PSEG Power May Build New Unit at Seawaren Site

No firm decision yet, but company is seeking air pollution permit from NJ DEP

Faced with the loss of generating capacity due to more stringent air pollution rules, PSEG Power is considering building a 625-megawatt gas–fired power plant in Sewaren, according to company officials.

Although it says no final decision has been made to build the unit, the company is seeking an air pollution permit for the facility from the New Jersey Department of Environmental Protection (DEP) and is in the interconnection queue with PJM Interconnection, the operator of the regional power grid.

The decision to go ahead with the plant could be significant to the state and consumers, who pay some of the highest electric prices in the country. This is primarily because of congestion on the grid and high prices power suppliers earn to provide the necessary capacity to keep the lights on.

In response, the Christie administration has aggressively sought to develop power plants in the state, even agreeing to subsidize the construction of nearly 2,000 megawatts of new capacity. One megawatt is enough to power approximately 800 homes.

That pilot program, however, has run into fierce opposition from other power suppliers, PJM, and the Federal Energy Regulatory Commission (FERC), all of which have tried to undermine the New Jersey effort, either through court challenges or through regulatory changes.

Despite that opposition, however, LS Power broke ground earlier this year on a new natural-gas-fired plant in West Deptford Township in South Jersey, an event that some in the sector see as proof that a new power plant could be built without any subsidies, a view endorsed by PSEG Power.

Ralph Izzo, chairman and chief executive of Public Service Enterprise Group, told reporters Thursday after the company’s earning call that it is considering building a new unit at Sewaren.

PSEG Power has five generating units at Sewaren with a combined capacity of 558 megawatts, according to Michael Jennings, a spokesman for the company. All of the units are so-called High Energy Demand Day (HEDD) units, he added.

The units are generally older, peaking units, which will be unable to meet new pollution rules in 2015 and will have to be either retired or retrofitted to comply with the new standards. PSEG has 2,800 megawatts of HEDD units and is exploring how many will be retired and which will be retrofitted, Izzo said. At least half of those units probably are not worth the investment needed to them operating.

Those decisions are expected to be made shortly, because if the retrofits are made and the new plant is built, the company would want to bid the additional capacity into a May auction run by PJM to decide what plants will provide the reserve power needed three years from now.

Power plants are paid both for the energy they produce and the additional capacity necessary to meet peak electrical demand. Because natural gas prices are so low, new plants are hard to build and still make money, without receiving revenue from capacity pricing. At this juncture, there is a lot of uncertainty about where capacity prices will go.

“Even if we were to bid into it, we can’t predict the outcome of the May auction,’’ Jennings said.