Hess makes power play in bid to build its Newark plant

Generator's bid to save $13.5M requires PJM to order equipment adjustment

December 12. 2011 3:00AM


As Hess Corp. prepares to spend $650 million building a 625-megawatt natural gas-fueled power plant in Newark, the firm is asking federal regulators to solve a dispute that could save the company $13.5 million. But doing so would require the regional grid operator to approve equipment adjustments that so far, they’ve refused to do.

Energy regulations require power companies to pay the cost of connecting their plants to the grid, including any equipment upgrades necessary to accommodate the new power. An analysis from PJM Interconnection LLC, which operates the region’s power grid, shows Hess’ Newark Energy Center would require the replacement of a transformer in Essex County at a cost of $13.5 million, among other upgrades. Hess, however, believes a minor adjustment to a piece of equipment called a phase angle regulator, or PAR, would negate the need to replace the transformer.

Tamara Linde, vice president of regulatory issues at Public Service Enterprise Group, said PARs help direct the flow of power. PSEG is the parent company of PSE&G, which owns the transmission facilities Hess is planning to connect to.

“Normally, power flows in the path of least resistance,” Linde said.

A PAR doesn’t create any new transmission capacity on the grid, Linde said, but it can be used to allocate the flow of power, and manage the burden on existing facilities.

Each year, PJM undertakes a baseline analysis of its entire grid, determining the best settings to keep the system from becoming overloaded. Temporary adjustments to those settings can be made to deal with spikes in demand, but longstanding policies call for the use of the baseline settings when determining the impact of a new plant coming on line.

Paula DuPont-Kidd, a PJM spokeswoman, said making an adjustment for Hess would upset the interconnection process and require PJM to recalculate all of the data for the other projects in the interconnection queue.

“That would be, in our opinion, unfair to other customers and other members, and it wouldn’t be an efficient way to do our planning process,” DuPont-Kidd said.

Linde, of PSEG, said making such a change also could limit the way PJM uses PARs, and establish a precedent whereby every new generator seeks adjustments.

Exelon Corp., Baltimore Gas & Electric and Dominion Resource Services each have filed documents supporting PJM’s position.

In October, Hess filed a complaint with the Federal Energy Regulatory Commission, asking the commission to rule that PJM has the right to make an adjustment for Hess. If not, Hess is asking FERC to change the rules to allow for such adjustments.

“These angle adjustments are so minor that, as a practical matter, the capacity that can be made available through PARs to manage congestion … would essentially be the same both prior to and after the interconnection of the Newark Energy Center,” wrote Sunil Talati, president of the energy consultancy PwrSolutions Inc., in written testimony on behalf of Hess. 

Hess’s position is supported by New Jersey’s Board of Public Utilities, which has sought to encourage the construction of new power plants in the state as a means to lower energy costs. The BPU filed a motion supporting Hess and calling the adjustments reasonable, particularly in light of the high cost of connecting to the grid: Hess faces an estimated $112.5 million in interconnection costs, in addition to the $13.5 million in dispute.

“It is therefore critical that PJM ensure interconnection studies accurately reflect only the most necessary infrastructure upgrades required to ensure reliability,” the BPU wrote.

Hess is one of three generators included in the state’s controversial Long-Term Capacity Agreement pilot program, under which the state could potentially help subsidize the new plant. PJM and PSEG both opposed LCAPP, and FERC has twice ruled against parts of the program.

Hess has asked FERC for an expedited decision — no later than Feb. 1 — so the generator has time to decide whether to enter the base residual auction, in May, at which the company could bid to sell power beginning in 2015. A company official told NJBIZ a negative ruling from FERC wouldn’t affect the company’s decision to go forward with the plant.

If Hess wins its case, PSEG fears ratepayers could be on the hook for $13.5 million.

“Our view is that shifting the PAR would only eliminate the need in the planning study, but in reality, the power from the Hess plant would still flow over the line, causing violations — and the line will still need to be upgraded,” said PSEG spokesman Michael Jennings. “If Hess is not paying for that, someone else will need to.”

DuPont-Kidd said it’s difficult to tell what upgrades may or may not be needed if Hess wins its case, or how the costs would be allocated.

Hess, for its part, argues ratepayers already paid for the existing transmission facilities; therefore, it’s only fair for every company to have equal access to the equipment.

 

E-mail to:  jkaltwasser@njbiz.com
On Twitter:  @JaredKaltwasser


www.NJBIZ.com