Enter the Twilight Zone of Energy Policy

NJ Spotlight held an energy policy forum last Friday on “NJ’s Thirst for Power”.

I attended and planned to write about what I heard in the context of the Christie Administration’s proposed changes to the energy policies in the Energy Master Plan.

But today Tom Johnson reports on some of the panel discussion, and does some of the heavy lifting for me (see: A Decade into Deregulation, Where are NJ’s New Power Plants?  Debated at the NJ Spotlight forum: Do subsidies motivate new construction or saddle ratepayers with bigger bills?

So let me make a few brief points on Tom’s article. I will hold off on writing a more thorough analysis until sometime before the upcoming public hearings on the EMP.

First off, a huge thanks to NJ Spotlight for shedding light on a key set of issues. They are the only game in town in terms of credible news coverage of the energy issue.

I came away from the panel discussion with the sense that:

• the field is rife with misinformation;
• the facts contradict much of the rhetoric and Christie policy premises;
• the complexity of the issues and inside baseball deliberations have frustrated any possibility of public involvement or transparency in huge economic and environmental policy decisions made behind closed doors with energy industry insiders driving the policy;
• energy markets are rife with “market failure” and energy deregulation has been a failure. This has caused NJ consumers to pay a huge price for energy while cheaper cleaner energy sources are marginalized;
• huge subsidies to and the true costs of fossil fuels – in terms of public health, environmental impacts, and global warming – are not considered at all;
• the global warming issue is not even on the table in policy deliberations.

Here are just a few issues raised by the panelists:

1. Huge Surplus Power

Governor Chrisitie’s energy policy is driven my two (competing and contradictory) policies:

• the need to lower the cost of energy that is purportedly driving away jobs, private investment, and economic development. This is to be done primarily by eliminating “socialized” “subsidies” like the SBC and RGGI charges and promoting “free markets”; and
• to build more instate fossil power capacity to meet what is described as a reliability crisis, resulting from a severe mismatch between rising energy demand and a deficit of power.

PSEG has gone further and said that due to energy shortfalls, NJ may face blackouts and rolling brownouts and must build expensive and environmentally destructive new transmission lines to import more power.

PSEG’s disengenuous scare tactics may reflect the fact that PSEG earns a significant share of their profits on transmission investments, not power generation or demand management.

But, to the contrary, the experts agreed that NJ and the PJM grid have a HUGE SURPLUS POWER CAPACITY.

Tom Johnson reports a 14-18% surplus, but that is the LOW end of the surplus (known as “reserve capacity”) – I heard one panelist claim that it is in the range of 25-30%.

“Fremont argued the reason no new generation is being built in the state is probably related to an oversupply in capacity margin in the region, as evidenced by reserve margins (the amount of capacity available above what is needed) ranging from 14 percent to 18 percent.”

Of course, such excess capacity makes PSEG claims of rolling blackouts and need for more transmission lines big lies, no?

2. Huge Industry Subsidies Hidden in “Capacity Payments”

To provide “incentives” (subsidies) to build even more costly excess capacity, to assure that the power generation is located nearby the sources of energy demand, and to promote grid reliability, PJM imposes what are called “location based” “capacity payments“.

NJ consumers pay more than $1.2 billion per year in these charges, which dwarf RGGI and SBC charges.

The huge costs of the PJM capacity payments makes Governor Christie’s attacks on solar subsidies, costs of RGGI, and SBC Clean Energy program seem absurd and disengenuous, no?

Ditto the Christie EMP policy changes to promote construction of more in state fossil power. Why do we seek to build new in state capacity when we have  a glut and energy demand is shrinking?

In addition to what Tom Johnson reports about the excess capacity (“reserve margin”), one panelist claimed that 6,900 MW of capacity didn’t “clear” the bidding process and had been retired from the PJM grid. Basically, that measn fossil plants are shutting down because they are not economic.

3. NJ Exports Lots of Power to NY City

We have far too much power and we are exporting tons of in state generated power to NYC –  According to PJM, the following NJ power exports are planned or underway:

• 1,200 MW (Bergen, proposed)
• 300 MW (Linden under construction)
• 200 MW (Linden, proposed)
• 660 MW (Neptune to Long Island, existing)

So why do we need to pay $1.2 billion in capacity payments – on top of the huge infrastructure costs to distribute that power to NYC?

4. Energy Demand – Flat or Declining

This issue was not discussed by the panelsits, but I understand that demand is flat or declining, due to NJ’s longstanding investments in a succcessful suite of energy conservation, efficiency, and demand management programs.

This is a real decline (not just a reduction in the projected rate of growth) and is independent of and in addition to dampened demand due to the economic recession.

So much for NJ’s so called “thirst for power”.

5. Deep Policy Contradictions

Energy policy must balance conflicting objectives of economic efficiency, ratepayer costs, environmental protection, and promotion of renewable power and green jobs.

Computer models can only guide – not dictate – those policy decisions.

In addition to the tremendous economic costs of excess capacity, readers also should know that the PJM economic enery planning model that generates the capacity payments has policy problems.

The model is biased in favor of fossil fuel capacity and it undermines demand management and conservation (negawatts). This capacity is far cheaper, far cleaner, and produces far more jobs, than traditional fossil and transmission systems.

I recently read a PSEG document that bragged that PJM capacity payment subsidies were what kept NJ coal plants open! (at over $1 billion in new pollution control costs, paid by ratepayers, not PSEG shareholders and investors).

WTF are we doing?

The Christie policy is insane. The facts contadict all the policy premises!

More to come on how this all relates to the Christie draft Energy Master Plan.