Power Execs Press Electric Grid Operator for Help On Revenues

Tom Johnson | February 5, 2019 | Energy & Environment
Companies have been lobbying for reforms to raise what they say are depressed prices that threaten the viability of nuclear plants

Credit: Matthew Henry/Unsplash
Power Lines
The chief executive officers of three major energy companies are pressing the regional grid operator to move much faster on a slew of reforms that would boost revenues from their power plants, a move opponents say could increase prices to consumers.

In a letter to the PJM Board of Managers last week, the executives expressed concern about the slow pace of progress in deciding significant changes in how energy prices are established within the nation’s largest power grid.

The latest installment in the decade-old discussion is occurring as two of the companies — Public Service Enterprise Group and Exelon — are seeking approval for hundreds of millions of dollars in ratepayer subsidies to support three nuclear power plants from the New Jersey Board of Public Utilities in a separate proceeding.

The letter highlights the intense lobbying by the energy sector in seeking to raise what have been depressed power prices that the industry says have threatened the economic viability of coal and nuclear power plants.

The issue led Gov. Phil Murphy last spring to sign a controversial new law creating potential ratepayer subsidies for PSEG and Exelon, which owns a share in two of the three nuclear units in South Jersey. Both companies are hoping to share $300 million in annual subsidies if the BPU approves the financial incentives, based on a finding that the plants will close without them.

Ralph Izzo, chairman, CEO, and president of PSEG, has long argued prices paid to the company’s nuclear plants do not adequately reflect the benefits they provide to the power grid, particularly in terms of fuel diversity, resiliency and a source of carbon-free electricity.

Execs: Grid need to act ‘swiftly and decisively’

PJM operates the power grid stretching from the Eastern Seaboard to Illinois. With a steep drop in energy prices, many coal and a half-dozen nuclear power plants have shut down, leading energy companies to pressure PJM to take steps to increase revenue to make sure there is enough electricity to meet power demands.

While praising some steps the PJM has taken to improve energy prices, the energy executives said they only “provide modest incremental change, but fall short of the fundamental changes that are needed to support baseload electric generator units over the long-term.’’ Besides Izzo, the letter was signed by Exelon’s CEO Christopher Crane and Charles Jones, the CEO of FirstEnergy, the parent company of Jersey Central Power & Light.

The executives said it is imperative the PJM board act “swiftly and decisively’’ on price formation reforms so that these fundamental issues can be addressed within the PJM markets. The PJM may act on a pending proposal to change its pricing regime at its next meeting on February 12.

That proposal, however, has met with opposition from various stakeholders, including the Organization of PJM States Inc. (OPSI), a group representing state utility commissioners, including New Jersey’s BPU.

In a separate letter to PJM late last month, the organization noted the proposed changes will increase costs to ratepayers. “PJM has not shown increases at these levels to be necessary or that they will be implemented in a manner that will maintain just and reasonable rates.’’

The issue of potential increases in energy prices as a result of actions taken by PJM were cited by the New Jersey Division of Rate Counsel in opposing subsidies sought by PSEG and Exelon in the case before BPU. “It is clear that energy market revenues will increase for energy generators,’’ the Rate Counsel said in a filing it submitted to the New Jersey agency.

PJM’s proposal could result in an increase in energy revenue of approximately $1.92 billion, according to PJM’s projections.

Under the New Jersey law, any increase in revenue as a result of action taken by PJM or the Federal Energy Regulatory Commission, will decrease any subsidy given to the nuclear units, should the BPU determine the plants would close without the incentives.