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N.J. ratepayers could pay $79 million in a single year for three new power plants

By: Eliot Caroom |

There are few guarantees in life, but three companies planning power plants in New Jersey can be sure they’ll collectively get about $3 billion in the next two decades, either from regional power officials or from New Jersey ratepayers.

State officials took the unusual step of guaranteeing 15 years of income to the plants because they think it will bring down ratepayer costs in the long run.

That was last March.

Today, it became apparent that pledge could cost ratepayers around $79 million in the first year that all three plants run. The evidence of that came more than 18 months after the deals were made when the Board of Public Utilities finally made the details public. Power plant developer NRG had sued to keep its deal secret, but lost in court.

So why did the state make the deals?

“We may have to pay some (money to these plants) under these contracts,” said state ratepayer advocate Stefanie Brand, “But I believe there’s going to be a net benefit to ratepayers when you look at the amount we’re likely to save in capacity prices.”

The state’s goal was to lower capacity prices, which are an esoteric part of the interstate power market, but an important one to ratepayer pocketbooks.

New Jerseyans must pay for capacity–a promise that power plants will be available–and in turn, grid operator PJM Interconnection pays that money to the plants that vow service.

State officials like Brand hope that even if ratepayers do pay tens of millions a year to the new plants, having them built in the state will reduce the state’s collective spending on capacity by lowering what PJM charges.

An expert who advised the state said New Jerseyans could save $1.8 billion.

That’s why in January 2011, Gov. Chris Christie signed a law to help build a handful of new power plants chosen by the state.

A coalition of companies that run existing power plants opposed the move, saying it would make the market uncompetitive, eventually filing lawsuits to block the plan.

But the state moved forward and the Board of Public Utilities used the law to give financial guarantees to three plants in Old Bridge, Woodbridge and Newark to help get them built.

Besides gaining new capacity, state officials hoped that in-state plants could cut grid congestion, which is costly to ratepayers.

“It’s going to have price benefits for us in the capacity market going forward,” Brand said yesterday. “We have to do something. Oyster Creek is going to be closing in a few years. We’re definitely in need of capacity, and this program is going to make sure it happens.”

Under the law, the BPU promised the projects that if they got approved by PJM for capacity payments, the state would guarantee the payments would be worth a certain amount, or use public money to make up the difference.

The deal could lead to ratepayers directly paying money to the plants, or being paid, and some state officials had hoped there wouldn’t be any payment from ratepayers to the plants.

Former BPU head Lee Solomon said last year there was a “reasonable likelihood” the plants wouldn’t need any subsidy.

Now it’s clear what ratepayers could pay for the three plants in their first years of operation if current rates hold.

Competitive Power Ventures, which is building a Woodbridge power plant, is likely to get the first payout of $30 million for the first year of service in 2015-2016.

If capacity rates are similar the following year, the combined incentive for CPV’s plant and a Hess project in Newark’s Ironbound will total about $40 million.

It was revealed today that guarantees are initially even more expensive for a third plant to be built in Old Bridge by NRG Energy, which will likely get around $39 million in the first year it runs, if current capacity rates hold.

That’s not a sure thing either: capacity prices vary each year, although any year in recent history would mean a payout in the tens of millions.

Besides that uncertainty, there’s one more obstacle the NRG plant must overcome to get its guarantee from New Jersey ratepayers: it must get approval for capacity payments from the grid operator, something it couldn’t do this spring and hopes to do next year.

So while the outlines of what ratepayers could pay to the three new power plants is clearer, questions still remain.

Still, Brand said she is confident ratepayers are getting a good deal.

“Solar, we’re spending $300 million a year on solar and we’re getting a lot less megawatts for that,” Brand said. “There’s lots of subsidies in this business.”