New Jersey’s Governor Chris Christie (R) on Friday made effective controversial state legislation that promotes the construction of new power plants with a total capacity of up to 2,000 MW by offering developers long-term, ratepayer-subsidized energy contracts. On Monday, in response to the measure, a group of major utilities asked the Federal Energy Regulatory Commission (FERC) to protect “the integrity of competitive power markets.”
The bill, S-2381/A-3442, establishes a long-term capacity agreement pilot program that would provide up to 10 years of incentive payments for the construction of natural gas–fired generation, guaranteeing a minimum return to developers who build plants.
Lawmakers said the bill could tamp down power costs in New Jersey, which are among the highest in the nation. The bill’s sponsors reported that ratepayers in the state doll out up to $1.9 billion in a year to cover capacity and congestion costs required to import power from neighboring regions.
The law is expected to benefit a number of private power developers, including Maryland-based Competitive Power Ventures, which is planning a 700-MW plant in Woodbridge, and New York–based LS Power Group, which is looking to build a 640-MW plant in West Deptford.
But the bill has been criticized by several entities, including environmental groups like the Sierra Club as well as by New Jersey’s Public Service Enterprise Group (PSEG). Earlier this month, the utility expressed its “strong opposition” to the legislation, saying it was “essentially an energy tax that will cost New Jersey residential and business customers more than a billion dollars.”
“The resulting customer surcharges will have long-term impacts,” PSEG executive Anne Hoskins said, adding that the bill was trying to fix “a problem that does not exist,” because New Jersey’s wholesale electric markets had spurred significant investments in new generation and upgrades to existing generation since 2007. “Subsidies are a slippery slope and will drive away other non-subsidized private investment in New Jersey,” she said.
On Monday, meanwhile, the P3 Power Providers Group—a coalition of power companies including PSEG, Exelon Corp., Constellation Energy, NextEraEnergy, NRG Energy, Calpine Corp., and PPL Corp.—asked FERC to adopt rules to protect consumers from what they called “negative consequences of funded unneeded power plants.” The group said the rule changes were necessary to prevent any attempt to undermine the region’s wholesale markets through subsidies to new power plants that are not justified by market conditions.
“The bill signed by Gov. Christie on Friday seeks to subsidize a few uneconomic power plants through a new energy charge on all New Jersey families and businesses. Our action today asks FERC to preclude the power companies benefiting from these ratepayer subsidies from receiving payments in the wholesale market unless their plants are needed for reliability,” said P3 President Glen Thomas.
“If the units are actually needed they will receive fair market payments just like other resources, such as energy efficiency and demand response, which are competing to meet New Jersey’s needs,” he said. “If, on the other hand, the units are not needed for reliability, then market rules must prevent the unnecessary new supply from distorting prices for consumers and suppliers. As demonstrated in FERC decisions, consumers are best served over the long term by the efficiency of a competitive market that operates without outside interference.”
Thomas added that the New Jersey power plant law was unnecessary, pointing to testimony before the legislature that had shown the state had enough power to meet customer demand. “In fact, [regional grid operator] PJM now predicts that New Jersey will not reach the demand previously forecasted for 2014 until at least 2020.”
The rules recommended by the group include mandating a review of all bids in PJM capacity auctions to determine if they are consistent with the cost of new generating capacity in the region; exempting from rules resources bidding in actual costs, without subsidies; and resetting bids of “resources that try to game the market” by bidding low costs while seeking other customer subsidies.
“FERC cannot allow one state to undermine the markets that other states depend upon. Other states and their consumers should not be forced to pay for neighboring states’ misguided decisions,” said Thomas.
Sources: POWERnews, New Jersey Governor Chris Christie, P3 Power Providers Group