PJM/FERC Defy Laws of Physics – Incentives for Distant Generation, Punishment for Generation Near Load

FERC and PJM Interconnection constantly repeat the mantra that they are all about reliability.  Everything the federal regulator and the regional transmission organization does is supposed to promote the security and reliability of our electrical grid.  But is this true?

The laws of physics show clearly that transmitting more and more AC current over longer and longer distances reduces system reliability.  Here is how George Loehr, Chairman of the NY Reliability Council, explained the situation to the US Senate Energy Committee in 2008:

More important though there seems to be a confusion in a lot of the work we do, both in the Federal Government, the States and in the industry itself between economics and reliability, between transmission that might be needed for economics and transmission that might be needed for reliability.

Congestion, which is a term that we’ve heard often in these hearings, is an economic concept. It means that the cheapest generation from some power plants, sometimes of the day, or sometimes of the year, cannot find their way to the load centers where they’re needed. So that perhaps more expensive generation has to be run.

As long as there is more expensive generation closer to the load centers and that can be run to supply the load than this is not a reliability problem at all. It’s strictly an economic problem. The focus on transmission is leading us perhaps to design long transmission lines which are not needed for reliability but may in the long run decrease our reliability.

They can act as magnets to power plants to be located at remote locations from the load centers. When urban load centers are more dependent and have a higher percentage of their electrical requirements have to be supplied over long lines from power plants hundreds of miles away. That’s an increased vulnerability to blackouts. [emphasis mine]

So that’s what the laws of physics dictate.

What has FERC done in recent years, as a result of the Cheney/Enron administration’s 2005 Energy Policy Act?  Just the opposite.

FERC has promoted the creation of regional transmission organizations (RTOs)  such as PJM Interconnection to expand the long distance transmission of electricity.  FERC’s recent Order 1000 goes even further in setting up a system for transmitting electricity across and among RTOs.  FERC even offers extra return on equity incentives, paid by rate payers, not power company shareholders, for the construction of new high voltage transmission lines.

At the same time, FERC has approved the recovery of costs for so-called “reliability” upgrades from all rate payers in an RTO region, if the RTO claims that these upgrades are needed to increase system reliability.  In almost all cases, these upgrades, whether they are new static VAR compensators or high voltage transformers or Project Mountaineer high voltage p0wer lines, are all designed to increase the capability of the RTO to transmit more and more power over longer and longer distances — which the laws of physics say is exactly the wrong way to promote reliability.

Now we have a perfect example of how extreme things have become.  The NJ Legislature and the state’s Bureau of Public Utilities, have created a new incentive system to build new power plants in NJ.  According to what we know of the laws of physics, building these plants in the middle of one of the major load centers in the PJM region will increase system reliability.  So what does PJM Interconnection do, with FERC approval?

PJM charges LS Power, the operator of one of these new plants, $15 million to connect to PJM’s transmission system.

With consumers and businesses facing steep energy bills, the Christie administration has pushed to develop new power plants to drive down the cost of electricity. The interconnection process, however, is too lengthy and too costly to allow new units to be developed, according to some industry officials.

In its decision, the federal agency upheld its earlier ruling that the West Deptford facility must pay $10.7 million in network upgrades and another $4.4 million in attachment costs, according to an order filed by FERC. The upgrades are necessary to ensure the reliability of the power grid, especially when adding new capacity to the system.

LS Power is building a 738-megawatt power plant, one of a trio of new generating facilities, which cleared an auction held by PJM in May that guarantees it will receive payments beginning in 2015 to provide capacity for the region. Payments for capacity ensure there will be enough electricity to keep the lights on, but also make projects economically viable that otherwise might not be so.

Unlike the other two plants, however, the Competitive Power Venture project in Woodbridge and Hess Corp.’s facility in Newark, LS Power is not guaranteed subsidies from ratepayers to make its projects viable. According to some estimates, those costs could balloon to as much as $2 billion over the 15 years of the guaranteed payments.

State officials say payments made by ratepayers will be more than offset by a reduction in both capacity payments and energy costs that businesses and homeowners pay.

As the article from the NJ Spotlight says, the LS Power West Deptford plant did not clear PJM’s capacity auction last month and so was not granted a ticket into PJM’s cartel market structure.

A private developer, not a part of the PJM cartel, must pay a special fee to connect a plant that will clearly increase PJM’s system reliability, while FERC and PJM force rate payers to cover the costs of new construction that decreases system reliability.  This is not about reliability at all.  It’s about the government enforcement of a cartel in US power markets.

Don’t believe me?  Look at the dictionary definition of a cartel: cartel -2 : a combination of independent commercial or industrial enterprises designed to limit competition or fix prices.  Isn’t that exactly what FERC and PJM are doing to LS Power’s West Deptford plant?

2 thoughts on “PJM/FERC Defy Laws of Physics – Incentives for Distant Generation, Punishment for Generation Near Load

  1. More Tom Johnson chin dribble…

    Let’s see… $15M for LS power to hook up to the grid… or $200M per year combined revenue requirement for PJM’s $6.6B Project Mountaineer plan to transport 5,000 MW of coal-fired generation to New Jersey’s load pockets.

    Oh, but wait… NJ will cover that $15M…. the rest of PJM’s 12-state + DC “region” will cover the $200M cost of supplying NJ with distant generation.

    Tom needs to pull up his big boy britches and start providing for his own needs.

    • Yes, there is the economics of it. NJ should pay for their own reliability, instead of everyone else in PJM paying to subsidize both their reliability and to eliminate their congestion costs.

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