NJ Customers Can Expect to Pay More as Power Prices Spike in Capacity Auction

PSEG Power’s decision to retire two coal-burning plants contributes to steep increase, along with continuing problems of congestion on the grid

natural gas power plant
After months of mostly good news about energy costs, the price consumers will pay to power their homes and businesses is shooting upward once again.

Electricity prices spiked higher in an obscure auction this week that helps determine what customers pay on their monthly bills, a sign of the continuing volatility of the competitive energy marketplace.

The auction, conducted by PJM Interconnection, the operator of the nation’s largest power grid, locks up power supplies the region will require in the future, but this year the prices for customers in New Jersey increased dramatically, a year after they fell sharply.

PJM conducts the auction to ensure there is enough power to meet demand for the 65 million people it serves. In doing so, it purchases so-called capacity, reserve power to call on from electricity suppliers to provide to customers. PJM secures supplies three years in advance to ensure reliable capacity.

Capacity and controversy

Its current system of procuring power is not without controversy, since utility regulators, including those in New Jersey, feared it would increase costs to customers, a concern that eased last year when capacity prices dropped precipitously.

That trend reversed this year — at least for consumers in New Jersey and in Illinois.

For New Jersey and parts of neighboring states, the prices generators will be paid beginning in June 2020 will be $187.87 per megawatt-day, up from last year’s auction price of $119.77.  That is the price for capacity customer of all four electric utilities in New Jersey will pay: Public Service Electric & Gas, Jersey Central Power & Light, Atlantic City Electric, and Rockland Electric.

For the entire PJM region, the capacity price only averaged $76.53 per megawatt-day. PJM executives blamed the higher prices in some areas due to transmission constraints and retiring power plants.

In New Jersey, PSEG Power, the big energy company, is retiring two of its old coal plants next week, which apparently offset the entrance of five new natural-gas units that will be operating by the year 2020.

Nuclear incentives?

The results of the auction may have bigger implications for PSEG, which also operates three huge nuclear units in South Jersey.  The company is pushing policymakers for financial incentives — subsidies likely to be borne by ratepayers — to help the plants remain economically viable.

With cheap natural gas depressing power prices, some nuclear units around the country have had to close because they cannot compete in the marketplace. PSEG said its plants are profitable now, but might not be in the near future.

That argument might be harder to make given the outcome of this week’s auction, say foes of the concept. “If these plants are profitable now, I would assume they would be more so in the future,’’ said Steven Goldenberg, an energy lawyer and a frequent critic of PSEG.

At this point, however, it is uncertain whether PSEG bid the nuclear units into the auction and cleared, a signal they will receive the capacity payments. PJM does not disclose what units receive capacity payments. PSEG declined comment until this morning.

Capacity accounts for about 15 percent of the cost of generating electricity on a customer’s bill. Because New Jersey’s power grid suffers from congestion, which tends to spike power prices, it has been a recurring cause of concern among state regulators and consumer advocates.

Overall, PJM was satisfied with the auction’s results, in which it procured 165,109 megawatts of resources for the year beginning June 1, 2020.

“The results show that PJM markets continue to achieve what they were originally intended to accomplish, ensuring reliability at the lowest reasonable cost,’’ said Andrew Ott, PJM president and CEO.

The auction drew 2,359 megawatts of new gas-fired generation, about half of which it had attracted in the past couple of years.