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Electrical storm: Business aims to pull plug on post-Sandy utility rate hikes

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Hurricane Sandy cost the state's electric utilities hundreds of millions of dollars in emergency repair and restoration efforts, but as utilities seek to recover those costs — and ponder large-scale infrastructure upgrades — the largest energy users are raising red flags about the potential for runaway spending, as power providers seek rate increases.

In December, Atlantic City Electric filed for a $69.7 million rate increase for reliability investments and Hurricane Sandy recovery. Jersey Central Power & Light in February filed a $603 million rate request to cover its Sandy-related costs. And that same month, Public Service Electric & Gas made headlines by proposing Energy Strong, a 10-year, $3.9 billion infrastructure program designed to boost the grid's reliability and resiliency for years to come.

Thus far, the Board of Public Utilities has taken a cautious approach, calling for cost-benefit analyses and asking PSE&G to provide more details.

Steven S. Goldenberg, an attorney and founder of the New Jersey Large Energy Users Coalition, said even small rate increases add up, particularly for industrial firms that use a lot of energy.

"What that means to some of my members, which are companies that have facilities in other states and other countries, is that they weigh the costs of doing business in New Jersey when they make hiring and firing decisions, when they decide whether or not to make a product in New Jersey, and whether or not to invest capital in their facilities," he said.

Goldenberg, of Fox Rothschild LLP, said New Jersey already pays some of the nation's highest rates, even without the potential increases.

But Andrew Hendry, president and CEO of the New Jersey Utilities Association, said Sandy served as a wake-up call to be prepared for more frequent storms of Sandy's intensity. He said rates aren't the only factor businesses consider — "They also have to look at what is the negative impact of an outage when there's a storm," he said. "There's a financial impact that occurs. There has to be a balance."

In a January report, the American Society of Civil Engineers found an $11 billion annual investment would prevent blackouts and brownouts that would otherwise cost businesses $126 billion nationally. Clark Barrineau, a manager of state public relations at ASCE, said operating a 21st-century economy on a 20th-century grid has its own costs.

"We're already paying for it, so the idea that the money isn't there is kind of a false equivalency," he said.

Greg Dunlap, director of marketing and account management for PSE&G's large customer group, said his clients care deeply about reliability — not just rates. He vividly recalls a conversation with a business owner in the days following Sandy.

"We called a gentleman to tell him we'd have his power restored in a certain period of time, and he told us don't even bother," Dunlap said. The loss of inventory and income from the power outage had already cost the man his business, he said.

Stefanie Brand, director of the state division of rate counsel, said she welcomes a discussion on infrastructure, but doesn't want Sandy to become a blank check for utilities to run up rates.

"Some of it may be worthwhile, but we need to do a real analysis for that, and do the things that will in fact have a positive impact and take into consideration the impact on rates," she said.

PSE&G says Energy Strong would coincide with the expiration of deregulation-era surcharges and falling natural gas rates that otherwise would drive down customers' bills. As a result, even with Energy Strong, PSE&G says customers will pay less in 2018 than in 2008.

But Brand said the surcharges are a good argument for why PSE&G doesn't need more money.

"We've been paying these surcharges since deregulation — surcharges that were supposed to be designed to pay for costs that the utilities were going to incur that never really came to be," she said.

Hal Bozarth, executive director of the Chemistry Council of New Jersey, said Energy Strong alone would cost the largest energy users an additional $714,000 per year. That's not an option for businesses that suffered Sandy-related losses.

"The grid should be sustainable and reliable, but it's inconceivable to me that the same people and companies who were without electricity for over a week during the last storm should be forced to pay the utilities to build up their infrastructure for the next time," he said.

PSE&G should have been making these investments all along, since they "own the infrastructure," Bozarth said. "If my members — the manufacturers which I represent — can't keep plants up and running, they don't ask their customers to keep their plants up and running."

Hendry, at the utilities association, said the BPU should weigh the costs and benefits in full. But he said the problems exposed by Sandy aren't just about aging infrastructure.

"The environment we're living in has changed," he said. "Some of the infrastructure was built a long time ago, but that doesn't mean it's an issue of being antiquated. I think the circumstances changed because the weather patterns changed."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

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