Economic Impacts on New Jersey of Upgrading PSE&G s Susquehanna-Roseland Transmission System

Transcription

1 Economic Impacts on New Jersey of Upgrading PSE&G s Susquehanna-Roseland Transmission System Dr. Joseph J. Seneca Dr. Michael L. Lahr Dr. James W. Hughes Will Irving May 2009

2 Table of Contents EXECUTIVE SUMMARY... i INTRODUCTION... 1 Project Background... 1 Analytical Approach... 1 Organization of the Report... 2 ECONOMIC IMPACT ANALYSIS... 3 Expenditures Considered in the Analysis... 3 R/ECON Input-Output Model... 3 Transmission Line and Towers (Monopole Structures)... 4 Expenditure Assumptions... 4 Economic Impacts... 6 Transmission Line and Towers (Lattice Structures) Expenditure Assumptions Economic Impacts East Hanover/Roseland Switching Station Expenditure Assumptions Economic Impacts Jefferson Switching Station Expenditure Assumptions Economic Impacts Combined Economic Impacts (Monopole Towers) Combined Economic Impacts (Lattice Towers) CONCLUSION APPENDIX A: ECONOMIC AND DEMOGRAPHIC PROFILES AND DYNAMICS APPENDIX B: INPUT-OUTPUT ANALYSIS APPENDIX C: ECONOMIC IMPACTS OF COMBINED LATTICE-MONOPOLE SCENARIO... 74

3 EXECUTIVE SUMMARY This report presents the estimated economic impacts in New Jersey of the approximately $649 - $750 million in expenditures required for construction of the New Jersey portion of the proposed upgrade to PSE&G s Susquehanna-Roseland Transmission Network. The economic impacts estimated are only those associated with the expenditures to be made on construction of the network upgrade, and do not reflect any of the potential ongoing economic impacts of the increased transmission capacity once the upgrade is complete. The proposed upgrade would add 500 kv of additional power transmission capacity to the existing 230 kv network. This analysis examines the economic impacts of the construction of two switching stations and of the transmission line and towers required to accommodate the increased transmission capacity. Alternative scenarios are presented to reflect the two different types of tower structures that may be used. If all 249 towers were lattice structures, the estimated total expenditures for the project would be approximately $649 million, whereas if all the towers were monopole structures, the estimated expenditures would total $750 million. (Appendix C at the end of the report provides the aggregate expenditures and economic impacts for a 50%-50% split between the two types of towers.) The estimated economic impacts include both direct impacts and indirect impacts. Direct impacts are those directly associated with the project expenditures, such as the construction employment required for the project and purchases of material to be used in construction of the switching station and towers. Indirect impacts are those generated by the multiplier effects of the initial expenditures, as the salaries paid to workers and the business revenue generated by the expenditures made on materials in New Jersey are then re-spent throughout the economy, generating further economic activity and impacts in the form of employment, gross domestic product, compensation (income) and tax revenues. Based on the two expenditure scenarios associated with the different types of towers and on the associated range of project expenditures to be made in New Jersey, the following economic impacts were estimated: i

4 Employment. It is estimated that construction of the switching stations and transmission line and towers will generate from 3,415 to 3,931 total job-years (one job-year is equal to one job lasting one year). This includes from 2,258 to 2,646 direct job-years, including construction employment, as well as design work, consulting services and other Gross Domestic Product. It is estimated that the construction of the upgrade will generate between $396.1 and $428.1 million in gross domestic product for New Jersey. Compensation. It is estimated that the total compensation generated by both the direct and the indirect employment generated by the construction of the upgraded network will be between $307.5 million and $333.8 million. State Tax Revenues. It is estimated that the construction phase of the project will generate between $8 and $9 million in state taxes. Local Tax Revenues. It is estimated that the construction phase of the project will generate between $7.9 and $9.9 million in local taxes. ii

