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New Delays in Highlands Power Line Could Drive Up Congestion, Prices

National Park Service review of project could end up costing consumers $400 million, maybe more.

A new delay in a controversial high-voltage power line threatens to increase congestion on the regional electric power grid, an event that could end up costing consumers more than $400 million over the next two years, and possibly more beyond -- according to state and utility officials.

The U.S. National Park Service has notified state officials and utility executives that a decision on a permit that would allow Public Service Electric & Gas (PSE&G) to expand transmission lines through the Delaware River National Recreation Area would be delayed until January 2013.

The $750 million project, approved by the state Board of Public Utilities (BPU) last year, is under review by the National Park Service because a portion of the 45-mile transmission line cuts through lands it administers, including the Delaware Water Gap National Recreation area and the Appalachian Trail. The service is preparing a draft environmental impact statement, which initially was expected to be released this year.

But another utility involved in the project, PPL Electric Utilities, has asked the Park Service to review an alternative route on the opposite side of the river in Pennsylvania, a request granted by the federal agency, but one which will require more time to evaluate, pushing a decision on the permit until 2013.

Blackouts and Brownouts

That holdup means New Jersey could suffer from reliability issues during the summer of 2012, according to the BPU, utility officials and the PJM Interconnection, some of whom argue serious violations of reliability standards could occur next summer, increasing the threats of blackouts and brownouts.

"As a result of this delay, New Jersey and its residents will be placed in a precarious position, through no fault of the state," the BPU argued in a brief filed in connection with another case before the Federal Energy Regulatory Commission (FERC).

Not only will residents face the prospect of outages because of grid reliability concerns, but also they are likely to see already steep energy bills rise because of the delay.

"Unless the economic downturn changed the projections of load growth, we could be playing with fire," said Steven Goldenberg, an attorney who represents businesses that use large amounts of energy. "In terms of reliability and the cost of power, it is a cause for concern."

Paul Patterson, an energy analyst with Glenrock Associates, agreed. "A lot of transmission projects have been delayed," he said. "The lack of progress in building lines from west to east would indicate that relief [from congestion costs] will be delayed."

Congestion Costs

According to a study by PJM in November 2010, gross congestion costs would increase, primarily in New Jersey, by $160 million in 2012 and by $280 million in 2013 because of the delays. Those projections are significant because consumers in New Jersey already are expected to pay $1 billion in added electric bill costs this year because of congestion on the grid and steep capacity prices. Capacity prices account for ensuring that there is enough power to meet demand when it peaks.

Congestion increases energy prices because it prevents cheaper power from being wheeled into an area with high demand and high prices.

With the latest delay in the Highlands permitting process, the project is not likely to be operational until 2015, according to Paula DuPont Kidd, a spokeswoman for the PJM.

Previous delays in the Highlands transmission project also have increased costs to consumers. To ensure there is enough juice to supply power when needed, PJM has ordered a power plant in Hudson County to remain in service, a decision that will boost the cost of producing electricity by $29 million over the two-year period in so-called Reliability Must Run (RMR) contracts with the plant. The contracts are designed to ensure reliability of the grid, but have been criticized for boosting costs to consumers by keeping old, inefficient power plants in service, even though they run infrequently.

Reliability Problems

Both PJM and PSE&G insist previous projections of reliability problems will pop up this summer without the Highlands transmission line in service.

"It absolutely could happen," said Karen Johnson, a spokeswoman for the utility, when asked whether there could be brownouts or outages. There is not much the utility can do to compensate for the delay in the Highlands line, she said, adding it is up to PJM to decide what can be done to resolve reliability problems.

DuPont Kidd said the regional power grid operator expects there to be violations of reliability standards in the summer of 2012, but plans to take steps to try to avoid them, including advising utilities to put off outages on transmission lines that may have been planned.

In addition, she said, there is a strong possibility that PJM will extend the Reliability Must Run contracts with the Hudson plant.

Opposed to the Project

Foes of the Highlands project, who include most of the state’s environmental groups, rejected the need for the line.

"The more this line is delayed the more it shows it is not needed," said Jeff Tittel, director of the Sierra Club of New Jersey. "With energy efficiency and demand response, we see energy loads dropping. It would make more sense to invest this money in the smart grid and energy efficiency than in this power line."

All of which is likely to further inflame state officials in New Jersey who have been pressing to build new power plants in the state in an effort to ease congestion on the grid and lower energy prices. Those efforts, however, have been thwarted by actions taken by FERC and PJM, which many view as undermining the state’s proposal to build three new power plants with ratepayer subsidies.

Earlier this week, BPU President Lee Solomon, unhappy with actions taken to cast doubt on the New Jersey projects, ordered the agency to undertake a broad proceeding into how the state can attract new generation capacity.

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