A savvy shopper compares prices first before they buy.
That’s the approach New Jersey’s Board of Public Utilities (NJBPU) should use as it assesses the idea of leaving PJM Interconnection’s electricity capacity market in order to keep New Jersey on its course to a clean-energy future that creates good, local jobs.
NJBPU’s investigations are a reaction to a ruling by federal energy regulators that blocks offshore wind and other clean-energy resources supported by states from being compensated through PJM’s capacity market for the reliability they provide to the grid.
The feds’ new minimum offer price rule (MOPR) levies especially steep penalties on offshore wind, which is poised for big growth in New Jersey. Under the MOPR, PJM will effectively ignore offshore wind’s capacity contribution to regional grid reliability, and largely buy that capacity from existing coal and gas plants in the region instead. New Jersey residents and businesses would then have to pay for this unnecessary fossil fuel capacity.
To avoid this unwanted outcome from the MOPR, the NJBPU is considering leaving PJM’s capacity market and directly procuring capacity itself. That approach provides a promising avenue for the state to proceed on its pathway to a clean-energy grid, and it can be explored while protecting consumers, as well.
Here’s how: by looking at the actual capacity offers that the state would get outside the PJM market first before making any final moves.
NJBPU can do this by issuing its own request for bids from generators in the region to supply New Jersey’s capacity needs. If the prices offered are low enough to protect consumers, then the state can sign bilateral contracts for the power based on the bids and leave the PJM capacity market.
‘Show us the money’
This “show us the money” or “request for proposals (RFP) first” approach is one everyone should be able to support. It allows New Jersey to keep making headway on avoiding the new MOPR penalties on clean energy, while protecting customers from any financial surprises or unknowns.
It’s not surprising to see owners of fossil fuel plants lobbying hard now against New Jersey exiting the PJM capacity market. All experts agree that prices in the PJM capacity market are likely to fall if New Jersey were to leave, and coal and gas plant owners are worried those lower prices would reduce their profits.
Rather than seeking to shut down New Jersey’s efforts to protect its clean-energy goals and its electricity consumers, let’s hope that fossil fuel owners and PJM itself shift gears instead toward reforming the PJM capacity market into one that fully supports state clean-energy policies. PJM has the power to propose new market rules that, if supported by a broad range of PJM stakeholders, would likely be approved by federal regulators.
Serious reform of the PJM capacity market would be welcome, as New Jersey needs a regional market that will ensure reliable electric service and low costs by facilitating competition, instead of propping up polluters. The Murphy administration’s Energy Master Plan describes a least-cost mix of resources that would not only achieve 100% clean energy by 2050 but would also reduce the percent of state GDP spent on the energy system — and a reformed PJM capacity market could be an important tool for its success.
However, in the absence of serious PJM capacity market reform — and with the MOPR clean- energy penalties looming — the NJBPU is right to keep moving forward on exploring an exit strategy. As it does so, NJBPU should also ensure strong consumer protection by having generators submit capacity offers first before making any final decisions. It’s what any good shopper would do.