PSE&G wants $4 billion to bring power grid Into 21st Century

Is it time to invest nearly $4 billion in ratepayer subsidies to help modernize the power grid to avert widespread outages from extreme weather, such as Hurricane Sandy?

If the state’s largest utility gets its way, the answer is “Yes,” at least according to a filing yesterday with the New Jersey Board of Public Utilities. The proposal — courtesy of Public Service Electric & Gas — is likely to kindle a fiery debate over how the state should respond to Sandy and at what cost to consumers.

The filing comes at a time when the state’s utilities are under enormous pressure to reduce long outages caused by extreme weather, while the Christie administration is struggling to find ways to reduce energy bills, which typically rank among the highest in the nation. Tough choices abound all around.

But PSE&G executives argue that with natural gas prices at historic lows and surcharges related to the deregulation of the energy industry in New Jersey lapsing in the next few years, it’s possible to ramp up the resiliency of the power grid without spiking residential customers’ bills.

It is a scenario that some find highly unlikely. “If you think a $4 billion filing will not affect ratepayers, then you believe in fairy dust,” said Stephen Goldenberg, an attorney for the New Jersey Large Energy Users Coalition, a group that could be burdened by big increases in their electric bills if the filing is approved. Goldenberg noted he has yet to review the filing.

“I don’t know how ratepayers can afford it,” agreed Stephanie Brand, director of the New Jersey Division of Rate Counsel, which represents consumers and businesses in utility rate cases. “It’s really troubling from a ratepayer perspective.”

Others argued that New Jersey can ill afford not to make investments to upgrade its infrastructure.”When we don’t make these investments, we will eventually hurt business growth and the economy,” said Clark Barrineau, a communications specialist at the American Society of Civil Engineers. The organization issued a recent report saying that increasing investment in the power grid could save American businesses $126 billion.PSE&G executives agreed.

“This is the right time to make these investments,” said Ralph LaRossa, PSE&G president and chief operating officer, who argued that lower natural gas prices and other factors can allow the utility to make these investments without raising bills.

Those other factors include surcharges on customer utility bills stemming from the state’s efforts to deregulate the electric industry in 1999. Those tariffs will disappear in 2016, cutting electric bills by about 7.4 percent, or $8.30 a month, according to Michael Jennings, a spokesman for PSEG Power, an affiliate of PSE&G.

Marrying a proposal to increase rates as bills drop because of temporary factors is a common practice by New Jersey utilities seeking a rate hike. It weds a one-time drop in bills to a longer-term increase in energy costs, masking the impact of the real cost to consumers.

For consumer advocates, the fact that some tariffs are lapsing is not a reason to raise rates now. They point out that since state deregulated the industry in 1999, consumers have shelled out $2.9 billion help PSE&G recover stranded costs from power plants, an expense Goldenberg suggested should never should not have been paid in first place.Instead of decreasing in value because of competition from newer, more efficient power plants, older generating stations increased in value because new power plants largely never came on line, a situation that still exists today.Brand also questioned why ratepayers should not see drops in the bills, if the surcharges are lapsing.

“Basically the surcharges are dropping, but they are finding a way to recover the money,” she said, referring to the new $4 billion filing. Brand noted that the utility just increased it dividend payments to shareholders on Tuesday.Brand also questioned the return on equity requested by PSE&G in its filing, which would be at 10.3 percent, a higher rate than past returns approved by the BPU and other states in recent years.

From PSE&G’s perspective, the proposal delivers many benefits to the state. “The cost of inaction is too high,” said Ralph Izzo, chairman and CEO of PSEG, the parent company of PSE&G. “We have a choice: continue to make incremental improvements and repairs to our electric and gas systems as we have always done. Or we can be truly forward-looking and make more substantial investments that will help our state be better prepared for the next Irene, Sandy or other catastrophic event like Sandy.”

PSE&G’s filing calls for a big chunk of change ($1.7 billion) to raise, relocate, or protect 40 switching stations or substations affected by the recent storms. Its proposal also calls for sizable spending to modernize low-pressure gas mains; deploy smart-grid technologies (not smart meters) to more rapidly respond to power outages; and invest in systems that improve redundancy in the power grid to avert outages.

If the filing is approved, the utility said it would create 5,800 new jobs. Its proposal has won approval from labor unions, the New Jersey State Chamber of Commerce, and other business interests.

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NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.