BPU’s Lee Solomon Blasts Federal Agency

Tom Johnson | July 15, 2011 | Energy & Environment
Frustration with FERC apparent as BPU president condemns regulatory structure as "unjust, inequitable, and outrageous."

In an unusually harsh condemnation, Board of Public Utilities (BPU) President Lee Solomon yesterday described the regulatory structure governing how power plants are developed as “unjust, inequitable, and outrageous.”

Solomon’s comments came as the agency was debating a motion to intervene in a case before the Federal Energy Regulatory Commission (FERC) in which a power plant owned by PSEG Power in Hudson County would receive $59 million in ratepayer money to cover improvements so it could remain available to run if needed to maintain the reliability of the regional power grid.

The case involving a Reliability Must Run (RMR) contract in which power plants receive special payments from ratepayers to prevent the retirement of what regulatory authorities view as generation necessary to keep the lights on. The Hudson contract has become a particular bone of contention between the state and FERC and the PJM Interconnection, which operates the regional power grid.

The latter two agencies have been instrumental in adopting new rules that could scuttle New Jersey’s efforts to build three new natural-gas fired power plants in the state with ratepayers’ subsidies. If the plants are built, state officials say subsidies would be more than offset by a drop in overall energy prices.

Noting that customers in New Jersey pay more than $1 billion each year in added capacity costs under a system supposed to incent developers to build new power plants, Solomon said the state’s efforts to get ratepayers out of that obligation is being thwarted by FERC.

“I think it’s unjust, unconscionable and probably a constitutional violation, but by the time it gets to the Supreme Court, the lights will be out or we’ll all be broke,” said Solomon. His comments were particularly inflammatory when judged against previous and less judgmental observations he has made.

The state’s proposed pilot program also is being challenged in court by power suppliers who fear the development of subsidized power generation would artificially depress energy prices in the region.

Repeated Criticism

Reliability Must Run contracts have come under repeated criticism in recent weeks from both Solomon and Stefanie Brand, director of the New Jersey Division of Rate Counsel, which represents the interests of ratepayers in the state. Even the federal agency recognizes the contracts are an inefficient and costly means of ensuring there is enough generation available to maintain grid reliability, Solomon said yesterday.

Rate Counsel questioned the need for Hudson to ensure reliability and notes the irony of the PJM ordering ratepayer subsidies to keep in service an “obsolete” plant while opposing efforts to build new, more efficient plants with ratepayer subsidies.

The Hudson plant ran 25 days in 2010, according to Michael Jennings, a spokesman for PSEG Power, which owns the facility. Last year, the plant received approximately $9 million in RMR payments, according to Raymond DePillo, vice president of power operations and asset management for PSEG Resources, an affiliate of PSEG Power. The company receives a 12 percent return on carrying costs for the money it invests in the upgrades, according to PSEG officials.

Nonetheless, the company, in a filing it made with PJM this past Monday, said it would prefer to close down the unit “as soon as possible,” a stance it has held for the past several years. “If PJM can identify other areas to reliably operate the affected portions of its system, the PSEG Companies will move forward with the retirement of the unit,” the filing said.

A Huge Failure

The state agency earlier this summer launched a proceeding to look at a host of issues surrounding high energy costs in New Jersey, including why few new power plants have been built here since the state deregulated the energy sector. The proceeding also is examining costs associated with the Reliability Pricing Model (RPM), a system designed to spur new generation that has been a huge failure, at least according to the state’s perspective.

In the proceeding, power suppliers and PJM officials argued the system is working as designed, maintaining reliability on the grid while delivering the lowest-cost electricity to most consumers. They acknowledged prices are steeper in northern New Jersey but argued they will fall when new transmission projects are completed, particularly the Susquehanna-Roseland project, which runs from the Delaware Water Gap to Roseland in Essex County.