New Jersey Tells Federal Agency New Capacity Is Desperately Needed

Tom Johnson | July 29, 2011 | Energy & Environment
Ratepayer subsidies for power suppliers again a key issue in hearing before Federal Energy Regulatory Commission

Credit: Governor's Office/Tim Larsen
Governor Chris Christie and BPU President Lee Solomon.
New Jersey is not the only state struggling to find a way to convince power suppliers to build new generating capacity, a problem that has spiked electric bills here and elsewhere and heightened concerns about whether there is enough juice to keep the lights on.

At a technical conference before the Federal Energy Regulatory Commission (FERC), New Jersey officials and others told the agency a new rule adopted this spring could make it virtually impossible to develop new generating capacity in areas along the eastern seaboard where it is desperately needed.

The conference, held in Washington, D.C., yesterday, stems from a request by the Christie administration to reconsider a ruling in April by FERC, which officials believe may “gut” efforts to develop nearly 2,000 megawatts of new capacity in New Jersey through ratepayer subsidies. The initiative, the result of a bipartisan bill signed by Gov. Chris Christie, aims to lower electric bills, which are far higher than in neighboring states because of congestion on the power grid and a perceived lack of capacity to address reliability concerns.

A Political Football

The law is becoming a political football between states and private sector power suppliers on the one hand and major power suppliers, FERC, and the PJM Interconnection — the operator of the regional power grid — on the other. While there was some agreement on a few points, it appeared the parties were far from reaching a settlement, leaving open the possibility that the issue would be resolved in federal court, where it also is pending.

“I think it’s unclear where it is going,” said Paul Patterson, an analyst from Glenrock Associates who listened in on the conference call. “It’s quite possible no one is going to be completely satisfied with the outcome.”

The dispute centers on complex and technical rules governing how new power plants enter the competitive wholesale markets. PJM and incumbent power suppliers contend that New Jersey’s efforts to develop new power plants through long-term contracts and ratepayer subsidies — to the tune of $1.6 billion — will artificially depress wholesale power prices. If so, that would make the development of new power plants even more problematic, they argue.

Critics of the current rules argue that development already is a fact. With the rule adopted by the federal agency last April, it likely will be even more difficult to develop new generation because of new barriers included in the regulation, they argued.

“It destroys the possibility of any new resources being built,” argued Paul McCullar, chief executive officer of the Delaware Municipal Electric Corp., a public power supplier.

Others agreed, and disputed the notion advanced by PJM and others, that state efforts to develop new generation with long-term contracts represented an exercise of “buyer market power,” a term used to describe efforts to depress wholesale prices.

“The fact that we’re in the business of keeping costs low and the lights on is not an indication we’re exercising market power” said David Mohre, executive director of the National Rural Electric Cooperative Association.

New Jersey Board of Public Utilities (BPU) President Lee Solomon also disputed the argument.