Power Suppliers Press Ahead With New Plants, Despite Federal Agency’s Impediments

Tom Johnson | April 26, 2011 | Energy & Environment
NRG Energy and Hess Newark move forward with gas-fired generating facilities in Old Bridge and Newark

NRG Energy's current generating facilities in the Northeast.
It appears that New Jersey’s efforts to develop new power plants may not be dead after all.

At least two of the three power suppliers that have signed contracts with the state to build new gas-fired electricity-generating stations said yesterday they plan to move forward with their projects, despite a ruling by a federal agency that many assumed would stymie progress.

Both NRG Energy and Hess Newark LLC said they intend to push ahead with projects in Old Bridge and Newark, respectively, despite a ruling from the Federal Energy Regulatory Commission (FERC), which state officials viewed as effectively blocking the proposals.

A Stream of Subsidies

The issue has become a contentious one as New Jersey officials strive to develop generating capacity in the northern part of the state as a way to drive down high energy bills. It had sought to do so by entering into contracts with Hess, NRG and Competitive Power Ventures, guaranteeing them a stream of payments over 15 years to ensure their plants are competitive.

The decision by the federal agency was initially viewed by state officials and analysts as making it difficult for the three developers to clear annual capacity auctions because of complicated rules adopted by FERC at the urging of the PJM Interconnection, which operates the regional power grid. Without the new rules, the grid operator argued, New Jersey’s pilot program would artificially depress capacity prices, a move that would disrupt wholesale energy markets.

But New Jersey and other critics say the current system already makes it difficult for new power plants to enter that market, a fact that has increased congestion and kept electricity prices higher. Because of that system, New Jersey customers pay more than $1 billion a year, most of which goes to power suppliers that want to retain the status quo, officials said.

The turmoil is being ignored by NRG Energy. “We are continuing to move forward with development of the project, including noise and air modeling,” said David Gaier, a spokesman for the Princeton energy company. “Nothing has changed.” (NRG is looking to expand its presence in the lucrative Northeast market.)

In Old Bridge, the site of NRG’s 660-megawatt facility, the supplier is about to begin mapping where wetlands are situated, said Gaier. He indicated that the project is scheduled to begin commercial operation by June 2015.

Hess also said it is moving ahead. “We started work on the proposed Newark Energy Center three years ago, well before the legislation was proposed, and are continuing to move forward with its development,” said Lorrie Hecker, a spokeswoman for the company.

The other contract winner, Competitive Power Ventures LLC, which seeks to develop a 663-megawatt plant in Woodbridge, failed to respond to an e-mail message for comment.

Pushing Ahead

Paul Fremont, an analyst with Jefferies & Co., said it is not surprising the developers are pushing forward with their proposal. “If it gets done, it’s a phenomenal investment for the builder,” Fremont said. “Until someone says they cannot do it, they will push this forward.”

But it is not likely New Jersey will press forward, Fremont said. The federal agency’s decision makes it more difficult for the state to depress capacity prices which doesn’t make this a good deal for ratepayers, according to some customers.

At a forum in Trenton last week, New Jersey Board of Public Utilities (BPU) President Lee Solomon said the state would move forward to fulfill the intent of the legislature, but offered no specifics on what that entailed.

“There are other options available to us outside of FERC’s jurisdiction,” Solomon said in a statement after the decision by the federal agency. “At this time, it appears that we will be forced to pursue these options.”

Fremont predicted the state will make another “end run” around PJM and FERC, but it will likely lead to the same results.