Study finds power rule could hike electric bills by $300M

NJ considers opting out of a regional network as source of backup electric power over a controversial pricing regulation
Credit: (AP Photo/Ed Reinke)
Electric power transmission lines

If regulators fail to reverse an order controlling how power prices are set, customers could see their utility bills spike by up to $300 million a year in New Jersey, according to a new study.

The analysis, prepared for the New Jersey Board of Public Utilities by the Brattle Group, an energy consultant, projects the economic impact of a much-criticized rule adopted by the PJM Interconnection, the nation’s largest power grid, and approved by the Federal Energy Regulatory Commission in December 2019.

The rule, known as the minimum offer price rule, has drawn widespread opposition from states like New Jersey, which argue it will lead to higher capacity prices for consumers and hinder policies aimed at transitioning to renewable energy sources, such as solar and wind power. The states currently buy the capacity power they need — the reserve power needed in times of peak customer demand — through annual auctions conducted by PJM.

By 2025, the Brattle study projected those capacity costs to New Jersey consumers could rise between $280 million and $300 million a year. Throughout the PJM, the rule, if unchanged, could impose $1.9 billion and $2.3 billion per year in excess costs to the 65 million customers served by the power grid, according to the study.

The issue is so controversial that New Jersey, Maryland and Illinois have initiated proceedings to explore alternative ways of buying capacity power, including possibly exiting the PJM capacity market and procuring those resources on their own.

In New Jersey, the Brattle analysis of the economic impact of various alternatives for exiting the PJM capacity market was detailed at a webinar Friday sponsored by BPU. Some options projected it could reduce ratepayer costs and accelerate the transition to clean energy, but others saw the risk of a contrary result if the move is not designed properly, according to the report.

Specter of Texas

On Tuesday, FERC held a technical conference essentially on the same issue, but largely focused on how to meet the agency’s goal of providing lease-cost electricity to customers while balancing the need to keep the power grids reliable — a new concern raised by the widespread and lengthy outages that occurred in Texas last month due to a rare, intense cold front.

“Texas brought a lot of attention to this from regular people,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel, a participant on the first panel during the day-long FERC event. “We need to act with urgency on this issue.’’

For the most part there was consensus, with some notable dissenters, that the minimum offer price rule ought to be either eliminated, or, at the very least reformed.

Even PJM’s President Manu Athana acknowledged that the rule needs reform, adding that, in its current state, it does not accommodate states’ policy goals. He also said PJM’s current policy is not sustainable.

Abraham Silverman, general counsel to the BPU, said the rule ought to go back to before the December 2019 proposal was revised by FERC. “It is unfair to tell states to choose between competitive markets and clean energy,’’ Silverman said.

Brand also urged PJM to do a better and more accurate job of projecting how much power load is needed when lining up backup resources for times of high demand. A recurring criticism of PJM is that it routinely procures excess power that ends up not being necessary, needlessly boosting costs to ratepayers.

The debate is critical to how the Murphy administration aims to achieve its twin goals of reducing carbon emissions by 80% of 2005 levels by 2050 and transitioning to 100% clean energy by that time.

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