Nowadays, Americans are almost totally reliant on access to uninterrupted electricity that has become ingrained in nearly every aspect of our everyday lives. However, the question of how customers obtain that power quickly and affordably is often overlooked and misunderstood.
New Jersey is one of 13 states and the District of Columbia that currently benefits from a wholesale, regional electricity market known as PJM Interconnection. In this market, generators and providers from across a broad region provide consumers with reliable access to energy at lower prices. It allows for generation that satisfies the public’s growing demand for more widespread use of renewables.
Unfortunately, in the past New Jersey has threatened to abandon participation in the PJM. While regulators recently indicated they would stay in the regional market for now – noting it would be “premature” to consider leaving – it is important to recognize what competitive market participation has done for the state.
As a long-term advocate for policies that will build a more prosperous New Jersey by ensuring a competitive business climate and job creation in the state, I know firsthand that energy prices are closely linked to economic development. Thankfully, our participation in a competitive model encourages pricing that drives down consumer costs through market forces. One study, by the Renewable Energy Buyers Alliance Institute and The Brattle Group consulting firm found that “wholesale markets reduce costs for customers.” But the proof is in the pudding. Since 2005, PJM has delivered $3.2 billion to $4 billion annually in cost savings for ratepayers in New Jersey.
The wholesale market has not only helped to ensure low cost energy for New Jersey, but also strengthened the certainty that reliable power can get to consumers when they need it. Ever since New Jersians saw the devastating effects of Superstorm Sandy nearly a decade ago, maintaining the reliability of our grid has been top of mind. In addition, increasingly unpredictable weather like the 2021 Texas freeze and the latest bout of unprecedentedly hot temperatures in the Pacific Northwest, have shown us that without reliability, the effects can be devastating, possibly even deadly.
However, the PJM market was designed as a “power pool” that allows multiple generators and providers to buy and sell large volumes of electricity across the regional market. This model is what underpins PJM’s mission of reliability. Not to mention PJM also runs what is known as a “capacity market” separate from a traditional energy market, which secures power supplies three years in advance to ensure sufficient supply is available to meet emergency demand.
Finally, while New Jersey’s leadership toward a cleaner energy future is the right way to go, New Jersey’s continued participation in a competitive, wholesale market will be critical toward ensuring the state achieves lofty decarbonization goals efficiently. Competitive markets are known to facilitate the entry of new, more efficient technologies into the generation mix. In fact, 80% of renewable energy generation in the U.S. has taken place in competitive wholesale markets and within the PJM footprint, CO2 emission rates fell 39% between 2005 and 2020.
In areas that lack competition, energy providers are not penalized for being inefficient. An example of this pitfall is in Virginia, specifically with Dominion Energy – a utility with a near monopoly over the state’s electricity market. Dominion Energy submitted a proposal to comply with the state’s clean energy plans in 2020. Research quickly showed that the plan would unnecessarily increase customer bills by $800 annually because the company “overbuild resources” and did not “include a least-cost option compliant with the new law,” according to state officials. In contrast to this consumer disaster, the competitive PJM market is designed to get customers the best possible deal, serving families and businesses, not just utility shareholders.
There is no doubt that the politics and policies behind how we access the electricity that powers our lives is complex. Yet New Jersey, by virtue of its participation in one of the most organized competitive wholesale markets in the world, is positioned to succeed, as our grid sees major transitions in the years to come. The next time this debate comes up, policymakers should not be so quick to remove our state from the market that has provided us with a leg up.
Frank Robinson is a former executive director of the Assembly Democrats and vice president at the New Jersey Business and Industry Association.