5 INTRODUCTION This report presents the findings of an economic impact analysis of the approximately $649-$750 million in expenditures required for construction of the New Jersey portion of the proposed upgrade to PSE&G s Susquehanna-Roseland Transmission Network. Project Background PJM Interconnection, the regional authority overseeing electricity transmission in all or part of 13 states, including New Jersey and Pennsylvania, has determined that the existing 230 kv capacity of the transmission line running from Susquehanna, Pennsylvania to Roseland, New Jersey is not sufficient to accommodate projected demand growth in coming years. As a result, PJM has directed PSE&G of New Jersey and PPL of Pennsylvania to upgrade the network by adding a new 500 kv capacity transmission line to the existing network. The upgrade will require not only the addition of the new power line itself, but also construction of new towers to accommodate both the new 500 kv, as well as the existing 230 kv line, and the construction of two new switching stations along the transmission route, one in Jefferson, New Jersey and one near the line s terminus in Roseland, New Jersey. This economic impact analysis covers the estimated $649-$750 million of expenditures required for construction of the New Jersey portion of the new line, including the two switching stations to be built in New Jersey. Analytical Approach The economic impacts of the construction of the new transmission line in New Jersey are estimated using the R/ECON Input-Output model developed and maintained by the Center for Urban Policy Research at Rutgers University s Edward J. Bloustein School of Planning and Public Policy. The model provides estimates of a broad and detailed range of economic impacts, including employment, gross domestic product, income and tax revenues. A detailed description of the model and its methodology is provided with the analysis. 1

6 The construction of each component of the new transmission infrastructure is analyzed individually. That is, the transmission line and towers are analyzed separately, as are each of the two switching stations. In addition, two separate analyses of the transmission line and tower infrastructure are provided. Because the existing towers currently carrying the 230 kv line do not meet the specifications required to handle two lines of the given capacities discussed, an additional 249 new towers are required in New Jersey. Some of these towers will be monopole structures (i.e., a single pole with branches holding the transmission lines), while others will be wider lattice-type structures. Because each of these tower types requires a different mix of material and labor inputs, two separate analyses are provided, one assuming that all towers are monopole, and the other assuming that all towers are lattice. Organization of the Report The report begins with a brief overview of the expenditures considered in the analysis. This is followed by a description of the R/ECON Input-Output Model and its application. Next, the analyses of the separate components of the transmission network are presented. These analyses consist of the all-monopole transmission line and towers, the all-lattice transmission line and towers, the Jefferson Switching Station, and the Roseland/East Hanover Switching Station. Each analysis consists of a review of the input expenditures used in the R/ECON Input-Output Model and a detailed presentation of the estimated economic impacts of those expenditures. A final section presents the combined impacts of the total investment in New Jersey for both the allmonopole and all-lattice tower scenarios. This is followed by a brief summary and conclusions. An appendix presents a brief economic profile of the areas in New Jersey where the new transmission line would be built. 2

7 ECONOMIC IMPACT ANALYSIS Expenditures Considered in the Analysis Because of the highly specialized nature of the power transmission materials and equipment needed for construction of the upgraded network, almost all the required material will be purchased outside of New Jersey. As such, the majority of the impacts measured in this analysis are generated via the employment of construction workers and the purchase of specialized services associated with the project. The majority of these workers and services are expected to come from New Jersey. Detailed explanations of the specific expenditures made in New Jersey are provided for each component of the analysis. R/ECON Input-Output Model The R/ECON Input-Output Model at the Center for Urban Policy Research at the Bloustein School of Planning and Public Policy was used to measure the economic impacts of the proposed expenditures for the Susquehanna-Roseland network upgrade. The R/ECON model consists of 515 individual sectors of the New Jersey economy and measures the effect of changes in expenditures in one industry on economic activity in all other industries. Thus, the expenditures made on labor, materials, legal and design services, and other inputs for the transmission line have both direct economic effects as those expenditures become incomes and revenues for workers and businesses, and subsequent indirect effects as those workers and businesses, in turn, spend those dollars on other things consumer goods, business investment expenditures, which, in turn, become income for other workers and businesses. This income gets further spent, and so on. In summary, the R/ECON Input-Output model estimates both the direct economic effects of the initial expenditures (in terms of jobs and income) and the indirect (or multiplier) effects (in additional jobs and income) of the subsequent economic activity that occurs following the initial expenditures. The model also estimates the gross domestic product for New Jersey and the tax revenues generated by the combined direct and indirect new economic activity caused by the initial spending. 3

