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Regional Grid Operator Agrees to Ease Impediments to Building New Power Plants

Mood at meeting grows increasingly rancorous as state suggests power suppliers may wield too much market power.

The independent operator of the regional power grid is moving to make a series of changes to its system. Its goal: fix impediments that even it agrees has helped thwart the development of new power plants, something the Christie administration has been pursuing for more than a year.

It is unlikely, however, that those reforms will go far enough in resolving a deepening dispute between the state and power suppliers, transmission owners, and PJM Interconnection, the regional grid operator, over why few new plants have been built in New Jersey since the state deregulated the energy sector in 1999.

The rancor stems from New Jersey's efforts to lure new power plants by passing a bill giving three developers long-term subsidies from electric customers to make their projects financially viable. The move has been contested by incumbent power suppliers in court and before the Federal Energy Regulatory Commission (FERC).

If anything, the rhetoric seems to be turning more heated, with state officials talking about investigating whether structural market power exercised by incumbent generators creates barriers to the entry of new suppliers.

"We shouldn't gloss over the issue of market power," said Stefanie Brand, director of the Division of Rate Counsel. "I think the board should look at it more closely."

At a day-long hearing held in the Statehouse Friday, PJM officials and power suppliers dismissed that allegation, saying studies by independent monitors have found no evidence of such behavior. Instead, several consultants argued that New Jersey's own efforts to encourage power plant development are undermining the competitive market and discouraging investment in the state.

Overhauling Interconnection

For its part, PJM detailed several steps it is taking to expedite new power plants, including overhauling its much criticized generation interconnection system. The system is designed to ensure that new power plants tying into the regional grid do not lessen its reliability by requiring high voltage lines to carry more power than they are capable of.

The interconnection process has been blamed for the time it takes to win approval as well as driving up costs for those developers seeking to build new power plants.

Michael Kormos, senior vice president of PJM, said the organization is considering retooling the process to allow it to "fast track" developers that are ready to move forward with their projects, a proposal suggested by Hess Corp, which is one of the three projects to win subsidies from New Jersey.

PJM also is considering having independent parties do the studies of what interconnection upgrades are needed when a new power supplier is trying to hook into the grid. That comes in response to questions raised by New Jersey whether there is a conflict of interest with existing transmission owners doing the studies, as is now the case, because of potential benefits that could derive to an affiliate if the required upgrades discourage new plant construction.

When Hess tried to move forward with a project in New Jersey, it was tagged with $200 million in transmission interconnection upgrades, some as far away as Baltimore, according to John Schultz, vice president of Hess. While welcoming the changes proposed by PJM, Schultz said the system needs a more radical fix.

"We may be using band-aids when more comprehensive changes are needed," Schultz said.

While not a subject of the hearing, power suppliers and others continued to press the state to revisit the law awarding subsidies to the three developers, a move it took as a way of reducing electricity prices for businesses and consumers, which are among the highest in the nation.

"It's a pall over the marketplace," said Glen Thomas, head of the P3 Power Providers Group, a coalition of energy suppliers. "If you are really serious about removing impediments to new entry, you need to address it."

Board of Public Utilities (BPU) President Lee Solomon said there is little chance of that happening. "The legislature passed it; the governor signed it," he said. "It's our obligation to carry it out."

Others told the agency the competitive market is working fine and predicted high energy prices in New Jersey will fall, in part, due to transmission upgrades such as the Susquehanna-Roseland power line, which will deliver cheaper electricity to the state and ease some of the congestion in the northern part.

At the hearing, an executive at Calpine, which owns 92 power plants around the country, said the company is willing to build new plants here if the state retains a competitive power system that does not reward some projects with built-in incentives.

There also are rumors circulating that LS Power Development LLC, the company that was the impetus behind the ratepayer subsidy bill, is planning to go ahead with its project in West Deptford without the subsidies. An executive of the company declined to comment on the widespread speculation when approached Friday.

However, Paul Fremont, an analyst at Jefferies & Co., an investment bank, alluded to the rumor in a research report to clients last week. "According to our source, a power plant developer communicated with the BPU to move forward with the development of a 1,300-megawatt project in New Jersey without the subsidies," Fremont wrote in a note. The BPU declined to comment on the report.

Some suggest the unwillingness of the state and LS Power to comment on its efforts to move forward without subsidies reflects the administration's desire to quash any debate over whether new power plants can be built without subsidies from ratepayers.

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