The operator of the nation’s largest power grid is being urged to delay adopting a controversial new proposal to improve reliability during winter peak periods, with critics saying it would impose billions of dollars of new costs on consumers.
In comments submitted to PJM Interconnection, a number of states, including New Jersey, as well as consumer advocates, among them the state Division of Rate Counsel, questioned whether the proposal is needed to maintain reliability of the power grid and argued it is far too costly.
When a polar vortex blanketed the region with subarctic cold last January, it strained the reliability of the power grid serving 50 million people from the Eastern Seaboard to Illinois. PJM has proposed a number of incentives and penalties to ensure power plants that commit to delivering the capacity to keep the lights on do just that — even in extreme cold temperatures, which hobbled a number of units last winter.
The issue is being played out in a relatively arcane proceeding before PJM and eventually the Federal Energy Regulatory Commission, but it has important implications for consumers and businesses in the region. According to one analysis, capacity prices could spike from $8.7 billion to as much as $15.1 billion over a four-year period.
“Imposing billions of dollars of unforeseen costs on the region deserves a far more thorough analysis,’’ said the Transition Coalition, a group that includes the New Jersey Board of Public Utilities.
In recommending the changes, PJM said it is seeking to incorporate stronger performance incentives and more operational capability and diversity during peak power periods.
For New Jersey, which has some of the highest energy costs in the nation, the outcome is important to reining in bills, a top priority of the Christie administration. New Jersey electric customers pay much higher bills to ensure there is enough capacity to provide power when needed than neighboring states.
A filing by the Consumer Coalition also argued that the proposal was too expensive. It will “adversely affect consumers by sharply increasing the cost of capacity with questionable additional reliability payments,’’ according to the filing. The New Jersey Division of Rate Counsel is a member of the coalition.
The coalition also said last winter’s frigid temperatures were not an indicator of a “new normal.’’
PJM yesterday, however, noted on Tuesday, that its system recorded a peak preliminary demand for power in November, which it attributed to colder temperatures throughout its service territory.
PJM said it has been taking steps to prepare for the winter season, including more testing of generating equipment beforehand, improving operating procedures, and increasing coordination with the gas pipeline industry.
The proposal also drew criticism from the Organization of PJM States, including New Jersey. It described the proposed solutions as “quite complex and could have substantial adverse pricing effects upon end-users.’’
But a coalition of power generators, with some qualifications, backed the most recent proposal advanced by PJM. They said it will improve system reliability and drive the energy sector to invest in electric and gas infrastructure,
Still, some criticize the proposed changes as yet another case in which power generators and others are lobbying for rules in what is supposed to be a free market to bolster their bottom lines.
The controversy over the changes in the capacity market is not surprising, according to Paul Patterson, an energy analyst with Glenrock Associates. “Almost any change is met with controversy and litigation,’’ he said.
Capacity payments have become a big factor in the energy sector in recent years, pumping up the profits of generators beyond just the electricity they produce.