State Agency Boosts Utility Bills to Help Finance Infrastructure Upgrades

BPU also OKs mechanism to let water utilities more rapidly recover costs of system improvements

Before an unusually large audience, the state Board of Public Utilities yesterday unanimously approved a series of measures to increase monthly bills for millions of gas and water customers — all with the aim of fixing an aging infrastructure used to deliver service to consumers.

In a packed room in the Statehouse Annex, the five commissioners boosted rates for the 350,000 customers of South Jersey Gas by about $10 a year, while they also approved a 5.3 percent increase for the 640,000 customers of New Jersey American Water.

Perhaps of greater importance, the commissioners also adopted a new mechanism that will allow investor-owned water utilities, which serve better than 4.5 million customers, to more quickly recover the costs of upgrading pipelines, hydrants, and other infrastructure. Officials argued that doing so would speed up the replacement of outdated water mains that are decades old.

Yesterday’s meeting marked the second consecutive session of the BPU that has drawn a sizable number of protestors questioning why the agency is increasing utility bills at a time of economic uncertainty. At the same time, there were many from labor supporting the effort. The agency’s typical meeting is attended by mostly an array of attorneys, representing utilities and other interests, with matters before the board.

As is the usual course of events at theses meetings, the commissioners approved the increased rates, but deferred public comment on the measures until they concluded the regular portion of the session and had approved all the initiatives before them.

The commissioners defended the increases, saying the boost in rates for South Jersey Gas to improve the safety and reliability of its infrastructure makes sense, given the steep drop in natural gas prices, which have reduced customers bills by more than $500 a year since 2008.

“It seems very wise to invest a small share of those savings in improving the safety of the system,’’ said BPU President Bob Hanna. Much of $35 million the utility will invest in its system will go to replacing outdated cast iron and steel pipeline to deliver gas to its customers, Hanna said.

Commissioner Jeanne Fox agreed, saying the utility would probably face the prospect of replacing those lines in five years or more, so it makes sense to make the investment now when prices of natural gas, which make up about two-thirds of a typical bill, are so low.

The stepped up capital investment in the utility’s infrastructure is a program begun by the former Corzine administration as a way to provide an economic stimulus and create jobs at a time when the economy was in a recession. “I think it is a smart thing to do,’’ Fox said.

Others were not so certain.

“For an administration that is so anti-tax, they don’t seem to have much of a problem sticking higher costs to the average resident through higher tolls and steeper utility bills,’’ said Jeff Tittel, director of the New Jersey Sierra Club.

The rule, adopted today, only applies to water utilities. Gas utilities, however, are pressing for a similar rule, which has been endorsed by a task force set up by the board. There is no rule yet for gas utilities.

For New Jersey American Water customers in 189 municipalities, the increase in rates will range between $2.15 per month to $3.93 monthly, depending upon where the customer is located, according to the BPU staff.

The company’s original filing sought a 15.5 percent increase that would generate an additional $95.5 million in revenue. Under a stipulated settlement with the BPU, the Division of Rate Counsel, and others that number was whittled down to $31 million or 5.32 percent.

“This is in no way what the company requested,’’ Hanna said, praising the staff for negotiating a balanced settlement.

The board also approved a new financing mechanism for investor-owned water utilities that would allow them to recover the costs of making improvement to their water mains without going through a full-blown regulatory review. The improvements could not exceed a 5 percent cap of its current revenues, under the proposal.

Louis Walters, chairman of the New Jersey Utilities Association, said the creation of the program allows companies to “ensure a reliable supply of safe drinking water well into the future; avoid more frequent and costly emergency repairs, and an increase in service interruptions.’’

The mechanism is similar to ones already in place in 10 other states, including Pennsylvania, but the proposal adopted by New Jersey is a lot more conservative than those, according to Fox. It includes a sunset provision after five years.

“What I like about this is it’s a proactive approach to replacing what we know needs to be replaced,’’ said Commissioner Nicholas Asselta.

How bad is New Jersey’s aging water infrastructure, asked Hanna to a staff member. Given the current rate of investment, it would take between 400 and 800 years to update the system, according to the staff.

In Pennsylvania, where a similar mechanism is in place, customers pay a maximum amount of $3.20 more a month on their water bill, according to the utilities association.