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New Jersey Prepares to Work Around Federal Agency Blocking Power Plants

Blistering BPU report recommends establishing state power authority to build new capacity.

For a Republican administration, the Christie team is not too happy with New Jersey's competitive electricity markets, which have saddled consumers with $1.4 billion in additional costs each year.

How unhappy became apparent during a routine meeting of the state Board of Public Utilities. New Jersey is preparing an array of contingency plans if efforts to spur the development of new power plants are thwarted by federal regulators and the operators of the regional power grid, including the option of establishing a state power authority to build new generation.

Presiding over his last meeting as president of the Board of Public Utilities, Lee Solomon promised the state would press forward with efforts to build new generating capacity in New Jersey in a variety of ways if a controversial pilot program to spur construction of new plants fails to be realized. "We mean business," he vowed. "We are not messing around."

If anything, Solomon's departure from the BPU to become a judge on the Superior Court may only signal a ramping up of the dispute between the state and the Federal Energy Regulatory Commission and PJM Interconnection, the operator of the regional power grid -- at least based on his aggressive remarks and a blistering report on the issue from the agency's staff.

The friction between the state and other regulatory authorities stems from the high prices New Jersey consumers pay for electricity, typically ranking in the top 10 highest costs paid by businesses and residents. The Christie administration is pushing to build new power plants as a way of lowering those costs, primarily by reducing congestion on the power grid, which spikes power prices, particularly in northern New Jersey.

Accusing FERC of protecting incumbent generators, Solomon said of an April decision by the agency to revamp its rules: "The reality is their decision guaranteed that we will not get new entry in New Jersey. That, to me, stinks," said Solomon, adding the outcome was so obvious, it makes it "so much more offensive."

The irritation revolves primarily around a new pricing system imposed by PJM in 2007, aimed at encouraging power plants to be built where needed. They system, known as the Reliability Pricing Model (RPM), has provided a lucrative new source of revenue for incumbent generators; prevented the retirement of older, less efficient and more polluting power plants; and, in some cases, reactivated previously closed plants, according to the staff report.

"RPM instead appears to have simply enriched incumbent generators and imposed substantial costs on New Jersey consumers," according to the staff report, which estimates ratepayers will shell out $11.3 billion from the time the system was implemented until 2015 to provide the needed capacity to keep the lights on. "Unlike normal transactions between buyers and sellers in other markets, the RPM market has charged New Jersey customers handsomely for goods it has not delivered," the report added.

If three power plants awarded ratepayer subsidies fail to come on line because of tough new rules imposed by the federal agency, the staff recommended considering the option of creating a state power authority, such as New York, Illinois, and Arizona have done. This an option had been considered by the Corzine administration, but eventually dropped when it revised the state's Energy Master Plan.

"It looks like the BPU isn't going to give up without a fight," said Paul Patterson, an energy analyst with Glenrock Associates, after reviewing the report from the staff.

The staff report also recommends pressing PJM and federal regulators to enact changes in how new power plants interconnect with the transmission grid, a process that many say takes too long, costs too much, and results in few new power plants being built -- all to the benefit of incumbent generators.

How arduous is the interconnection process? When a new project to build new capacity enters the PJM interconnection queue, the average time it takes to get through the process is 812 days, a time span that results in most of the projects never getting built.

State officials believe the changes they are advocating in the interconnection process could make it more likely for the three New Jersey power plants to be built. If not, then the staff recommended the state initiate a number of actions to move forward, including the creation of a state power authority with the ability to build new generation in areas on the grid most congested and where prices are the highest. It also suggested seeking an exemption for state-sponsored projects from rules that make it difficult to enter the market, a situation that existed before New Jersey began its pilot program.

"They moved centerfield out 100 yards away," said Renee Demuynck, a senior rate analyst, describing the action by the federal agency to eliminate the exemption for state-sponsored projects.

The staff report also recommended that the state hire a consultant to do an audit to examine whether some generators are exercising market power to prevent new plants from entering the marketplace, a recommendation that seems aimed at PSEG Power, the largest unregulated power supplier in New Jersey.

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