State Agency Votes to Let Power Company Switch Utilities

New Jersey Natural Gas gets nod to start supplying Red Oak Power, even though it's in PSEG's sales-franchise territory

Credit: Amanda Brown
BPU President Bob Hanna
New Jersey Natural Gas appears poised to lure a big customer away from Public Service Electric & Gas.

In a decision late last month, the state Board of Public Utilities granted Wall Township a municipal franchise in Sayreville, a step that may allow NJG to begin supplying natural gas to Red Oak Power LLC, a 805-megawatt combined-cycle power plant in the borough.

The action, while not final, would mark a rare switch from the state’s largest utility to a competitor in what’s been the former’s franchise territory since 1873. PSE&G opposed the proposal, saying it has provided safe, affordable, and reliable service to the power plant for more than a decade.

The motivation behind the action by the regulatory agency stemmed from concerns that the Sayreville power plant could decide against getting its gas supplies from either of the two state utilities, and instead hook directly into a nearby interstate gas pipeline.

That prospect, still a possibility, would cost the state sales-tax revenue and could lead to increased gas rates for utility customers because they would have to make up the lost revenue that the utility needs to maintain its gas distribution system.

For Red Oak, switching to NJG will allow it to reduce its cost for generating electricity, a step that will allow the plant to be dispatched more frequently to provide power to the region by the independent operator of the regional power grid. If so, BPU officials say it could lower customer bills.

“Certainly, in the ratepayers’ perspective, it is in their interest to find the lowest [priced] source of fuel,’’ said BPU President Bob Hanna at the agency’s monthly meeting in August.

BPU Commissioner Jeanne Fox agreed. “To me, this is a no-brainer,’’ she said, one of five commissioners voting for the approval.

But PSE&G argued otherwise, saying the approval violates the sanctity of its utility-franchise territory.

BPU staff disputed that argument, noting NJG has been supplying gas to a plant formerly owned by Jersey Central Power & Light nearby. The move to potentially switch to NJG followed a proposal from the power plant to respond to a request for a proposal, according to staff.

“We think this situation has enough uniqueness to it, there will not be customers shifting from one provider to another,’’ said Jerry May, director of BPU’s Division of Energy.

Hanna agreed, saying the project has some public benefits. “This is a very unique circumstance. A lot of this is due to this particular customer having a viable bypass option,’’ he said.

With the steep drop in natural gas prices, generating units fueled by the fossil fuel have been playing a bigger role in supplying electricity to businesses and homes in New Jersey, idling coal-fired plants that produce power but with much greater emissions contributing to poor air quality.

The state’s Energy Master Plan also has embraced the development of more natural-gas power plants, as well as combined heat and power (CHP) plants, generally also fired by the fossil fuel.