Grid Reliability Will Cost Customers a Few Dollars More Per Month, PJM Claims

Tom Johnson | July 15, 2015 | Energy & Environment
New regulation, intended to keep lights on when demand for electricity peaks, will increase payments to power generators

PSEG's Bridgeport Harbor generating station in Bridgeport, CT.
A new rule to enhance the reliability of the power grid at times of peak demand will cost most customers a few dollars more a month on their electric bills, according to an executive of PJM Interconnection.

The regulation is aimed at ensuring that power generators provide enough capacity to keep the lights on when demand for electricity is the highest. Approved by the Federal Energy Regulatory Commission in June, the rule will increase payments to power plants for providing needed capacity.

PJM, the operator of the nation’s largest power grid, proposed the rule after an unusually frigid cold snap in January 2014 strained efforts to provide the electricity demanded by customers. The rule also provides stiff penalties for units that do not provide the electricity they committed to deliver.

New Jersey’s Board of Public Utilities and the state Division of Rate Counsel opposed the proposal when it was being considered by FERC, fearing it could lead to an increase in energy bills for residents and businesses.

The rule will get its first test later this month when PJM holds one of three auctions to procure capacity to ensure reliability of the power grid. The so-called capacity payments have become a controversial issue in recent years as they have become a bigger part of an energy bill.

Stu Bresler, a senior vice president for market services at PJM, said yesterday the new capacity performance standards require modest additional (capacity) payments up front to guarantee generators can provide the power when needed.

“For the first time, generators’ revenue is determined by how they perform during emergency conditions when the power is most needed, according to Bresler. If they do not, they could lose capacity payments for the entire year, he said.

[related]PJM has argued the increased capacity payments could be offset by averting spikes in energy prices — still the largest part of an electric bill — caused by high demand. It also said the additional capacity payments will encourage generators to invest in their units to ensure their reliability.

Still, there remain questions about how the new rule will impact customers. For example, FERC Chairman Norman Bay was the only one of three commissioners to vote against the proposal. He said he did not believe it would result in just and reasonable rates.

“It may result in billions in additional costs for consumers without achieving its intended aim,’’ Bay said in his dissent. “In short, PJM has provided little certainty for what may be a lot of cash.’’

Paul Patterson, an energy analyst for Glenrock Associates, said the sector is focused on the issue. “It is expected to raise prices for generators. The question is how much,’’ he said.