Gas Utilities Ready to Follow the Leader to Recoup Investments
A day after BPU approves financial mechanism for water pipeline projects, PSE&G says it will ask agency for similar help to fix aging systems.
With New Jersey water utilities winning approval for a quicker recovery on investments in upgrading their pipelines, the state’s gas utilities plan to seek similar treatment from regulators to modernize their infrastructure systems.
A day after the New Jersey Board of Public Utilities approved a mechanism to allow water utilities to rapidly recoup investments in upgrading their water mains, the chief executive office of the state’s largest gas utility, Public Service Electric & Gas, said his company would file a petition for the same sort of mechanism from the agency.
“It is a really good opportunity to take advantage of low gas prices and available labor to make investments that will have to be made at some point,” said Ralph Izzo, president, CEO and chairman of Public Service Enterprise Group, the owner of PSE&G. Those investments also could help the economy grow by employing an underutilized labor force, Izzo said.
In an earnings call with Wall Street analysts, Izzo said the utility, which serves 1.9 million gas customers, would probably file a petition with the BPU in the next couple of months and could get a decision from the regulatory agency by the end of the year.
Izzo noted another gas utility already has filed a petition with the BPU to more quickly recover the costs of upgrading its pipeline system.
In March, New Jersey Natural Gas filed a petition with the BPU to replace cast iron and steel distribution lines under a five-year $204 million capital investment program. The pipelines, the most used by the industry prior to 1970, are more susceptible to corrosion and leaks, according to the utility.
Under the utility’s petition, there would be no immediate impact on customer rates upon approval of the program. Instead, the utility would seek a cost recovery filing with BPU in June each year, seeking to increase its rates the following October. The utility said the annual average rate impact associated with the program would be to increase the typical residential customer’s rates by $8.44 over the life of the program, or less than 1 percent.
“With the program, we are looking to upgrade our older and more susceptible infrastructure to ensure the integrity of our system and best serve our customers,’’ said Laurence Downes, chairman and CEO of New Jersey Natural Gas. “We also believe that by leveraging our investment, we can help New Jersey’s economy grow.”
In his remarks to analysts, Izzo characterized the approval by the board of the water utilities’ mechanism as progress. In comments to reporters after the call, Izzo said the company and other utilities have been talking with the staff of the BPU about the proposal, but had been told to hold off until the agency dealt with the water issue.
At its monthly meeting on Tuesday, several commissioners seemed supportive of backing more aggressive investments in the gas pipeline systems, especially given the steep drop in natural gas prices, which are near a 10-year low.
Paul Patterson, an energy analyst at Glenrock Associates, agreed. “Given the time consuming nature of a BPU rate cause, I think it makes sense to go to a streamlined approach when you consider the extraordinary time and effort it takes to conclude a rate case,” he said.
Still, the issue poses risks for regulators, who at their last two meetings have faced dozens of unhappy ratepayers over rising utility costs, an occurrence that is rare at the typical meeting of the regulatory agency. With less transparency over why rates are rising for electricity, gas and water service, those complaints may only amplify.