Yet Another Roadblock for New Jersey’s Three New Power Plants

The state's four electric utilities claim to have signed "under protest" capacity contracts with new power suppliers

Although they have not made much of a public fuss, the state’s four electric utilities apparently are as unhappy with New Jersey’s efforts to develop three new power plants as are many others in the energy sector.

The four utilities last week signed contracts to purchase electricity from three developers selected by the New Jersey Board of Public Utilities (BPU) “under protest and without prejudice” in virtually identical letters affixed to the agreements, perhaps an unprecedented action, according to some observers familiar with the board’s history.

The rare rebuke of the agency that regulates them underscores the contentiousness of state efforts to lower electric bills for consumers, who pay at least $1 billion more than counterparts in neighboring states because of congestion on the regional power grid and steep capacity prices, the payments designed to ensure there is enough electricity to keep the lights on.

In the letters, the utilities argued the state agency has not yet acted on a motion to reconsider its order to Public Service Electric & Gas (PSE&G), Jersey Central Power & Light (JCP&L), Atlantic Electric, and Rockland Electric to sign the so-called Standard Offer Capacity Agreement (SOCA) with the three developers. They also reserve the right to challenge the agreements in “any appropriate forum.”

The agreements lock in the utilities’ customers into a stream of payments over 15 years to help NRG Energy, Hess LLC, and Competitive Power Ventures build gas-fired power plants in Old Bridge, Newark and Woodbridge, respectively. If the plants are built — a very big question mark at this juncture — state officials say they will add enough generating capacity to sharply reduce customers’ energy bills, even with the still unknown subsidies paid by ratepayers.

The pilot program is being challenged in federal court by a coalition of power suppliers, including the parent of PSE&G. This group could see its profits fall if the pilot is successful in reducing capacity prices, payments made to ensure there is enough electricity available to meet demand. The Federal Energy Regulatory Commission (FERC) also has adopted new rules that could prevent the three new power suppliers from competing in capacity auctions held each May.

Nonetheless, the BPU and the three developers have vowed to press forward with the pilot, although that could change if they are not able to convince the federal agency to revisit its rules dealing with capacity prices.

In the utilities’ letter, the companies do not spell out why they signed agreements in protest, other than to question the “lawfulness” of the order. They do cite issues raised in an earlier motion to reconsider the matter.

That motion questioned the basis used by the board’s consultant, Levitan & Associates, for arriving at a net economic benefit to ratepayers of $1.8 billion if the plants were built.

“These conclusions are highly sensitive to facts and modeling, yet the Levitan Report and March order fail to provide the facts and modeling data behind the conclusions,” according to the motion. Among other items, the report failed to disclose the amount of payments that ratepayers will make to the developers. That information will not be available until May 2012 when the developers bid into the annual capacity auction held by PJM Interconnection, the operator of the regional power grid.

The utilities also argued the process and timeframe were too short to properly evaluate the information in the report and failed to provide sufficient information to correctly assess the recommended procurements.

They also criticized the board for relying on one expert to justify entering into 15-year long contracts that could cost ratepayers “hundreds of millions of dollars.”