8 Transmission Line and Towers (Monopole Structures) Expenditure Assumptions This estimate of the economic impacts for construction of the transmission line and towers for the Susquehanna-Roseland network assumes that all towers are monopole structures. 1 In order to reflect the full scope of the expenditures included in PSE&G s cost estimates for construction of the transmission line and towers portion of the upgraded network, it was necessary to make several assumptions and adjustments to the various expenditure items included in PSE&G s initial cost estimates. Following is an explanation of this process. PSE&G s estimated total cost for construction of the transmission line and monopole towers is $497.9 million. The base cost of construction estimated by PSE&G for the all-monopole transmission line and towers, including labor, materials, third party professional services and PSE&G support, was $380.4 million, with an additional 11% in estimated inflation costs ( escalation ) and an additional 20% in contingency. In order to incorporate all potential expenditures into the analysis, the escalation (11%) and contingency (20%) estimates were distributed proportionately between the costs of labor and material and the other costs (professional services, PSE&G support, etc.) according to their respective shares of the $380.4 million base cost. In addition, the OH&P on labor (25% of base labor and material costs) and material (10% of base labor and material costs), the Scope Modifications on labor (15% of base labor and material costs) and material (15% of base 1 Scenarios assuming all monopole and all lattice tower structures are presented in the body of the report. A spreadsheet indicating the aggregate impacts of using 50% of each type of tower structure is presented in Appendix C. 4

9 labor and material costs), and the Inefficiencies on labor (18% of base labor and material costs) were also distributed proportionately across the labor and material components of the base construction cost structure. The separate expenditures on labor and materials for the laying of tower foundations were not broken out in PSE&G s cost specifications. For purposes of the analysis, 65% of the $59.4 million in expenditures on foundations was allocated to labor, and the remaining 35% to material. These various adjustments resulted in total allocations of $247.8 million for transmission line construction labor and $171.9 million for material. All direct construction labor was assumed to come from North Jersey. All specialty materials (conductors, insulators, field wire, tower structures, etc.) are assumed to be purchased from outside of New Jersey. As such, of the material expenditures, only the concrete and other material used for construction of the tower foundations was incorporated into the impact estimate. Of the Other Costs (i.e., professional services, PSE&G support, etc.) associated with construction of the transmission line, the costs for consulting services provided by Louis Berger, the cost of soil borings, the costs of appraisals, title and mapping costs, and the costs of PSE&G legal fees were incorporated into the economic impact estimate. These expenditures totaled approximately $8 million. In addition, PSE&G s support costs were allocated according to the shares reflected in the itemized cost breakdowns of PSE&G support in the cost estimates for the two switching stations. All of these costs were incorporated into the economic impact estimate, with the exception of 5

10 Licensing/Permits/Bonds/Builder s Risk. Of this last category, approximately $3.8 million in builder s risk insurance was incorporated into the expenditure estimates. As a result of these assumptions and adjustments, $337.5 million of the total $497.9 million estimate for construction of the transmission line and towers (or 67.8%) was allocated to expenditures on labor, material and services in New Jersey. Economic Impacts Based on the R/Econ Input-Output model, Table 1 lists the estimates of the economic impacts of the expenditures made in New Jersey for construction of the Transmission Line and Towers Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) 1,600 1,000 2, GDP ($ 000) 256,252 63, , Compensation ($ 000) 206,970 42, , State Tax Revenue ($000) - - 6,943 - Local Tax Revenue ($000) - - 5,332 - As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor, material and services of approximately $337.5 million. They do not reflect the impacts of the remaining $160.4 million in transmission line-related expenditures to be made outside of New Jersey. Explanatory notes for each indicator follow Table 2. Table 2 lists estimates of the total employment generated in New Jersey by the Transmission Line expenditures by business sector. 6

11 Table 2 Sector Employment (job-years) Natural Resources & Mining 16 Construction 1,185 Manufacturing 306 Transportation & Public Utilities 83 Wholesale Trade 101 Retail Trade 276 Financial Activities 159 Services 472 Government 2 Total 2,600 Indicator Explanations: Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The all-monopole transmission line and towers component of the project is estimated to generate a total of 2,600 jobs in New Jersey. Based on salary and benefit estimates for the employment required to upgrade the transmission line, approximately 1,185 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the transmission line (1,600 jobs) exceeds the total construction employment (1,185 jobs) listed in Table 2. The additional direct employment (415 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (1,000 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. 7

