State Vows to Take Fight for New Power Plants to U.S. Supreme Court

The Board of Public Utilities also announces a formal hearing into why deregulated energy industry has yielded no new power plants

The dispute over high energy prices in New Jersey is likely to get a whole lot more contentious in the next few months.

Clearly miffed with the actions of a federal agency and the operator of the regional power grid, New Jersey Board of Public Utilities (BPU) President Lee Solomon vowed yesterday to press efforts to develop new power plants all the way to the U.S. Supreme Court, if necessary.

The state agency yesterday approved contracts that the three power suppliers — Hess LLC, NRG Energy and Competitive Power Ventures — had previously signed with the four electric utilities at its bimonthly meeting. Solomon also announced that the agency would begin a formal proceeding into why so few power plants have been built in New Jersey since it deregulated the energy industry more than a decade ago.

The proceeding also will examine the so-called Reliability Pricing Model (RPM), a surcharged added to electric bills a few years ago by the PJM Interconnection, the regional operator of the power grid serving 50 million people. The pricing system is supposed to incent power suppliers to build new plants where needed, but has failed to do so, according to state officials, while saddling New Jersey ratepayers with an additional $1 billion in costs this year.

In an effort to lower electric bills for consumers, the legislature and the Christie administration banded together to enact a bill that would guarantee a stream of payments from ratepayers for up to 15 years to three power suppliers to help them line up financing for new gas-fired plants in Newark, Old Bridge and Woodbridge. The advocates of the bill said the subsidies from customers would be more than offset by a drop in overall energy prices, an argument that gained credence when a study projected if new plants were built it would depress capacity prices by more than $2 billion in PJM.

But the pilot program envisioned by the state was challenged initially by power suppliers in court, and then by PJM and the Federal Energy Regulatory Commission (FERC), which adopted tough new rules thta make it unlikely the New Jersey pilot program would succeed.

Nevertheless, New Jersey will press its case on several fronts, including asking the federal agency to rehear the issue. “If they don’t change the decision, we’ll appeal it,” Solomon said after the meeting.

He said the issue is a classic case of tension between federal and regional interests on the one hand and states’ rights on the other.

“They’re not looking at the fairness of the system on a state-by-state basis. Clearly, in this case it works to New Jersey’s great disadvantage. Our and the governor’s responsibility is to protect taxpayers and ratepayers in New Jersey,” Solomon added.

Besides exploring why so little new generation has been built since deregulation — with the exception of peaking units, which only run at times of very high demand — Solomon said the proceeding will also examine whether the state should build another 1,000 megawatts of generation beyond the three plants now in development.

“New Jersey ratepayers are subsidizing ratepayers in other states to the tune of $1 billion,” the president said. “This puts us at a competitive disadvantage.”

Given that the issue is still a long way from being resolved, it could linger for some time, according to Paul Patterson, an energy analyst at Glenrock Associates. “You should not underestimate the potential impact local officials can have,” Patterson said.