent) long term unsecured credit rating from Moody’s Investors Service or
      Standard & Poor’s Rating Services,
      respectively,
      such TPS shall
      maintain, with the Servicer or as directed by the Servicer, a cash deposit
      or
      comparable security equal to two months’ maximum estimated collections of all
      charges payable to the Servicer, including the BGS Transition Bond Charges
      and
      the BGS MTC-Tax, as reasonably estimated by Petitioner (or any such successor
      electric public utility or by the Servicer). In
      the event of a
      default in the remittance of any such charges by a TPS, any shortfall in
      collections of the BGS Transition Bond Charge or the BGS MTC-Tax
      will first be
      paid from any cash deposit or comparable security provided by such TPS, and
      then
      will be included in the periodic adjustment of the BGS Transition Bond Charge
      and the BGS MTC-Tax as described herein.

     

    34.     Customers
      will
      continue to be responsible for payment to the Servicer of the BGS Transition
      Bond Charge and the BGS MTC-Tax billed by a TPS, to the extent such customer
      has
      not paid the BGS Transition Bond Charge or the BGS MTC-Tax billed to it.
In
      the
      event of a failure of any customer to pay the BGS Transition Bond Charge or
      the
      BGS MTC-Tax, the Petitioner is authorized to shut-off power, or a successor
      Servicer is authorized to direct the electric public utility to shut-off power,
      to such customer subject to applicable law, including Board Orders and
      regulations then in effect.

     

    35.     The
      Servicer will
      be entitled to an annual servicing fee equal to .125% (12.5 basis points) of
      the
      initial principal balance of the BGS Transition Bonds (the “Servicing Fee”).
The
      Board approves the Servicing Fee as described herein. The
      Board also
      approves, in the event of a default by the Servicer6 ,
      a higher annual
      Servicing Fee of any successor Servicer of up to 1.25% of the initial principal
      balance of the BGS Transition Bonds.
      If the Servicing
      Fee paid to Petitioner is greater than the actual incremental costs to service
      the BGS Transition Property, other rates of the Petitioner shall be adjusted
      to
      reflect the difference between actual servicing costs and the Servicing
      Fee.

     

    36.     In
      the event that
      the Servicer remits BGS TBC collections less frequently than daily, Petitioner
      will credit ratepayers through an adjustment to the distribution charges, not
      less frequently than annually, with an amount equal to the earnings (calculated
      at the average daily

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    
      federal
        funds rate
        during the monthly remittance period) on the average balances of such
        collections to (but not including) the remittance date to the
        Trustee.

       

      The
        Transition Bond Charge: Establishment and Adjustment

       

      37.     The
        formula used to
        calculate the BGS Transition Bond Charge and the BGS MTC-Tax and to periodically
        adjust the BGS Transition Bond Charge and MTC-Tax, as set forth on Appendix
        F
        hereto, is approved.

       

      38.     Pursuant
        to
N.J.S.A.
        483-64, the
        initial WS Transition Bond Charge and the BGS MTC-Tax will be filed by
        Petitioner with the Secretary of the Board in the issuance Advice Letter
        and win
        be affective upon such filing, to be adjusted up or down, as necessary, by
        the
        True-Up Mechanism.

       

      39.     In
        accordance with
        N.J.S.A., 48:3-64, the Servicer, on behalf of Petitioner and the pledgees
        or
        transferees of the BGS Bondable Transition Property, is authorized and required
        to file with the Secretary of this Board periodic formula-based 68 Transition
        Bond Charge adjustments, at least annually but not more frequently than
        quarterly, to the extant necessary to assure the full and timely recovery
        of an
        amount equal to the Periodic Payment Requirement Each adjustment of the BGS
        Transition Bond Charge shell be formula-based, shall be in the amount required
        to ensure receipt of revenues sufficient to provide for the full and timely
        recovery of BGS Transition Costs (as defined in EDECA), including, without
        limitation, the timely payment of principal of, and interest and acquisition
        or
        redemption premium on, the BGS Transition Bonds issued to finance such BGS
        Transition Costs. The periodic adjustments will be filed in substantially
        the
        form attached to this BSCRO as Appendix C.

       

      40.     The
        Servicer shall
        propose each periodic adjustment of the BGS Transition Bond Charges in a
        filing
        with the Board made at least 30 days in advance of the date upon which the
        adjustment is requested to become effective. Each such proposed adjustment
        shall
        become effective on en interim basis on the date that it is requested to
        become
        effective absent a determination by the Board of manifest error in the
        application of the formula approved herein, and shall become final 60 days
        after
        filing, absent a Board Order to the contrary finding a manifest error in
        the
        application of the formula approved herein. "Manifest error" means an arithmetic
        error evident on the face of the filing.

       

      41.     If
        necessary to
        ensure the timely recovery of the Periodic Payment Requirement and the BGS
        MTC-Tax, the Board will approve adjustments to the methodology as proposed
        by
        Petitioner in "non-routine" true-up filings as discussed
        hereinabove.

       

      Use
        of
        Transition Bond Proceeds

       

      42. Petitioner
        will use
        the proceeds of the BOB Transition Bonds, net of Upfront Transaction Costs,
        not
        to exceed $3.6 million, and any costs of credit enhancement for the BGS
        Transition Bonds paid from the proceeds, to reduce its BGS Transition Costs
        through the retirement of Petitioner's debt or equity, or both. JCP&L is
        authorized to apply the proceeds to retire debt equity or both, substantially
        as
        set forth in the Petition. No failure to apply the

       

      
        
          NJBPU
            Docket No. EF03070532

          
          

        

        
          36

          
            

          

        

        
          
          

        

      


      proceeds
        in
        accordance with this ESCRO stall affect the sale of the BGS Bondable Transition
        Property or the right to collect the BGS Transition Bond Charges.

