Will utilities stay the course on clean energy investments following last week's Supreme Court stay of the Clean Power Plan? During today's OnPoint, Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group, says his company will continue its conversation with the New Jersey government on planning for the rule. Izzo also discusses PSEG's goal to reduce energy consumption by 2 percent.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Ralph Izzo, chairman, president and CEO of PSEG. Ralph, great to have you back on the show.
Ralph Izzo: Thanks, Monica. Good to be back.
Monica Trauzzi: So Ralph, in an unusual set of legal events surrounding EPA's Clean Power Plan, the Supreme Court has moved to grant a stay pending further legal challenges. This was considered a long-shot request even by the petitioners. How much of a surprise was the court's decision to you?
Ralph Izzo: It was a very big surprise to us. I was under the impression that it was the first time it had happened in many years, but I understand it's the first time it's ever happened. So we're digesting the information, trying to understand what it means for timing, but my approach will be that we work on the things that we control and the things we don't control we just stay informed.
Monica Trauzzi: So then how does this affect your company's planning with regards to investments on clean energy and emissions reduction?
Ralph Izzo: Well New Jersey has a fairly aggressive -- ambitious I should say, not aggressive -- renewal portfolio standard. It's always been a leader in energy efficiency and various other things that try to balance the need for providing electricity in as environmentally benign a way as possible while paying attention to customer bills. So we'll continue down that path. We've invested close to $1 billion in solar energy as a company alone. In New Jersey we've invested over $300 million in energy efficiency, just our company, and we'll just continue marching down that path.
Monica Trauzzi: But the power plan provides a certain level of structure and perhaps aggressiveness that is not currently in place. Would you like to see New Jersey stay on that course, and will you be pushing the state and pressing the state to sort of stay on this planning phase?
Ralph Izzo: Well I think that we'll continue the discussions that we're having with the state. I think there are so many places where we see eye-to-eye with the state that we'd like to see the current version of the CPP improve. For example, we don't think nuclear gets enough recognition in the plan, and New Jersey produces over 50 percent of its electricity using nuclear power. We have very little coal in the state. We own the only two coal plants in the state and they ran in the low single digits in terms of their capacity factor, the frequency with which they ran, and many times when they did run we ran them on natural gas. So I think the state has done a good job preparing for a CPP-type future. The question just becomes what are the rules of engagement that are specific to CPP, and that's now kind of thrown up in the air.
Monica Trauzzi: And New Jersey was one of those states that petitioned the high court for the stay. Does the court's decision then give weight to DEP Commissioner [Bob] Martin's criticism of the rule? He's been very critical.
Ralph Izzo: He has been very critical. The details of his criticism I believe have been look at what New Jersey is doing, and yet some of the targets in the CPP make it virtually impossible for us even though we've had this great track record to achieve that. I believe the state also questioned EPA's legal authority to implement the rule. Candidly we've stayed out of the detailed legal debate.
What we've said is we have a great track record in the state of reducing carbon emissions. We have a great track record as a company of reducing carbon emissions. We firmly believe that carbon emissions need to be reduced. We do believe climate change is a serious issue. All the signs point to that. So what we've said is let's just keep marching on the path we've been on.
Monica Trauzzi: So it's difficult to predict these things, but ultimately do you believe that this could be the beginning of the end for the power plan?
Ralph Izzo: No I don't. I'd always predicted to folks that this is not going to be decided anywhere but at the Supreme Court. What is interesting about the timing of what this introduces of course is that it takes probably the final legal debate into 2018 or certainly the end of '17, which is the next presidency and the next administration. So it calls into question what that would portend for the rule, but climate change is real and action needs to be taken. It's not going to wait for us to get our legal or political act together. So I just think it's a question of timing, but not a question of if.
Monica Trauzzi: So let's talk about some of the actions that you're taking. In a new white paper you talk about fairness in the level of access to technology and innovation for customers at all income levels. Why is that such a critical element to New Jersey's future energy success?