12 GDP Note that the total GDP generated in the state ($320.1 million, Table 1) is close to the total expenditures estimated for New Jersey. By explicitly excluding those material expenditures that are to be made outside of New Jersey, the model minimizes the economic leakage that would normally be reflected were they to have been included. That is, were the excluded $160.4 million in expenditures to be included, the relative proportion of impacts leaked from the New Jersey economy would be higher. This leakage is reflected in the per-million dollar impacts reported below. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The transmission line and monopole towers component is estimated to generate $249.8 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The transmission line and monopole towers component is estimated to generate $6.9 million in state tax revenues. Local Tax Revenues The estimates of the increase in local tax revenues are for the entire state. The increase represents a long-run estimate of property tax revenues generated by payment of residential and commercial property taxes from the personal and business incomes generated by the project and/or resulting from improvements 8

13 made to property caused by the increased economic activity generated by the project. Local tax revenues increase because the additional economic activity from the transmission line project generates income for workers and revenues for business 2. The increases in personal incomes and in business revenues are, in part, used to pay property taxes and to improve properties (both residential and commercial). Thus, households benefitting from the additional jobs and resulting incomes acquire and/or improve residential properties, and are able to pay rents and mortgages and the associated property taxes. Similarly, business income and profits also increase as a direct result of higher sales and output caused by the project. Businesses subsequently acquire and/or improve their properties. Historical New Jersey fiscal and economic data are used to measure the relationship between business revenues and the amount of commercial property tax revenues collected, and between household incomes and the amount of residential property tax revenues collected. 3 Given the increases in both household income and the business revenues caused by the expenditures made on the transmission line, the R/ECON Input-Output Model invokes the known statistical relation of local property tax revenues to both household income and business revenues in order to estimate the addition to local tax revenues attributable to the transmission line project. It is important to note that this additional tax revenue occurs over a period of time. It is not an immediately generated impact. The economic sequence is as follows. The additions/improvements to residential and commercial property financed by the higher household incomes and higher business revenues are, in time, captured by higher property assessments, which, in turn, generate higher local tax 2 For businesses, the revenue increase is measured in terms of value-added, and it is the change in valueadded in the business sector that is the basis for the estimated change in property tax revenues. 3 For the entire state, approximately 76% of total local property tax revenues are attributable to residential property; with approximately 21% derived primarily from commercial and industrial property. 9

14 revenues. There are time lags between the increase in incomes and revenues, the improvements to property, and the increase in assessed values. Thus, the local tax revenue impacts estimated in this analysis are the outcome of a long-run adjustment process. This process occurs over the entire state based on the geographical dispersal within New Jersey of the households and businesses that benefit from the expenditures on the transmission line. Table 3 provides the per-million dollar spending impacts for the transmission line. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $497.9 million to be spent both inside and outside of New Jersey. Table 3 Indicator Impacts per $1 million of total project expenditures Employment (job-years) 5.2 GDP $642,864 Income $501,616 State Tax Revenues $13,944 Local Tax Revenues $10,709 10

15 Transmission Line and Towers (Lattice Structures) Expenditure Assumptions This estimate of the economic impacts for construction of the transmission line and towers for the Susquehanna-Roseland network assumes that all towers are lattice structures. In order to reflect the full scope of the expenditures included in PSE&G s cost estimates for construction of the transmission line and towers portion of the upgraded network, it was necessary to make several assumptions and adjustments to the various expenditure items included in PSE&G s initial cost estimates. Following is an explanation of this process. PSE&G s estimated total cost for construction of the transmission line and lattice towers is $397.1 million. The base cost of construction estimated by PSE&G for the all-lattice transmission line and towers, including labor, materials, third party professional services and PSE&G support, was $303.2 million, with an additional 11% in estimated inflation costs ( escalation ) and an additional 20% in contingency. In order to incorporate all potential expenditures into the analysis, the escalation (11%) and contingency (20%) estimates were distributed proportionately between the costs of labor and material and the other costs (professional services, PSE&G support, etc.) according to their respective shares of the $303.2 million base cost. In addition, the OH&P on labor (25% of base labor and material costs) and material (10% of base labor and material costs), the Scope Modifications on labor (15% of base labor and material costs) and material (15% of base labor and material costs), and the Inefficiencies on labor (18% of base labor and material costs) were also distributed proportionately across the labor and material components of the base construction cost structure. 11

