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Controversial Ratepayer-Subsidy Bill Clears Assembly Committee

Legislation aims to add much-needed capacity, opponents argue it could actually drive power prices higher in the long term.

New Jersey yesterday moved ahead with a bill to back the building of power plants with ratepayer subsidies, ignoring warnings it could trigger unintended consequences, such as making it more difficult to build plants in the future and pushing prices higher in the long term.

The bill (A-3442/S-2381) cleared the Assembly Telecommunications and Utilities Committee, putting it in position for a vote by the full Assembly as early as January 6. The committee, which had held the bill only a week earlier, approved it based on support from two Democrats who sat in temporarily for their colleagues.

A Sweetheart Deal

Derided as a sweetheart deal for one or two favored developers, the bill aims to lower electric bills by directing a stream of payments over 15 years from ratepayers to ensure one or two power plants get built. Without some form of financial backing, no new plants will be built, advocates argued. That would lead to even higher prices for New Jersey consumers.

"If we do nothing, prices will continue to rise,’’ Division of Rate Counsel Director Stefanie Brand told the committee. “All I know is the current system is not working. We’ve got to try something else."

Under the current system, the people who are in position to build new capacity are the ones who benefit most from the higher prices if no new capacity is built, Brand said.

That view was countered by opponents who predicted the bill, if enacted, would depress power prices -- but to such a degree no investor would be willing to risk building generation capacity in New Jersey. "This would affect investment decisions and likely result in less investment in capacity," warned Joseph Bowring, president of Monitoring Analytics, the former market monitor for PJM Interconnection, the operator of the regional power grid.

If It's Not Broken...

Bowring and others argued the system, while not perfect, is working and new projects are coming online that will drive down power prices. For instance, the Susquehanna-Roseland transmission project, which runs through the New Jersey Highlands, could lower capacity prices to $100 to $125 per megawatt day when completed. Capacity prices, which account for about 20 percent of supply costs, ran $245 per megawatt day in a recent auction.

Bowring also suggested the New Jersey law would face legal challenge, if approved.

Others were blunter. "This easily could be the single biggest giveaway in public utility history," said Glen Thomas, president of PJM Power Providers, an organization representing power suppliers in the PJM region.

But Tom Hoatson, director of regulatory affairs for LS Power LLC, which is the likely beneficiary of the bill, said the measure provides a long-term power purchase contract, a requisite if a big power plant project is to move forward. Without such a commitment, no plants will be built, he said.

Differs from Senate Version

The legislation differs in several significant ways from the version passed by the Senate. Unlike that version, it does not set a specific capacity payment ($232.75) consumers would be obligated to pay the developer for 15 years. Instead, it would establish that price in a competitive proceeding before the state Board of Public Utilities (BPU), an approach backers of the Assembly bill said created a more transparent process.

The Assembly version retains the 1,000 megawatts of new capacity that would be developed with the special financial incentives. This is about half of what the Christie administration views is necessary to have the sought-after effect of driving down power prices.

In addition, the Assembly bill would in the future exempt natural gas-fired power suppliers from paying the societal benefits charge (SBC), a fee most other ratepayers pay on gas they purchase from the state’s four gas utilities. This amendment drew little attention during the two-hour hearing, but the change has been a particular bone of contention for big businesses, especially those that consume large amounts of energy.

The SBC, which pays for clean energy and low-income energy assistance programs, has raised nearly $4 billion in its decade-long existence. Last year, it raised $740 million. By exempting gas-fired plants from the fee, Assemblyman Upendra Chivukula (D-Middlesex) said it could lower electric rates for customers.

It also would make those-gas fired plants more competitive with ones operated by PSEG Power, a subsidiary of Public Service Enterprise Group. NJ Spotlight disclosed earlier this year that PSEG Power has never paid the SBC surcharge on the gas it purchases from its affiliate, Public Service Electric & Gas (PSE&G).

The counterargument to exempting gas-fired plants from the SBC is that it would leave residential, commercial and industrial customers bearing the full cost of funding programs financed through the surcharge, even though by one reckoning, they account for only 60 percent of the gas delivered by the utilities.

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