       

      Approval
        of Servicing Agreement, Administration Agreement Sale Agreement and Other
        Agreements or Transactions

       

      43.     Subject
        to the
        terms and conditions set forth herein, Petitioner's entering into a servicing
        agreement, an administration agreement, a sale agreement, and other Transition
        Bond transaction documents with the SPE, substantially final forms of the
        most
        significant of which have been provided to Staff and the FA, consistent with
        the
        terms of this Order and/or substantially as described in the SEC Filing or
        offering memorandum, and such other related transaction documents and other
        dealings between Petitioner and the SPE as contemplated therein and herein
        are
        authorized subject to review and approval by the Designee with input from
        the
        Financial Advisor and Board Staff. The Designee's approval shall be conclusively
        evidenced by the execution of the Designee Certification attached hereto
        as
        Appendix A.

       

      Accounting
        for Certain Benefits

       

      44.     Pursuant
        to
N.J.S.A.
        48:3-64, any
        amount of the BGS Transition Bond Charge held by the Bond Trustee in excess
        of
        those amounts necessary to fully recover the Periodic Payment Requirement
        will
        be applied as a credit to reduce the BGS Transition Bond Charge through the
        True-Up Mechanism, as described in the Petition, except that if more than
        one
        issue of transition bonds is sold, all such requirements with respect to
        all
        transition bonds will be aggregated for purposes of determining whether or
        not
        the total transition bond charges collected exceed the total of such
        requirements for all transition bonds.

       

      46.     Upon
        retirement of
        all outstanding BGS Transition Bonds and payment of any related Ongoing BGS
        Transition Bond Costs, any remaining amounts held by the Bond Trustee will
        be
        released to the SPE and ultimately returned to the Petitioner as an equity
        distribution. At that time, Petitioner will credit to its customers against
        their distribution charges, or in such other manner as determined by the
        Board,
        any amounts so received from the SPE that exceed the sum of (i) the initial
        amount of the equity contribution to the SPE, (ii) the investment earnings
        on
        funds in the capital subaccount, and (iii) the amount of any unpaid BGS MTC-Tax.
        Any overcollected BGS MTC-Tax shall also be credited to Petitioner's electric
        customers against Petitioner's distribution charges.

       

      Records

       

      46.     Pursuant
        to
N.J.S.A.
        48:3-70, the
        Petitioner and any successor Servicer on its behalf shall maintain or cause
        to
        be maintained records of the BGS Transition Bond Charge and associated BGS
        MTC
        Tax collections which have been assessed and collected by Petitioner or its
        successor, as Servicer, under this BBCRO. Such records, and any records of
        a
        financing entity, will be made available by Petitioner for inspection and
        examination within a reasonable time upon demand therefore by the Board,
        Board
        Staff, or the related financing entity.

       

      
        
          NJBPU
            Docket No. EF03070532

          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

    

    BGS
      MTC-Tax Adjustments

     

    47.     Pursuant
      to this
      Order, Petitioner is authorized to file with the Board proposals for mandatory
      periodic adjustments of the BGS MTC-Tax. Such
      adjustments
      shall be formula-based and shall initially be based on the BGS TBC formula
      attached hereto as Exhibit F.
Such
      adjustments
      shall be made substantially in the same manner and at the same time as the
      True-Up Mechanism for the BGS Transition Bond Charge in order to insure receipt
      of revenues sufficient to recover the Tax Component. Unless
      the
      Petitioner or the Board proposes an adjustment to the formula used to calculate
      the BGS MTC-Tax, any proposed adjustment to the BGS MTC-Tax will become
      effective 30 days after filing absent manifest error (as defined above) and,
      in
      the absence of a Board Order to the contrary, will become final 60 days after
      filing. The
      initial amount
      of the BGS MTC-Tax will be filed with the Board as part of the Issuance Advice
      Letter and become effective upon such filing in the same manner and at the
      same
      time as the related initial BGS Transition Bond Charge. The periodic adjustments
      will be filed in substantially the form attached to
      this
BSCRO
      as Appendix
      C.

     

    48.     It
      is the express
      intention of the Board that the Petitioner shall not overrecover or underrecover
      the Tax Component. Accordingly,
      Petitioner shall adjust the formula used to calculate the BGS MTC-Tax to reflect
      changes in federal income tax or State corporate business tax rates (or local
      tax rates, if applicable) and any other changes to the application or
      interpretation of such laws, provided such changes are either “generic” (affect
      all taxpayers such as a prospective change in the tax rate) or are
      securitization-related,
      including the
      effect of any deductions reflecting the amortization of the Upfront Transaction
      Costs.

     

    49.     Any
      proposed
      adjustment to the BGS MTC-Tax formula
      by the Petitioner
      shall be submitted to the Secretary of the Board no less than 60 days prior
      to
      its proposed effective date and shall become effective on the proposed effective
      date absent a Board Order to the contrary; provided, however, that the existing
      BGS MTC-Tax formula
      shall remain
      effective in the interim.

     

    50.     As
      provided in
N.J.S.A.
      48:3-72(a)(4),
      Petitioner’s
      right to recover the Tax Component shall
      in no way affect
      or impair the legal true sale and absolute transfer of the BGS Bondable
      Transition Property to the SPE, or otherwise affect the legal rights and
      attributes of the BGS Bondable Transition Property under the EDECA or under
      this
BSCRO.

     

    Miscellaneous

     

    51.     Pursuant
      to
N.J.S.A.
      48:3-68, this
BSCRO
      will be effective
      only in accordance with the terms hereof and upon the written consent of
      Petitioner to all such terms.

     

    52.     Pursuant
      to
N.J.S.A.
      48:3-74, the
      consideration or approval by the Board of a petition by Petitioner under EDECA,
      including this BSCRO
      and the periodic
      adjustment provided in N.J.S.A.
      48:3-64, will be
      wholly separate from, and will not be utilized in the Board’s consideration of,
      any other ratemaking or other proceeding involving Petitioner, except as
      otherwise provided herein and in EDECA.

     

    53.     Any
      holder of a BGS
      Transition Bond and the Bond Trustee, for the benefit of such holders, are
      entitled to the benefit of the pledges and agreements of the State of
      New

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    Jersey
      set forth in
      EDECA and each of the Petitioner, the SPE and the Bond Trustee is authorized
      to
      include such representations, pledges and agreements in any registration
      statement or offering memorandum related to the BGS Transition Bonds or in
      any
      contract with the holders of the BGS Transition Bonds, the Bond Trustee or
      with
      any assignees.

