ELECTRICITY:

N.J.'s grid-defense debate continues a year after Superstorm Sandy's knockout blow

A year after Superstorm Sandy devastated New Jersey, the state remains ground zero in the debate over how to harden the electric power grid and natural gas pipeline networks against unpredictable weather assaults.

The New Jersey Board of Public Utilities (BPU), the energy sector's regulator, is weighing a $2.6 billion, five-year investment plan by the Public Service Electric and Gas Co. (PSE&G), the state's largest public power distributor, to strengthen the power and gas infrastructure against future storms. Over 10 years, the total cost would rise to $3.9 billion, the largest capital project ever for the company. Three other power distribution utilities in the state face similar challenges to upgrade vulnerable networks.

This spending would come on top of the $290 million the utility spent to restore power after Sandy struck on Oct. 29, 2012, knocking out power to 1.9 million people and flooding grid substations in many areas.

U.S. House members from New Jersey yesterday traveled to the state to promote their bipartisan bill that would authorize a $2.1 million study by federal agencies into steps to protect the state's grid from natural disasters or cyberattacks.

"These disasters, whether man-made or by Mother Nature, are a drain on our economy and make us vulnerable to potentially more devastating attacks," said Rep. Donald Payne Jr. (D-N.J.), the bill's author.

A separate state-commissioned study by Rutgers University's Center for Energy, Economic & Environmental Policy is awaiting federal funding, as well, according to CEEEP Executive Director Frank Felder.

The state BPU has held three hearings on the PSE&G rate request to fund the new grid defenses, hearing support from business groups and labor unions and challenges by AARP and others protesting the impact on ratepayers. If an agreement on new rates can't be reached, BPU will begin an evidentiary hearing in January, said PSE&G spokeswoman Karen Johnson.

"It's clear that Sandy, Hurricane Irene and the October ice storm in 2011 represent extreme weather patterns that have become commonplace," said Ralph Izzo, chairman and CEO of the utility's parent company, Public Service Enterprise Group, in announcing the investment plan this year.

"It's equally clear that how we live and do business is so dependent on energy that any outage is hard to tolerate. 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," Izzo said.

"The utility industry's response to Sandy's mighty surge should not be to subject N.J. residents to a second surge of suffering in the form of crippling rate hikes," said Dave Mollen, AARP New Jersey state president, in a statement when the PSE&G plan was rolled out. PSE&G should not be allowed to fund the program through a special fee but should be required to justify the expenses and benefits in a full-scale rate case, he said.

PSE&G said the typical customers with both electric and gas residential service would face a rate increase of about $120 per year in the fifth year. Johnson said that the cost would be more than offset by other scheduled rate reductions and the expectation that natural gas prices will remain low because of gas supplies in the Marcellus Shale play next door in Pennsylvania.

"It's a hard question," Felder said of the regulatory rate debate. "There are tradeoffs between costs of making additional hardening investments against random events. We don't know how often or how severe future storms and other events may be. That's the rub.

"At the end of the day, it's the ratepayer who pays, and therefore the regulator has to go to the process of what should be done and why."

"That is the debate that has to go forward," said Patricia Hoffman, the Department of Energy's assistant secretary for the Office of Electricity Delivery and Energy Reliability, who joined the New Jersey members of Congress yesterday. "The decisionmakers have to evaluate the risks they are willing to accept and the risks that are unacceptable."

Although Congress appropriated $50 billion for the recovery response after Sandy, the potential weather threats to power and gas networks are assessed and addressed by states, which have the primary responsibility for power distribution, she said. The threat has become a moving target. "This is constant evaluation, re-evaluation process, as other weather-type events arise," she said.

The costs of storm defenses will come alongside more spending for cyber protection; new digital technologies to automate grid operations and utilize smart meters at customer locations; and equipping the grid to respond to more rooftop solar power capacity and demand reduction programs, experts say. Accelerated retirements of coal plants on environmental grounds is likely to increase both natural gas and wind power generation, requiring more complex control software.

The added costs will hit utilities whose revenue growth is under pressure and whose consumer rates are sharply watched by state regulators.

The discussion is beginning, Hoffmann said. "As long as we see dialogue occurring, we are definitely heading in the right direction."