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APPA, PPANJ urge New Jersey to pursue new generation, reform of PJM market

From the June 22, 2011 issue of Public Power Daily

Originally published June 22, 2011

New Jersey should "continue on its current course in the pursuit of longer-term contracting and greater state control of resources," APPA and the Public Power Association of New Jersey told the New Jersey Board of Public Utilities June 17. Along with its efforts to get up to 2,000 MW of new gas-fired generation built and lower prices in PJM’s capacity market, New Jersey should "maintain its active voice in current and future FERC and court proceedings to actively challenge FERC’s apparent assumption that PJM markets are working," they said.

The board should collaborate with other similarly situated public service commissions in Maryland and Delaware, for example, to present a coordinated chorus of concerned regulators to the Federal Energy Regulatory Commission demanding change, APPA and PPANJ said in comments filed with the BPU in its investigation of the competitiveness of the state’s power market and impediments to new generation. The two associations participated in a June 17 BPU hearing on the investigation.

Representatives of the BPU should begin attending PJM stakeholder meetings "for the purpose of making your views known before the votes are cast," APPA and PPANJ said. Since this is an issue of national as well as regional concern, the state should communicate its continuing concerns with the adverse impact of PJM’s markets on the citizens of New Jersey directly to state and federal policy makers and legislators, the associations recommended.

"Based on our experience with these issues since APPA initiated its [Electric Market Reform Initiative] five years ago, it will take such a concerted effort to effect positive changes regarding RTO market issues," APPA and PPANJ said.

The steps that New Jersey has taken through its "Long-Term Capacity Agreement Pilot Program" mirror the recommendations for more long-term contracting made by APPA in its Competitive Market Plan. "We therefore commend both the state legislature and BPU for taking these steps," APPA and PPANJ said.

Basic data on the capacity auctions under PJM’s "reliability pricing model" market to date demonstrate the ineffectiveness of the market in developing new resources where they are most needed, APPA and PPANJ told the board. The $49 billion spent in the auctions is equal to an average of $11 million per MW of net new generation (including payments for demand response and existing generation, significantly lower-cost resources), they said. That contrasts to about $770,000 per MW under New Jersey’s Long-Term Capacity Agreement Pilot Program to develop just under 2,000 MW of new gas-fired capacity. The Energy Information Administration’s capital cost estimates for new natural gas plants range from $665,000 to $1 million per MW.

APPA and PPANJ said a new study by Synapse Energy Economics (see story, this issue) found that almost none of the new resources under PJM’s reliability pricing model (RPM) have been in capacity-constrained areas. That finding lead Synapse to conclude that "it is hard to support the assertion that RPM has been effective overall at bringing on new capacity, and it is clearly not the case that locational price signals have been effective at relieving locational shortfalls," APPA and PPANJ said.

Financial institutions have said that long-term contracts are critical for obtaining financing for new generation projects, APPA and PPANJ said. In a filing with the Maryland Public Service Commission, Competitive Power Ventures attached letters to that effect from the Bank of Tokyo-Mitsubishi and UnionBank. UnionBank said "the prevailing market dynamic in PJM alone, without the ability to secure long-term off-take contracts, is not supportive of project-based financing," APPA and PPANJ said.

Another barrier to the development of new capacity is that regional transmission organizations' current transmission planning processes lack a clear linkage between utilities’ long-term resource commitments and long-term transmission availability, the associations said.


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