Rate Counsel Urges Utilities to Take Cost/Benefit Approach to Grid Upgrades

In letter to Assembly committee, agency outlines four steps to consider when protecting grid against major storms

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With a hearing scheduled Monday on what improvements are needed to the power grid in the wake of Hurricane Sandy, the director of the New Jersey Division of Rate Counsel is urging lawmakers to focus on the financial impact of any measures on customers as well as their effectiveness in minimizing outages.

In a six-page letter to the Assembly Telecommunications and Utilities Committee dated yesterday, Stefanie Brand recommended four steps legislators and the state Board of Public Utilities should consider to deal with the power grid’s vulnerability to major storms.

The recommendations, in part, mirror some of the steps utility executives have outlined to lawmakers in previous hearings, but with some notable exceptions.

For one, Brand urged the state to strengthen the minimum reliability requirements published in BPU regulations. Major events like Sandy are not considered when utilities factor in whether they are meeting minimum reliability standards set by the board. Brand suggests a separate reliability performance be established for “major events.’’

Brand also endorsed a recommendation to increase penalties the state agency can impose for failing to comply with reliability and other standards governing the delivery of energy to customers. The proposal, first advanced by Gov. Chris Christie, is now encompassed in a bill (A-3255) pending in the Legislature. It would allow the BPU to impose fines of up to $25,000 for each violation with a cap of $2 million.

Perhaps more importantly, Brand urged lawmakers to keep in mind that the cost of any measures they adopt are likely to be borne by ratepayers.

“Two of New Jersey’s utilities [Atlantic City Electric and Jersey Central Power & Light] have already filed for rate increases since Hurricane Sandy, and we must anticipate that all of the utilities will seek recovery from ratepayers for restoration measures as well any preventative measures we ask them to undertake,’’ Brand wrote.

Both efforts could impose big rate increases on ratepayers. In a recent essay for NJ Spotlight, Ralph Izzo, chairman, CEO, and president of PSEG, the parent company of Public Service Electric & Gas, projected the costs of restoring its transmission and distribution system at $250 million to $300 million.

An even bigger-ticket item may involve one of the other measures recommended by Brand, Izzo, and other utility executives — protecting utility substations located in coastal flood zones. During Sandy, 58 utility substations were knocked offline because of flooding, leaving tens of thousands of customers without power in each instance.

Sen. Raymond Lesniak (D-Union), who is working on his own bill to improve the reliability of the power grid, told NJ Spotlight Wednesday, that costs could run at least $1 billion — maybe as much as $2 billion. “We can’t afford not to do that,’’ Lesniak said.

Brand recommended a number of steps to upgrade the utility infrastructure, including examining whether distribution stations should have more than one supply circuit — each following different routes — a sort of redundancy endorsed by utilities.

Before undertaking any improvements, Brand said they should be carefully analyzed to determine their cost and likely effectiveness in shortening the duration of outages. Brand noted that the BPU has already asked the Rutgers Center of Energy, Economic and Environmental Policy to analyze the cost-effectiveness of certain potential measures.

Finally, Brand urged the state to enhance the requirements for vegetation management, a recommendation also endorsed by the state’s four electric utilities.

The current regulations, Brand argued, give utilities too much discretion as to when to trim trees near electric power lines. “Even if they have been visually inspected, distribution circuits left untrimmed after four years of growth are more vulnerable to tree damage during major storms,’’ she wrote.