‘Energy Strong’ Settlement Puts Greater Power-Grid Reliability Within Reach

PSE&G cleared to spend $1.2 billion, must wait until upgrades are in place before it can recoup the money

Ralph Izzo, chairman, president and CEO of PSEG
The state’s efforts to harden the power grid in the wake of Hurricane Sandy took a big step forward yesterday with a settlement that would allow Public Service Electric & Gas to spend up to $1.2 billion to prevent widespread outages in future storms.

The agreement, reached between the staff of the state Board of Public Utilities, the New Jersey Division of Rate Counsel, and others, applies to a slimmed-down version of a petition by PSE&G, which initially sought to spend $2.6 billion over the next five years to improve the reliability of its network.

The case has drawn enormous scrutiny, in part because many towns and businesses want utilities to take steps to avert outages that left millions of customers without power — some for as long as two weeks — during the superstorm in October 2012. Others questioned whether the expense of doing so would spike electric and gas prices in a state already saddled with some of the highest energy costs in the nation.

The settlement still needs to be approved by the BPU, but with many critics of the original proposal signing on, it is likely to be swiftly adopted by the agency.

In announcing the settlement, both sides seemed to be happy with the outcome, which took more than a year to reach.

“This is a good start in protecting New Jersey from future storms,’’ said Ralph Izzo, chairman, president, and chief executive officer of Public Services Enterprise Group, the parent of PSE&G.

Division of Rate Counsel Director Stefanie Brand, who signed the settlement after being one of the utility’s most vocal opponents, said even with the agreed-to expenditures, customers should still see rates go down.

The settlement could push customer rates up by 2 percent, but those increases should be wiped out by the elimination of long-standing surcharges relating to deregulation of the energy sector dating back to 1999, according to Brand.

“We were able to get the costs reduced to something that is much more manageable,’’ Brand said. “Ratepayers will see a drop in bills.’’ However, those decreases only apply to distribution charges — the cost of delivering electricity and gas to homes and businesses. Those only reflect about 20 percent of a customer’s bill.

In the long drawn-out case, critics of the program claimed they recognized the need to upgrade the power grid, but questioned the extent of the program — originally suggested by the Newark utility as a $3.9 billion program over a decade.

Ev Liebman, associate state director of AARP, noted the settlement will not result in any increase for customers in 2014.

“We’ve gone from a virtual blank check to a work order at a much lower cost,’’ she said.

“We thought the program was gold-plated and spending money it did not need to spend,” said Jeff Tittel, director of the New Jersey Sierra Club, which also intervened in the case.

Among other things, the settlement requires the utility to come in for a rate-base case by November 2017. It also allows the company to recover its costs only after it has made the upgrades, not as it spends the money as the utility originally sought.

The settlement specifies that the bulk of the money ($620 million) will go to upgrading 29 switching stations and substations flooded during Hurricane Sandy. Outages at those stations left tens of thousands of customers, if not more, without power.

Another $350 million will be used to modernize 250 miles of low-pressure cast-iron gas mains in or near flood areas. In addition $100 million will be used to add redundancy in the power grid, allowing other circuits to provide electricity if one system fails.

Also, $100 million will be spent on smart-grid technologies to allow the utility to spot outages more quickly and deploy crews to repair the damage more swiftly. Finally, $50 million is allocated to upgrading natural gas metering stations impacted by Sandy.