PSE&G on Wednesday filed a proposal outlining plans to raise or bunker electrical substations in flood-prone spots, line old cast-iron gas lines with plastic and make other changes designed to prevent the kind of outages that affected most of New Jersey after Sandy struck.
"We could make incremental repairs," PSE&G Chairman Ralph Izzo said on a conference call, "or we could be truly prepared and make long-term investments."
He said it made sense to be bold now because, with two electricity surcharges due to expire over the next few years, the money can be raised without raising customers' bills.
Labor and business groups quickly announced support for the plan, which would need to be approved by the state Board of Public Utilities. Consumer advocates had reservations about the financial aspects.
Jennifer Kim, state director for the liberal consumer protection and environmental organization New Jersey Public Interest Research Group, said she doubts the claim that ratepayers won't see their bills rise. She also said she wants to make sure the project is closely examined and the company pays for some costs out of what it has already collected from customers.
"Shouldn't some of this stuff have been taken care of already?" she asked.
New Jersey, like other places, recently has seen more frequent and more damaging storms, including Tropical Storm Irene and an ice storm in 2011. During Superstorm Sandy, the state's worst natural disaster, 2 million of PSE&G's 2.2 million customers lost power as trees took down power lines and substations flooded. The company says 800,000 would not have been knocked out if the proposed upgrades were in place and the rest would have had service returned sooner.
For instance, company officials said the Newark Liberty Airport would have had a shorter shutdown after Sandy if the Newark electrical substation had been protected from flooding.
PSE&G serves about three-fourths of New Jersey electrical customers, including many in the Philadelphia and New York City suburbs.
The company said ratepayers would see no increases or small ones on their bills because of the two surcharges due to come off bills in the next few years. Thanks to lower natural gas supply costs, Izzo said, the average residential customer with gas and electric service pays about $2,400 per year to the company, $600 less than in 2008. He said the aim is that the bills would not rise because of the proposed project.
But the estimates do not include $250 million to $300 million the company needs to pay for repairs for damage caused by Sandy. It's unclear how those repair costs might be passed on to customers.
Generally, there's an incentive for investor-owned regulated utilities like PSE&G to invest in large projects such as power plants, transmission lines and substations because that's how they can best increase profits for shareholders.
Regulators allow utilities to earn a greater rate of return, typically around 10 percent, for big capital-intensive projects than for simply delivering electricity. The reason is that regulators need to give utilities an incentive to invest in big-ticket items that could improve the system. New Jersey does not have a set rate of return on infrastructure investments but rather decides them on a case-by-case basis.
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