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BPU Moves to Block PSE&G Bid for Special Incentives from Federal Agency

State's largest utility wants package worth nearly $900 million for transmission line project.

The state is once again contesting a bid by Public Service Electric & Gas (PSE&G) to gain special incentive rates for a transmission project the Newark utility is trying to build.

In a filing with the Federal Energy Regulatory Commission (FERC), the New Jersey Board of Public Utilities (BPU) protested PSE&G seeking incentive rates for the $895 million North East Grid Reliability Transmission project, a line running from Hudson County to Roseland in Essex County.

The state agency voted to intervene in the case before FERC, the latest effort to gain a higher return on a transmission project it is seeking to build. Earlier this summer, much to the annoyance of the BPU commissioners, the federal agency awarded special incentive rates to three of five transmission projects the utility is planning, expected to cost another $1 billion.

The special incentives sought by the utility include permission to begin collecting payments from customers before construction work on the lines and upgrades have begun, and assurances that it will be able to recover 100 percent of the project's costs if it is canceled or abandoned due to circumstances beyond its control. Transmission costs account for about 8 percent of a customer's bill. In addition, it would allow a higher rate of return on its investment than for more routine projects it intends to build to maintain the reliability of its distribution and transmission system.

BPU President Lee Solomon said the latest case is another example how the federal agency allows "very substantial subsidies" for transmission projects while thwarting efforts to increase generation capacity in New Jersey by blocking the state from giving incentives to power plant developers to build new gas-fired power plants.

"It drives me crazy," Solomon said, adding, "I suspect it drives the governor crazy, too."

Solomon and Gov. Chris Christie have been critical of FERC for making it difficult for New Jersey to proceed with a pilot program that would provide ratepayer subsidies to three developers to build new gas-fired capacity in the state, a step they believe would help lower sky-high electric bills for customers and businesses here.

The federal agency and incumbent power suppliers have argued the subsidies would wreak havoc on the wholesale competitive marketplace, and eventually drive up electricity costs for customers because no new power plants would ever be developed unless, they, too, received such incentives.

In its filing with the federal agency, the state asked to intervene in the case and request evidentiary hearings on the proposal; PSE&G is seeking to have the incentive rates kick in next January. The state agency argued that the utility failed to demonstrate why the project poses any exceptional difficulties, thereby rendering the need for the special incentive rates inappropriate.

"It's not a complicated location," said BPU Commissioner Jeanne Fox, referring to the proposed route along existing rights-of-way in one of the most densely populated areas of the state. "There's no serious issues here. It's really not a risk on this one."

According to a filing with FERC the BPU made earlier, the federal agency has received 75 applications with a total estimated cost of $50 billion seeking special incentive rates. The BPU claims that the projects will earn a return on equity (ROE) of $650 million each year, if approved by the federal agency. FERC is currently reviewing that policy, an assessment that should be completed before the commission grants any new incentive rates, according to the filing made by the state.

In the past few years, PSE&G has ramped up its capital spending on transmission lines, a process it claims will increase the reliability of the power grid and reduce congestion, which drives up energy bills for customers.

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