     

    54.     This
BSCRO
      is issued subject
      to the following provisions, failure of compliance with any
      or all of
which
      shall not affect the validity
      of this
      BSCRO, the BGS Bondable Transition Property or the BGS Transition Bonds, or
      the
      finality or incontestability of the Designee’s approval
      of the BGS
      Transition Bonds:

     

    
      	 	
              (1)

            	
              Petitioner
                shall promptly furnish the Secretary of the Board with copies of
                all
                documents as executed and filed with other regulatory agencies relating
                to
                the BGS Transition Bonds.

            


    

     

    
      	 	
              (2)

            	
              Not
                later
                than six
                months following issuance of the BGS Transition Bonds, Petitioner
                shall
                file with
                this Board a statement setting forth details with respect to the
                disbursement of net proceeds of the BGS Transition Bonds and their
                use in
                retiring debt or equity or both.

            


    

     

    
      	 	
              (3)

            	
              Petitioner
                shall file with this Board annually a statement setting forth details
                with
                respect to interest earning accruals on BGS TBC remittances retained
                by
                the Petitioner, as Servicer, and the proposed manner by which such
                accruals will be credited back to the Petitioner’s electric customers if
                required by Ordering Paragraph 36 hereof.

            


    

     

    
      	 	
              (4)

            	
              Not
                later
                than six
                months following issuance of the BGS Transition Bonds, Petitioner
                will
                file a
                statement
                reconciling (a) the actual Upfront Transaction Costs incurred by
                Petitioner and (b) the amount of Upfront Transaction Costs recovered
                from
                the proceeds of the BGS Transition Bonds. If the actual prudently-incurred
                Upfront Transaction Costs exceed the amount so recovered, such excess
                shall be eligible for recovery by Petitioner in a subsequent proceeding
                (or by adding it to JCP&L’s continuing deferred balance accumulation),
                or from any excess bond proceeds not applied to recover the actual
                Deferred BGS Balance as provided in paragraph (5) below. If the actual
                Upfront Transaction Costs are less than the amount financed, such
                difference shall be credited against the Petitioner’s other charge to the
                benefit of Petitioner’s electric customers (or applied to a reduction of
                JCP&L’s continuing deferred balance accumulation), or may be used to
                recover any Deferred BGS Balance which is not recovered from bond
                proceeds, as described in paragraph (5)
                below.

            


    

     

    
      	 	
              (5)

            	
              As
                part of
                the filing made pursuant to paragraph (4) above, Petitioner will
                file with
                the Board a statement reconciling (a) the actual July 31, 2003 net-of-tax
                Deferred BGS Balance outstanding as of the end of the month preceding
                the
                month of issuance of the BGS Transition Bonds; and (b) the amount
                of the
                net-of-tax Deferred BGS Balance recovered from the proceeds of the
                BGS
                Transition Bonds. If the actual Deferred BGS Balance exceeds the
                amount so
                recovered, such excess shall be eligible for recovery by Petitioner
                in a
                subsequent proceeding (or by adding it to JCP&L’s continuing deferred
                balance accumulation), or if so ordered by the Board, from any excess
                bond
                proceeds not applied to pay Upfront Transaction Costs, as provided
                in
                paragraph (4) above. This
                BSCRO
                will not be
                construed as a certification that the BGS
                Transition

            


    

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

         
Bonds
      will be
      secured by tangible or intangible assets of commensurate value or investment
      costs.

     

    
      	 	
              (6)

            	
              As
                provided
                herein, the certification of the Designee, in accordance with N.J.S.A.
                48:3-62(c),
                48:3-62(g) and N.J.S.A.
                48:3-64(a)(3) and the BSCRO, is final and uncontestable as of its
                date.

            


    

     

    DATED:
 June
      8,
      2006                    
BOARD
      OF PUBLIC
      UTILITIES

                                             
      BY:

    


    


    


           
      /s/ Jeanne M. Fox        

    JEANNE
      M.
      FOX

    PRESIDENT

    


    


    


    /s/
      Frederick F.
      Butler                                     
      /s/ Connie O. Hughes    

    FREDERICK
      F.
      BUTLER                                                                                
CONNIE
      O. HUGHES

    COMMISSIONER                                                                                           
      COMMISSIONER

    


    


    


    /s/
      Joseph L.
      Fiordialiso                                        
      /s/ Christine V. Bator    

    JOSEPH
      L.
      FIORDIALISO                                                                              
CHRISTINE
      V.
      BATOR

    COMMISSIONER          COMMISSIONER

    


    


    


    ATTEST:

    


    /s/
      Kristi
      Izzo        

    KRISTI
      IZZO

    SECRETARY

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    CONSENT
      OF
      PETITIONER

    
 

     

     

     

    Pursuant
      to
N.J.S.A.
      48:3-68,
      Petitioner hereby consents to all of the terms of this Bondable Stranded Costs
      Rate Order, this 9th day of June,
2006.

     

     

    
      	 	
              JERSEY
                CENTRAL POWER & LIGHT

              COMPANY

              BY:

               

              /s/
                Harvey
                L. Wagner            

              Harvey
                L.
                Wagner

              Vice
                President & Controller

            


    

     

    
      
        NJBPU
          Docket No. EF03070532

        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    Appendix
      A

     

    [BPU
      LETTERHEAD] 

     

    DESIGNEE
      CERTIFICATION

     

    (to
      be
      filed with the Secretary of the Board

    within
      one
      business day after

    the
      pricing
      of the BGS Transition Bonds)

     

    BOARD
      OF PUBLIC
      UTILITIES (THE “BOARD”) OF THE STATE OF NEW JERSEY

    SUBJECT:
      Certification for [BGS Transition Bonds (“BGS Transition Bonds”)] [hedging
      arrangement (“hedging arrangement”)] Pursuant to the Order of the Board dated
      June 8, 2006, Docket No. ER03020133 (the “BGS BSCRO”)

    


