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The Gas Executives Forum: Gas Pains

Commodity price upheavals are energizing gas utilities to evolve their business models.

Fortnightly Magazine - May 2006

BPU, seeking a 3 percent increase in gas rates.

Fortnightly: What are PSEG’s capital-investment needs, and how do gas prices affect those plans?

Izzo: Our investment level in physical plant varies from $100 million to $120 million, with a 1.5 percent load growth per year. We replace about 1.3 percent of our system annually.

We recently decided to install automated metering for our 200,000 customers who are gas-only customers. That was a $10 million project, which we completed in June last year. For gas and electric customers, we are looking at more sophisticated technologies that are capable of two-way communication, so we can enable third-party suppliers or ourselves to send customers price signals, emphasize load control, and provide better outage-management services. 

So far we have received fair treatment for cost recovery. The BPU seems to recognize that supply costs have nothing to do with service quality, and if you blend the two issues you are tinkering with the viability of the utility. We haven’t seen that from the BPU, but in March, New Jersey’s office of the ratepayer advocate filed to join those two proceedings. The peril is that our whole capital structure is driven off the delivery portion of the bill. The commodity piece is nothing but a pass through. 

Fortnightly: How will the supply problem be solved? Is LNG the answer?

Izzo: To the extent it takes pressure off gas prices, we are enthusiastic about the prospects for LNG development. But we have hesitation around gas quality and national security issues.

We’ve had problems in the past where we’ve introduced refinery gas into our system and had challenges with industrial customers. We have a major customer that is operating fuel cells, for example, so gas quality is an important issue. And from a higher-level policy point of view, there’s a host of questions that have not been answered about how reliance on imported LNG will affect our national security policies.