BPU Looks to Balance Subsidies Against Savings

The state board moves to ensure that customer subsidies to power companies are more than offset by savings to consumers

WestDepford PowerPlant
By the end of March, the state will have decided what subsidies, if any, are needed to spur the building of new power plants to drive down the cost of electricity in New Jersey.

Acting to comply with a bill hurriedly approved by the legislature and signed by the governor, the Board of Public Utilities (BPU) yesterday hired an agent to oversee a proceeding to spur construction of up to 2,000 megawatts of new capacity by guaranteeing a stream of subsidized revenue from ratepayers to the developers.

Lower Electric Bills

In adopting a tight timeframe for concluding the process, the commissioners made it clear if any subsidies from ratepayers are approved to developers, then they should be more than offset by a drop in electricity prices, which are among the highest in the nation, primarily because of congestion on transmission lines.

“Our goal is to make sure the amount of savings for ratepayers is greater than the cost of the subsidies,” said BPU President Lee Solomon.

“If it is not going to benefit the ratepayer, we don’t have to approve any contract,” agreed Commissioner Jeanne Fox, who noted that lawmakers approved the measure because they and others are frustrated by the high costs of energy bills paid by residents and businesses here.

It remains to be seen, however, if New Jersey’s efforts will ever bear fruit. The bill is already being challenged by power suppliers who fear it will severely undercut their capacity payments — the revenue they gain for maintaining the supplies necessary to keep the lights from going out. That challenge was filed by the PJM Providers Group before the Federal Energy Regulatory Commission (FERC), on the grounds there already is enough electricity to meet customers demands.

And late Wednesday, another eight companies, including two utilities in New Jersey, Public Service Electric & Gas (PSE&G) and Atlantic City Electric, filed a complaint in federal district court in Newark, challenging the law on constitutional grounds. Among the issues cited were an infringement of interstate commerce.

An Outside Agent

Nevertheless, the state agency moved ahead with the hiring of an agent, Levitan & Associates Inc., to oversee the mechanisms it will use to try to spur new power plant construction. The Boston-based firm has previously helped Connecticut and Maryland deal with some of the same issues confronting New Jersey, according to staff and commissioners. “The agent has a very good national reputation,” Fox said.

The consulting firm’s task is formidable. New Jersey, like the other states, is trying to drive down capacity payments, which are projected to burden ratepayers with increased costs ranging between $1 billion and $1.9 billion a year. Those subsidized payments will enable developers to line up financing for their projects.

Both proponents of the bill and critics say it could drive down capacity payments by more than $2 billion a year, more than offsetting the subsidies from ratepayers, which critics argue could run up to $2 billion over the length of the contract.

Fox supported the initiative, while still expressing concern. “Basically, we’re saying we’re not going to take it anymore,” she said, referring to the higher capacity payments New Jersey has to pay because of congestion. Still, she expressed some misgivings that locking ratepayers into long-term contracts with guaranteed payments could repeat mistakes of the past, when utilities locked into above-market contracts with non-utility generators aimed at reducing dependence on foreign imports.

The other issue confronting the board, an agency not noted for its swiftness of movement, is whether it can comply with the strict timeframes set by the legislation. They are designed to allow developers to bid into a capacity auction this May for capacity payments beginning in 2014. Several commissioners questioned if this is feasible, but staff insisted they will meet the parameters.

Industry officials were less optimistic. They noted that efforts by Connecticut to develop new power generation took 18 months, and are still tied up in litigation.

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