Federal Agency Agrees to Reconsider NJ Power Plant Plan

Tom Johnson | June 15, 2011 | Energy & Environment
State officials aggressively explore ways to build three natural gas-fired power plants to ease New Jersey's congestion problems and capacity crunch

Gas powerplant
New Jersey is going to get another opportunity to convince federal officials to approve a controversial plan to build three new natural-gas fired plants, a step administration officials say will help bring down sky-high energy bills.

The Federal Energy Regulatory Commission (FERC) on Monday granted a request to reconsider its decision in April adopting new rules governing the power market. Many believe that the ruling would make it all but impossible for the three developers to proceed with plans to add nearly 2,000 megawatts of generating capacity in New Jersey.

The move to reconsider occurs at a time when state officials have been aggressively exploring options to develop new generation, even talking about creating a new state authority to build power plants and withdrawing from the PJM Interconnection, the independent operator of the regional power grid.

A Last Resort

New Jersey Board of Public Utilities (BPU) President Lee Solomon has mentioned that prospect, which he stresses as an option of the last resort, repeatedly in talks with Wall Street firms and reporters over the last week. Such a step, particularly bolting from PJM, would wreak havoc with power suppliers, the grid operator and others, according to analysts.

“Leaving the PJM would clearly be seen as an extreme move,” said Paul Patterson, an energy analyst at Glenrock Associates. “But when power and politics mix, you cannot absolutely rule anything out.”

Still, Patterson said he thinks the dispute will be settled between New Jersey, the PJM, FERC, and power suppliers. “Cooler heads will prevail,” he said.

Solomon, in an interview, agreed with that assessment. “The concept of a public authority and a withdrawal [from PJM] is not where I think we will end up,” he said.

Nevertheless, the fact that he is talking about the issue in public forums is sure to send powerful signals to the people whom New Jersey believes are frustrating its efforts to develop new generation.

Pricey Problems

New Jersey suffers from some of the highest electric rates in the country, ranking in the top 10 most costly states among all classes of customers, residential, commercial and industrial. Most of the blame for that problem is attributed to congestion on the power grid and a lack of capacity, the reserve power needed to keep the power flowing at times of high demand.

In response, the legislature and Christie administration approved a pilot program earlier this year to provide ratepayer subsidies to help the three developers build projects that otherwise probably would never have gotten off the ground because they could not compete economically with established power plants.

The program was immediately challenged by power suppliers and PJM, arguing that it would disrupt the competitive marketplace. Advocates of the pilot pram said opponents sought to overturn the law merely because it would erode their profits, an argument that gained credence when a study projected capacity payments to those suppliers would fall by $2 billion.

The court challenges are still pending, but a decision by the federal agency to change the rules governing how new subsidized generation can compete with existing power supplies have hindered the state’s efforts to develop new capacity.

In the wake of that decision, Solomon ordered a new proceeding to explore why new generation has not been built in the state; determine if there is a need for additional generation capacity beyond the 2,000 megawatts envisioned by the pilot program; and, perhaps most provocatively, assess whether the power market in New Jersey is competitive. The first hearing on the proceeding will be Friday in Trenton.

The latter issue is a recurring question raised by critics of the current energy market. They argue that the power suppliers have structured the deregulated energy market in a way that prevents new suppliers from entering, a situation that only has increased the bottom line of the existing generators.

It is one reason why there is support for a power authority. Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey, called the proposal a “fantastic idea.” He said anything that would bring down the costs of energy bills for all classes of customers deserves to be pursued.

It is not the first time the idea of a state power authority in New Jersey has been floated. The Corzine administration briefly wrestled with the idea in deliberations over its own Energy Master Plan, before watering it down in the final document.

Solomon, while downplaying the prospect, did concede that there have been internal discussions about the concept by agency staff, some of whom have strongly advocated the idea. “I consider it an unlikely alternative, but if all else fails, we would have to assess whether it is an available option,” he said.