What’s the Cost for Power-Grid Reliability? $600 Million Over Next Few Years

Tom Johnson | September 17, 2015 | Energy & Environment
NJ consumers and businesses can expect to see higher electric bills as grid operator implements plan to make sure power is there when needed

power plant
Electricity prices could rise by $600 million for New Jersey consumers over the next few years to pay power-plant operators to provide enough juice to keep the lights on, according to state officials.

The increase, predicted by officials, energy analysts, and the operator of the regional power grid, results from a new system adopted by PJM Interconnection as a way to make the grid more reliable at times of peak demand and during extreme weather.

The changes reflect, in part, how little sway state regulatory officials have over how power prices are set, a trend that began in 1999 when New Jersey deregulated its electric sector and let market conditions determine the cost of electricity.

In this case, however, PJM — wanting to ensure the reliability of the power grid — proposed a new way of determining a growing component of energy prices, the capacity needed to meet the demand for electricity. It now accounts for roughly 15 percent of an electric bill, according to New Jersey Board of Public Utilities President Richard Mroz.

The state does regulate the price of delivering power to customers but that is far less than the cost of the energy.

The BPU, the state Rate Counsel, and others objected to the new formula used to determine capacity prices, fearing it would boost electric bills to consumers and businesses. The system was employed in a series of auctions this August by PJM and state officials’ fears were borne out — at least from their perspective.

‘’It will increase costs of electricity to the people of New Jersey,’’ Mroz said, adding the agency will continue to raise concerns with the grid operator and the Federal Energy Regulatory Commission, which approved the new system proposed by PJM. “It’s a complex issue,’’ he added.

[related]PJM said the new system creates financial incentives for power plants to ensure that the electricity they commit to providing will be there when it’s needed. It also penalizes facilities under contract to provide capacity that fail to deliver it when called upon. Both provisions will promote reliability of the power grid, according to PJM.

PJM officials predicted the new system would only modestly boost prices to consumers by a few dollars more a month on their electric bills.

With the added financial incentives, PJM also argued it would lead to new investment to make existing plants run more efficiently and to build new units to deliver additional capacity.

In the August auction, 2,900 megawatts of new generating capacity were acquired, according to the grid operator. That included a new 540-megawatt natura- gas plant PSEG Power is seeking to build in Seawaren, which is expected to be operational in the summer of 2018.

Beyond providing capacity, the new generation also could reduce congestion on the power grid — a factor that increases power prices, particularly in New Jersey.