    I,
      Commissioner Frederick F. Butler, (the “Designee”), in accordance with
N.J.S.A.
      48:3-62(b)
      and N.J.S.A. 48:3-62(a)(3) of the Electric Discount and Energy Competition
      Act,
      Chapter 23 of the Laws of 1999, as amended (“EDECA”), for the purpose of (a)
      establishing that the structuring and pricing of the BGS Transition
      Bonds* 
      assures that the
      customers of Jersey Central Power & Light Company (the “Company”) pay the
      lowest BGS Transition Bond Charges consistent with market conditions and the
      terms of the BGS BSCRO and (b) approving at the time of pricing of the BGS
      Transition Bonds [hedging arrangement and related terms of the BGS Transition
      Bonds], the terms and conditions of the BGS Transition Bonds [hedging
      arrangement and related terms of the BGS Transition Bonds], servicing fees,
      if
      any, with respect to the collection of such BGS Transition Bond Charges and
      the
      pledging, assignment and sale of BGS Bondable Transition Property in connection
      with the initial BGS Transition Bond Charge, HEREBY CERTIFY as
      follows:

     

    1.   I
      have
      received and reviewed in accordance with the BGS BSCRO
      a
      copy
      of the
      Pricing Advice Certificate, a
      copy
      of which
is
      attached
      hereto, and find that such certificate
      is
      in proper
      form as evidenced by such Order. I
      have also
      reviewed other information as I have deemed necessary to provide this
      certification. Any
      capitalized terms not defined herein shall have the meanings ascribed thereto
      in
      the BGS BSCRO.

     

    2.   The
      following are the terms of the BGS Transition Bonds:

     

    Name
      of BGS
      Transition Bonds:_________

    SPE:___________

    Closing
      Date:
      _________

     

    Amount
      Issued:
      _________

    Interest
      Rates and
      Expected Amortization Schedule: See Attachment 1

    Distributions
      to
      Investors (quarterly or semi-annually): ________

     

    
      

    

    
      *  For
        a certification
        relating to hedging arrangements the words “establishing that the structure and
        pricing of the BGS  Transition Bonds” will be replaced with the words
“establishing that the terms of the hedging arrangements which determine the
        certain pricing and structuring terms of the BGS Transition
        Bonds”.

    

    


    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    Weighted
      Average
      Coupon Rate8 :
      ________

    Weighted
      Average
      Yield9 :_________

    Capital
      Amount:
      ________

    Overcollateralization
      Amount:_______

    Overcollateralization
      Schedule: See Attachment 1

    New
      Jersey
      Statutory Corporate Business Tax Rate: __________

    Federal
      Statutory
      Corporate Income Tax Rate: __________

     

    3.   [Brief
      Description of Hedging Arrangement:]

     

    4.   All
      such
      items are within the parameters established in the BGS BSCRO and in the Designee
      Guidelines in Appendix F to the BGS BSCRO. Accordingly, (a) the structuring
      and
      pricing of the BGS Transition Bonds [hedging arrangement and related terms
      of
      the BGS Transition Bonds] assures that the Company’s customers will pay the
      lowest BGS Transition Bond Charges consistent with market conditions and the
      terms of the BGS BSCRO and (b) the terms and conditions of the BGS Transition
      Bonds and the schedule of payments of principal and interest on the BGS
      Transition Bonds and overcollateralization requirements [the terms and
      conditions of the hedging arrangements and related terms of the BGS Transition
      Bonds] are approved.

     

    THIS
      CERTIFICATION,
      in accordance with Sections 14(b)(4) and 15(a)(3) of the Act and the BGS BSCRO,
      is final and uncontestable as of its date, which is the pricing date of the
      [BGS
      Transition Bonds] [the hedging arrangement].

     

    DATED:

     

    _____________________________________

     

    Designee

    
      
        

      

      
        8  Weighted
          by
          modified duration and principal amount.

        9  Weighted
          by
          modified duration and principal amount.

      

    

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

     

    ATTACHMENT
      1

    EXPECTED
      AMORTIZATION SCHEDULE

    (with
      coupons, prices, classes, if any, expected amortization schedule and stated
      maturities, call 

    features,
      and scheduled overcollateralization requirements)

     

    General
      Terms

     

    
      	
              Class

            	
              Price

            	
              Coupon

            	
              Fixed/Floating

            	
              Stated
                Maturity

            	
              Call
                Feature

               

            


    

     

    Scheduled
      Amortization Requirement

     

    


     

    
      	
              Date

            	
              Class
                A-1

            	
              Class
                A-2

            	
              Class
                A-N

               

            


    

     

    Schedule
      of
      Overcollateralization Requirement

     

    


     

    
      	
              Date

            	
              Required
                Overcollateralization Level

               

            


    

    
 

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

      

    

     

    Appendix
      B

     

    ISSUANCE
      ADVICE
      LETTER

    [JCP&L
      Letterhead]

     

    [To
      be
      filed with the Board of Public Utilities or its successor not later than


    five
      business days after the issuance and sale of the BGS Transition
      Bonds]

     

    [DATE]

     

    Kristi
      Izzo,
      Secretary

    State
      of New
      Jersey

    Board
      of Public
      Utilities

    Two
      Gateway
      Center

    Newark,
      New Jersey
      07102

     

    Re:
 Docket
      No.
      ER03020133

     

    Dear
      Secretary
      Izzo:

     

    Pursuant
      to your
      Honorable Board's order in the above-captioned Docket (“BGS BSCRO”), Jersey
      Central Power & Light Company (“Company”) hereby transmits for filing this
      Issuance Advice Letter. Any capitalized terms not defined herein shall have
      the
      meanings ascribed thereto in the BGS BSCRO.

