Countdown to May: Energy officials say coming bid to provide energy is key date in PSEG subsidy request

By Anjalee Khemlani
New Jersey | Feb 21, 2018 at 10:03 am

As lawmakers have become better versed in the deregulated energy market, proponents of a nuclear bailout bill, along with government officials, are confident the measure will pass and be signed by Gov. Phil Murphy.

Talks with industry officials, however, show that two competing timelines exist for its passing.

The first is for Public Service Enterprise Group, which is counting down to May, when it has the next opportunity to bid on providing nuclear energy to regional electrical grid operator PJM Interconnection, for 2021-2022.

The second is for the bill’s opponents, including PSEG’s competitors and advocacy groups, which believe a study of the energy situation in New Jersey should be completed before patchwork legislation is pushed through.

If the bill is stalled, PSEG has threatened to close three nuclear units in Salem County.

Exelon, which is a minority owner of two of the three units and is already shutting down its own Oyster Creek plant in Ocean County, has said that if the May bid is missed, the plants would shut down.

If the bill passes, competitors said, they will be adversely affected.

“Any time you see a unit go out, generally, it’s because it’s too expensive,” PJM Interconnection CEO Andrew Ott told ROI-NJ.

PJM is the regional electrical grid operator for New Jersey and a dozen other states. PJM has testified in Trenton that the loss of the Salem plants will not leave the operator scrambling to replace energy.

“Nobody knows what the future holds; that certainly is possible that it could cause the prices to increase over time,” Ott said. “You won’t see an instantaneous price increase.

“Obviously, the prevailing price of electricity is lower with that plant. In the case of nuclear, if the plants go out, we will be more dependent on gas. If something happens in the future … will we be more vulnerable? That’s a legitimate question.”

Some opponents of the bill are concerned that allowing the mix of energy to lean heavily on cheaper and more abundant natural gas — which is also costlier to produce and will increase carbon emissions — puts the whole system at risk in the face of an adverse event.

But if the state wants to address the issue of keeping a diverse mix of energy sources, it should be addressing the whole system, not buoying one company, Ott said.

“The issue (is what happens) if a competitive state decides that it wants to not depend on competition anymore, and it wants to have direct payments to resources,” Ott said.

“We have other states which have integrated resource plans, and the state decides the resource mix. Either one works. It’s when a state tries to have both, it brings a challenge. If a state wants to make a decision about supply mix, it should do it for the whole system. Because those who are investing will say, ‘Wait a second, you’re changing rules.’”

David Gaier, a spokesman for NRG in Princeton, said these bailouts and handouts distort, and are threatening to “destroy” the established power markets.

“They usurp the authority of the (Federal Energy Regulatory Commission) to regulate the wholesale interstate power market,” Gaier said. “They and they alone are responsible of administering the interstate wholesale power markets. Their charge is to ensure just and reasonable electricity prices.”

Gaier’s comments mirror statements from existing lawsuits in New York and Illinois, where similar subsidy bills have been passed and courts sided with the states’ decisions to provide subsidies.

NRG is a plaintiff in the cases, which affect nuclear plants owned by Exelon, which has a 43 percent stake in the PSEG Salem plant.

NRG also participates in the energy market. Gaier said the bill would increase the cost for New Jerseyans alone, even though PJM operates in 13 states and the cost should be “socialized” over the system.

“An electron is an electron,” he said. “An electron might be generated in a plant outside Washington, D.C., but consumed by a home in New Jersey. There is no way of knowing where it came from.”

Regardless of what happens, Ott said, PJM’s job is to operate within the rules of each state.

But that doesn’t mean it is ignoring the issue.

PJM realizes there is a problem with the market. It has a program in place that can determine the viability of energy plants, if a supplier is claiming insolvency, and can cushion the impact on the system by financially assisting in the shutdown — by spreading the cost across the system.

(READ MORE from ROI-NJ on PSEG’s subsidy request, and the fallout.)

PJM and PSEG have had discussions in the past, according to a source not authorized to speak on the subject.

PSEG CEO Ralph Izzo has said the bill in New Jersey already accounts for any additional aid or subsidies, which would reduce the burden on the state.

In addition, recognizing that the current market favors natural gas and coal, to the detriment of nuclear, and renewables are still heavily subsidized, PJM has already been lobbying for a new, fairer way of buying energy.

In a letter dated Jan. 16, Ott supported the concerns of opponents claiming market meddling by states.

“Today’s high reserve margins appear, at least in part, to result from legacy generation receiving, but ignoring an unmistakable market signal to retire,” the letter said. “Subsidies will further mask prices that would otherwise signal resources to exit and bring reserve margins into equilibrium.”

In fact, PJM put together a proposal in November 2017 to address the issue, which recently got support from a former FERC commissioner.

“There is broad support for fixing this problem,” former FERC Commissioner Marc Spitzer wrote in an article on Utility Dive.

“The Department of Energy cites this as the lead policy recommendation of its grid reliability study. Similar solutions have already been implemented in electricity markets in New England and the Midwest.”

Anjalee Khemlani | akhemlani@roi-nj.com | AnjKhem