16 The separate expenditures on labor and materials for the laying of tower foundations were not disaggregated in PSE&G s cost specifications. For purposes of the analysis, 65% of the $20.2 million in expenditures on foundations was allocated to labor, and the remaining 35% to material. These various adjustments resulted in total allocations of $239.2 million for transmission line construction labor and $74.4 million for material. All direct construction labor was assumed to come from North Jersey. All specialty materials (conductors, insulators, field wire, tower structures, etc.) are assumed to be purchased from outside of New Jersey. As such, of the material expenditures, only the concrete and other material used for construction of the tower foundations was incorporated into the impact estimate. Of the Other Costs (i.e., professional services, PSE&G support, etc.) associated with construction of the transmission line, the costs for consulting services provided by Louis Berger, the cost of soil borings, the costs of appraisals, title and mapping costs, and the costs of PSE&G legal fees were incorporated into the economic impact estimate. These expenditures totaled approximately $8.1 million. In addition, PSE&G s support costs were allocated according to the shares reflected in the itemized cost breakdowns of PSE&G support in the cost estimates for the two switching stations. All of these costs were incorporated into the economic impact estimate, with the exception of Licensing/Permits/Bonds/Builder s Risk. Of this last category, approximately $3.1 million in builder s risk insurance was incorporated into the expenditure estimates. 12

17 As a result of these assumptions and adjustments, $292.3 million of the total $397.1 million estimate for construction of the transmission line and towers (or 73.6%) was allocated to expenditures on labor, material and services in New Jersey. Economic Impacts Based on the R/ECON Input-Output model, Table 1 lists the estimates of the economic impacts of the expenditures made in New Jersey for construction of the alllattice transmission line and towers Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) 1, , GDP ($ 000) 233,318 54, , Compensation ($ 000) 186,827 36, , State Tax Revenue ($000) - - 5,932 - Local Tax Revenue ($000) - - 7,329 - As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor, material and services of approximately $292.3 million. They do not reflect the impacts of the remaining $104.8 million in lattice-tower transmission linerelated expenditures to be made outside of New Jersey. Explanatory notes for each indicator follow Table 2. Table 2 lists estimates of the total employment generated in New Jersey by the all-lattice structure transmission line expenditures by business sector. 13

18 Table 2 Sector Employment (job-years) Natural Resources & Mining 7 Construction 996 Manufacturing 155 Transportation & Public Utilities 72 Wholesale Trade 53 Retail Trade 249 Financial Activities 140 Services 412 Government 0 Total 2,084 Indicator Explanations: Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The all-lattice transmission line and towers component of the project is estimated to generate a total of 2,084 jobs in New Jersey. Based on salary and benefit estimates for the employment required to upgrade the transmission line, approximately 996 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the transmission line (1,212 jobs) exceeds the total construction employment (996 jobs) listed in Table 2. The additional direct employment (216 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (872 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. 14

19 GDP Note that the total GDP generated in the state ($288.1 million, Table 1) is close to the total expenditures estimated for New Jersey. By explicitly excluding those material expenditures that are to be made outside of New Jersey, the model minimizes the economic leakage that would normally be reflected were they to have been included. That is, were the excluded $104.8 million in expenditures to be included, the relative proportion of impacts leaked from the New Jersey economy would be higher. It is important to note that this leakage is reflected in the per-million dollar impacts reported below. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The transmission line and lattice towers component is estimated to generate $223.5 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The transmission line and lattice towers component is estimated to generate $5.9 million in state tax revenues. Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The transmission line and lattice towers component is estimated to generate $7.3 million in local tax revenues. 15

20 Table 3 provides the per-million dollar spending impacts for the transmission line. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $373.2 million to be spent both inside and outside of New Jersey. Table 3 Indicator Impacts per $1 million of total project expenditures Employment (job-years) 5.2 GDP $725,533 Income $562,797 State Tax Revenues $14,940 Local Tax Revenues $18,457 16

21 East Hanover/Roseland Switching Station Expenditure Assumptions In order to reflect the full range of expenditures incorporated into PSE&G s cost estimates for construction of the East Hanover/Roseland switching station portion of the upgraded Susquehanna-Roseland network, the following assumptions and adjustments were made to the various construction expenditures. The total cost of construction for the East Hanover/Roseland switching station was estimated at $166.6 million, including $125.6 million in base costs and $41 million in contingency. The contingency and escalation (32.6%) estimates were distributed proportionately between the contractor s labor and material costs, the professional services costs, and the PSE&G support costs according to their respective shares of the $125.6 million base cost. Expenditures on transformers, circuit breakers, disconnect switches, and other electronic equipment were assumed to be made outside of New Jersey. All direct construction labor was assumed to come from North Jersey. As a result of these assumptions and adjustments, $57.1 million of the total $166.6 million estimate for construction (or 34.3%) of the East Hanover/Roseland Switching Station, was allocated to expenditures on labor, material and services in New Jersey. 17

