By Todd Snitchler, President and CEO, Electric Power Supply Association
New Jersey leaders face a game-changing choice: will they let regional competition drive the best outcomes for consumers, the grid and the environment as it has for two decades, or will they choose a path that slows progress and drives up costs?
New Jersey has embarked on a process that could shape the state’s energy and environmental landscape for decades to come. By ensuring competition takes center stage in efforts to reduce emissions that contribute to climate change, state leaders can deliver a triple win for customers, the power grid and the environment. Competitive markets will deliver emissions reductions goals at a better price for customers by unleashing the innovative, efficient and consumer-focused solutions provided by competitive power suppliers. And competition paves the way for future progress, introducing new technologies and solutions we have yet to imagine.
Tomorrow, New Jersey energy regulators – the NJ Board of Public Utilities (BPU) – will receive a second round of input from stakeholders as part of an exploration into how the power sector can reduce carbon emissions while maintaining reliable service and reasonable costs. EPSA, along with many of our member companies, has presented the NJ BPU with a range of solutions that harness the benefits of competitive power markets.
Like many others, including renewable developers, clean energy advocates, consumer and business watchdogs, and market design experts, we urge the BPU to avoid an expensive path that squeezes out competition, raises customer costs and doesn’t deliver the state’s ambitious clean energy goals – including Governor Murphy’s plans to be an offshore wind energy leader.
The Clean, Competitive Path
Competitive electricity markets have achieved record low prices, propelled innovation and accelerated emissions reductions. New Jersey is one of 13 states that, along with the District of Columbia, currently benefit from regional grid operator PJM Interconnection’s markets, where many generators and providers across a broad region offer electricity to keep the lights on at the lowest cost. Since 2005, PJM’s markets and operations have delivered $3.2-4 billion annually in cost savings and driven down emissions by 34% in the PJM footprint – translating to benefits for the ratepayers of New Jersey.
By encouraging PJM to pursue solutions that create a competitive marketplace for all providers to reduce emissions, New Jersey leaders can put customers first and unleash the power of competition to spur innovation and least cost solutions to achieve state policy goals. Options to meet immediate needs could include a version of ISO-New England’s Competitive Auctions with Sponsored Policy Resources (CASPR). Regional carbon pricing and additional market-based tools offer a longer-term solution. This approach puts the state on a swift and affordable path to a cleaner, reliable power mix.
The High Cost of the Fixed Resource Requirement
An option being advanced at the NJ BPU, known as the Fixed Resource Requirement (FRR), would throw a wrench in the power of competition to move New Jersey forward and benefit customers. Positioned by some as a way for New Jersey to seize control of its power generation mix, it in fact does the opposite, reducing the choices available to state officials and consumers. By circumventing PJM’s competitive markets to instead procure power from a small pool of providers, the FRR would raise costs for customers and businesses, and limit the incentives for multiple generators to compete to provide the best solutions to reduce emissions – hampering future progress and the entry of new technologies and renewable resources.
- The FRR raises costs. Consumer advocates and business interests raised the alarm, telling NJ Spotlight that cost estimates of implementing the FRR could be low. “If we allow this level of market power, these increases will be just the beginning. There will be no competition,” said the state’s ratepayer advocate. AARP NJ agreed, saying PSEG’s proposal is “estimated to produce higher energy costs for consumers.” And a representative for NJ large manufacturers said “The state should entertain no doubt that the FRR would enable PSEG, which continues to maintain enormous market power within its zones, to leverage this power to extract extraordinary windfall profits from ratepayers.’’
- The FRR concentrates market power. While cost estimates on the FRR path vary, with some as high as $386 million annually, a primary and indisputable flaw is the concentration of market power without adequate oversight. The FRR would shrink the size of the relevant power generation market, severely restricting competition. This in turn provides an opportunity for a smaller pool of providers to increase prices, and requiring the state to develop, implement and oversee tools to provide effective oversight—now supplied by PJM’s market. The effects go beyond New Jersey, with Enel warning that the FRR would “chill clean energy development throughout the entire PJM region.”
- FRR slows clean energy goals. Comments provided by many other stakeholders including the Solar Energy Institute of America, the American Wind Energy Association and Advanced Energy Economy make clear that the FRR could slow clean energy development and New Jersey’s offshore wind ambitions. Of particular note, Atlantic Shores Offshore Wind stated “Leaving the PJM capacity market to create FRRs could hinder attainment of New Jersey’s clean energy goals… [and] reduce its access to renewable energy resources across the wider PJM region.”
- FRR could uniquely benefit powerful utilities. The proposal jointly presented to the BPU by New Jersey utility Public Service Electric & Gas (PSEG) and Exelon highlights the potential for abuse created by the FRR. Both in New Jersey and around the country, PSEG and Exelon have repeatedly sought to shape energy policy in a way that concentrates market power for the companies’ assets, harming consumers. Pursuing FRR would vest additional power in these companies, dry up competitive opportunities in the state and further advance a return to monopolistic practices that PSEG and Exelon now seem to favor—which New Jersey and other states left behind nearly 20 years ago in the desire to move to regional markets.
Put Customers First – Choose Competition
As New Jersey leaders confront the state’s energy future, they face a game-changing choice: will they let regional competition drive the best outcomes for consumers, the grid and the environment as it has for two decades, or will they choose an option that slows progress and drives up costs? In recent years, competitive power suppliers in PJM followed market signals to retire thousands of megawatts of coal-fired generation at no cost to consumers, while investing in newer, lower cost, more efficient and cleaner electricity technology. Rather than trying to go it alone, New Jersey can again look to regional markets to enable another shift as renewable prices drop and the grid continues its evolution. EPSA members stand ready to build the grid of the future. We’re here to help New Jersey and other states achieve their energy goals by putting customers in charge.
Learn more:
Op-Ed: A Clean Power Plan New Jersey Customers Can Afford | Todd Snitchler for NJ Spotlight | April 17, 2020
New Jersey: Competitive Power Markets Will Deliver Affordable Clean Energy | May 20, 2020
