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BPU Won't Sign Off On Contracts Between Utility and Power Suppliers

Agreements with cogeneration plants could boost customer charges by more than 5 percent.

The state has balked, at least for the time being, at approving three contracts between Atlantic City Electric and power suppliers because falling power prices could wind up boosting its customers’ bills by more than 5 percent.

The contracts are with so-called non-utility generators (NUGs). These facilities date back decades to when regulators encouraged electric utilities to negotiate agreements with power plants that did not rely on imported fossil fuels and produced both electricity and steam.

At the time it was believed that cogeneration was a more efficient way to make electricity, but it proved to be more expensive than burning coal and other fuels. Utilities were stuck paying the higher prices, but they could pass the costs on to consumers if the price was less than what they could get on the open market. That's now the case.

With a big drop in power prices in the wholesale markets, Atlantic City Electric can sell the NUG electricity onto the PJM grid for about half the price it pays, according to Jerome May, director of the Division of Energy at the New Jersey Board of Public Utilities (BPU). PJM is the regional power grid for New Jersey and states along the eastern seaboard, stretching west to Illinois.

That leaves the half-million customers of Atlantic City Electric picking up the bill, a prospect that BPU President Lee Solomon found "outrageous." He ordered the staff to review the contracts and to see if the utility had any way out of its obligations. Among other things, he asked the staff to determine if the plants are complying with state and federal air and water quality standards.

The contracts involve two-coal fired cogeneration power plants, one in Logan Township and the other in Carney’s Point, as well as a trash incinerator in Chester, PA. The two coal plants are about 200 megawatts of capacity each, while the trash plant is approximately 60 megawatts, May said.

In recent years, the BPU has strongly encouraged the state’s four electric utilities to renegotiate the so-called NUG contracts because many ended up with ratepayers paying above market prices. The effort has produced varying degrees of success.

May said the agency plans to talk with environmental officials in both New Jersey and Pennsylvania about the record of the three plants. Both state and federal officials have predicted many of the nation’s coal-fired power plants may choose to shut down in the next few years because of tough new air pollution rules being adopted by the U.S. Environmental Protection Agency.

"We are going to take a real close look if there is anything that can be done to ameliorate the impact on customers," he said.

Until recently, Atlantic City Electric has been able to sell the power from the plants into the PJM market at or near the price it pays for the electricity, May said.

"This is the first overall increase for customers in several years," said Sandra May, a spokeswoman for Atlantic City Electric.

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