22 Economic Impacts Table 1 shows the economic impacts of the East Hanover/Roseland switching station expenditures described above. Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) GDP ($ 000) 42,267 8,847 51, Compensation ($ 000) 33,822 5,954 39, State Tax Revenue ($000) Local Tax Revenue ($000) - - 1,200 - As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $57.1 million. They do not reflect the impacts of the remaining $109.5million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2. Table 2 shows the total employment generated in New Jersey by the East Hanover/ Roseland switching station expenditures by business sector. 18

23 Table 2 Sector Employment (job-years) Natural Resources & Mining 1 Construction 411 Manufacturing 27 Transportation & Public Utilities 12 Wholesale Trade 9 Retail Trade 29 Financial Activities 23 Services 79 Government 0 Total 592 Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The East Hanover/Roseland switching station portion of the project is estimated to generate a total of 592 jobs in New Jersey. Based on salary and benefit estimates for the employment required to construct the stations, approximately 411 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the switching station (462 jobs) exceeds the total construction employment (411 jobs) listed in Table 2. The additional direct employment (51 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (130 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. GDP As with the expenditures on construction of the transmission line, the GDP generated in the state ($51.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material 19

24 expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The construction of the East Hanover/Roseland switching station is estimated to generate $39.8 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The construction of the East Hanover/ Roseland switching station is estimated to generate $.968 million in state tax revenues. Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The construction of the East Hanover/Roseland switching station is estimated to generate $1.120 million in local tax revenues. Table 3 provides the per-million-dollar spending impacts for the East Hanover/Roseland switching station. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $166.6 million to be spent both inside and outside of New Jersey. 20

25 Table 3 Indicator Impacts per $1 million of total expenditures Employment (job-years) 3.6 GDP 306,785 Compensation 238,730 State Tax Revenues 5,811 Local Tax Revenues 7,202 21

26 Jefferson Switching Station Expenditure Assumptions In order to reflect the full range of expenditures incorporated into PSE&G s cost estimates for construction of the Jefferson switching station portion of the upgraded Susquehanna-Roseland network, it was necessary to make several assumptions and adjustments to the various expenditure items listed for construction of the station. Following is an explanation of this process. The total cost of construction for the East Hanover/Roseland switching station was estimated at $77 million, including $57.8 million in base costs, $6.1 million in escalation costs and $13.1 million in contingency. The escalation (10.5%) and contingency (22.7%) estimates were distributed proportionately between the contractor s labor and material costs. The Professional Services costs and the PSE&G Support costs were distributed according to their respective shares of the $57.8 million base cost. The Scope Assessment and Fees on the labor portion of the contractor s costs (34% of base costs) were combined with the labor costs. Expenditures on circuit breakers, disconnect switches, and third party professional services were assumed to be made outside of New Jersey. Of the approximately $6.5 million in bulk material expenditures, 60% was assumed to be electrical material, and 40% civil material, with 90% of the electrical bulk being purchased outside New Jersey. The majority of civil bulk material associated with site work, access roads, foundations, etc., was assumed to be purchased in New Jersey. 22

27 All direct construction labor was assumed to come from North Jersey. As a result of these assumptions and adjustments, $62.1 million of the total $77 million estimate for construction (or 80.5%) of the Jefferson Switching Station was allocated to expenditures on labor, services and material in New Jersey. Economic Impacts Table 1 shows the economic impacts of the Jefferson Switching Station expenditures described above. Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) GDP ($ 000) 47,145 9,784 56, Compensation ($ 000) 37,654 6,574 44, State Tax Revenue ($000) - - 1,080 - Local Tax Revenue ($000) - - 1,333 - As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $62.1 million. They do not reflect the impacts of the remaining $14.9 million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2. Table 2 shows the total employment generated in New Jersey by the Jefferson Switching Station expenditures by business sector. 23