     

    In
      the BGS BSCRO, the Board directed the Company to file an Issuance Advice Letter
      when pricing terms of a series of BGS Transition Bonds have been established.
      This Issuance Advice Letter filing applies the methodology approved by the
      Board
      in the BGS BSCRO to establish the initial BGS Transition Bond Charge and initial
      BGS MTC-Tax. The terms of issuance are as follows:

     

    1.  BGS
      Transition Bond
      Name:_________

    2.  SPE
      Name:______________

    3.  Trustee:
      _________

    4.  Closing
      Date:
      _________

    5.  Principal
      Amount of
      BGS Transition Bonds Issued: _________

    6.  Deferred
      Balance
      Securitized:

    7.  Upfront
      Transaction
      Costs: _______ 

    8. 
Interest
      Rates and
      Expected Amortization Schedule: See Attachment 1

    9.  Distributions
      to
      Investors (quarterly or semi-annually): ________

    10.  
      Annual
      Servicing Fee as a percent of the initial principal balance:
      ________

    11.  
      Overcollateralization
      amount: _______________

    12.  
      Overcollateralization
      Schedule: See Attachment 1_______

    13.  
      Capital
      Amount:
      ________

    14.   Brief
      description
      of any interest rate exchange agreement or other hedging
      arrangement:

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

    Table
      I below shows
      the current assumptions for each of the variables used in the BGS Transition
      Bond Charge and BGS MTC-Tax calculation.

     

    TABLE
      I

    INPUT
      VALUES FOR INITIAL BGS TRANSITION BOND CHARGE AND BGS
      MTC-TAX

     

    
      	
              Forecasted
                annual kWh sales:________

               

            	 	 	 
	
              Projected
                kWh
                to be delivered, billed and cash collected (000s)

               

            	 	 	 
	
              Days
                Outstanding:_______

               

            	 	 	 
	
              Percent
                of
                billed amounts expected to be charged-off:____________

               

            	 	 	 
	
              Forecasted
                annual Ongoing Transition Bond Costs (including any hedging costs):
                ________

               

            	 	 	 
	
              Required
                annual overcollateralization amount: ________

               

            	 	 	 
	
              Current
                Transition Bond outstanding balance: ________

               

            	 	 	 
	
              Scheduled
                Transition Bond outstanding balance as of ___/___/___:_____

               

            	 	 	 
	
              New
                Jersey
                Statutory Corporate Business Tax Rate: __________

               

            	 	 	 
	
              Federal
                Statutory Corporate Income Tax Rate: __________

               

            	 	 	 
	 	 	 	 


    

    Based
      on the
      approved formula, the initial BGS Transition Bond Charge is ________ ¢/kWh and
      the initial BGS MTC-Tax is ________¢/kWh

    


    In
      accordance with the BGS BSCRO, the BGS Transition Bond Charge and BGS MTC-Tax
      shall be automatically effective when this Issuance Advice Letter is filed
      and
      will continue to be effective.

     

     

    Respectfully
      submitted,

     

     

    [                                 
      ]

     

    Attachments

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

     

    ATTACHMENT
      1

    EXPECTED
      AMORTIZATION SCHEDULE

    (with
      coupons,
      prices, classes, if any, expected amortization schedule and stated maturities,
      call features and scheduled overcollateralization requirements)

     

    A. General
      Terms

     

     

    
      	
              Class

            	
              Price

            	
              Coupon

            	
              Fixed/Floating

            	
              Stated
                Maturity

            	
              Call
                Feature

               

            


    

     

    Scheduled
      Amortization Requirement

     

    


     

    
      	
              Date

            	
              Class
                A-1

            	
              Class
                A-2

            	
              Class
                A-N

               

            


    

     

    Schedule
      of
      Overcollateralization Requirement

     

    


     

    
      	
              Date

            	
              Required
                Overcollateralization Level

               

            


    

     

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

    

     

    Appendix
      C

     

    TRUE-UP
      LETTER

     

    [JCP&L
      Letterhead]

     

    [date]

     

    Kristi
      Izzo,
      Secretary

    State
      of New
      Jersey

    Board
      of Public
      Utilities

    Two
      Gateway
      Center

    Newark,
      New Jersey
      07102

     

    Re:
 Docket
      No.
      ER03020133

     

    Dear
      Secretary
      Izzo:

     

    Pursuant
      to your
      Honorable Board's order in the above-captioned Docket (“BGS BSCRO”), Jersey
      Central Power & Light Company (“Company”) as Servicer of the BGS Transition
      Bonds or any successor Servicer and on behalf of the trustee as assignee of
      the
      SPE shall apply at least annually for mandatory periodic adjustment to the
      BGS
      Transition Bond Charge and BGS MTC-Tax. Any capitalized terms not defined herein
      shall have the meanings ascribed thereto in the BGS BSCRO.

     

    Each
      such
      adjustment shall be proposed in a filing (“True-Up Letter”) with the Board at
      least 30 days in advance of the date upon which it is requested to be effective
      (which effective date hereunder is _________________). The proposed adjustment
      to the BGS Transition Bond Charge will become effective on an interim basis
      on
      such date and, in the absence of a Board Order to the contrary finding manifest
      error in the calculation, will become final 60 days after the filing. The
      proposed adjustment to the BGS MTC-Tax, absent a proposed change in the formula,
      will become effective on an interim basis on the date on which it is requested
      to be effective and, in the absence of a Board order to the contrary correcting
      manifest error in the calculation, will become final 60 days after the
      filing.

     

    Using
      the formula
      approved by the Board in the BGS BSCRO (or in effect pursuant to the True-Up
      Letter dated _______), this filing modifies the variables used in the BGS
      Transition Bond Charge and BGS MTC-Tax calculation and provides the resulting
      modified BGS Transition Bond Charge and BGS MTC-Tax. Table I shows the revised
      assumptions for each of the variables used in calculating the BGS Transition
      Bond Charge and BGS MTC-Tax. The assumptions underlying the current BGS
      Transition Bond Charge and BGS MTC-Tax were filed by the Company in an Issuance
      Advice/True-Up Letter dated ________________.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    Based
      on the
      approved formula, the proposed BGS Transition Bond Charge is ______ ¢/kWh and
      the resulting BGS MTC-Tax is ______ ¢/kWh.

