PSEG Plans to Spend More Than $5 Billion on Power Grid Upgrade, Clean Energy

Company insists that expenditures will not spike ratepayer’s bills, but Rate Counsel, others remain skeptical

Ralph Izzo, PSEG's president, CEO, and chairman
Public Service Electric & Gas plans to align its capital spending with state energy policies by filing requests to invest $2.9 billion on a clean-energy initiative and $2.5 billion to upgrade its power grid.

Public Service Enterprise Group, the utility’s parent, outlined the broad features of the programs yesterday at the New York Stock Exchange to analysts at the company’s annual investor’s conference. The formal filings should be made to the New Jersey Board of Public Utilities in the coming weeks and later this year, executives said.

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The spending proposals reflect the bulk of the company’s planned $14 billion – $17 billion capital investment program over the next five years with 90 percent of the expenditures targeted for the utility. Just last week, PSE&G won BPU approval to spend $1.9 billion to replace cast-iron and unprotected steel mains in its gas distribution system in a separate rate case.

Despite the huge proposed expenditures, PSEG executives argued they will not spike customers’ bills, in part because of the historically low natural-gas prices, which have plummeted in recent years, leading to lower electricity prices and sharply reduced heating costs.

Even with the investments, Ralph Izzo, the company’s president, CEO, and chairman, said “in a decade, customers will be paying what they were paying back in 2010.’’ Customers’ bills have dropped by 20 percent since the company’s last rate case eight years ago, he said.

Rate Counsel remains skeptical

Others were more skeptical. “This is just a massive transfer of wealth from the citizens of New Jersey to the shareholders of PSEG,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel.

Steve Goldenberg, an attorney representing large energy users, said these multi-billion dollar programs, when combined with other initiatives, such as a new $300 million annual subsidy for nuclear power plants, would place an intolerable burden on the business community and ratepayers.

In nearly every aspect, the PSE&G proposals — the most significant in the utility’s history — align the company with policies long advocated by the state, including making the power grid more resilient to extreme storms, such as Hurricane Sandy, which left million of customers without power, some for a week or more.

Along those lines, the utility is seeking to extend and expand its Energy Strong program, which is nearing completion and involved $1.2 billion for hardening the grid by raising substations above flooding levels and other upgrades. In the new filing, the company wants to spend $2.5 billion to enhance reliability. The work includes replacement of aging substations with an average age of 73 years, according to David Daly, president and COO of PSE&G.

Complying with just-inked laws

The $2.9 billion clean-energy initiative is tailored to comply with a bill signed by Gov. Phil Murphy earlier this month to accelerate the state’s reliance on renewable energy and energy efficiency to meet the state’s energy needs.

“What we’re proposing fits like a glove with all the policies emerging in New Jersey,’’ Daly said. The bulk of the money — $2.5 billion — will be targeted to energy-efficiency projects in the residential and commercial sectors. Virtually every appliance in the house that uses gas or a kilowatt of electricity will be part of the program, he said.

“This is the time to make investments as long as we have headroom,’’ said Daly, referring to the low natural gas prices that will offset the cost of the programs.

But Brand is skeptical. “The other name for headroom is rent money or food money,’’ she said. “This concept that customers have extra money to give to their utility is just not accurate.’’

The other components of the clean-energy initiative involve a proposed $300 million plan to build out the infrastructure for electric vehicles and another $100 million to develop energy-storage systems, considered critical if the state is to ramp up its reliance on renewable energy.

A controversial component

The electric-vehicle component is likely to be controversial, given that an emerging competitive market is developing to build out the infrastructure in the private sector. “We’d like to see the competitive industry do the work rather than monopolize it,’’ Brand said.

With the investments, the company projects to grow PSE&G’s annual rate base by 8 percent to 10 percent if approved by the state. The utility now accounts for 65 percent of the company’s earnings; most of the rest derives from PSEG Power, the owner of its fleet of generating stations.

That fails to include other “opportunities’’ for growth mentioned by executives, including, if they receive subsidies for their nuclear power plants, new transmission investments spurred by the state’s goal of building 3,500 megawatts of offshore wind, and spending on renewable energy.

Analysts seem impressed.

“Their story is pretty good, quite frankly,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York City. “They are aligned with the positions in Trenton. They probably can do it more efficiently than a lot of government agencies and profit from it as well.’’