28 Table 2 Sector Employment (job-years) Natural Resources & Mining 1 Construction 538 Manufacturing 26 Transportation & Public Utilities 12 Wholesale Trade 10 Retail Trade 47 Financial Activities 24 Services 80 Government 0 Total 739 Employment Employment impacts are measured in job-years (i.e., one job lasting one year). The Jefferson Switching Station of the project is estimated to generate a total of 739 jobs in New Jersey. Based on salary and benefit estimates for the employment required to construct the stations, approximately 538 direct construction jobs are estimated to be created. Note also from Table 1 that the direct employment associated with the construction of the Switching Stations (584 jobs) exceeds the total construction employment (538 jobs) listed in Table 2. The additional direct employment (46 jobs) associated with the project is generated in the New Jersey-based wholesale and manufacturing sectors that produce and distribute the non-specialized materials used in laying foundations, building access roads, etc., as well as the various PSE&G internal functions associated with project management and support, and outside services (e.g., legal) provided by New Jersey firms. Significant additional indirect employment (154 jobs, Table 1) is generated across various sectors, including services, financial activities, and retail trade. GDP As with the expenditures on construction of the transmission line, the GDP generated in the state ($56.9 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material 24

29 expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The construction of the Jefferson Switching Station is estimated to generate $44.2 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales associated with the economic output generated by the project. The construction of the Jefferson Switching Station is estimated to generate $1.1 million in state tax revenues. Local Tax Revenues Local tax revenues are comprised of increased property tax revenues resulting from improvements associated with the increased business activity generated by the project. The construction of the Jefferson Switching Station is estimated to generate $1.3 million in local tax revenues. Table 3 provides the per-million-dollar spending impacts for the Jefferson Switching Station. Note that these impacts are calculated per million dollars of total transmission line expenditures that is, on the basis of the $77 million to be spent both inside and outside of New Jersey. 25

30 Table 3 Indicator Impacts per $1 million of total expenditures Employment (job-years) 9.6 GDP $739,340 Compensation $574,392 State Tax Revenues $14,022 Local Tax Revenues $17,315 Note that these per-million-dollar impacts are significantly higher than those of the East Hanover and Roseland stations. This is largely due to the fact that $70 million dollars of expenditures on transformers and circuit breakers for the East Hanover and Roseland stations is assumed to be spent out of state, while there are no comparable expenditures for the Jefferson switching station. Thus, there is less economic leakage assumed as a proportion of the total costs of construction. 26

31 Combined Economic Impacts (Monopole Towers) Following are the combined impacts for all components of the project, including the transmission line and towers (assuming monopole towers) and all switching stations. Table 1 shows the aggregate economic impacts of the entire $741.5 million construction project (the total project budget is $750 million when the management reserve is included). The total expenditures estimated to be made in New Jersey are $497.9 million (or 66.1%) Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) 2,646 1,284 3, GDP ($ 000) 345,664 82, , Compensation ($ 000) 278,446 55, , State Tax Revenue ($000) - - 8,991 - Local Tax Revenue ($000) - - 7,865 - As noted in the preceding section, these impacts are based on estimated in-state expenditures on labor and material of approximately $456.7 million. They do not reflect the impacts of the remaining $284.8 million in expenditures to be made outside of New Jersey or the $8.5 million management reserve. Explanatory notes regarding each indicator follow Table 2. Table 2 shows the total employment generated in New Jersey by the total combined project expenditures. Table 2 Sector Employment (job-years) Natural Resources & Mining 18 Construction 2,134 Manufacturing 359 Transportation & Public Utilities 107 Wholesale Trade 120 Retail Trade 352 Financial Activities 206 Services 631 Government 2 Total 3,931 27

32 Employment Total employment generated by the project is estimated at 3,931 jobs, with the majority of those jobs occurring in the construction industry (2,143 jobs). Other sectors with large direct and indirect job gains include the aggregate services sector (631 jobs), the retail trade sector (352 jobs), and the manufacturing sector (359 jobs). GDP The GDP generated in the state ($428.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The project is estimated to generate $333.8 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales taxes associated with the economic output generated by the project. The project is estimated to generate $9 million in state tax revenues. Local Tax Revenues Local tax revenues are comprised of increased property tax revenues that are generated over time because of property improvements associated with the increased business activity generated by the project. The value of these property 28

33 improvements is, in time, included in assessments and hence in property tax revenues. The project is estimated to generate $7.9 million in local tax revenues. Table 3 provides the per-million-dollar spending impacts for the full project. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $741.5 million to be spent both inside and outside of New Jersey and including the additional $8.5 million management reserve. Table 3 Indicator Impacts per $1 million of total expenditures Employment (job-years) 5.2 GDP $570,829 Compensation $445,007 State Tax Revenues $11,988 Local Tax Revenues $10,487 29

