PSE&G Stands Out Above the Crowd
By Teresa Hansen, Editor in Chief, and Rod Walton, Senior Editor
Any utility that has friends on both Sesame Street and Wall Street must be doing something right.
Public Service Electric & Gas (PSE&G) is not Electric Light & Power’s Utility of the Year simply because it’s known as fiscally sound and tight with Elmo. The Newark, New Jersey-based PSE&G won ELP’s top honor for the first time ever by striking a resounding chord on multiple fronts, including investors, customers, grid experts and, no doubt, a certain family demographic. Other utilities were worthy contenders, but 2015 seemed like the right year for PSE&G.
The year 2015 was a pivotal one for PSE&G. In addition to beginning its post-Superstorm Sandy investment program-the three-year, $1.22 billion Energy Strong-to harden its electric and gas infrastructure against the violent furies of Mother Nature, the New Jersey utility expanded its transmission asset base by completing the 500-kV, $790 million Susquehanna-Roseland line that upgrades a transmission route first developed in the 1920s, while the $975 million Northeast Grid Reliability Project is substantially complete, and is expected to go into service early next year.
In fact, more than 60 percent of PSE&G’s $11 billion, five-year capital investment program was focused on modernizing transmission lines to improve reliability.
Not that reliability was a problem for the firm in the public’s eyes. On the contrary, customers and consultants alike ranked PSE&G tops in its region. For 14 straight years it has won PA Consulting’s annual ReliabilityOne Award for the Mid-Atlantic’s most reliable utility. JD Power’s latest annual business electric customer satisfaction survey had PSE&G at No. 1 in the large eastern utility segment, while it finished a close second in the residential survey.
Financially, the utility’s capital investment efforts will spur double-digit rate case growth through 2019. All that while residential gas bills have decreased by 55 percent since 2009. On the stock end, parent firm Public Service Enterprise Group (PSEG) was rated “buy” by Deutsche Bank, Guggenheim Securities and Wells Fargo. As of August 31, PSEG’s senior secured debt earned an Aa3 rating by Moody’s, A by S&P and A+ by Fitch Investors.
And then there’s Sesame Street. The PSEG Foundation has partnered with the Children’s Television Workshop to bring messages of safety and emergency preparedness to young customers. Computer apps such as Let’s Get Ready: Planning Together for Emergencies offer games and songs to educate and inform in English and Spanish.
PSE&G touched a lot of bases in 2015, making it a solid pick for ELP’s Utility of the Year over other strong candidates. Following is an interview with PSEG CEO Ralph Izzo by Teresa Hansen, Editor in Chief of Electric Light & Power:
PSE&G has invested heavily in the last few years in its electric and gas systems. I read that these investments have not only enhanced reliability, improved resiliency and advanced New Jersey’s energy and economic policy goals, but also are driving rate base growth. Can you share a little about PSE&G’s expanded capital programs and how it and its customers are benefiting?
Our investments have been driven by two R’s-reliability and resiliency. More than 60 percent of PSE&G’s $11 billion, 5-year capital investment program is related to upgrading transmission lines to maintain the reliability that our more than 2 million customers have come to expect. We are, in effect, rewiring New Jersey- modernizing high-voltage lines built decades ago and now essential to moving large amounts of electricity throughout our state and region. But as recent storms like Irene and Sandy have taught us, our delivery system also needs to withstand the high winds, heavy rainfall and destructive storm surges that can cause widespread and prolonged outages. That’s why we are investing $1.22 billion to strengthen and harden electric and gas infrastructure against severe weather.
|PSEG CEO Ralph Izzo|
PSE&G also has more cast iron and unprotected bare steel gas mains than any other utility in the country. We recently received approval from our regulators to invest $905 million during the next three years to proactively modernize our gas infrastructure-supporting a safe, clean, reliable gas system well into the future. PSE&G’s Gas System Modernization Program will replace up to 510 miles of cast iron and unprotected steel gas mains, and about 38,000 service lines to homes and businesses. The mains and service lines will be replaced with strong, durable plastic piping, which is much less likely to have leaks and release methane gas. The new elevated pressure systems also enable the installation of excess flow valves that automatically shut off gas flow if a service line is damaged, and better support the use of high-efficiency appliances.
