State Starts to Shy Away From Subsidizing Natural-Gas Power Plants

Controversial plan for ratepayer subsidies tied up in court, could ultimately leave consumers on hook for billions

Gas powerplant
The state has no interest in sponsoring new natural-gas power plants at this time, even as one of the two projects scheduled to receive lucrative ratepayers subsidies is facing a difficult decision whether to move forward with its proposal.

These developments underscore the complications involving the state’s efforts to promote new power plant development in New Jersey, a strategy both lawmakers and the Christie administration view as a way of lowering some of the highest energy costs in the nation.

But the scheme has not been without controversy. A New Jersey law allowing ratepayer subsidies to be used to spur the projects is tied up in litigation in three separate court cases, costing the state more than $370,000 in legal costs to date. The issue also spurred a decision last week by the Federal Energy Regulatory Commission, a ruling viewed favorably by state regulatory officials.

To ratepayers, however, the cost may be much higher if the subsidized plants are built, according to critics of the program, who say consumers could end up paying $2 billion for power generating stations that are not needed. The state disputes those claims, saying in the long run, consumers will benefit from the new construction — even with ratepayers’ subsidies.

Nevertheless, the ongoing uncertainty over the outcome of the court cases has cast a cloud over the program, particularly a project by Competitive Power Ventures to build a new natural gas 663-megawatt power plant in Woodbridge.

The project faces several hurdles. It has yet to obtain a necessary air permit from the New Jersey Department of Environmental Protection and needs to fund an expensive transmission interconnection by the end of the month, according to industry sources.

In response to questions from the state Office of Legislative Services (OLS), the New Jersey Board of Public Utilities, the state agency overseeing the program, said the CPV plant will not be operational by 2015, when it was supposed to be delivering the reserve capacity needed to keep the lights on.

Even without the plant up and running, CPV needs to go out and buy the necessary electricity under contract agreements with the PJM Interconnection, the operator of the nation’s largest power grid, for the 2015 energy year. Those costs might further undermine the economics of its Woodbridge project, according to energy analysts.

CPV did not reply to a message seeking comment on its project, nor did one of its lobbyists based in Trenton.

Last May, CPV came under criticism when the amount of ratepayers’ subsidies was revealed. The PJM determines how much power suppliers will receive in so-called capacity payments in an annual auction held each May. In the 2011 auction, the capacity price was set at $167.46 per megawatt hour. In the first year of its delivery, CPV would have received $286.03 from ratepayers for capacity payments.

In an additional response to questions from legislative staff, the BPU backed away from previous assertions that it might expand the program, dubbed the Long-Term Capacity Agreement Pilot Program (LCAPP).

“The board has no plans at this time to expand the LCAPP program to spark the construction of additional generation facilities,’’ the agency said.

CPV was one of three projects to win approval from the BPU to receive ratepayer subsidiaries to promote development. Only one other, besides CPV, however, cleared the annual capacity auction, making it eligible to receive payments from utility customers. That was Hess Corp., which is building a power plant in Newark and is apparently on target to meet its obligations.

The other proposal by NRG Energy — to build a plant in Old Bridge — failed to clear the auction. According to the BPU replies to OLS, it said NRG plans to bid in this month’s auction, but some analysts question whether that will happen given the Princeton company’s acquisition of GenOn, a company that has more than 13,000 megawatts in the PJM footprint. Under the terms of its contract, however, NRG is required to bid in again in this month’s auction.