New Power Plant Faces $15 Million Interconnection Fee to Get on Regional Grid

Tom Johnson | June 12, 2012 | Energy & Environment
LS Power appeals to federal agency to have charges set aside to no avail, earlier ruling upheld

LS Power will have to cough up more than $15 million to connect its new natural gas-fired power plant in West Deptford with the transmission grid.

The Federal Energy Regulatory Commission last week denied a motion to rehear its prior decision approving the mandated transmission upgrades, a ruling that underscores how difficult it is to build new power plants in the region.

Interconnection costs associated with tying new generating units into the transmission grid have emerged as a major policy dispute between officials in New Jersey and the operator of the regional power grid, the PJM Interconnection, as well as the federal agency.

With consumers and businesses facing steep energy bills, the Christie administration has pushed to develop new power plants to drive down the cost of electricity. The interconnection process, however, is too lengthy and too costly to allow new units to be developed, according to some industry officials.

In its decision, the federal agency upheld its earlier ruling that the West Deptford facility must pay $10.7 million in network upgrades and another $4.4 million in attachment costs, according to an order filed by FERC. The upgrades are necessary to ensure the reliability of the power grid, especially when adding new capacity to the system.

LS Power is building a 738-megawatt power plant, one of a trio of new generating facilities, which cleared an auction held by PJM in May that guarantees it will receive payments beginning in 2015 to provide capacity for the region. Payments for capacity ensure there will be enough electricity to keep the lights on, but also make projects economically viable that otherwise might not be so.

Unlike the other two plants, however, the Competitive Power Venture project in Woodbridge and Hess Corp.’s facility in Newark, LS Power is not guaranteed subsidies from ratepayers to make its projects viable. According to some estimates, those costs could baloon to as much as $2 billion over the 15 years of the guaranteed payments.

State officials say payments made by ratepayers will be more than offset by a reduction in both capacity payments and energy costs that businesses and homeowners pay.

It is unclear what impact, if any, the ruling by the federal agency will have on the project, which is already under construction. LS Power did not respond to messages seeking comment on the decision.

In filings with the federal agency, LS Power argued it should not be responsible for the upgrades because PJM changed its interconnection tariff after it had filed its application to build the new power plant, an argument rejected by the federal agency.

The New Jersey Board of Public Utilities also has been highly critical of the interconnection process. In a report issued last year by the agency’s staff, it said the process takes too long, costs too much, and results in few new power plants being built — all to the benefit of incumbent generators.

For example, when a project to build new capacity enters the PJM interconnection queue, the average time it takes to get through the process is 812 days, a time span that results in most of the projects never getting built, according to the report.