PSE&G was recently named the Mid-Atlantic region’s most reliable electric utility for the 14th consecutive year by PA Consulting Group. To what do you credit PSE&G’s ability to keep up this long-running reliability, especially in an area that has been hit with many winter storms and a few strong hurricanes?
Reliability is fundamental to excellence in our industry. PSE&G has long been a leader in employing state-of-the-art technology to achieve improvements in efficiency, productivity and service quality. With advanced data and communications systems, we track real-time changes in our electric grid to help address maintenance needs and prevent problems from developing in the first place. We were one of the first companies to introduce live-line maintenance of high-voltage lines to keep the power flowing. We also use helicopters to inspect our entire 1,200-mile overhead transmission system, as well as 5,000 miles of critical distribution lines. And PSE&G is investing in a redundant fiber optic communications network to ensure communications continue to work even during major storms such as Sandy and Irene.
But technology is only part of the story. Our most vital asset is PSE&G’s highly skilled and dedicated workforce. In the most basic human terms, reliability is about being able to count on someone. Our customers care most about safe, reliable and low-cost service, and that’s what our employees are committed to deliver 365 days a year, 24 hours a day.
Reliability also means doing a better job of keeping customers informed – whether by our employees in the call center, through social media and press releases, or sending email updates when we have a storm. Based on lessons from Sandy, we have increased messaging across all channels to better communicate with customers before, during and after storms. PSE&G is the number-one utility on Twitter, with more than 80,000 Twitter followers. We are using tools like Facebook to alert customers about project work being done in their communities.
PSE&G’s parent company, Public Service Enterprise Group Inc. (PSEG), has generated a greater total return for its shareholders than many of its peers. And, the company is enjoying high credit ratings from most of the world’s largest investment banks. How has the company achieved this financial strength?
We believe that always striving to do our best for our customers is the key to meeting our strong commitment to our shareholders as well. Providing safe and reliable service is central to our financial strength and our long-term focus on delivering results for our shareholders. From 2010 to 2014, PSEG has applied $16 billion toward investments and dividends. PSE&G has made significant investments in our electric and gas systems that have enhanced reliability, improved resiliency and also advanced the State of New Jersey’s energy and economic policy goals. The utility’s robust capital investment pipeline is driving double-digit rate base growth through 2019. Transmission is expected to grow to more than 50 percent of rate base in 2019. As a result of federal and state regulatory support, about 70 percent of our investment program has contemporaneous, formula rate recovery. PSE&G has had growth in operating earnings of approximately 18 percent annually over the last five years through expanded capital programs and controlling costs.
PSE&G has ranked high in customer satisfaction for several years and has enhanced its service offerings. Can you talk a little about some of these offerings?
We have a very diverse customer base, so it’s important that we offer a number of ways for our customers to stay connected with us. In addition to our 24/7 call centers, customers can use the My Account feature of our web site to access current and past bills, make payments at their convenience, report power outages and much more. The MyAlerts service permits them to report outages via text message and receive outage updates and payment notification by text and email. PSE&G’s mobile website makes it easy and convenient for customers to access important information and services related to their PSE&G account, wherever they are. And we are increasingly interacting with customers via Twitter, Facebook and LinkedIn. We also rolled out our mobile-friendly Outage Map to provide more detailed information about power outages as well as estimated restoration times. Business customers can reach out to a dedicated team of customer service professionals to address energy questions and concerns.
PSE&G was able give its customers a 50 percent credit for gas supply during the coldest months this past winter. And, you just announced three months of bill credits this winter that will save the typical customer $124. Including the credits, PSE&G has decreased residential gas bills by 55 percent since 2009 for annual savings of $916 for the typical residential gas heating customer. How did you do that?