     

     

    Respectfully
      submitted,

     

     

    [                                   
      ]

     

    Attachment

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

     

    TABLE
      I

    INPUT
      VALUES FOR ADJUSTED BGS TRANSITION BOND CHARGE AND BGS
      MTC-TAX

     

    
      	
              Forecasted
                annual kWh sales:______

               

            	 	 	 
	
              Projected
                kWh
                to be delivered, billed and cash collected (000s):_________

               

            	 	 	 
	
              Days
                outstanding:________

               

            	 	 	 
	
              Percent
                of
                billed amounts expected to be charged-off:_______

               

            	 	 	 


    

    


     

    1.   
      Under-collection
      of
      prior principal amount _______

    2.   
      Upcoming
      collection
      of current principal amount _______

    3.   
      Under-collection
      of
      prior interest amount ____

    4.   
      Upcoming
      collection
      of current interest amount _______

    5.   
      Under-collection
      of
      prior over-collateralization amount _______

    6.   
      Upcoming
      collection
      of current over-collateralization amount _______

    7.   
      Under-collection
      of
      prior tax component amount _______

    8.   
      Upcoming
      collection
      of current tax component amount _______

    9.   
      Deficiency
      in
      required capital amount _______

    10. 
      Amount
      in reserve account ________

    11. 
      Upcoming
      period
      servicing and administration fees (including hedging costs, if any)
      _______

    12.
 New
      Jersey
      Statutory Corporate Business Tax Rate ___________

    13.
 New
      Jersey Sales
      Tax Rate _________

    14.
 Federal
      Statutory
      Corporate Income Tax Rate___________

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

     

    Appendix
      D

    


    PRICING
      ADVICE
      CERTIFICATE

    [JCP&L
      Letterhead]

    [To
      be filed not
      later than the date of pricing of the BGS Transition Bonds]

    


    [DATE]

    


    [Kristi
      Izzo,
      Secretary

    State
      of New
      Jersey

    Board
      of Public
      Utilities

    Two
      Gateway
      Center

    Newark,
      New Jersey
      07102]

    


    and

    


    [Board
      Designee]

    


    Re:
      Docket No.
      ER03020133

    


    Dear
      Secretary
      Izzo:

    


    Pursuant
      to your
      Honorable Board's order in the above-captioned Docket (“BGS BSCRO”), Jersey
      Central Power & Light Company (“Company”) hereby transmits for filing this
      Pricing Advice Certificate. Any capitalized terms not defined herein shall
      have
      the meanings ascribed thereto in the BGS BSCRO.

    


    In
      the BGS BSCRO,
      the Board requires the Company to file a Pricing Advice Certificate when pricing
      terms for a series of BGS Transition Bonds and the pricing of any hedging
      arrangement in advance of the issuance of BGS Transition Bonds have been
      approved by the Company. The proposed terms of pricing and issuance of the
      [BGS
      Transition Bonds] [hedging arrangement] are as follows:

    


    Name
      of BGS
      Transition Bonds: __________

    SPE:
      __________

    Closing
      Date:
      __________

    Amount
      of Upfront
      Transaction Costs securitized: __________

    Interest
      Rates and
      Expected Amortization Schedule: See Attachment 1 

    Distributions
      to
      Investors (quarterly or semi-annually): __________

    Annual
      Servicing
      Fee as a percent of initial principal balance: __________

    Weighted
      Average
      Coupon Rate10 :
      __________

    Annualized
      Weighted
      Average Yield11 :
      __________

    Capital
      Amount:
      __________

    New
      Jersey Sales
      Tax Rate: _______

    Federal
      Statutory
      Corporate Income Tax Rate: ________

    Overcollateralization
      Amount: __________

     

    
      
        
          

        

        
          10  Weighted
            by
            modified duration and principal amount.

          11  Weighted
            by
            modified duration and principal amount.

           

          
            
              
              

            

            
              D-1

              
                

              

            

            
              
              

            

          

           

        

      

    

         
      Overcollateralization Schedule: See Attachment 1

    


    The
      Company hereby
      certifies that to the best knowledge, information and belief of the Company,
      its
      officers, agents and
      employees after
      reasonable inquiry, the selection of a negotiated sale of the Transition Bonds,
      through
      [a public
      offering]/[ or a limited public offering under Rule 144A adopted by the
      Securities and Exchange Commission under the Securities Act of 1933],
has
      resulted in the highest possible bond ratings and the lowest possible interest
      and transaction costs consistent with market conditions and the terms of the
      BGS
      BSCRO.

    


    The
      Company hereby
      certifies that: (i) all proposed terms of pricing and issuance of the BGS
      Transition Bonds and/or [the hedging arrangement] are within the parameters
      established in the BGS BSCRO and the Designee's Guidelines attached as Appendix
      F to the BGS BSCRO [and] (ii) the structuring and pricing of the BGS Transition
      Bonds and/or [the hedging arrangement] assures that the Company's customers
      will
      pay the lowest BGS Transition Bond Charges consistent with market conditions
      and
      the terms of the BGS BSCRO [or (iii) the hedging arrangement reasonably protects
      ratepayers against interest rate increases which may occur after the date
      hereof.]

    


    The
      Company's
      certification provided in clause (ii) or (iii) above is based, in part, upon
      representations provided to the Company by its Lead Underwriter for the BGS
      Transition Bonds, Goldman, Sachs & Co.

    


    Respectfully
      submitted,

    


    


    


    [                                    
      ]

    


    Attachments

    


    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

      

    

    


    ATTACHMENT
      1

    EXPECTED
      AMORTIZATION SCHEDULE

    


    (with
      coupons,
      prices, classes, if any, expected amortization schedule and stated maturities,
      call

    features,
      and
      scheduled overcollateralization requirements)

     

    A.     General
      Terms

     

    
      	
              Class

            	
              Price

            	
              Coupon

            	
              Fixed/Floating

            	
              Avg.
                Life

            	
              Stated
                Maturity

            	
              Call
                Features If Any

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 


    

    


     

    B.     Scheduled
      Amortization Requirement

     

    
      	
              Date

            	
              [Class]

            	
              [Class]

            	
              [Class]

               

            	
              [Class]

               

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 


    

    


     

    C.     Schedule
      of
      Overcollateralization Requirement

     

    
      	
              Date

            	
              Required
                Overcollateralization Level

            
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 


    

     

    
      
        
        

      

      
        D-3

        
          

        

      

      
        
        

      

    

     

    Appendix
      E

     

    Designee
      Guidelines


     

    Docket
      No.
      ER03020133

     

    The
      Designee is
      empowered to agree to the terms and conditions of the BGS Transition Bonds
      to be
      issued to recover a portion of the Basic Generation Service Transition Costs
      of
      Jersey Central Power & Light Company (the “Company”), and to certify that
      the structuring and pricing of the BGS Transition Bonds assure that the
      ratepayers will pay the lowest BGS Transition Bond Charges consistent with
      market conditions and the terms of the BGS BSCRO; provided, however, that the
      Designee cannot approve the terms and conditions or deliver such certification
      if the terms and conditions of the structuring and pricing of the BGS Transition
      Bonds fall outside the parameters set forth below:

     

    
      	
              Bond
                Size

               

            	
              Not
                to exceed
                $_____________

               

            
	
              Bond
                Maturity

               

            	
              The
                scheduled
                amortization upon issuance of the BGS Transition Bonds will be up
                to 15
                years, and the final legal maturity will be up to two additional
                years.

