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Reducing Energy Comes at a Cost -- To the State's Clean Energy Fund

Credits for big companies that cut energy consumption could eventually drain clean energy program

A little-noticed bill passed in the lame-duck Legislature last January could potentially cripple New Jersey’s clean energy efforts, and have an adverse effect on its low-income energy assistance program.

Those issues arose yesterday as the state Board of Public Utilities convened its first stakeholders meeting to implement the law (A2528), a measure designed to spur commercial and industrial energy customers to invest in projects that reduce their energy consumption.

Under the bill, commercial and industrial customers would be entitled to recoup all of the money they pay into a special surcharge on gas and electric bills, which funds not only clean energy programs, but also low-income energy assistance and other initiatives .

Since commercial customers pay most of the surcharge -- more than 60 percent of the money raised by the so-called Societal Benefits Charge (SBC) -- it could put a huge dent in the fund, which also pays to clean up abandoned factories and decommission New Jersey’s four nuclear power plants.

How big a hole is not yet known by state officials.

“We don’t know what the participation rate will be,’’ said Michael Winka, director of the BPU’s Office of Clean Energy. “We don’t know what the impact will be on other programs.’’

At this point, the agency is not contemplating raising the surcharge. Nor is it compensating for the loss of money paid into the fund by commercial and industrial customers by diverting dollars from the low-income energy assistance program or others financed by the SBC, Winka said.

That potential problem exists, however, given the large number of commercial and industrial customers. According to state statistics, there are 450,000 electric and gas customers slotted in that category, all of which could potentially seek to recoup the money they pay into the SBC by seeking a credit for energy efficiency projects.

Only 40 percent of the SBC money goes into the clean energy program, so if there is huge participation by commercial and industrial customers, it could pose some difficult decisions for the BPU.

“If it starts to become massive, staff will have to go back to the board and say, ‘What do you want us to do,’ ‘’ said Michael Ambrosio, of Applied Energy Group, a consultant to the agency.

The surcharge has long been a source of frustration to the business community, particularly manufacturers and institutions like colleges and hospitals, which use a large amount of energy. Some companies pay more than $1 million annually on the surcharge, alone, a figure that does not include the cost of the electricity and gas they consume.

Those concerns led to the introduction of the bill, which easily cleared both the Assembly and Senate in the last days of the lame-duck session. Given its impetus to reduce energy costs for businesses, the BPU is not inclined to raise the surcharge rates again to compensate for the money going to the commercial and industrial sector, officials said.

“We’re not going back and raise rates,’’ Winka said during the meeting in Iselin. “It just doesn’t seem to be the right way to do things.’’

The impact of the surcharges on residential customers’ bills currently runs about $22 bills a year; for midsized commercial and industrial customers, approximately $4,300 annually; and for larger commercial and industrial outfits, at least $11,700 each year.

The state’s clean energy program is widely regarded as a model for other states, propelling New Jersey into installing the second-highest number of solar systems in the nation, behind only California. In the past few years, however, it has been hurt by decisions made by the governor and the Legislature to divert clean energy funds to help balance the state budget.

The most recent cuts led the BPU to draft a proposal to reduce its clean energy spending for next year from $651 million to $339 million. The state’s spending on its low-income energy assistance program also is dropping, although officials attribute the decline to warmer weather. The state expects to spend $230 million in the upcoming year, down from $242 million.

The new program for commercial and industrial customers is also a concern for the state’s seven electric and gas utilities, which fear that administering the program will greatly increase their costs. At the meeting, they urged the agency to delegate administration of tracking credits, which could be spread out over a 10-year period or more, to a new program administrator to be established by the BPU.

Under the program, a commercial and industrial customer would receive a credit that equals all the money they pay into the SBC but that would only cover 50 percent of the cost of energy efficiency products and services purchased by the ratepayer. In most cases, the customer would have to achieve a 15 percent savings in energy consumption, a target some larger businesses say would be hard to achieve, given the energy reductions they already have achieved at their facilities.

The state hopes to implement the law by next January.

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