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PSE&G's high-powered upgrade plan has business divided

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PSEG chief Ralph Izzo says the utility is aiming to upgrade resiliency, not just reliability.
PSEG chief Ralph Izzo says the utility is aiming to upgrade resiliency, not just reliability. - (Aaron Houston / NJBIZ)

Public Service Electric & Gas' announcement Wednesday that it hopes to spend some $3.9 billion to upgrade its electric and gas infrastructure over the next 10 years caused quick and passionate responses from various corners of the business community.

At issue is just how much the program would end up costing ratepayers, and how such costs stack up against the near-universally accepted need to harden the state's aging infrastructure.

PSE&G's argument is that Hurricane Sandy was a "defining event," making clear once and for all that major, bold investment is required to keep the state's utilities in working order during future storms.

"PSE&G has been recognized repeatedly for providing safe, highly reliable service," Public Service Enterprise Group CEO Ralph Izzo said in a press release. "But reliability is no longer enough; we must also focus on the resiliency of our systems to withstand natural disasters."

Public Service Enterprise Group, in Newark, is PSE&G's parent company.

On Wednesday, the utility filed an application with the Board of Public Utilities to spend $2.6 billion on infrastructure upgrades over the next five years. The utility also said it plans to spend another $1.3 billion over the subsequent five years.

Izzo said the work can be done without major hikes in electric and gas bills, due to market factors and the expiration of a pair of surcharges.

Some found that assertion unbelievable.

Hal Bozarth, executive director of the Chemistry Council of New Jersey, called PSE&G's proposal "shocking."

"Isn't it ironic," said Hal Bozarth, executive director of the council, in prepared remarks, "a day after PSE&G's parent company declared yet another increase in the company's common dividend, it asks ratepayers to foot the bill to improve its infrastructure to the tune of $4 billion?"

Stefanie Brand, director of the New Jersey Division of Rate Counsel, said a back-of-envelope estimate shows a $4 billion package, funded completely by ratepayers, would add nearly a cent per kilowatt hour — 0.84 cents, to be exact — to customers' bills.

At those rates, the chemistry council said, its largest members could end up paying some $700,000 extra per year.

But PSE&G said the ratepayer effect would be minimal.

Michael Jennings, a PSEG spokesman, said two deregulation-related surcharges expiring in the next three years will chop 7.4 percent off ratepayers' bills. He said the company also factored in forward-looking models of the cost of natural gas, which has been falling in recent years.

All told, the utility said, even with the upgrades, electric and gas customers will likely be paying less in 2018 than they paid in 2008.

Sensing opportunity

Others in the business community saw the proposal as an economic boon, both short-term and long-term.

In the short term, PSE&G says its work will create some 5,800 jobs. That was enough to win the support of the New Jersey Building and Construction Trades Council.

In the longer term, said Joseph Seneca, a professor at the Bloustein School of Public Policy at Rutgers University, the improvements could make New Jersey a more competitive state.

"The primary goal need not always be the cheapest rates possible, if the cost of that is less reliability, more frequent interruptions and significant damages from those interruptions," he said. "Those latter three things, I think, are much more damaging to state's business climate than any increase in rates. And the increase in rates is not part of this proposal as it's been put forth."

The New Jersey State Chamber of Commerce voiced similar thoughts in its endorsement of PSE&G's proposal, though it should be noted that Izzo sits on the chamber's board of directors. Tom Bracken, the chamber's president and CEO, said his group endorses the plan because it would make New Jersey more competitive. He said Izzo's position on the chamber's board "played no role" in the decision.

Ratepayer impact

Stefanie Brand

Still, the biggest point of contention is likely to be the cost, or lack thereof, to ratepayers.

Brand said she can't agree with PSE&G's claims that the program won't have a major impact on ratepayers. For one thing, she said, energy markets — including natural gas prices — are very difficult to predict.

"They really have no idea where natural gas prices are going," she said.

Brand also noted that the costs for the new program would go on top of the $800 million PSE&G wants in order to expand its Solar 4 All program, and on top of utility's Hurricane Sandy costs.

Jennings said businesses in all sectors have to make educated guesses about markets.

"If you could not project out cost of something three, four five years ahead, we'd never make any infrastructure investments," he said.

He also noted that the $4 billion wouldn't hit ratepayers all at once, but rather over the expected lifetime of the equipment itself. In other words, it would be paid for over decades.

Brand acknowledges that major improvements are needed in the wake of Sandy, but she said PSE&G's proposal is "way, way more" than she was expecting.

CORRECTION: An earlier version of this story listed the incorrect amount PSE&G sought to spend on its Solar 4 All program. It has been corrected above.

Write to the Editorial Department at editorial@njbiz.com

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