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State Raises Red Flag Over How Decisions Are Made on Regional Power Grid

BPU warns letting incumbent transmission owners decide who can plug into the grid is 'problematic.'

The state is asking the operator of the regional power grid to no longer allow incumbent transmission owners to play a crucial role in determining what new electric generating stations hook up to the grid.

In a letter to PJM Interconnection, which oversees the grid serving more than 50 million people, the New Jersey Board of Public Utilities (BPU) suggested that the current process is "problematic." Right now, transmission owners that have affiliates providing large amounts of electricity to the grid decide what new power plants can come online.

The issue is important to consumers in New Jersey, a state saddled with some of the highest electric bills in the nation. The problem is largely blamed on too little generating capacity, which leads to congestion on the power grid in the northern part of the state, according to agency officials. By state projections, consumers here will pay $1 billion or more this year because of congestion.

The BPU's concerns stem from the fact that transmission owners do the cost analysis of what it would take to let new power plants tie into the power grid. If they determine that the costs, most of which involve expensive upgrades to the grid, are too steep, it could discourage the development of new power generation. Such an outcome would benefit the affiliate's existing power plants, which would continue to reap high electricity costs because of continued congestion.

"The risk of manipulation in this situation is too high and too difficult to properly monitor and mitigate," the state argued in its letter to PJM.

Under the current system, incumbent transmission owners determine the engineering impacts and upgrade costs to proposed interconnections, a situation that the state argues is open to conflicts, especially in areas where there is a close alignment between generating companies and affiliated transmission owners. Although no specific mention is made of a company, the comments point to Public Service Enterprise Company (PSEG) and its utility, Public Service Electric & Gas (PSE&G), the only energy company in New Jersey that retained a large portion of its generation fleet when the state deregulated the electric industry.

Most of the problems occur when multiple developers seek to build capacity in areas where congestion on the grid is severe, a situation that leads to higher prices for consumers. Northern New Jersey is among the areas most congested, a fact that has led state officials to enact legislation trying to spur new power plants projects there.

An Arduous Process

Others, however, blame the PJM interconnection process, which can be extraordinarily long and expensive for power suppliers seeking to enter the marketplace. PJM acknowledges the problem and has convened a task force to study the issue and recommend improvements, a process that spurred the state's comments.

Obtaining approval from PJM Interconnection, the operator of the nation's largest regional power grid, is time-consuming and uncertain, and adds significant costs to a project, according to developers and energy officials. About 80 percent of the projects involved in the interconnection process drop out without ever being built, said industry officials.

The deregulation of the industry is at the heart of the dispute with PJM involving the interconnection issues. The law was passed with proponents arguing it would lead to lower prices for customers by increased competition in the sector. That assumption, according to critics, failed to be realized as few new power plants have been built, even though consumption of electricity has been steadily rising.

With the state's efforts to develop new power plants frustrated at the Federal Energy Regulatory Commission (FERC) because of rule changes promoted by PJM and the power industry, the state agency has become much more active in trying to shape energy policy at those levels. Their decisions, although not widely reported on, have become an increasingly bigger source of profits for the companies involved in ensuring there is enough electricity to keep the lights on.

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