PJM Red Lights Transmission Project Involving PSE&G, Other Developers

Operator of regional power grid suspends work until it can review cost overruns, explore alternatives

transmission tower high-speed transmission line
The regional operator of the electric power grid last week unexpectedly suspended a transmission project partly being developed by Public Service Electric & Gas at the Artificial Island nuclear power plants in South Jersey.

PJM Interconnection said costs surrounding the project, intended to bolster reliability, had increased significantly. It is undertaking a review of alternatives to offset some of those expenses.

The project has been surrounded by controversy over how costs would be allocated among ratepayers in New Jersey and surrounding states, particularly Delaware.

“Because of these concerns, PJM has come to the conclusion that a pause in the project is necessary before any new financial obligations are incurred by the project developers,’’ the PJM said in a letter dated Friday to its members and stakeholders.

The initiative has been closely scrutinized by the industry and energy sectors because it is the first transmission upgrade in PJM’s territory — the largest in the nation — to be competitively bid out, instead of ordering the incumbent utility (in this case, Atlantic City Electric) to do the work.

For electric utilities, transmission projects have become increasingly lucrative in recent years. With the nation’s grid aging, regulators are urging upgrades to the system to make it more resilient and reliable. The added incentive is that transmission projects earn a bigger return for companies than more localized upgrades to the utility’s distribution system.

PSE&G is one of the three developers of the proposal, which it initially projected would cost $280 million to $320 million. The Newark utility was originally going to build the project, but after questions were raised, two other developers were brought in, partly because their routes were deemed more environmentally sensitive.

The work assigned to PSE&G under the latest iteration of the project involved upgrading a substation at its Salem nuclear units and installing other equipment at an estimated investment of between $100 million and $130 million, according to the company.

In a statement, PSEG said it just learned of the decision. “We are committed to working with PJM with any information and support they request,’’ the statement said.

In announcing the suspension, PJM said a review of the project is expected to be completed by February 2017.

“The board is concerned about the project’s estimated costs and changing scope in light of new estimates and technical information it has received,’’ said Andrew Ott, president and CEO of PJM. “We need a firmer understanding of the changes that have occurred since the project was initially approved to ensure that we have the best path forward.’’

In 2015, the PJM board approved a proposal to build a 230-kilovolt transmission line under the Delaware River, bringing power to Delaware. It designated LS Power to build the line and PSE&G and Pepco Holdings Inc. for the other portions of the project.

Because of the complexities of design at two substations, PSE&G’s construction estimates were higher than initial estimates prepared by PJM. Questions also have arisen about whether proposed system-protection-and-control upgrades would perform as intended.

The project has grown more controversial with reports that its cost has doubled. Delaware’s Public Advocate has argued that state’s ratepayers will pay more than 90 percent of the cost of the project although receiving only a fraction of its benefits.

Delaware also filed a complaint with the Federal Energy Regulatory Commission, asserting that the cost allocation for the project was unreasonable, a position the agency agreed with essentially in a preliminary decision.