PSEG, state reach deal on gas main upgrades; rate hike looms

By: DAVE SHEINGOLD |

Plans for speeding up the replacement of aging, leak-prone natural-gas lines throughout northern and central New Jersey can move ahead based on a tentative deal reached Tuesday that would raise rates more than 6 percent.

The agreement between Public Service Electric and Gas Co. and state regulators on $905 million worth of upgrades scales back a significantly more-ambitious proposal. It calls for tearing up streets and replacing 550 miles of cast-iron and steel gas mains, as well as 38,000 gas connections to homes and businesses over three years, with work likely to start early in 2016.

The work will focus on urban areas with the leakiest pipes, including some dating back more than 75 years, the company said. It is part of a broader effort by the company to gradually upgrade thousands of miles of gas mains prone to leaking dangerous methane gas throughout its coverage area, which includes Bergen and Passaic counties.

That effort comes as state and federal governments have called on gas and electric utilities to develop plans for modernizing power grids to withstand severe weather, improve service and reduce environmental problems.

If approved by the state Board of Public Utilities this fall, as expected, money for the work outlined in Tuesday’s agreement would be raised in two stages. The first $650 million would come from a surcharge that would boost the average natural-gas bill for PSE&G residential customers by 1.5 percent annually over four years, for a total increase of $4.82 per month by 2021. The first increase would come in January 2017.

The second phase would come as part of a rate hike the company plans to request by November 2017 to cover general increases in operating expenses. That amount has yet to be specified.

PSE&G had proposed raising rates even more to replace 810 miles of mains and 55,000 building connections, at a cost of $1.6 billion. But in agreeing to trim the proposal, the company said it would still be able to accelerate necessary upgrades beyond routine annual replacement of about 54 miles of mains per year.

It also has noted that falling natural gas prices, which have resulted from increased supply and have reduced gas bills in the past six years, were likely to soften the impact of increases needed for the next phase of gas main work.

“While we will not be able to do all the work proposed, the terms of the agreement will enable us to make substantial upgrades to our system in a fast and efficient way,” said Brooke Houston, a PSE&G representative. “It will make our system more reliable. It will make the system safer. It will make the system more environmentally friendly.”

Relatively low natural-gas prices “make it a great time to make these investments,” she added.

The agreement was hashed out in negotiations over the past two months between PSE&G, BPU staff members and the state Division of Rate Counsel, which advocates for consumers in utility matters.

Stefanie Brand, director of the rate counsel division, said her agency agreed to the deal because it reduced the rate increase while still covering crucial work.

“We do need to have this work done for both safety and reliability purposes,” said Brand. “It’s a scaled-back program that I think fairly matches the need to do the work while minimizing the impact on ratepayers.”

She noted that part of the deal requires reducing methane emissions in locations where work is done by 20 percent a year.

Greg Reinert, spokesman for the BPU, declined comment on the deal. But Brand said she expected the proposal to be submitted for approval in time for the board’s November meeting.

The agreement marks the second time in a year that a major PSE&G power-grid improvement plan was curtailed. In 2014, the company agreed to reduce a proposal for improvements to its separate electricity distribution network, from $2.6 billion over five years to $1.2 billion over three years.

Newark-based PSE&G serves 2.2 million customers in New Jersey, including about 600,000 in Bergen and Passaic counties.

PSEG, state reach deal on gas main upgrades; rate hike looms