Controversial Ratepayer-Subsidy Bill Passes Both Houses

Tom Johnson | January 11, 2011 | Energy & Environment
No agreement on whether having ratepayers subsidize new power plants will save customers billions or cost them billions.

WestDepford PowerPlant
The legislature gave final approval yesterday to a controversial bill meant to lower the cost of electricity in New Jersey by having ratepayers subsidize the construction of new power plants — but it took new amendments and some behind-the-scenes lobbying to get the measure passed.

The bill (S-2381), which is expected to be signed by Gov. Chris Christie, won passage in both houses early in the evening yesterday as intense eleventh-hour lobbying by Public Service Enterprise Group (PSEG) and other power suppliers failed to stop its progress.

Criticized as a new energy tax that could add billions to customers’ bills, the legislation would subsidize power suppliers to build up to 2,000 megawatts of new generating capacity in New Jersey. According to advocates, the new supplies would lower the prices power generators receive for producing electricity far more than the cost of the ratepayer subsidies.

Their argument appeared to be bolstered, in part, by an analysis by Joseph Bowring, the market monitor for PJM Interconnection, the operator of the regional power grid. His analysis projected that if 2,000 megawatts of capacity were added in the region, it would decrease capacity payments to power suppliers by $2 billion.

Capacity payments make up a fraction of the overall cost of a consumer’s electric bill, accounting for 1.3 cents of the more than 16 cents per kilowatt hour the average ratepayer pays for electricity in New Jersey. One megawatt is enough to supply about 800 homes.

Short-Term Benefits

But critics of the bill said those short-term benefits would be more than offset by other effects of subsidizing new generation. They argued it would deter investment in new and existing plants and probably lead to the premature retirement of existing power plants, all of which would boost power prices in the long run.

The bill’s backers counter that existing power suppliers are trying to prevent new supplies from being built simply because it would hurt their top and bottom lines by reducing the money they now receive for capacity payments by $2 billion a year, according to Bowring’s analysis.

Bowring, who is president of Monitoring Analystics LLC, which serves as the independent market monitor, said if the bill becomes law he expects his organization will challenge it before the Federal Energy Regulatory Commission (FERC) as a violation of a regulatory rule aimed at preventing uneconomic generation from disrupting the wholesale power markets.

“I would expect they would say it violates the spirit of the rule,” said Bowring, when asked about what would happen if he does challenge the New Jersey law.

The Ripple Effect

If the bill becomes law, Bowring said the effect may stretch far beyond New Jersey. Not only suppliers in New Jersey would demand similar subsidies before they invested in new plants, but also it could spur the same request for deals in other states, according to Bowring.

Those arguments held little sway yesterday as negotiations between the governor’s office and Senate President Stephen Sweeney, whose district may end up with a new power plant if the bill becomes law, worked out final amendments to the bill.

By and large, the amendments aim to make the process by which developers win subsidies from ratepayers seem more transparent. The bill also was amended to ensure that ratepayer subsidies are not paid for longer than 15 years.

As the day moved on into evening, those issues appeared to matter little to lobbyists on both sides of the issue, all of whom conceded the bill would win final passage by the end of the night.

“Rather than giving $2 billion to incumbent power suppliers, the state should be doing something to incentivize new power supplies being built here,” said Hal Bozarth, a lobbyist from the Chemistry Industry Council of New Jersey who backed the bill.

In the end, the bill approval was anticlimactic. It passed shortly before 7 p.m. without debate 57-13-5 in the Assembly after it was amended. The Senate, however, recessed for dinner, not taking up the bill, the penultimate one of the session, until 8:30 p.m, concurring with the Assembly version, again with no debate.

While existing power suppliers were unable to stop the bill, they managed to secure an amendment that would exempt natural-gas fired power plants from paying the state’s societal benefit charge (SBC). The surcharge, which raised $740 million from businesses and residents last year, pays for a variety of state programs, including those supporting energy efficiency and clean energy projects, such as installing solar and wind power systems.

If the state maintains funding of the surcharge at the same level, small businesses and residents will have to pick up the costs. If not, it is likely those programs will be slashed significantly.

The rationale behind exempting the suppliers from the surcharge was that it might help cut energy bills by eliminating a tax on the sale of gas both to power plants and to consumers who use electricity from those plants.