Letter from grid operator to MD Public Service Commission aims to clear up ‘several misunderstandings’

By: Tom Johnson |

It is becoming more likely that the effort of states like New Jersey to promote new power plants will be played out on two fronts — in the courts and in regulations being developed by the operator of the nation’s largest electric grid.

In a letter to the Maryland Public Service Commission, Terry Boston, the chief executive officer of PJM Interconnection, tried to assure the agency that there is no predetermined outcome in a proceeding that governs when new power plants receive payments to provide the reserve electricity needed to keep the lights on.

The letter sent this past Friday aims to clear up “several misunderstandings’’ about a new proposal being pushed by power suppliers, transmission owners, electric distribution companies, and end-use customers, according to Boston, who is also president of PJM.

Boston’s reassurance came after Maryland officials and New Jersey Division of Rate Counsel Director Stefanie Brand angrily reacted to the emerging proposal, which they view as making it tougher for states to subsidize new power plants as a way of lowering costs to consumers and increasing reliability of the grid.

The issue has grown increasingly contentious as power prices have climbed in the region, in part due to the high cost of maintaining adequate reserves to keep the system reliable.

In an attempt to deal with this problem, New Jersey has awarded two power plants controversial ratepayer subsidies to incent construction of new generation, a move widely criticized by the energy industry, which is challenging the effort in federal court.

In the past few weeks, PJM and it’s allies have mounted an effort to change very technical regulations dealing with how power plants are selected to provide reserve capacity in the region.

Both New Jersey and Maryland officials worry that the developing rule proposal could artificially inflate the price of state-sponsored projects, a step that would ensure that no new plants will be built. They also object to being excluded from discussions that led to the rule, but Boston said such talks are not uncommon.

“Neither PJM nor the Independent Market Monitor initiated the proposal, although both have come to believe it presents a reasonable solution to longstanding problems,’’ wrote Boston. The Independent Market Monitor is not part of PJM, but its role is to ensure that markets are competitive within the region served by the grid operator.

“The development of proposals by ad-hoc groups is not uncommon and is a valuable problem-solving technique in the PJM stakeholder process,’’ Boston wrote Douglas Nazarian, chairman of the Maryland Public Service Commission. “The formal PJM stakeholder process to consider proposed . . . revisions has just begun and the outcome is not predetermined.’’

At the same time, the court challenge by power suppliers and others to New Jersey’s pilot program to subsidize new power plant construction is unlikely to be settled soon. A federal judge earlier this fall rejected motions by various parties in the case to either declare the law invalid or dismiss the court challenge to the law.

The new rule being developed by PJM, however, would not affect the two New Jersey power plants, which have been awarded ratepayers’ subsidies. One of the plants is in Newark and the other in Old Bridge.