‘Energy Strong’ Case Has Wider Implications for Regulators, Customers

Tom Johnson | April 7, 2014 | Energy & Environment
How far will BPU go to limit PSE&G infrastructure spending, costs to ratepayers?

PSEG Trucks
With hearings on a Public Service Electric & Gas proposal to spend $2.6 billion on its infrastructure over the next five years ended, it appears the parties in the case are no closer to settlement — even as a last-ditch effort to resolve the issue was unexpectedly extended late last week.

The case, involving the Newark utility’s need to harden its electric and gas infrastructure, has been pending before state regulators for more than a year and has generated both widespread support and opposition.

The outcome of the dispute will be closely scrutinized both in New Jersey and elsewhere because it could signal just how far regulators will go to tell utilities how much they can spend to avert the kind of extensive outages that occurred during Hurricane Sandy — and at what cost to their customers.

While settlement discussions are expected to continue until Wednesday, briefs filed by the New Jersey Division of Rate Counsel and others argue that the state Board of Public Utilities should deny the petition in the case known as “Energy Strong,” or at the very least, greatly scale it back.

They insist PSE&G has failed to demonstrate in evidentiary hearings before a BPU commissioner the costs associated with the program are reasonable, prudent, and cost-effective. Instead, they call the proposal a windfall for shareholders, while placing all the risk on to customers.

PSE&G has yet to file its brief in the case, but a spokeswoman for the utility said the company was “ahead of the curve’’ when it proposed in February 2013 to strengthen its systems to respond to extreme weather, like Sandy. In New York, regulators already have approved a plan by Con Ed to spend $1 billion to harden its systems, according to Kathleen Fitzgerald, a vice president of PSE&G.

One way or the other, ratepayers will be paying for storms like Sandy, Fitzgerald said.

“It comes down to this: you can pay to keep the lights on in advance or you pay to fix them after they’ve gone out,’’ said Fitzgerald, noting regulatory officials are moving to approved more than $700 million in storm costs. “We think doing it in advance makes more sense.’’

Division of Rate Counsel Stefanie Brand argued otherwise in a brief submitted on Friday.

“If we fool ourselves into thinking we can ‘harden’ our system to eliminate outages in a storm like Sandy, we will squander resources that our state simply cannot afford,’’ she said.

“While the record does show an interest on everyone’s part to improve resiliency, the record also shows that PSE&G has not put together a program that will reasonably meet that goal,’’ she added.

Perhaps one of the most contentious issues in the case is PSE&G’s attempt to recover its investments immediately from its customers, without having those costs reviewed in a traditional rate-base case, which is quite expensive and can take years to resolve.

“At its heart, however, this case is really about an alternative method of funding PSE&G’s capital investment,’’ according to the Rate Counsel brief, which described the plan a “bonanza’’ for shareholders bringing them $2.5 billion in profits.

Steven Goldenberg, an attorney representing a coalition of large energy users, such as manufacturers, agreed.

“From a financial perspective, Energy Strong would provide PSE&G nothing less than a license to spend money — establishing for its use the regulatory equivalent of a well-funded ATM machine,’’ Goldenberg said in his brief.

Another matter of bitter dispute between the adversaries is just how much the program will cost ratepayers. Rate Counsel said it would increase distribution rates by up to 20 percent for electric customers and 16.5 percent for gas customers.

The utility, however, contends that both the Rate Counsel and the BPU agreed last August the total impact on customers bills attributed to the program is about 4 percent to 5 percent, peaking in 2019. Those costs would be offset by surcharges stemming from energy deregulation that are expiring at about the same time.

More briefs in the case will be filed by Wednesday, including by PSE&G and the BPU. In February, NJ Spotlight reported that the staff had recommended the utility be allowed to spend $1 billion on the program, a proposal that has yet to come before the commissioners.