Who Pays to Upgrade the Grid?

Bill could leave ratepayers on the hook for billions, consumer advocates argue

Rebuilding New Jersey in the aftermath of Hurricane Sandy poses huge challenges for policymakers — probably few as difficult as deciding who will pay to fortify the power grid. The storm left 7 million people without power, many for a week or more.

The hurricane spurred numerous legislative proposals to deal with extreme storms like Sandy. But one that was only introduced late Tuesday is already raising alarms among consumer advocates who say it could leave ratepayers saddled with billions of dollars in new costs.

The bill, under consideration by Sen. Raymond Lesniak (D-Union), is expected to include a mechanism that would allow utilities to quickly recover investments in grid modernization projects, such as smart meters and other infrastructure improvements.

“People forget too easily,’’ said Lesniak, who plans to hold hearings on the bill (S-2429) before the Senate Economic Development Committee sometime next month. “It will happen again. We can’t afford not to do it.’’

The beef with the bill is that consumer advocates view it as a way to usher in formula rates for electric utilities, a process that allows companies to more quickly recover their investments without going through a full-blown rate case as has been the practice in the past.

“It’s devastating,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel, who noted that she has not yet seen the bill. “From what I understand, the bill will provide the utilities with a wish list to make as much money as they want with as little scrutiny as possible.’’

In hearings before the legislative committees in the wake of Sandy last year, utility executives basically outlined the same series of initiatives that could help maintain reliability and improve restoration of power during extreme weather. They include installing smart meters to allow utilities to pinpoint more rapidly where outages occur; building redundancy into the power grid by creating more substations and switching stations; and pursuing more aggressive tree-trimming policies to prevent customers from losing power.

The downside is that ratepayers in New Jersey already pay some of the highest energy bills in the country, typically ranking in the top ten for customers paying residential, commercial, and industrial rates.

Lesniak said his bill would encompass many of those proposals, particularly rebuilding and relocating utility substations and transfer stations, where power from transmission lines is converted into electricity that can be delivered to homes and businesses.

During Hurricane Sandy, 58 utility substations were knocked offline because of flooding, leaving tens of thousands of customers without power. The cost of dealing with that problem, Lesniak conceded, will not be cheap, running at least $1 billion, possibly as much as $2 billion.

“Our power delivery system is 100 years-old,’’ Lesniak said. His bill also would require the installation of smart meters by utilities to more accurately pinpoint where outages occur and respond more rapidly to restore power. The bill, however, includes an opt-out provision that allows a customer to forego the installation of a smart meter.

Brand, among others, is not a big fan of smart meters. “It is not going to help us in terms of reducing big outages when storms come. You are talking about the cost of billions of dollars just to let utilities known when customers are out,’’ she said. “There are cheaper ways of doing that.’’

Lesniak was unimpressed with that argument, saying Brand’s opposition to smart meters is the reason why people had to suffer days without power and heat.

Brand disagreed. “It’s a total giveaway,’’ she said. “They are transferring all the risk to ratepayers.’’

Others agreed with that view.

“It’s billions of dollars of ill-advised expenditures for which ratepayers will be fully responsible,’’ said Steven Goldenberg, a lawyer for the New Jersey Large Energy Users Coalition, a group representing pharmaceutical firms and other manufacturers with big energy appetites.

Ev Liebman, program director for NJ AARP, agreed. The association is generally opposed to any move to implement formula rates, she said.

“Any mechanism that decreases transparency, decreases accountability, and
and imposes automatic rate increases for utilities,’’ the association would oppose, she said.