               

            
	
              Amortization

               

            	
              Set
                to
                provide substantially equal forecasted
                kilowatt-hour
                charges (including the BGS Transition Bond Charge and
                MTC-Tax).

               

            
	
              Payment
                Dates

               

            	
              The
                first
                payment of principal and
                interest
                shall
                be scheduled
                to
                occur within
                11 months of issuance and payments of principal and interest otherwise
                shall
                be no
                less frequent than semi-annually.

               

            
	
              Capital
                Account and

               

              Over-Collateralization

               

            	
              The
                Company
                shall capitalize the SPE at no less than .50% of the initial principal
                amount of the BGS
                Transition Bonds.
                The BGS
                Transition Bond Charge shall include over-collateralization in amounts
                sufficient to build up to no more than 0.50%
                of the
                initial principal amount of the BGS Transition Bonds. 

               

            
	
              Underwriting

               

            	
              Either
                public
                underwriting or limited
                public offering under Rule
                144A,
                by way of a
                negotiated sale. Use
                of
                customary practices in the syndication and underwriting process for
                the
                execution of an asset-backed securitization of this size and credit
                quality.

               

            
	
              Floating
                Rate
                Bond  Hedging

               
    Arrangement

               

            	
              If
                the
                Company proposes to cause the issuer to issue floating rate bonds
                which
                are swapped to a fixed rate then any such swap shall be competitively
                bid
                among no less than three (3) qualified swap counterparties and the
                issuer
                shall accept the lowest responsible bid taking into account the trading
                value of the counterparties. [A swap counterparty shall be deemed
                a
                qualified swap counterparty if the rating of the counterparty is
                at least
                AA-/Aa3.]

               

            


    

     

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

     

    
      	
              Hedging
                Arrangement

            	
              The
                Designee
                may authorize a Hedging Arrangement if (a) the Company notifies the
                Designee and the Board’s Financial Advisor that if the BGS Transition
                Bonds were to be issued as of the date of such notification the expected
                average weighted yield on the BGS Transition Bonds would produce
                incremental net present value savings; (b) the Board’s Financial Advisor
                concurs with such analysis; and (c) the Company indicates its intention
                to
                initiate a Hedging Arrangement as soon as practicable
                thereafter.

               

            


    

    Capitalized
      terms
      used herein and not otherwise defined shall have the meanings set forth in
      the
      BGS BSCRO.

    


    The
      terms and
      conditions described therein are hereby approved with such modifications and
      amendments as are acceptable to the Designee relying upon the written advice
      and
      recommendations of the Board’s Financial Advisor (collectively, the “Designee
      Guidelines”).

     

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

     

    Appendix
      F

    Revised
      Exhibit E-Supplement to the Petition

    


    Revised

    Attachment
      E-1-

    Supplement      Debt
      Design

    


    Revised

    Attachment
      E-2-

    Supplement BGS      
      Transition Bond Charge: Charge Development and True-up; BGS MTC-Tax: Charge
      Development and

                  
True-up

    


    Attachment
      E-3      
Development
      of BGS
      Transition Bond Charge, BGS MTC-Tax and True-up Methodology

     

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

    


     

    Attachment
      E-3

     

    Development
      of the BGS Transition Bond Charge,

    BGS
      MTC-Tax and True-up Methodology

     

    


    The
      BGS TBC is
      designed to ensure full and timely recovery of all Bondable Stranded Costs
      including finance charges and related costs. A separate BGS MTC-Tax is designed
      to recover all income taxes associated with the BGS TBC and the related BGS
      MTC-Tax revenues. The BGS TBC which is designed to service the BGS Transition
      Bonds is computed first and then the BGS MTC-Tax which is designed to recover
      the tax on the BGS TBC and the gross-up on such tax is developed taking into
      account the projected billed BGS TBC, projected Transition Bond interest expense
      accrued, the current statutory Federal income tax rates, the current state
      corporate business tax rate, if applicable, and projected collections of the
      BGS
      MTC-Tax. The detailed mechanics of this procedure are described
      below:

     

    Phase
      1 -
      Development of BGS Transition Bond Charge: Attachment E-2

     

    The
      BGS TBC is
      developed as follows: A total Transition Bond requirement is developed by
      deriving the total cash requirement necessary to service all of the SPE's
      obligations. These obligations include, but are not limited to, principal on
      BGS
      Transition Bonds, interest on BGS Transition Bonds, Servicing Fee, the
      overcollateralization amounts, rating agency fees, trustee fees,
      accounting/legal fees, and miscellaneous costs, any unpaid amounts related
      thereto from the prior payment date and any true-up amount computed below (note
      that there will be no true-up adjustment used in developing the initial charge)
      less any BGS TBC collections expected to be received in the current period
      from
      prior BGS TBC billings. The total of these obligations results in the BGS TBC
      required to be billed and collected during the upcoming period.
      That

     

    
      
        
        

      

      
        F-2

        
          

        

      

      
        
        

      

    

     

    result
      is then
      divided by the projected kWhs of electric distribution through-put expected
      to
      be billed and collected from ratepayers during the corresponding period. The
      result is a charge per kWh that will generate the expected collections necessary
      to pay required debt service and expenses and account for prior period
      shortfalls or excesses. The resulting BGS TBC is multiplied by 1 plus the New
      Jersey state sales tax rate to appropriately include sales tax in the
      charge.

