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Power Play: NJ, Electricity Suppliers Clash Over Construction of New Plants

State says proposed rules would block building of much-needed generating facilities

By: Tom Johnson |

The state is once again protesting rules, proposed by the regional operator of the nation’s largest power grid, that New Jersey officials say would make it harder to build new power plants here.

The state Board of Public Utilities argues that rules proposed by the PJM Interconnection would make it nearly impossible to spur construction of new power plants, which state officials see as a way to increase reliability of the power grid while lowering energy costs for consumers and businesses.

The filing, submitted to the Federal Energy Regulatory Commission late last month, is the latest twist in an ongoing battle pitting New Jersey and Maryland against the federal agency and the PJM over the states’ efforts to foster construction of new power plants.

“The proposed revisions significantly reduce the state’s ability to ensure reliability within their borders while protecting incumbent generators from the state-sponsored new entry that New Jersey and other similarly situated states believe is necessary to ensure reliability,’’ according to the filing submitted to FERC.

New Jersey’s efforts to develop new power plants have been an increasingly contentious issue with PJM, FERC and incumbent power suppliers. In New Jersey, those efforts have resulted in a new law that guarantees ratepayers’ subsidies to back the construction of two new natural-gas power plants.

The Christie administration and lawmakers say the subsidies are needed to encourage construction of power plants in the state, which has some of the highest electric rates in the country. Since the state deregulated the energy industry, few new power plants have been built, with the only exceptions primarily being peaking plants, which come on line only a few times a year and tend to drive up power prices.

Those subsidies have come under fire from power generators and others, who say they could cost consumers up to $3 billion over 15 years, although advocates say the resulting drop in energy prices will benefit ratepayers.

Foes say the state-sponsored subsidies will result in consumers paying above-market price for electricity while making it highly unlikely that any new power plants will be developed in New Jersey without similar subsidies.

The latest rules proposed by PJM followed a May auction in which two power plants given subsidies from New Jersey ratepayers cleared the process, allowing them to receive lucrative capacity payments to help provide the necessary reserves to keep lights on in the region.

That event triggered an effort by power suppliers to change the rules governing which power plants can receive those payments, a process which led to the new rule being proposed to FERC, although New Jersey and Maryland officials protested the measure, saying they were excluded from the discussions.

PJM officials denied the states were excluded from the process, saying six different options for exempting state-sponsored projects were considered during 60 days of meetings on the subject.

“The proposed changes make the exemption process more transparent and clear-cut and—if approved by FERC—will promote greater market certainty for all participants,’’ according to a December letter from Terry Boston, president and chief executive officer of PJM.

In its filing, the state argued that its efforts to spur power-plant construction do not mean it is trying to skew the economics of the marketplace.

New Jersey’s efforts to develop power plants are also being challenged in federal court by a coalition of incumbent power suppliers.