People and companies buy electricity from regulated utilities such as Atlantic Electric. They need that power to be highly reliable because business and even lives depend on it.
The vast electric grid ensures reliability by paying power producers for capacity it can count on. Whatever that costs is just passed along to ratepayers.
Problem is, residents and businesses are probably paying much too much for reliable capacity. Evidence strongly suggests that the electric grid serving New Jersey and all or part of 12 other states is making customers pay billions more each year than necessary.
New Jersey regulators for years have criticized grid operator PJM Interconnection for overbuying capacity and overcharging ratepayers.
CEO and President Ralph Izzo of Public Service Enterprise Group, the state’s largest utility, said in its most recent discussion of quarterly earnings, “I think that we all know that PJM right now has reserved margins that exceed its stated requirements.”
Then last month, an analysis commissioned by the Natural Resources Defense Council and the Sierra Club found that PJM has been overbuying and overcharging as much as $4 billion a year for the past decade.
The grid operator consistently overestimated electricity needed plus an adequate safety margin, the report said.
This 2020-21 fiscal year, PJM acquired 18,700 megawatts of power above the need and margin, enough to supply a mid-sized state.
PJM said it has refined and enhanced its forecasting and capacity models for better accuracy, adjusting them in 2016 to account for energy efficiency and widespread solar generation.
Paul Patterson, an analyst with Glenrock Associates, told NJ Spotlight, “There is no question this is an oversupplied market by PJM’s own definition. … They appear to have been overpaying for some time.”
Part of the problem is built into the system for ensuring capacity. PJM would be pilloried if the grid failed to provide users the power they need — but few are even aware if the grid overpays and passes along too high costs. Buying too much capacity provides extra insurance against PJM’s worst public relations nightmare.
The report estimates that if PJM adjusted how it ensures adequate capacity plus a margin of safety, it would initially save customers $4.4 billion and then up to $2.6 billion each year thereafter (an average of $40 a year for PJM’s 65 million customers).
New Jersey officials have been trying to get PJM to address this waste of ratepayers’ money for no gain in service, but they can’t do it alone.
The Federal Energy Regulatory Commission must use its authority over grid operators to ensure that PJM’s capacity purchases don’t add unneeded expense during a period when residential and business customers already are fated to pay more for clean energy technologies.