We’re just a stone’s throw from the Marcellus Shale formation in nearby Pennsylvania, which is producing a steady supply of lower cost gas. In addition to this abundant source, we’ve managed our portfolio of gas pipeline and storage agreements in such a way that we can produce savings for our customers who buy their supply from us. Consider that with the credits our price per therm of gas this winter is 15 cents-compared with about $1 in 2009. And we will continue to pass along any savings we can achieve to our customers.
Following Superstorm Sandy, PSE&G received approval for $1.22 billion for its “Energy Strong” program, a three-year investment program to strengthen and harden electric and gas infrastructure against severe weather. Can you talk a little about what is involved in this program and how far along you are in it? What progress did you make in 2015?
Under Energy Strong, we’re protecting, raising or relocating 29 switching and substations; replacing and modernizing 250 miles of gas mains in or near flood areas; creating redundancy in the system; protecting five natural gas metering stations and a liquefied natural gas station affected by Sandy or located in flood zones; and deploying smart grid technologies to better monitor system operations. A substantial portion of the Energy Strong program was completed in 2015.
In addition to Energy Strong, we have also been modernizing PSE&G’s transmission grid. The first transmission line to cross New Jersey was built in the 1920s by crews using teams of mules, horses and oxen to pull wagons of heavy equipment over dirt roads. Today, instead of using mules, helicopters transport equipment and workers to construct new towers in remote areas to limit the impact on pristine lands. Earlier this year, we energized the Susquehanna-Roseland 500-kV line, which will ease congestion and lower prices in northern New Jersey. Other major upgrades have also been completed and the Northeast Grid line is scheduled to be in service by next summer.
Last year Electric Light & Power magazine’s sister publication, POWERGRID International, recognized PSE&G’s Solar 4 All pole-attached solar program with one of its Project of the Year awards. The pole attached program is just one part of the larger project. Please tell us a little about the Solar 4 All program. What prompted it, how did you get regulatory approval and how is it progressing?
PSEG has been successful working with regulators to design programs that bring the environmental benefits of solar and energy efficiency to all customers. Not only do these programs provide benefits to customers and society, they also contribute to PSE&G’s bottom line through a unique cost recovery model that rewards PSE&G for its investments.
Solar 4 All is a 125 megawatt-dc (MW-dc) program that uses rooftops, solar farms and utility poles for large-scale, grid connected solar projects. As of September 2015, more than 101 MW-dc of the 125 MW-dc total are in service. In recent years, we have focused our solar efforts on projects that are turning landfills and brownfields green by building community solar farms on these underutilized properties. Of the 26 centralized solar projects currently in service, four are located on PSE&G remediated brownfield sites and three are located on closed landfill sites. These seven solar projects provide more than 30 MW-dc of solar capacity. PSE&G’s largest landfill solar farm is currently under construction and expected to go in service this month.
During the next few years, PSE&G plans to build an additional 12 MW-dc of solar capacity on landfills and brownfields in our service territory. Solar 4 All will also support 3 MW-dc of solar generation featuring unique solar technologies centered on energy storage and grid-hardening applications.
I’ve heard you say that one of your goals is to get people to use less electricity and gas. That’s not something you would expect the CEO of an energy company to say. What do you mean?
I know it sounds strange for me to want people to use less of my product. As a utility CEO who strongly believes in climate change, I understand the impact of power generation on the environment. It’s critically important that we help people use electricity and gas more efficiently if we are to reduce harmful carbon emissions. Energy efficiency also helps reduce customer bills. The cheapest energy is the energy you don’t use. So the most cost-effective way to reduce emissions is to invest in more energy efficient equipment. We estimate that reducing energy consumption by just 2 percent in New Jersey would put $130 million in the pockets of consumers and would cut 1 million tons of carbon emissions-equal to taking 200,000 cars off the road. But most people won’t cut back on their own, either because they don’t know how or they lack the time or money to invest in efficiency improvements.
