PSEG: Achieving Social Objectives

I interviewed Ralph Izzo recently, the chairman of the board, president and CEO at Public Service Enterprise Group Inc. (PSEG). We discussed the outlook for renewables for 2010 and I learned as much about inspired leadership as utility-scale clean energy projects.

PSEG is committed to developing renewables, with an emphasis on solar, energy efficiency and offshore wind. The utility has been particularly successful with its solar programs–in fact, New Jersey is now No. 2 in the nation for grid-connected solar installations. (California is No. 1.) This was accomplished one small step at a time. Izzo said advancements in inverter technology allowed his utility to put small, pole-mounted solar throughout its service territory, literally on utility poles.

“We’re a bit unique in that most of our solar investments tend to be smaller scale,” he said. “We don’t have access to land that some of these larger grid-connected projects benefit from. While we’re delighted to see that happening in other parts of the country, from our perspective grid connection means 200 Watts at a time from a utility pole or half a megawatt from a very large warehouse with a rooftop that’s unobstructed.”

There’s something else unique about PSEG. As we talked, it became clear that Izzo is committed not only to his company’s financial health but to the future of the earth. “If we keep doing what we’ve been doing for the past 100 years, I’m concerned about the outcome for our planet going ahead,” he said.

Having spent more than a decade working in the electric utility industry, I found this quite remarkable. What happened to the old, staid, slow-to-change utility? What’s all this talk about planets?

Izzo is adamant about the need for putting a price on carbon and other externalities reflected in electricity when planning for renewable energy projects–including transmission lines, a big part of the wind energy industry’s plan for utility-scale wind farms.

“We’ve been proponents of renewable energy being an increasing part of the electricity supply mix and we recognize that you need to do that in the near term through a mandated renewable portfolio standard. But we have not been proponents of a grossly subsidized transmission system which then favors the regions that have richness of the natural resource at the expense of those regions like ours that have less of the natural resource but much lower transmission cost and greater proximity to load,” he said. “Combined cost of supply plus delivery determine where we put these things, not how much of it we build.”

He is sure that in time subsidies for renewables will decrease.

“I am a believer that if you allow utilities to invest in renewables and put them in rate base then the subsidy stream will become something that has a lower discount rate applied to it.” He said he thinks this overall will be less expensive to customers and will result in a greater deployment of solar technology in particular.

Today, solar panel-generated electricity in New Jersey costs 30 to 35 cents per kilowatt hour. Not inexpensive electricity, said Izzo, but it comes with “huge benefits.” He is confident the price will drop when carbon is priced in and when advancements bring down the technology’s cost. “Then you are getting to the point you are asking people if they are willing to pay 10 percent more for cleaner air and a healthier planet for our kids and grandkids. I have confidence that people will say yes.”

While Izzo never loses sight of his business objectives–he said both of the utility’s solar programs achieve financial benefit for shareholders–he said he also sees the utility’s role as one of achieving social objectives. He said he believes consumers would not have universal access to telephony, gas or electricity if the public had just let the markets work based on short-term price signals. The same can be said about investments in renewables and energy efficiency.

“I would suggest that utilities have historically been a very efficient vehicle for deploying capital to achieve social policy objectives and that is what we are doing here. We are saying we need to act. Given the confusing set of incentives and subsidies that nuclear and coal and wind get, a rational person might conclude that renewables are not economically competitive, but over the long term that’s not the case. And that’s an important social policy objective, so we will use the same mechanism we used in the past.”

We talked about power engineers and the role they can play in the new world of low carbon energy. When I said I sometimes talk with power engineers who aren’t convinced that climate change even exists, he said he found that depressing.

“You have to find the people who are enthusiastic and have religion and (understand) this is where the growth opportunity in the company exists and where the growth opportunity in the industry exists,” said Izzo.

He certainly made a believer out of me, not about climate change–I’ve never had any doubt about that–but about whether or not we can do this. Electricity production accounts for almost 40 percent of U.S. greenhouse gas emissions. With people like Ralph Izzo leading the industry, we could indeed have a low-carbon future.

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