Business conspiracies like the PJM cartel are hard to maintain. Economists will tell you that cartels are inherently unstable because eventually it becomes more profitable for one or more of the conspirators to be the first to break out of the cartel’s rules. You can always gain a competitive advantage if you are the first company to break out while other cartel members sit around thinking how smart they are for cooking up their conspiracy.
For months, those of us who have been following PJM’s Project Mountaineer have been puzzling at the strange behavior we have been seeing from Project Mountaineer conspirators.
First, Dominion Virginia Power proposed an alternative to PATH that would eliminate the need for any new power lines and would use the TrAIL line to do it.
Then, Project Mountaineer co-conspirator PSE&G, the New Jersey utility that wants to build the Susquehanna-Roseland line, published a report last week attacking the idea of building transmission lines to the east coast to transport coal fired power. I characterized this behavior as “schizophrenic” at the time.
Now, everything becomes clear with the announcement of the offshore backbone transmission project. From — Virginia to New Jersey.
Bingo. While AEP/Allegheny were tied up with their goofy “reliability” scam and trying to get their PATH project through state regulators and the federal EIS process, PSE&G and Dominion were, no doubt, quietly working with the offshore backbone investors to create a straight shot to the New York/New Jersey markets. Project Mountaineer without the headaches, at sea level.
Everything became clear when I read a blog post by a nuclear power guy, Ron Adams. (Yes, I took it with a considerable grain of salt.) Here is his perspective on the deal, based on FERC Chairman Wellinghoff’s comments on the offshore backbone project:
The project backers describe their goal as enabling off-shore wind projects because the cable will serve as a gathering point that will allow easier connections for projects located in areas more than 3 miles off shore. The cable will run 15-20 mile off shore in a shallow trench. Having the cable already installed will ostensibly allow projects to connect up to that cable and then come on shore at just four identified sites in southern Virginia, Delaware, southern New Jersey and northern New Jersey.
The project is getting enthusiastic responses from Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission and Melinda Pierce, the deputy director for national campaigns for the Sierra Club.
Here are the paragraphs that caught my attention:
Yet even before any wind farms were built, the cable would channel existing supplies of electricity from southern Virginia, where it is cheap, to northern New Jersey, where it is costly, bypassing one of the most congested parts of the North American electric grid while lowering energy costs for northern customers. [emphasis mine]
Generating electricity from offshore wind is far more expensive than relying on coal, natural gas or even onshore wind. But energy experts anticipate a growing demand for the offshore turbines to meet state requirements for greater reliance on local renewable energy as a clean alternative to fossil fuels.
That immediately made me remember a conversation that I had with a Dominion Resources executive in the early 1990s while we were sailing off the coast of Delaware as volunteers for the Naval Academy command seamanship training squadron. We happened to be drifting along in the early evening without much to do. Dinner was over, the dishes were washed and the sea was almost calm enough for water skiing. Ron was describing his company’s efforts to push electricity deregulation in Virginia. Dominion Resources wanted to be able to access the far more lucrative electricity markets in the PJM (Pennsylvania, New Jersey and Maryland) area.
At the time, electricity in Virginia, which was still under cost-of-service regulation, sold for about 4-5 cents per kilowatt hour. Exactly the same quantity of the same physical product sold for 12 cents in New Jersey – just a few hundred miles away. Ron was bemoaning the fact that state regulators would not allow Virginia generated power to be exported to other markets. He also described how the next step after deregulation would be building more transmission capacity so his company would be able to a move larger amount of coal and nuclear generated power into the more lucrative markets.
The discussion Adams recounts happened long before east coast offshore wind farms were anywhere near development. Now, the offshore backbone will definitely make real offshore wind power happen.
At the same time, we have to understand that there is an intense battle going on among the obsolete electric corporations to protect the existing investments they have in their old-fashioned technologies.
Congratulations, PSE&G and Dominion for pulling off this great play on your good buddies in PJM.
By the way, I was going to praise the NYT’s Matthew Ward for his coverage of the offshore backbone story. On second thought, it seems he missed the real story again. He was dazzled by the shiny objects: Google, offshore wind and Japanese investors. He completely missed the great hustle that Virginia’s Dominion and New Jersey’s PSE&G ran on AEP/Allegheny and the PJM cartel.