The Star-Ledger

No Bargain On Power Prices For Suppliers

The Star-Ledger — Tuesday, October 16, 2007

Star-Ledger Staff

Suppliers of electric power will receive sharply higher prices to ensure there is enough juice to supply New Jersey's future energy needs under a special auction conducted last week by PJM Interconnection, the operator of the regional power grid.

While power prices dropped overall throughout the region, that was not the case for eastern Pennsylvania and New Jersey, where demand is high, supplies are tight and it is difficult to import cheaper power from outside the region.

The auction, designed to compensate suppliers for providing the reserve power, or capacity, needed during times of high energy use, locked in prices for a one-year period from June 2009 to May 2010. Prices for the eastern portion of the PJM region jumped 25 percent compared with the previous period.

The latest auction was the third in a series designed to boost capacity. Utility customers in New Jersey are already paying higher electricity bills as a result of the first auction, which was held in April and covered the period from June to May 2008.

PJM established higher capacity prices as a way of encouraging suppliers to build generating plants in areas where supplies are tight or to keep older power plants open. The new system is controversial because critics say it raises power prices without any assurance new plants will be built.

"We're not happy – no one should be happy," said Steve Goldenberg, a lawyer who represents New Jersey pharmaceutical companies and manufacturers that use a lot of energy. "All we're seeing is still higher prices, without any guarantees that new power plants will be built."

Ev Liebman, program organizer for New Jersey Citizen Action, agreed. "Once again, we're captive consumers of the market," he said. "Those companies who provide power to the region are making out like bandits."

Electrical capacity costs account for only 20 percent of a customer's bill, so most residential customers do not see a big impact. Still, overall, the higher capacity prices are expected to increase electricity costs in New Jersey by $1 billion during the first year. PJM officials said the latest auction results showed increased availability of generating capacity and more voluntary efforts to cut back on energy use at times of peak demand.

"Significantly, this is the first auction in which total supply growth exceeded demand growth. That's a very positive sign," said Andrew Ott, PJM vice president-markets. Through the new pricing system, he said, the grid has retained generation that would have been retired, mothballed or exported to other regions.

By 2009-2010, PJM said available new capacity will have increased by more than 9,000 megawatts. A megawatt is enough to power about 800 homes.

Skip Sindoni, a spokesman for PSEG Power, a unit of Public Service, said the company is still not ready to make a decision on whether to expand its fleet of power plants based on the new capacity prices.

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