     

    Phase
      2 -
      Tax Gross-up Adjustment: BGS MTC- Tax - Attachment E-2

     

    The
      first step of
      the calculation of the BGS MTC-Tax is to compute the income tax due on the
      net
      projected BGS TBC and BGS MTC-Tax revenue (excluding sales tax). This
      computation is made as follows: (i) add projected BGS TBC and BGS MTC-Tax
      charges to be billed to ratepayers during the upcoming period to determine
      total
      accruable taxable revenue (note that this requires an iterative computation
      since the BGS MTC-Tax charges billed are an input into the equation and also
      a
      function of the resulting BGS MTC-Tax charge rate); (ii)  from total
      accruable taxable revenue, subtract projected accrued interest on the BGS
      Transition Bonds for the period, any accruable fees for administrative or
      servicing services to be provided to the SPE, any tax deductible amortization
      of
      BGS Transition Bond issuance costs (limited, in the aggregate, to the amount
      recoverable through the BGS TBC), any deductible expenses or losses on the
      debt
      retired by BGS Transition Bond proceeds (limited, in the aggregate, to the
      amount recoverable through the BGS TBC), and any projected allowable deduction
      for uncollectible accounts which subtraction results in Federal taxable income;
      (iii) multiply this amount by the statutory regular Federal and New Jersey
      state income tax rates in effect for the period, currently aggregating 40.85%,
      and the result is Federal and New Jersey state income tax; (iv) the result
      is then divided by projected kWh’s of electric distribution through-put
      expected

     

    
      
        
        

      

      
        F-3

        
          

        

      

      
        
        

      

    

    


    to
      be
      billed and collected from ratepayers during the corresponding period;
      (v) the result is a charge per kWh that will generate the expected
      collections necessary to pay the forecasted tax liability resulting from the
      net
      combined charge revenues in the upcoming period. The resulting BGS MTC-Tax
      charge is multiplied by 1 plus the New Jersey state sales tax rate to
      appropriately include sales tax in the charge.

     

    Phase
      3 -
      Computing True-up Adjustments

     

    True-up
      adjustments
      are designed to adjust the charges to ensure that the principal and interest
      of
      the BGS Transition Bonds, related fees and taxes are fully and timely recovered
      from the ratepayers and that ratepayers pay no more than is required to satisfy
      these costs. As in the case of the development of the BGS TBC and BGS MTC-Tax,
      the true-up adjustments are completed in two steps - step one for the BGS TBC
      and step two for the BGS MTC-Tax.

    


    Step
      1: BGS
      TBC True-up Adjustment

     

    The
      BGS TBC is to
      be adjusted at least annually to ensure full and timely recovery of all Bondable
      Stranded Costs, finance charges and related costs. The adjustment is computed
      as
      follows:

    


    1.
      BGS TBC
      Shortfalls: BGS
      TBC collections
      are remitted to the Bond Trustee and used to service the BGS Transition Bonds
      and pay related expenses. To the extent BGS TBC collections are insufficient
      to
      fund required debt service, the Bond Trustee will fund the shortfall first
      with
      any excess collection from the prior period, then from funds held by the Bond
      Trustee in the Overcollateralization Subaccount and then with equity capital
      of
      the SPE held in the Capital Subaccount. If these additional amounts are not
      sufficient to fund debt service, the

    


    
      
        
        

      

      
        F-4

        
          

        

      

      
        
        

      

    

     

    Bond
      Trustee will
      pay interest on the BGS Transition Bonds first and then principal to the extent
      there are funds remaining. To the extent overcollateralization or equity funds
      are used to service debt, these amounts will be added as a true-up adjustment
      to
      be factored in to the subsequent period’s BGS TBC to fully replenish those
      accounts to their scheduled amounts within the next 12-month period, or, in
      the
      case of monthly or quarterly true-ups, such shorter period, consistent with
      the
      true-up period, as the Servicer may specify. In addition, any principal
      shortfall will be added to the subsequent year’s BGS TBC via the
      true-up.

    


    2.
      BGS TBC
      Over-Collections: To
      the extent BGS
      TBC collections are in excess of the amount needed for the current period,
      such
      excess will be retained in the Reserve Subaccount maintained by the Bond
      Trustee. Such excess will be invested by the Bond Trustee in eligible
      investments and retained by the Bond Trustee until it is required to service
      debt, replenish accounts to their scheduled levels or until the next periodic
      true-up, whichever comes first. Any balance in the Reserve Subaccount including
      interest on hand at the time of a periodic true-up is subtracted as a true-up
      adjustment in determining the subsequent period’s BGS TBC.

    


    3.
      Investment
      Earnings: Investment
      Earnings
      on the trust accounts held by the Bond Trustee (other than the Capital
      Subaccount) will be used to service debt or fund or replenish the trust accounts
      to their required levels and, if not needed for that purpose, will be retained
      in the Reserve Subaccount and will be subtracted as a true-up adjustment as
      of
      the next true-up date.

    


    4.
      Periodic
      True-up: On
      at least an
      annual basis, any true-up adjustment, addition or subtraction, computed above
      will be used to develop a new BGS TBC rate for the upcoming period. This amount
      will be added to or subtracted from the amount of required debt service used
      in
      developing the BGS TBC for the subsequent period described in Phase 1
      above.

    


    
      
        
        

      

      
        F-5

        
          

        

      

      
        
        

      

    

     

    Step
      2 -
      MTC-Tax True-up Adjustment

     

    1.
      Compute Income
      Tax Liability: Using
      the
      methodology described in Phase 2 above, compute the income tax associated with
      net combined charges for the prior period by substituting actual amounts for
      the
      prior period for the projected amounts.

     

    2.
      Compute Tax
      True-up amount: Subtract
      the tax
      liability computed in 1 above from the actual BGS MTC-Tax collections for the
      same period to derive the shortfall or over-collection with respect to taxes.
      Interest will be added to any over or under collection to ensure that no party
      is economically harmed by any such over or under-collection. The net adjustment
      plus accrued interest will be added or subtracted to the projected amount of
      total income tax associated with net combined charges used in developing the
      BGS
      MTC-Tax charge for the subsequent period described in Phase 2
      above.

     

    
      
        
        

      

      
        F-6