PSE&G Gets Green Light on Major Transmission Upgrade

Tom Johnson | June 19, 2012 | Energy & Environment
Public utility shifts capital expenditures from generation to transmission

Public Service Electric & Gas yesterday won regulatory approval to upgrade its transmission system, a project that could cost up to $390 million and cut through 15 municipalities in Morris, Essex, Union, Somerset, and Middlesex counties.

The New Jersey Board of Public Utilities unanimously approved the project, the latest in a series of transmission upgrades planned by the state’s largest electric utility in a program that will lay out $3.5 billion in capital expenditures over the next several years.

With a steep drop in the prices power suppliers get for electricity, PSE&G’s parent, Public Service Enterprise Group, has shifted its spending on capital projects from building or expanding generation stations to investing in transmission, a strategy that subjects the company to less risk while still providing a high rate of return on investment.

PJM Interconnection, the operator of the nation’s largest power grid, ordered all of the transmission projects under review by PSE&G Interconnection as a way of maintaining system reliability.

Without the upgrades undertaken by the North Central Reliability Project, the grid in the northern and central regions of the state would begin suffering the same kind of violations, beginning next June, that triggered the three major blackouts. These affected most of the Northeast in the past, according to Jerome May, director of the BPU’s Division of Energy.

“The North Central Reliability Project is essential to deliver the electric power required by New Jersey businesses and residents now and in the future,” said Ralph LaRossa, president and chief operating officer of PSE&G.

In deciding to move forward with the transmission project, which will follow existing rights-of-way, the company concluded that other alternatives, including programs to reduce electricity demand and build new generating capacity, would not be as cost-effective, May said.

Even if other alternatives were selected, the utility faced major upgrades to its existing transmission system, he said. Some of the lines are more than 85 years old and others are experiencing significant corrosion.

In a press release, the utility argued that the existing power system needs to be updated to keep pace with the demand for power created by technology, such as large-screen televisions, iPods, cellular phones, and other electronic devices that are now commonplace.

The 35-mile project involves replacing 138,000-volt transmission lines with 230-kilovolt lines, increasing the height of the towers from 122 feet on one segment to 152 feet on another segment, according to BPU officials.

The line would cut through West Orange, Livingston, Roseland, Florham Park, Chatham Borough, Chatham Township, New Providence, Berkeley Heights, Watchung, Scotch Plains, Fanwood, Clark Edison, Metuchen, and Woodbridge.

Unlike the Susquehanna-Roseland proposal to extend an existing transmission line through the heart of the New Jersey Highlands, including parts of several national parks, the North Central project, so far, has generated little opposition.

But like the Susquehanna-Roseland line, the North Central project has won special incentives, which earn the utility a higher rate of return than it would receive on upgrades to its electrical distribution system. Those incentives include allowing the utility to begin earning a return on its investment while the line is under construction, and not yet in service.

Those special incentives have increasingly been a bone of contention between state regulators and the utility.

Both the state BPU and New Jersey Division of Rate Counsel argue the transmission expansion projects are routine upgrades that the utility needs to do to maintain the reliability of its system. Thus, they do not qualify for the incentives, which have been approved by the Federal Energy Regulatory Commission and increase the company’s rate of equity on its investment.

The increased investments also will mean higher utility bills for consumers, but just how much higher is uncertain. The utility did not respond to a question as to how much the North Central Reliability Project and the rest of transmission upgrades will increase customers’ bills.

There is no question the investments will increase the amount of money the utility earns from its transmission system, which sends powers from generating stations to substations. From there the electricity is dispatched to businesses and homes over poles and wires.

By 2014, transmission is expected to make up 41 percent of the utility’s rate base, nearly doubling the 21 percent it accounted for in 2011, LaRossa told utility analysts at an investor conference earlier this year.