Will Electricity Costs Climb Because of New Rule on Regional Power Grid?

Tom Johnson | June 19, 2015 | Energy & Environment
BPU worries that federal agency’s attempts to bolster system’s reliability will end up forcing consumers to pay more

Credit: Governor's Office/Tim Larsen
Richard Mroz, president of the state's Board of Public Utilities
New Jersey officials are still upset over a new federal rule intended to promote greater reliability of the region’s power grid, fearing it could spike electricity prices for residents and businesses.

The proposal by PJM Interconnection, the operator of the nation’s largest power grid, won approval from the Federal Energy Regulatory Commission last week despite opposition from New Jersey and other states.

The new rule increases financial incentives for power generators to supply additional capacity to keep the lights on when customer demand is at a peak, but also imposes stiff penalties for units that do not provide the electricity they have committed to deliver.

“We are still very concerned about that proposal and its impact on consumers,’’ said New Jersey Board of Public Utilities President Richard Mroz. The BPU and state Division of Rate Counsel opposed the measure when it was being considered by FERC.

According to PJM, FERC’s approval of the proposal indicated that the federal agency recognized the need to ensure better generator performance and fuel assurance. The initiative was drawn up after an unusually cold snap in the winter of 2014 caused many suppliers to have problems getting their plants to run. On the coldest day of last year, 22 percent of the generation in PJM was unavailable to serve customers, threatening the reliability of the system.

FERC agreed in its order approving the proposal. “The commission finds that PJM has demonstrated the need for these reforms to ensure the reliability of the electricity supply in the region.’’

Mroz acknowledged the proposal will provide an opportunity for additional reliability as well as new investments in the state to provide increased generating capacity — a goal of the Christie administration in its Energy Master Plan.

[related]At what cost, however, troubles state officials here and in other states. They fear it will boost already high capacity prices, particularly in New Jersey, where congestion on the power grid tends to spike prices during times of peak demand, possibly forcing consumers to pay billions of dollars in additional energy costs.

Few dispute the reform will raise capacity prices, but David Doot, an energy and utility lawyer, said they may be offset by reduced energy costs — the price suppliers get for the power they produce — by encouraging development of new generation in the state.

“In theory, you will have more resources available,’’ Doot said, driving down prices because of competition.

PJM argued that the reform will enhance reliability at a reasonable cost. In proposing the new policy, PJM said the power mix in the region is changing rapidly, raising new challenges to guarantee reliability.

The dispute underscores increasing clashes between state authorities and actions taken by FERC and PJM that can boost costs to consumers. Since New Jersey deregulated the energy sector, it only oversees the cost of delivering gas and electricity to customers — a much smaller part of the bill than the cost of producing that energy.

In the past few years, the state has taken a much more active role in challenging decisions by both agencies, largely with few successes.