Federal Officials Delay Grid Operator’s Scheme to Beef Up Peak Power Capacity

Worry is that proposal to address reliability issues could cause prices to spike

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The federal government has temporarily put on hold a proposal by the operator of the nation’s largest power grid, a plan greeted with widespread criticism from state regulators in New Jersey and elsewhere, which they feared would lead to price spikes for consumers.

The proposal by PJM Interconnection is aimed at addressing reliability issues on the power grid to improve operational capability of suppliers during peak periods. In part, it was drawn up after an unusual cold snap in the winter of 2014 strained power supplies, a rare occurrence during that season.

But critics of the plan argued it could cost consumers billions of dollars by creating new incentives for power suppliers to deliver the necessary capacity to keep the lights on and imposing penalties if they fail to do so. The latter provision, opponents said, could lead to companies bidding up higher prices to reduce their potential risks.

The issue is important to New Jersey because state regulators have no control over the biggest part of residential and business electric bills — the cost of generating power — since the sector was deregulated in 1999. As a result, the state Board of Public Utilities and New Jersey Division of Rate Counsel have taken a much more active role in decisions by the Federal Energy Regulatory Commission and PJM in recent years.

In a letter issued by FERC late Tuesday, the agency determined the submittal by PJM is “deficient and additional information is required to process the filing.’’ It asked for a response from the grid operator within 30 days — a timeline almost certain to be met by PJM because the next scheduled auction to enhance reliability is set for May.

[related]In a statement from PJM, the grid operator said it will seek expedited review from the federal agency so that the auction can take place as scheduled. However, PJM said “we recognize that process may require a delay to conduct an orderly auction process.’’

Craig Cano, a spokesman for FERC, said he could not speculate whether a decision could be made in time for PJM to conduct the auction. He said the commission is merely seeking more information on PJM’s submittal. Asked whether the deficiency letter indicated the proposal is in trouble with FERC, Cano said no.

Consumers and state officials have long railed about the so-called capacity auction contributing to some of the nation’s highest electricity costs, in part due to congestion on the power grid in New Jersey. To ramp down those costs, the Christie administration and legislators have sought to address that problem by encouraging construction of new power plants in the state.

“It’s a proposal that has garnered an unusual amount of controversy,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York City. Part of the problem lies in the fact that there are constant changes in how the capacity auction operates, which creates uncertainty in the sector, he said.

“It’s a torturous process that seems to happen every year,’’ Patterson said.

For consumers, the proposal as drafted could be very expensive. According to one analysis, power prices to provide the needed capacity during peak periods could rise from $8.7 billion to as much as $15.1 billion over a four-year span.

A coalition of power generators, with some reservations, has backed the PJM proposal, saying it will improve reliability and drive the energy sector to invest in electric and gas infrastructure.