Ralph Izzo: So many states, New Jersey among them, have programs to help subsidize various things that aren't taking place in terms of the market reacting of its own accord, the reason being because we don't have an explicit price on carbon. So we haven't priced in climate change impacts to power markets, so for that reason many consumers are not incented to do things that they should be incented to do. Adding on top of that some of the solutions to climate are not only not less expensive than alternatives, but they are actually more expensive than alternatives, for example rooftop solar in New Jersey.
So we have a situation where many of our programs create explicit subsidies to people to make these investments, and the people who make the investments are typically folks with high disposable income. So the average American household makes $50,000 a year. The average New Jersey household makes $70,000 a year. The average rooftop solar installation in New Jersey is at $115,000 and that's driven by economics off of an investment tax credit and a solar renewable energy credit being paid for by the people at those other income levels I mentioned.
So what we've said is we're not opposed to subsidies. There are subsidies throughout the energy industry. There are subsidies in coal, there are subsidies in nuclear, there are subsidies in renewables, but let's think about the design of the subsidies and do we really want them to be so regressive? Our solution is to take that subsidy and deploy utility capital because we will then be able to target it to those customer segments that policymakers think are better suited for the subsidies, which I would say would be government buildings, low-income customers and people of that sort.
Monica Trauzzi: And then in terms of reducing energy consumption you talk about doing it by 2 percent?
Ralph Izzo: Right. So energy efficiency is the trifecta, if you'll excuse my use of the horse racing expression. The environment can win, the customer can win, and the shareholder can win. You can install energy efficiency measures at or below the cost of fuel, and utilities are not in the fuel business. So if we can do that, we can earn a return on that investment, whether it's a light bulb, a smart thermostat, whatever technology the providers can bring to the table, reduce our cost of goods sold, and reduce the cost to the customer.
So we would be indifferent as to whether investing in smart thermostats or transformers, if that can provide the same level of service to customers, if we can recover our fixed costs. So there's a regulatory system. The details I just laid out were I realize pretty sketchy, but we have this on paper whereby all three can win: customer, shareholder and environment.
Monica Trauzzi: But there are challenges. What are the challenges that you see for bringing this kind of ...?
Ralph Izzo: The challenge is if any one of those three parties gets overly greedy. So if the environmental constituencies say "We not only want to do the things that are obvious no-brainers, but we want to go above and beyond that," that will raise the customer bill. If the customer says, "We don't want to pay for fixed cost recovery. We want all of the savings associated with that energy efficiency measure," then really we have a huge fixed asset base that we would be stranding, and if we were to say we want all of our costs recovered, not just our fixed but our old variable as well as to be paid for energy efficiency, then the customer bill doesn't go down. But if everyone is willing to accept part of the pie, the pie is big enough for everyone involved.
Monica Trauzzi: Beyond the power plan, what regulations would be needed to incentivize utilities to be more efficient and adopt overall cleaner energy portfolios?
Ralph Izzo: So much of this is state by state, so this is not a demand-response issue that was recently decided by the courts that is for jurisdictional. This really is a retail rate design issue, and as I mentioned before we've had success in New Jersey. We've had approval to do now $400 million worth of energy efficiency, but it's only our most recent approval, the last $100 million where we can get this fixed cost recovery. We would love to do hundreds of millions more because there's plenty out there to be done.
Monica Trauzzi: Where do you see the greatest opportunities for economic growth and job growth that's energy-related in New Jersey?
Ralph Izzo: So it really comes in two different categories. No. 1 is in the craft skills associated with making the grid more resilient, and I use that word deliberately because the grid is already reliable. Reliable to me means the lights stay on, on a day like today where it's bright and sunny. Resilient means the lights stay on, on days like we had two weeks ago, when 24 inches of snow get dumped on us. So the craft skills associated with that is something that we are constantly investing in, hiring.
The second is that it's a lower-skilled type of work, but the energy efficiency work, simple installation of the types of things I mentioned before, auditing of customer premises, households, businesses, to see what they can benefit from. So you'd be able to bring in a whole set of workers that right now probably are doing other low-skilled jobs in other industries.
Monica Trauzzi: All right. We'll end it right there. Thank you very much. Thanks for your perspective on all things power plan related.
Ralph Izzo: My pleasure.
Monica Trauzzi: I appreciate you coming on the show, and thanks for watching. We'll see you back here tomorrow.
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