How many billion of dollars does it take to secure the infrastructure of an energy company against the “known unknowns” of historic storms and other forms of interruption and just as importantly, who should pay?

The Public Service Enterprise Group company of New Jersey (PSEG) had an opportunity to answer that question in real time in the weeks after Hurricane Sandy, a storm that impacted facilities that had never been hit by storms in 50 years of operation and knocked out power to a remarkable 90% of the company’s customers. Since then, the firm knows that “business as usual is not enough,” PSEG CEO Ralph Izzo told the AGRION Energy & Sustainability Summit in a wide-ranging speech opening the second day of the conference in New York City this week.

But being truly forward looking requires substantial investment: in PSEG’s case that is $4 billion over 10 years in everything from smartgrid technology on circuits to raising newly flood-prone facilities. A proposal covering the spend – which PSEG plans to make up for over the period with low natural gas prices, low interest rates and unusual labor availability – was submitted to the New Jersey Board of Public Utilities on February 20.

A shift in thinking by regulators is required to help utilities continue to keep shareholders happy even as needed investment is made, Izzo said. Investments, particularly in energy efficiency, can reap outsized returns and keep down customer bills, but utilities need to garner some of the benefit also in order to justify raising the money to their shareholders. Regulators have been open to the concept, but in many cases have applied stringent depreciation requirements ill-suited to the long-term nature of energy infrastructure investments, Izzo said.

The shift is part of a broader rethinking in the energy sector as demand has slowed remarkably even as reliance on power availability has grown in a less manufacturing-heavy but more technologically driven economy. From a history of matching GDP growth to a trend of running at half or less of GDP growth, electricity demand means that investment upgrades must be spread over fewer than expected kilowatt hours demanded and paid for.

Izzo described the accomplishments of electrical utilities as “assuring universal access at a standard of reliability that is all too often taken for granted by the general customer.” Those accomplishments don’t come cheaply, as utility regulators and customers in New Jersey – and around the country – are about to find out.

Comments

  • NJ electric rates

    Wow, I didn’t realize it knocked out 90% of an electric companies power that is unreal. The severity of the storms seem to be getting worse and worse.