Battle Lines Being Drawn Over NJ’s Response to Federal Ruling on Energy Market

Utilities, environmental groups support one approach; Rate Counsel director Stefanie Brand among skeptics, says costs to customers could increase significantly
Credit: (AP Photo/Charlie Riedel)
High-voltage electric transmission lines

New Jersey’s aggressive clean-energy goals could be undermined by a decision by a federal agency, but a way to get around that ruling may be riskier and more expensive for utility customers, according to power companies and consumer advocates.

In what is shaping up to be a huge fight, the New Jersey Board of Public Utilities received a range of responses to how the state should address a controversial ruling by the Federal Energy Regulatory Commission last December. The ruling is forcing states to craft significant changes in energy policies, or face big obstacles in promoting renewable technologies like offshore wind.

The issue is the latest in a long string of disputes between New Jersey and the federal agency, but this might be the most consequential because it could fundamentally change how the state goes about buying electricity for homes and businesses in what one commenter described as a “seismic shift’’ in energy policies.

In this instance, the state is weighing how to respond to a FERC ruling to correct what some view as a growing problem in the capacity market — where PJM, the regional grid operator, secures the necessary commitments to ensure there is enough power to keep the lights on. Backers of the FERC rule say state subsidies for nuclear and renewable energy incentives distort competition in the market. For conventional energy suppliers, it has resulted in lower prices for capacity payments.

In its ruling, the federal agency identified a series of ways that it could fix those problems; what seems to attract the most consideration in New Jersey is a proposal to allow states, or utilities, to obtain power from specific resources, such as offshore wind, solar, or nuclear and obtain the rest from other generation sources in the PJM grid.

Strong backing from PSEG, Exelon

The solution from FERC, dubbed Fixed Resource Requirement (FRR), won backing from most of the state’s electric utilities, as well as the Sierra Club and Natural Resources Defense Council. Public Service Enterprise Group and Exelon Generating Company LLC, in a joint filing were the strongest backers of such a solution.

In their filing, PSEG and Exelon argued that without such a framework, consumers would end up paying higher prices under the new rule. In their view, the best approach allows states to exert greater control over how their utilIities meet resource adequacy requirements, the companies said.

The filing said the proposal would save consumers money by not oversupplying capacity to maintain reliability in the system. In the last capacity auction, PJM secured a reserve of 21% when 15-16% is all that is required for reliability under an FRR option, the companies said.

The two environmental groups agreed, saying the so-called FRR option allows New Jersey a greater degree of control over its resource mix — a necessity given the climate crisis and other burdens the state faces. One of the biggest criticisms of the FERC order from environmentalists is that it will increase the use of fossil fuels instead of cleaner resources like solar and wind.

Many other commenters, however, cautioned the state to be wary of choosing the FRR alternative, warning it could lead to big increases in costs for consumers, citing a study by PJM’s Independent Market Monitor (IMM) that should such an option be chosen, it could increase costs to customers anywhere from $32 million to $386 million.

Stefanie Brand: ‘No competition’

New Jersey Division of Rate Counsel director Stefanie Brand said a 29% increase ($386 million) might be low, according to the IMM. “If we allow this level of market power, these increases will be just the beginning. There will be no competition,’’ Brand said.

Steven Goldenberg, a lawyer representing a coalition of large energy users, also discouraged adoption of an FRR. “FRR is all about market power,’’ he said, recalling the controversy over a proposal to merge PSEG and Exelon back in 2005. The merger was abandoned when the companies backed away from conditions set by the state to deal with those concerns.

“The state should entertain no doubt that the FRR would enable PSEG, which continues to maintain enormous market power within its zones, to leverage this power to extract extraordinary windfall profits from ratepayers,’’ Goldenberg said.

Instead of leaving the PJM market, several commenters urged the state to work with the regional grid to solve the problems caused by the FERC ruling.

“Exiting the market will increase costs, create new reliability challenges, reduce competition, and inhibit and not advance the achievement of New Jersey’s goals,’’ said the Electric Power Supply Association.

Evelyn Liebman, director of advocacy for AARP of New Jersey, echoed those concerns. “Leaving the PJM is a ‘treatment worse than the disease’ and is estimated to produce higher energy costs for consumers,’’ she said.