New Jersey’s largest utility company proposed on Wednesday spending $3.9 billion over the next 10 years to protect its electric and gas system against future storms like Sandy, which knocked out power to most of the state.
Newark-based PSE&G said it intends to spend nearly half the money — $1.7 billion —to relocate substations and switches or to fortify them from storm surges. The company also wants to strengthen power distribution lines and make the electrical grid easier to repair.
New Jersey, like other places, has seen more frequent and more damaging storms, including Tropical Storm Irene and an ice storm in 2011. During Superstorm Sandy last year, 2 million of the company’s 2.2 million customers lost power. 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.
“How we live and do business is so dependent on energy that any outage is hard to tolerate,” PSE&G Chairman and CEO Ralph Izzo said in a statement. “Sandy was a defining event for all of us. The state’s entire energy infrastructure needs to be rethought in light of weather conditions that many predict will continue to occur.”
The company said ratepayers will see no increases or small ones on their bills so long as the price of producing natural gas and electricity continues to drop.
The proposal requires approval of the state Board of Public Utilities. A spokesman said the board cannot comment on matters before it.
Generally, there’s an incentive for investor-owned regulated utilities like PSE&G have 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.
Investors cheer when these projects are allowed because they increase electric rates. But they are not always good news for customers. Even if the proposed project does not raise utility bills, it would keep them from dropping as much as they otherwise would because of cheaper energy generation.