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BPU orders state’s largest utility to continue supplying fuel to Red Oak power plant at discounted rate

By: Tom Johnson |

In a dispute that could affect electricity customers and air quality, the state is intervening on the behalf of a power plant involved in a row with Public Service Electric & Gas about how much the utility charges for natural gas to operate the unit.

The New Jersey Board of Public Utilities has ordered the Newark-based utility to continue providing fuel to the Red Oak power plant in Sayreville at the same rate it has been charging for the past 11 years, preventing PSE&G from boosting the cost of natural gas by $10 million annually.

PSE&G, the supplier of natural gas to the 830-megawatt gas-fired power plant, notified TAQA GEN-X LLC that it would boost the cost of fuel from 10 cents per dekatherm to almost 68 cents per dekatherm, effective Oct 1, 2013.

In an order issued late last month, however, the BPU granted TAQA emergency relief, ordering the utility to continue supplying the natural gas at the lower, discounted rate.

The move by the utility seemed to be something of a hardball tactic, since the board has tentatively decided to allow Red Oak to obtain natural gas from New Jersey Natural Gas rather than PSE&G. The decision, which would lure away one of the Newark utility’s biggest natural gas customers is expected to take effect next fall.

In siding with TAQA, the BPU noted the steep increase in natural gas costs would have meant that Red Oak would have to supply less power to businesses and residents than it had historically delivered.

The prospect of Red Oak delivering less power, the BPU determined, would increase pollution from less efficient plants. “The reduced hours of operation would impact New Jersey more generally through higher energy costs, less reliable service and greater air pollution,’’ the agency said in its order.

“The higher costs of electricity, the possible lower level of reliability, and the increased air emissions, in our view more than offset any potential harm to PSE&G and its ratepayers, harm which has not been clearly articulated,’’ the board said in its order.

The dispute revolves around concerns that the Sayreville power plant could still decide against getting its gas from either of the two state utilities, and instead hook directly into a nearby interstate pipeline. The underlying issue is the growing dependence on natural gas to provide electricity within the region, a trend driven by the discovery of readily available new deposits of the fuel in the Marcellus Shale regions in Pennsylvania, New York, and nearby states.

If Red Oak switches suppliers of natural gas, it could cost the state sales tax revenue. It also could lead to higher bills for PSE&G’s residential and industrial customers, who would have to make up the lost revenue the utility needs to maintain its gas distribution system.

In terminating the so-called discount rate, PSE&G asserted it lacked the basis to provide that rate since the lower charge for the fuel will no longer avoid a bypass of its system. The state allows discounts on gas rates if there is a possibility a customer could bypass the utility’s system and avoid paying costs to maintain reliability of the grid.

Michael Jennings, a spokesman for PSEG, the parent company of PSE&G, said the company will comply with the order.