Federal Policy Could Bring Blackouts and Brownouts to New Jersey, BPU Warns

Without new ratepayer-subsidized power plants, state continues to face a capacity crunch

The state faces the prospect of brownouts and blackouts if a federal agency does not reverse its decision on a pilot program pushed by New Jersey to develop new power plants, according to brief filed with the Federal Energy Regulatory Commission (FERC) yesterday.

In a 37-page filing with the federal agency, the state Board of Public Utilities (BPU) asked it to reconsider its decision last month to change the rules governing energy markets, or failing that, to either grandfather or exempt New Jersey from the regulations.

That decision has cast a cloud of uncertainty over whether the state’s pilot program to develop nearly 2,000 megawatts of new gas-fired plants through ratepayer subsidies will be successful, given the changes made by FERC, a decision the state acknowledged in the filing.

The growing dispute involves New Jersey’s efforts to attract new generating capacity to the state, a move advocates argue will help depress electricity bills for consumers and businesses, who pay some of the highest energy rates in the country.

The program, approved by the legislature and signed into law by Gov. Chris Christie, is opposed by much of the electric generation sector, which has challenged the effort in federal court and successfully sought to block it before the federal agency. If implemented, program could cost power suppliers in the region up to $2 billion in capacity payments, the part of electric bills that ensure there is enough power to keep lights on at times of peak demand.

The state is aggressively pursuing the issue because ratepayers are burdened with steep prices for electricity because of perceived lack of capacity and congestion on the power grid. That issue is raised repeatedly in the brief, which is harshly critical of the federal agency and the PJM Interconnection, the independent operator of the regional power grid.

In the brief, the state asked the agency to issue a decision on its request within 30 days. If not resolved promptly, “it will result in substantial harm to customers in New Jersey,” the brief argued.

Much of the harm was attributed to policies adopted by the PJM Interconnection. In response to complaints about congestion increasing energy costs, it adopted a new rule, dubbed the Reliability Pricing Model, which was intended to incent power suppliers to build new generating capacity. The rule has proved particularly costly to New Jersey ratepayers, adding more than $1 billion a year to their energy costs.

Despite its claimed intention, the RPM, as it known, has not fostered the development of new generating capacity in the areas where it is needed, the state agency contended. Moreover, even with RPM, the PJM continues to rely on other regulations to keep old, inefficient plants ready to run when needed, under a policy dubbed Reliability Must Run (RMR), the brief noted.

Here’s why. Over the next two years, consumers in New Jersey could end up forking over $29 million in additional costs under RMR to keep an aging power plant in Hudson County in service. PSEG Power would receive $160 million in 2012, and another $280 million in the following year under RMR contracts, although the plant runs infrequently.

“Yet, even with RPM in place, PJM still requires RMR contracts for inefficient, old, and expensive generating units to continue to stand ready to perform in order to maintain system reliability,” according to the filing.

Noting delays in a planned transmission project that would have built a new high-voltage power line from the Pennsylvania border to Roseland, the brief predicted it could result in violations of reliability standards mandated by various organizations.

“Against a backdrop of looming violations, the state is concerned the commission’s determinations have effectively subjected New Jersey residents to brownouts and blackouts in the near future,” the state argued.

In concluding, the state suggests the decision by the federal agency bars New Jersey from protecting the health, safety and welfare of its citizens “at the expense of protecting the lucrative capacity markets for merchant generators under the guise of protecting PJM.”