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What's in the Plans at PSEG Power?

President Bill Levis talks ratepayer subsidies, new capacity, peaking units and problems with synching up power generation and transmission.

Bill Levis has heard all the arguments about how New Jersey needs to build more power plants, but he believes new capacity will get built when the economics make sense.

Levis, the president and chief operating officer of PSEG Power, the 16th largest power generator in the United States, is an executive in the middle of a big battle: whether New Jersey’s plan to provide subsidies to power suppliers to incent new generating capacity will survive legal and regulatory challenges.

PSEG Power is involved in the dispute at both ends. It has joined more than a dozen other suppliers challenging a new state law in federal court. At the same time it is vying with those suppliers to win the right to build up to 2,000 megawatts of new gas-fired capacity from the state -- along with guaranteed payments from ratepayers to make the projects more viable.

Capacity Charges

The law, enacted earlier this year, is aimed at lowering sky-high electric bills in New Jersey, a function of the state's highly congested power grid. That has driven up the capacity prices customers pay on their bills, which account for about 20 percent of the generation charge. Proponents argue building new power plants will more than offset the subsidies ratepayers send to suppliers.

Perhaps more than anything else, the proposal reflects policymakers’ frustration that, to their view, few new plants have been built in the state since New Jersey deregulated its electric and gas monopolies. The plants that have been built tend to be small peaking units, the last facilities to come online during the day, which tends to drive up energy prices, they say.

Levis, however, said the answer is relatively simple. Peakers get built because they are the most economical investment, he says. "If you can solve a problem with a $100 million investment, why spend $1 billion?" he asked.

PSEG Power is currently going through an early site assessment on the possibility of building new nuclear units in Salem County, where it already has the Salem and Hope Creek generating stations, but has not yet committed to building one there.

"Like everyone else, we would like to build a nuclear plant if it was economical to do so," said Levis, who has been at his job since 2007, having been lured to the company from Exelon. If it gets through the early site assessment process, the company will pick a technology for the new nuclear unit and then wait until the economics make sense before moving forward.

Generating Profits

PSEG Power generates about three-quarters of the earnings for its parent Public Service Enterprise Group, but it, like other power suppliers, has been hurt by a drop in electricity prices, a decline driven by new found supplies of natural gas. It has weathered the storm better than other generators, in part, because of its fuel diversity.

More than half of the electricity produced by the company came from its nuclear units (51 percent) with natural gas accounting for about a third (34 percent) and coal the bulk of the rest (15 percent). “I don’t get stuck on any one fuel source,’’ said Levis, a graduate of the U.S. Naval Academy and a retired commander in the Naval Reserves.

Because of the steep drop in natural gas prices, the company’s coal units do not run as much as they once did -- even after PSEG Power spent about $1.5 billion installing sophisticated pollution controls to make them among the nation’s cleanest running coal plants. Levis defends the investment. "Those winter cold days when you cannot get the natural gas, it will be nice to have Hudson and Mercer there," he said. (In extremely cold weather natural gas supplies tighten up.)

Levis believes the current process aimed at developing new power plants in the state is flawed, and agrees there could be improvements in the overall planning process governing building of new capacity and new transmission lines.

Along those lines, he argues is the need to get the transmission planning horizon aligned with the generation planning horizon. But even without those changes, Levis expects to see capacity prices declining this year, based on forecasts of a 5 percent to 6 percent drop in load on the power grid by 2020.

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