New Jersey’s electric customers may be on the hook for far less than the $2 billion in subsidies initially projected by foes of a program to spur the building of new power plants. The bad news — at least to some — is that a portion of the new generation may never get built.
In an auction concluded last week by PJM Interconnect — the regional operator of the nation’s largest power grid — NRG Energy once again failed to qualify for payments for supplying excess capacity, which ensures reliability and keeps the lights on at times of peak demand.
The auction results throw into question the success of a controversial pilot program backed by the Christie administration and legislators to incent new power plant construction by awarding ratepayers subsidies to three developers to build the units.
And that could be good news for consumers.
Critics said the legislation could cost ratepayers more than $2 billion over the 15-year life of the program. Advocates said the expense would be more than offset by lower energy bills thanks to additional generating capacity in a state with some of the nation’s highest electric bills, an argument that may never be tested.
Only one of three developers that were awarded subsidies — Hess Corp., which plans to build a natural-gas-fired plant in Newark — seems likely to move ahead. David Gaier, a spokesman for Princeton-based NRG, yesterday would only say it is looking at its options over the next several weeks after failing to clear in the auction.
Competitive Power Ventures, another developer awarded the most lucrative ratepayer subsidies by the New Jersey Board of Public Utilities, also faces questions about its Woodbridge project.
The Maryland company has told the BPU that its plant will not be operational until 2017, two years behind when it was supposed to begin delivering electricity. As a result, it will once again have to bid in the so-called annual capacity auction held by PJM. CPV also will have to purchase capacity on the open market to deliver the electricity it promised.
With capacity prices falling in most regions of the regional power grid, the BPU told New Jersey lawmakers it is unlikely that in future auctions the facility would clear, industry jargon that means to be eligible for capacity payments. CPV did not respond to a message seeking comment.
In the auction, results of which were announced Friday by PJM, capacity prices for the most part fell sharply, other than in a zone controlled by Public Service Electric & Gas. Its capacity prices rose to $219 per megawatt-hour, well above the average cost of $59.37 in the rest of the PJM region. The anomaly was blamed on transmission constraints and a high number of retired power plants in its territory.
For others, however, prices dropped for capacity payments, revenue deemed increasingly important to power suppliers to maintain their profits.
For some energy companies, the steep drop in capacity prices led to an unhappy day on Wall Street. Exelon Corp., one of the biggest energy companies in the nation, saw its share price drop by more than 7 percent, shedding about $2 billion, according to one analyst. Shares in FirstEnergy Corp, the owner of Jersey Central Power & Light, fell by more than 7 percent.
Shares in Public Service Enterprise Group, the owner of Newark-based PSE&G, inched up slightly, bucking the trend of other energy companies in the PJM territory. Whether its high capacity prices are sustainable, however, is uncertain. One industry analyst noted that in last year’s capacity auction, prices in northern Ohio came in at $357, but fell to $114 in this year’s auction.
In a morning call with reporters, Andy Ott, a senior vice president of PJM, attributed the falling capacity prices to a significant increase in new power supplies, a slowing in demand growth, and an increase in energy-efficiency programs that reduce power consumption.
All of those factors may make New Jersey’s efforts to develop new power plants more unlikely, according to energy analysts.
“Considering the amount of new competitive generation [coming on board], I wonder about the outlook for the program,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York.
To Jeff Tittel, director of the New Jersey Sierra Club and a critic of the state-sponsored effort to build new fossil-fueled power plants, the auction results back his opposition. “Between energy efficiency and distributed generation [generating facilities located near where the electricity is produced], the need for these power plants is no longer necessary,’’ he said.