BPU Not Giving Up on Using Customer Subsidies to Build Power Plants

State agency files appeal of fed decision blocking plan to finance new generation with tax on ratepayers

power plant
The state is not yet giving up its fight to promote the development of new power plants financed by subsidies from utility ratepayers.

In an appeal filed Wednesday in the U.S. Court of Appeals for the Third Circuit, New Jersey Board of Utilities President Bob Hanna notified the court the state would appeal a judgment rendered last month that struck down the state’s efforts to build new generation here. The Christie administration says the program could reduce energy bills for consumers and businesses.

The move to continue the litigation over the long-running dispute, if successful, means utility customers could still be on the hook to pay up to $2 billion in subsidies to help promote the development of new natural-gas-fired generation in the state.

The state’s appeal in a one-page filing merely notified the court it would challenge the 67-page decision by the court in mid-October, which struck down New Jersey’s efforts as unconstitutional, without laying out any legal arguments why the ruling should be overturned. The decision followed a similar federal ruling on Maryland’s efforts to encourage new power plants in that state.

The issue has been highly contentious—both in and out of New Jersey. Incumbent power supplies challenged the state’s proposed subsidies both in federal court and before the Federal Energy Regulatory Commission, with opponents arguing the program would disrupt the deregulated energy marketplace.

The BPU has long argued otherwise. The agency maintains the current system of deciding what power plants are built in the PJM Interconnection, the independent operator of the regional power grid, favors incumbent power suppliers to such an extent that it precludes new units from entering the market. The result: existing power plants enjoy huge profits by providing needed capacity at high prices to consumers in New Jersey at times of peak demand.

The state effort—dubbed the Long-term Capacity Pilot Project—is one of the Christie administration’s top energy priorities, but so far the it has failed to gain any traction in the courts or federal energy agencies. Business interests, however endorsed the state’s efforts, hoping the program would lower energy costs in a state afflicted with some of the steepest electric bills in the nation.

Even with the ratepayers’ subsidies, proponents of the program contend it will more than be offset by a reduction in prices paid to existing owners of plants for the capacity payments they receive to ensure the lights do not go out in times of peak demand.

While the dispute has been playing out over the past couple of years, the nature of the wholesale energy market has changed dramatically. Historically low natural gas prices and tougher environmental regulations on more-polluting coal-fired power units has forced a number of older, inefficient plants into retirement. It has led to a multitude of new natural gas plants being proposed, including one in West Deptford Township in South Jersey, without any guaranteed government subsidies.