ATLANTIC CITY, N.J. — PJM and the New Jersey Board of Public Utilities (BPU) are considering how to incorporate other states in future public policy transmission upgrades, an acknowledgement that the RTO’s State Agreement Approach could benefit “free riders,” officials told a conference Oct. 28.

The BPU voted Oct. 26 to award $1.07 billion in upgrades to deliver offshore wind generation to the PJM grid in the first application of the RTO’s State Agreement Approach. The SAA allows states to sponsor transmission to support their public policy needs while requiring them to pay 100% of the costs. (See NJ BPU OKs $1.07B OSW Transmission Expansion.)

The BPU’s award will fund onshore transmission upgrades needed to integrate 6,400 MW of offshore wind, but it does not include any offshore transmission and further upgrades will be needed to meet the state’s new offshore wind goal of 11 GW. As a result, the BPU directed its staff to begin a second round of coordinated transmission planning to meet the increased goal, potentially including a new SAA solicitation.

One question that needs to be addressed is how to allocate costs for non-New Jersey projects that want to bring energy to the system through upgrades funded by New Jersey ratepayers, Kris Ohleth, executive director of the independent Special Initiative on Offshore Wind told the Time For Turbines conference in Atlantic City.

Ohleth, who moderated a panel before an audience of 125, described a situation in which “New Jersey is paying for this type of upgrade to our system, and the region benefits from offshore wind” projects using it.

From left: Kris Ohleth, the executive director at the independent Special Initiative on Offshore Wind, Bob Brabston, BPU executive director, and Asim Haque, PJM vice president, state and member services | © RTO Insider LLC

BPU Executive Director Bob Brabston, who appeared on the panel with Asim Haque, PJM’s vice president of state and member services, said the BPU is just beginning to consider the free-rider issue raised by Ohleth.

“No one wants to pay for something that they’re not getting the benefit of,” Brabston said. “And we feel like there are a lot of benefits that will flow out of New Jersey because of this. But it’s really conceptual at this point. So, in terms of what that would really look like in terms of how complex cost allocation can be, and the different perspectives among our fellow member states, it’s really early to say how that might work out.”

Brabston echoed BPU General Counsel Abe Silverman, who said in September that state officials hope to engage in “horse trading” with other PJM states over the cost allocation of transmission needed to meet their climate goals. (See NJ Foresees ‘Horse Trading’ with Other PJM States over Tx Costs.)

PJM’s Haque said the cost allocation issue is part of a “robust discussion” underway in the industry about how it can be more proactive in addressing state transmission build-out needs. “Electrons don’t know state borders,” he said.

“We’re finding ourselves in a space where there are multiple states that are actually sort of sharing similar policy initiatives, whether it’s renewable portfolio standards or offshore wind initiatives,” he said. “Generally speaking, PJM is supportive of the sort of long-term, long-range transmission planning. And we’re supportive of thinking about how the states can get more involved in determining what cost allocation should look like.”

That’s complicated because states are at “different sort of points on the spectrum,” he said.

“You’ve got states in the PJM footprint that say that we, we don’t want to pay a dime for something that didn’t arise out of our state legislature, or an executive order or whatever,” he said. “And you have some states in the middle that said, ‘Well, let’s look at all the different benefits that would arise from this project. And if some benefits would eventually find a way to our consumers, we can conceivably pay for it.’ And you have states that say, ‘You know, there are so many states that with similar policy objectives, it makes sense for a lot of our states to go at it together and share costs.’”

Cost Reductions Through SAA 

New Jersey’s process was the first time that any state has used the FERC-authorized SAA process, and conference speakers said the results demonstrate the benefits of the approach.

The BPU approved $504 million for work in and around the Larrabee substation in Central Jersey to FirstEnergy’s Jersey Central Power and Light and Mid-Atlantic Offshore Development (MAOD), a joint venture of Shell New Energies US (NYSE:SHEL) and EDF Renewables North America (OTCMKTS:ECIFY). The state also will spend $575 million for other upgrades to accommodate OSW generation.

BPU officials say that the $1.07 billion price tag is about $900 million lower than the upgrades would have been without the coordination and competitive bidding overseen by PJM under the SAA. PJM’s solicitation generated 80 proposals from 13 developers.

Without the coordinated process and competition the transmission upgrades needed would evolve through “many developers, many projects proceeding on their own timeline with their own decision making, their own priorities,” Brabston said. That could mean some benefits, such as “a lot of innovation and competition, but also a lot of duplication, no economies of scale, and a lot of impacts on communities and on the environment,” he said.

Although the BPU sought proposals for connections on and offshore, the BPU funded only onshore projects, leaving the offshore work still to be allocated. The board expects the winner of the third solicitation, which is due to take place early in 2023, to include plans for the offshore connections that will tie future projects to the upgraded transmission facilities just approved by the board.

“One of the aspects of the project that we awarded is the expectation that all of the cabling access that’s required for all of the offshore generation that we expect to award in future solicitations will come through the same landing point,” Brabston said. “And that’s a way that future developers will know with certainty where they need to come onshore, and that that particular asset will be there already constructed.”

Haque acknowledged that the SAA prompted PJM to change its own strategy.

“We weren’t always in the space of trying to figure out how to help states,” he said. “PJM was not always the most friendly to state policy endeavors. And so for us to have gone from a space where we had [BPU] President Fiordaliso say, ‘We may not be seeing eye to eye with PJM in the future’ to where we are now: We jointly figured out a path to build transmission to bring offshore wind to New Jersey consumers …. I think it’s really wonderful.”  

Helping to De-Risk

John Dempsey, CEO of Blue Point Wind, a joint venture between EDP Renewables and Engie, which won the auction for an offshore wind development lease in the New York Bight in February, said the initiative would also help developers and the industry as a whole. Speaking on a panel that focused on OSW project developments off the New Jersey coast, he said the state’s SAA was a “tremendous, tremendous effort.”

The initiative “really goes a long way at helping de-risk projects, which lowers costs,” he said. “The efforts made by the state earlier in the week, I think really go a long way at making New Jersey a really good place for offshore wind developers to land, so we were really pleased to see that.”

Dempsey, in an email after the conference, said that as states increase their offshore wind capacity targets the industry will need more “proactive transmission development” like the BPU’s initiative to make projects happen.  

Blue Point Wind, also known as Ocean Winds East, paid $765 million for its New York Bight lease, giving the developer rights to an ocean parcel 53 miles off the New Jersey Coast that is expected to generate 1,700 MW of electricity. The project will sell its power to either New York or New Jersey and is evaluating “multiple interconnection scenarios” at each location, Dempsey said.

“The BPU award offers clarity to the industry on the optimal cable landfall location and the point of interconnection for the next round of projects, and it will ensure that there is sufficient transmission capacity on the system to accommodate offshore wind,” he said. “For developers like Bluepoint Wind, this clarity will reduce uncertainties in their projects and allow them to offer more competitive proposals to New Jersey in its upcoming solicitations.”