The New Jersey Board of Public Utilities (BPU) on Thursday approved an additional $150 million of expenses for the state’s $1.07 billion transmission project to connect offshore wind farms to the grid, saying the extra cost would not undercut the project’s financial benefits for ratepayers.

The 14% increase follows by eight months the board’s approval of the project in what the agency said was the first use in PJM of FERC’s state agreement approach (SAA), which allows a state or group of states to initiate a project to fulfill state policy requirements as long as they foot the bill for associated costs in the RTO’s transmission plan.

The cost rise comes amid growing scrutiny of New Jersey’s ambitious clean energy commitments, especially the plan to develop 11 GW of offshore wind capacity, with some Republicans and business groups demanding an estimate of the cost to ratepayers and questioning whether the investment is worthwhile.

As the BPU acted, state lawmakers in a last-minute vote before the summer recess backed a bill that would enable Danish developer Ørsted to receive federal tax credits to help meet cost increases in its Ocean Wind 1 project, rather than the state receiving the benefits of the credits. (See NJ Lawmakers Back Ørsted’s Tax Credit Plea.)

“We have to keep moving forward,” BPU President Joseph L. Fiordaliso said before the board’s 5-0 approval of the order outlining the increase. “There are unfortunately many unforeseen developments that have occurred over the past couple of years prior to the pandemic and after the pandemic as far as the economy is concerned, where we see increases that were never anticipated.”

The BPU endorsed additional expenses of $40.76 million for several changes — described as “interconnection work” — in the scope of work, or additional elements of construction that were not part of the original bids approved in the solicitation. Part of that expense will pay for the engineering, procurement and construction of cables and connection points that would tie the offshore projects to the grid.

The interconnection cost increases also included Jersey Central Power & Light’s replacement of 115- and 230-kV transmission lines to make way for larger lines, and the replacement of certain equipment.

The board also approved $109.5 million in “scope-related cost estimate adjustments,” cost increases resulting from a closer analysis of the developer’s work and estimates. That included $27.1 million for the “reconductor of a small section” of a 230-kV line as a result of “updated communication between the developer and PJM,” which is a partner to the BPU in the SAA project. An additional $71.9 million stemmed from the “additional refinement” of the developer’s “cost estimates for their awarded scope,” which the BPU expected at the time the offshore wind project was awarded, the order states.

The $109.5 million estimate was reduced from the previously released revised estimate of $127.34 million, which was first reported at a May 9 meeting of the PJM Transmission Expansion Advisory Committee. (See NJ BPU Pulls Offshore Tx Project Mod from Agenda After Complaint.)

Ratepayer Benefits of Offshore Wind

Andrea Hart, BPU’s senior program manager for offshore wind, told the board the changes would not affect the agency’s estimation that the selected SAA solutions would save ratepayers more than $900 million, a figure calculated by looking at the “cost of the transmission facilities that would be necessary to achieve New Jersey’s offshore wind goals in the absence of an SAA solution.”

That’s because, according to The Brattle Group, a consultant working on the project, the cost increases would have been incurred anyway had the agency opted to tie in the offshore projects to the grid using a non-SAA agreement approach.

“Clearly, price increases are not uncommon,” said Commissioner Zenon Christodoulou. “But as a consumer, they’re never welcomed. So although we accept this and we appreciate all the efforts, I think that additional changes might not be as welcome.”

Brian Lipman, director of the New Jersey Division of Rate Counsel, who first raised concerns about the hikes in June, said he was “skeptical that these increases result in no change to the amount of benefit to be seen by ratepayers.”

“We still question whether the scope changes are in fact prudent increases,” he said in an email to NetZero Insider. “It is unclear to Rate Counsel why some of these issues were not identified in the initial bid.  While we understand that some changes may be necessary (equipment not available or has been updated) these changes appear to be due to a failure to fully understand the project when bid.

“These increases are not due to changes in economics or increases in materials,” he wrote. “These changes are coming about because as the developers take a closer look at the work they bid to do, they realize that changes need to be made.”

Anticipated Future Hikes

The BPU awarded the main part of the SAA project — costing $504 million — to Mid-Atlantic Offshore Development (MAOD) and JCP&L to build a new substation called the Larrabee Tri-Collector Solution next to an existing JCP&L substation through which offshore wind projects would tie into the grid. The agency also awarded contracts totaling $575 million to seven smaller projects to upgrade existing onshore transmission identified by PJM as necessary.

The agency’s awards focused only on infrastructure on land, leaving the offshore infrastructure to be completed later by offshore project developers. (See NJ BPU OKs $1.07B OSW Transmission Expansion.)

The order approved by the BPU last week said the original project selection anticipated that additional interconnection work would be needed but did not define whether it would be done by the SAA project developer MAOD or an offshore wind developer. Documents for the BPU’s third offshore wind project solicitation, released in March, outlined the winning developer’s responsibility for “prebuild infrastructure” that would build the necessary duct banks and access cable vaults to be used by all offshore wind projects to the new Larrabee substation.

The solicitation documents did not specify whether MAOD or the winner of the third solicitation would build certain parts of the infrastructure, and the BPU and its consultants recently concluded that the work would be best done by MAOD, adding to its costs, the order said. Pursuing that option would allow the work to be completed faster than waiting for the third solicitation process to be completed, would be safer and would yield various technical benefits, the order said.

The work included the engineering, procurement and construction of infrastructure to “accommodate” four HVDC lines and the work needed to design and build the trenches and collector lines for three alternating current lines, the order said.

“As transmission projects develop, it is common, if not expected, for cost estimate adjustments to occur,” the order states. “As such, additional cost estimate adjustments, in addition to the cost estimate adjustments noted herein, may be anticipated in the future.”