Every once and a while on The Power Line, I like to pull some threads together and make connections among issues that, at first glance, appear to be independent of each other. I was having an email discussion with Keryn today, and she noted the connection between FERC’s push to nickel and dime rate payers with their stealth (and illegal) “postage stamp” cost recovery for new transmission lines and the fight that NJ and MD are having with FERC and PJM over their attempts to subsidize new power plants in their states.
I have been covering all these issues here on The Power Line, as has Keryn over at StopPATH WV. Here are the facts to date, with links for further explanation:
- FERC has incorrectly interpreted its legal authority to force rate payers to pay for new transmission projects, even if those new projects provide no benefits to those rate payers. In these cases, the rate payers, and electricity generators, who benefit the most from these projects pay much less for the large benefits they receive from the new transmission. PATH and TrAIL are perfect examples. Rate payers in IL, WV and OH are paying the same amount for these lines under the FERC “postage stamp” regime as rate payers in NJ and MD, while we receive no benefit from these lines. Most of that benefit accrues to rate payers on the East Coast and the power generators feeding into those lines. PATH will never be built, so it is benefiting no one, but we are still paying for it. FERC was caught and the federal 7th Circuit Court of Appeals is forcing them to change their system, although FERC is resisting mightily.
- The NJ Board of Public Utilities and the MD PSC have exposed the rigging of PJM’s capacity auction system. The states have determined that the PJM cartel’s system has deprived MD and NJ of vital new power generating capacity and has cost their states’ rate payers billions of dollars.
- In response to their dire situation, the NJ BPU and the MD PSC, with approval of their state legislatures, have initiated new, state subsidized initiatives to build new gas-fired generating plants in their states. PJM and FERC are now suing the states in federal courts to stop them. Keryn has an excellent new post explaining the states’ efforts.
So, we have FERC pushing the system of hiding the real costs of new transmission construction by charging all rate payers for these lines. The costs of these new lines are borne largely by rate payers who will seen no benefit from these new lines. FERC, and power companies, hope that by nickel and diming everyone, no one will notice the steady rise in electric rates from wasteful new power line projects.
At the same time, PJM Interconnection is deliberately suppressing generation on the East Coast, creating power shortages there that PJM engineers claim causes a need for new high voltage transmission lines. Are we beginning to see a pattern here?
Now, we begin to see the fight over new power plants in NJ and MD in a little different light. PJM and FERC are claiming that NJ’s and MD’s subsidies are “distorting” PJM’s pristine capacity market. In fact, I had a commenter from a Philadelphia power company make just that point on this post the other day.
From 7th Circuit Court Judge Richard Posner’s opinion, and testimony by a number of parties in the 7th Circuit case, we can see clearly that FERC’s illegal “postage stamp” transmission cost recovery scheme is creating the fundamental distortion in the PJM energy markets.
PJM and FERC are claiming that new generation in NJ and MD will be prohibitively expensive when compared with the lower cost of building new high voltage transmission lines to import electricity from WV, PA and OH. But wait. New transmission lines are only “cheap” for NJ and MD rate payers because, under FERC’s postage stamp scheme, those states’ rate payers don’t pay the full cost for all the benefits they receive from the new transmission lines. Under the legal cost recovery system, which Judge Posner points out has been in place for decades and is now established federal law, under which rate payers pay for all the benefits they receive, the new transmission lines would be very, very expensive for NJ and MD rate payers, because they would be paying most of the cost for these lines.
Suddenly, building new power plants in NJ and MD looks very cheap compared to what those states’ rate payers would have to pay in a legal cost recovery scheme for new high voltage transmission lines. The fact is that PJM has screwed states on the East Coast by suppressing new generation.
The only way that FERC and PJM can make new transmission the “cheap” solution to this problem (which PJM created) is to force the “postage stamp” system on all PJM rate payers so that East Coast rate payers don’t have to bear the entire burden of the new lines.
So the power plant crisis in NJ and MD is directly connected to FERC’s scheme to hide the cost of new power lines by spreading that cost, illegally, across all rate payers in a regional transmission organization. The whole scheme is based on distorting the electricity markets in PJM, first by suppressing new generation on the East Coast and then by creating an illegal system to hide the cost of new transmission lines.