Utilities are in the best position to make investments in energy efficiency where everyone benefits. PSE&G has invested about $300 million so far in regulated programs that help hospitals, multi-family dwellings and small businesses install more efficient lighting, chillers and other technology that reduce bills and carbon footprints. And PSE&G is ready to do much more. I believe utility involvement can help move our nation from 13th place in energy efficiency to first – where it should be.
PSE&G prides itself in being a good cooperate citizen to the communities it serves. Can you tell us a little about how its employees give back and how PSE&G recognizes its employees for outstanding community service?
Our company has a long history of involvement in the communities we serve both by employees and by the PSEG Foundation. Our very name, Public Service, has embodied this commitment to New Jersey for more than 100 years. While many things have changed since our founding, our unwavering commitment to the community has remained a constant. We have 10,000 employees working and living in New Jersey, who are active in their communities and ambassadors for the company. We recognize these efforts each year with our Recognizing Excellence in Volunteerism awards, which are cash awards given to non-profits where employees have gone above and beyond in volunteering their time and talents. We’ve given $500,000 in the last five years. Our employees raise money for the March of Dimes, build neighborhood playgrounds with the non-profit organization KaBoom!, volunteer at the PSEG Children’s Specialized Hospital and Special Olympics, to name a few.
We’re especially proud of our groundbreaking partnership with Sesame Street and the Children’s Television Workshop (www.pseg.com/sesamestreet). We teamed up with Sesame Workshop to develop computer apps, Let’s Get Ready: Planning Together for Emergencies, and Here For Each Other: Helping Families After Emergencies, with games and songs that educate in English and Spanish. The initiatives are aimed at instituting emergency preparedness into families’ routines through simple tips, strategies and activities, as well as preparing families with effective and comforting ways to respond when a disaster occurs.
What is your biggest challenge as chairman, president and CEO?
In our industry and with a company like ours, which is fairly well established, there is the basic need to be a good steward of resources that we have inherited but always with a focus on constant improvement. Am I making sure we’re taking care of our customers and doing what they expect us to do in an optimal manner? Are we maintaining and operating our facilities in a way that is safe and reliable while doing even more to safeguard our customers by building resiliency into our systems? And are we doing what we can to help keep energy affordable?
From there, I look at social, political and economic trends: What is society calling for right now and over the long term? In our case, it’s energy efficiency, renewable power and making sure that our existing assets have additional technology built into them so they are as efficient as possible and their environmental impact is reduced.
When putting those factors together, I make certain to articulate expectations as clearly as possible to our employees, allow them to have the resources they need to be successful, and ensure we fairly reward them when they are successful. That is a conversation I have with my executive team as well as with entry-level employees.
I also talk to my fellow CEOs about where our nation and region are headed. So it’s about constantly integrating data from as many different sources as possible and translating that into what it means for everyone in the company-never forgetting that people are our most important asset. We place a great deal of emphasis on diversity and inclusion, which are essential to fostering an environment that can help us improve across the board and become more closely aligned with the changing faces of our customers and communities. Our dedicated employees have a long history of rising to many challenges, and with their continued support, we believe our next 100 years as a company proudly known as Public Service will be even brighter.
Previous EL&P Utility of the Year Winners
à¢—ª 2014: Dominion
à¢—ª 2013: PPL
à¢—ª 2012: Southern Co.
à¢—ª 2011: OG&E
à¢—ª 2010: Hydro Quebec
à¢—ª 2009: Exelon
à¢—ª 2008: PPL
à¢—ª 2007: Florida Power & Light
à¢—ª 2006: Mid American
à¢—ª 2005: MDU Resources
à¢—ª 2004: Salt River Project
à¢—ª 2003: Southern Co.
à¢—ª 2002: Consolidated Edison
à¢—ª 2001: Puget Sound Energy
à¢—ª 2000: Xcel Energy