Christie Administration Quietly Signs Controversial Ratepayer-Subsidy Bill

Heated debate continues, will new law save or cost consumers billions of dollars

Bury the controversial news late on a Friday.

That is the conventional wisdom, and it apparently held true this past weekend when the Christie administration quietly signed a bill that would give power plant developers a lucrative ratepayer subsidy to build up to 2,000 new megawatts of generating capacity in New Jersey.

The bill (S-2381) is likely to be challenged by numerous parties. It was signed by Gov. Chris Christie late Friday afternoon, a day when many in the Statehouse press corps were arriving back from the New Jersey State Commerce’s annual Walk to Washington.

The governor’s office failed to put out a press release indicating that the bill, a highly contentious issue in the legislature, had been signed. Perhaps that is no surprise, but no less a disappointment to opponents.

“This could be one of the biggest giveaways in the history of the energy industry,” said Glen Thomas, president of GT Power Group, a consulting organization to energy companies.

Power Struggle

The legislation had pitted huge energy suppliers against lawmakers and state officials in a dispute over how to bring high electric bills down in New Jersey. The legislative proposal aims to spur power plant development by guaranteeing capacity payments from ratepayers for up to 15 years, a provision critics argued could cost consumers up to $2 billion over 15 years.

Those costs, however, would be far offset by reductions in capacity payments, which in New Jersey can exceed $1 billion a year and run as high as $1.9 billion, according to the bill’s backers. (Capacity payments cover the cost of having enough generating capacity to meet electricity needs in peak periods.)

About the only thing both sides in the dispute agree on is that in the short term, electric bills would fall in New Jersey, which suffers from some of the highest energy costs in the nation.

But opponents argue the bill will force retirement of existing plants that help meet peak demand, and in the long run will spike energy prices because no new power suppliers will build in New Jersey unless they get the same type of lucrative deals.

The critics, some of the biggest energy suppliers in the region, also stand to lose out on those profitable capacity payments, which would put huge dents in their bottom lines.

The legislation also is likely to change the state’s efforts to push new power generation in the Garden State.

“I think this legislation could signal the biggest change in New Jersey electricity policy in more than a decade, and in many ways poses more questions than it answers… not the least of which is how far will the state go when it comes to deviating from the deregulated market construct?” wondered Paul Patterson, an energy analyst with Glenrock Associates.

Special Interests?

Others were more critical: “This bill is a special interest giveaway that promotes fossil fuels and hurts the environment and consumers,” said Jeff Tittel, executive director of the Sierra Club of New Jersey, which opposed the measure.

PSEG Power, one of the biggest power suppliers in the region, also criticized the bill signing.

“We are disappointed that the energy generation bill has been enacted. We believe that it will ultimately lead to higher energy bills for New Jersey consumers, fewer jobs and make it unlikely future power plants will be built in the state without government subsidies,” said Michael Jennings, a spokesman for the company.

New Jersey has tried to outsmart the markets before with disastrous results, Jennings noted. In the 1970’s, New Jersey required utilities to sign long-term contracts with power generators at fixed prices that turned out to be far more expensive than the market. The plan cost consumers billions of dollars in higher rates, and they are still paying the price for that mistake, he said. Over the next six years, PSE&G customers alone will pay more than $1 billion for the remaining costs of these contracts, according to Jennings.

“We are actively evaluating our legal options, and we will be actively engaged in the regulatory process implementing the bill,” Jennings said.

But a report from Jefferies & Co., an investment firm, last week predicted that the bill aimed at encouraging new power plant construction in the state is likely to be overturned by a federal regulatory agency, if not by the courts.

The analyst for Jefferies also criticized the bill signing. “It’s a great way for a Republican governor to score points on the Democratic Assembly and Senate that are too dumb to pass a bill that won’t be overturned by the agency or the courts,” said Paul Fremont, an energy analyst who has followed the debate on the bill.

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