34 Combined Economic Impacts (Lattice Towers) Following are the combined impacts for all components of the project, including the transmission line and towers (assuming lattice towers) and all switching stations. Table 1 shows the aggregate economic impacts of the entire $640.7 million construction project (the total project budget is $649.2 million when the management reserve is included). The total expenditures estimated to be made in New Jersey are $411.5 million (or 64.2%) Table 1 Indicator Direct Indirect Total Multiplier Employment (job-years) 2,258 1,156 3, GDP ($ 000) 322,730 73, , Compensation ($ 000) 258,303 49, , State Tax Revenue ($000) - - 7,980 - Local Tax Revenue ($000) - - 9,862 - As noted previously, these impacts are based on estimated in-state expenditures on labor and material of approximately $411.5 million. They do not reflect the impacts of the remaining $229.2 million in expenditures to be made outside of New Jersey. Explanatory notes regarding each indicator follow Table 2. Table 2 shows the total employment generated in New Jersey by the total combined project expenditures. Table 2 Sector Employment (job-years) Natural Resources & Mining 9 Construction 1,945 Manufacturing 208 Transportation & Public Utilities 96 Wholesale Trade 72 Retail Trade 325 Financial Activities 187 Services 571 Government 0 Total 3,415 30

35 Employment Total employment generated by the project is estimated at 3,415 jobs, with the majority of those generated in the construction industry (1,945 jobs). Other sectors with large direct and indirect job gains include the aggregate services sector (571 jobs), the retail trade sector (325 jobs), and the manufacturing sector (208 jobs). GDP The GDP generated in the state ($396.1 million) is close to the total expenditures estimated for New Jersey due to the exclusion from the model of those material expenditures that are to be made outside of New Jersey. The per-million-dollar impacts reported below reflect the impact on New Jersey per million dollars of total expenditures, including those expenditures made outside of the state. Compensation Compensation represents the total wages, salaries and supplements to wages and salaries (i.e., employer contributions to government and private pension funds) paid for all direct and indirect jobs generated as a result of the project expenditures made in New Jersey. The project is estimated to generate $307.5 million in compensation in New Jersey. State Tax Revenues State tax revenues are comprised of the income taxes associated with the salaries paid to the workers in the direct and indirect jobs associated with the project, and with the sales taxes associated with the economic output generated by the project. The project is estimated to generate $8 million in state tax revenues. Local Tax Revenues Local tax revenues are comprised of increased property tax revenues that are generated over time because of the improvements associated with the increased business activity generated by the project. The value of these improvements is, in 31

36 time, included in assessments and hence in property taxes. The project is estimated to generate $9.9 million in local tax revenues. Table 3 provides the per-million-dollar spending impacts for the full project, assuming all lattice tower structures are used for the transmission line. Note that these impacts are calculated per million dollars of total expenditures that is, on the basis of the $640.7 million to be spent both inside and outside of New Jersey and including the additional $8.5 million management reserve. Table 3 Indicator Impacts per $1 million of total expenditures Employment (job-years) 5.3 GDP $610,220 Compensation $473,639 State Tax Revenues $12,292 Local Tax Revenues $15,191 32

37 CONCLUSION This report presents an economic impact analysis of the proposed upgrade of PSE&G s Susquehanna-Roseland transmission network. Using the Edward J. Bloustein School s R/ECON Input-Output model, impact estimates were generated for construction of two switching stations and the transmission line and towers, including separate analyses for two different types of tower. Based on the proposed employment and other project expenditures to be made in New Jersey, we estimate that the $649.2 million (all lattice towers) to $750 million (all monopole towers) in project expenditures ($425.2 million to $467.7 million to be made in New Jersey), including management reserves, will generate: between 3,415 (lattice) and 3,931 (monopole) job-years for workers in New Jersey; between $396.1 million (lattice ) and $428.1 million (monopole) in gross domestic product for the state; between $307.5 million (lattice) and $333.8 million in compensation for workers in the jobs generated by the project in New Jersey; between $8 million (lattice) and $9 million (monopole) in state taxes; and between $7.9 million (monopole) and $9.9 million (lattice) in local taxes. 33