NJ's biggest utility plans $4B upgrade after Sandy

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Associated Press

Posted on February 20, 2013 at 3:36 PM

New Jersey's largest utility company has proposed spending $3.9 billion over a decade to stormproof its Superstorm Sandy-battered electric and gas system in a time when big storms have become more frequent.

Newark, N.J.-based PSE&G said it can be done without raising customers' bills — so longer as power supply costs do not make an unexpected spike.

"We live in a digital society nowadays, we have a digital economy," said PSE&G Chairman and CEO Ralph Izzo. "This is about protecting our way of life in extreme weather."

The company says it plans to raise some flood-prone substations, build barriers around others and line cast-iron gas lines with plastic. It wants to fortify overhead power lines so they could withstand sustained 65 mph winds, not just the 55 mph winds they're built for now. It also wants to break electrical circuits into smaller units so that when the power goes out, fewer customers will be affected. And it wants technology to help fix problems faster.

New Jersey, like other places, has seen more frequent and more damaging storms, including Tropical Storm Irene and an ice storm in 2011. During Superstorm Sandy last year, 2 million of the company's 2.2 million customers lost power as trees took down power lines and substations flooded. The company says 800,000 would not have been knocked out if the proposed upgrades were in place. And the rest would have had service returned sooner.

For instance, company officials said the Newark Liberty Airport would have had a shorter shutdown after Sandy if the Newark electrical substation had been protected from flooding.

PSE&G serves about three-fourths of New Jersey electrical customers, including many in the Philadelphia and New York City suburbs.

The company said ratepayers would see no increases or small ones on their bills because two surcharges are due to come off bills in the next few years. Thanks to lower natural gas supply costs, Izzo said, the average residential customer with both gas and electric service now is paying about $2,400 per year to the company — $600 less than in 2008. He said the aim is that the bills would not rise because of the proposed project.

But the estimates do not include $250 million to $300 million the company needs to pay for repairs for damages caused by Sandy. It's not clear how those repair costs might be passed on to customers.

Almost as soon as PSE&G filed its proposal, the New Jersey Chamber of Commerce gave its support.

"Investing in a reliable and resilient energy infrastructure that is better able to withstand powerful and damaging storms like Sandy and other natural disasters will help keep New Jersey competitive and open for business," chamber President and CEO Thomas Bracken said in a statement.

The New Jersey International Brotherhood of Electrical Worker also supported it, saying it would create 5,800 jobs. And the New Jersey Building and Construction Trades Council also came out in support, saying it would provide an adrenalin shot to the state economy.

The proposal requires approval of the state Board of Public Utilities. A spokesman said the board cannot comment on matters before it.

Generally, there's an incentive for investor-owned regulated utilities like PSE&G have to invest in large projects such as power plants, transmission lines and substations, because that's how they can best increase profits for shareholders.

Regulators allow utilities to earn a greater rate of return — typically around 10 percent — for big capital-intensive projects than for simply delivering electricity. The reason is that regulators need to give utilities an incentive to invest in big-ticket items that could improve the system. New Jersey does not have a set rate of return on infrastructure investments, but rather decides them on a case-by-case basis.

Investors cheer when these projects are allowed because they increase electric rates. But they are not always good news for customers. Even if the proposed project does not raise utility bills, it would keep them from dropping as much as they otherwise would because the surcharges that disappearing in 2014 and 2016 that together account for more than 7 percent of the average utility bill.

Jennifer Kim, state director for the liberal consumer protection and environmental organization New Jersey Public Interest Research Group, said that she wants to see an electric system more able to weather bad storms, but she is skeptical about the claim that ratepayers won't see their bills rise. She also said she wants to make sure the project is closely examined and that the company pays for some costs out of what it's already collected from customers.

"Shouldn't some of this stuff have been taken care of already?" she asked.

PSE&G's Izzo said in a conference call that the company has spoken with officials, but he has not asked the governor to pre-approve the upgrade plans.

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AP Business Writer Jonathan Fahey in New York contributed to this report.

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