BPU Pressures Gas Utilities to Upgrade Aging Infrastructure

Ramping up infrastructure investments could help prevent problems before they occur and give the state's sluggish economy a boost

The state is pushing gas and electric utilities to ramp up spending once again on their infrastructure as a way of jump-starting New Jersey’s flagging economy.

South Jersey Gas has already filed a petition with the New Jersey Board of Utilities (BPU), seeking approval to spend approximately $150 million over three years. Public Service Electric & Gas (PSE&G), which plans to spend $78 million on its gas system, has done the same. Elizabethtown Gas and New Jersey Natural Gas are expected to file plans too, according to state officials.

The BPU is currently considering a proposal to allow water suppliers to impose higher rates on customers to help cover the costs of investing in aging infrastructure. Details of the state plan for gas companies are unknown.

The proposal was discussed in a caucus meeting this week by the five BPU commissioners as they explored ways to accelerate investment in the utilities’ pipes, water mains, and distribution and transmission lines. The agency, under BPU President Lee Solomon, wants the utilities to step up spending on aging infrastructure systems, arguing it will be cheaper for customers in the long run if upgrades happen before problems arise.

Cheap Money

Part of the rationale behind the move is the current economic slump. Because of the recession, the cost of capital is down, making it an opportune time for the utilities to ramp up spending, according to Solomon. In addition, fuel prices, which make up the biggest portion of gas and electric bills, are relatively modest, making it easier to pass on increases to ratepayers.

The scheme is modeled on an economic stimulus plan pushed by the Corzine administration, which spurred approximately $950 million in accelerated spending on gas and electric systems by the four previously mentioned utilities and Atlantic City Electric. That spending led to the creation of more than 1,350 jobs, according to the agency’s chief economic officer.

Crumbling Infrastructure

Commissioner Joseph Fiordaliso, citing the crumbling infrastructure of some systems, endorsed the boost in spending. “It is vital not only to economic development but to our quality of life,” he said.

While the commissioners seemed favorable to accelerating investments with gas and water utilities, they were more cautious about ordering more spending on the electric side, saying the problems there are much more complicated.

In the northern parts of New Jersey, the transmission system is so congested that customers are paying $1 billion more in charges each year than residents in neighboring states. Solomon said there is not much that can be done in the short term, particularly in the territory of Jersey Central Power & Light.

“The congestion costs are going to jump tremendously and almost all of it is going to be in northern New Jersey,” he said. “What are the things we can do internally to alleviate the impact on ratepayers?” he asked his staff.

The agency is looking at ways to spur the building of new generation plants, but so far has not come up with any specific proposals. In the meantime, the legislature is rapidly advancing a contentious bill (S-2381) that would guarantee a revenue stream of payments from ratepayers to a developer to build a new natural gas-fired plant, a proposal some say will help drive down prices and others say is a sweetheart deal for a connected developer.

For gas customers, the ramp up in spending should not lead to spikes in bills, largely because of a drop in the cost of natural gas. South Jersey projects its proposed ramped-up spending plan will cost customers 1.9 cents per therm, but that will be more than offset by recent drops in the price of natural gas, according to Joanne Brigandi, a spokeswoman for the utility.

As for PSE&G, it projects its $78 million in spending would increase a typical residential customer’s bill by $2.44 a year. The investment is likely to create 167 jobs, according to Bonnie Sheppard, a spokeswoman for the utility.