March 28 (Bloomberg) -- New Jersey still faces potential rolling blackouts because of a shortage of generating capacity, making its plans to subsidize new power plants essential, a state lawyer said.
The state’s Board of Public Utilities yesterday urged the U.S. Court of Appeals in Philadelphia to resurrect the law that makes subsidies possible, saying the federal judge who struck it down as unconstitutional was mistaken. The plan, signed into law by Republican Governor Chris Christie in January 2011, could cost state households and businesses $2.1 billion over 15 years, according to the board.
The “law was enacted to solve a very important problem, to provide safe, reliable and more environmentally friendly power to the citizens of New Jersey,” Richard Engel, a lawyer for the utilities board, told the three-judge panel. “There still is a great concern if we don’t do something.”
New Jersey is among states grappling with the Federal Energy Regulatory Commission over the limits of state and U.S. authorities’ powers in overseeing power generation plants and wholesale market prices. A similar case is pending before the U.S. Court of Appeals in Richmond, Virginia, over subsidized power generation in Maryland.
The New Jersey law gives price guarantees to New Jersey electric generators to encourage the construction of more than 1,500 megawatts of natural-gas fired capacity. The law would guarantee new generators selected by the state as part of its bid to expand capacity the potential to offer power at a lower price than existing competitors can in contracts with state utilities, with subsidies making up the difference.
In October, U.S. District Judge Peter Sheridan in Trenton, New Jersey, ruled in favor of PPL Corp. and other generators who sued to stop the subsidies, arguing that they could lose money on electricity and capacity they sell from existing power plants.
Sheridan ruled that the law unconstitutionally interfered with regulatory powers that belong only to the federal government.
The law is contingent on selected companies participating in an annual auction held by PJM Interconnect LLC, which manages the movement of wholesale electricity for more than 54 million people on the 13-state grid from the U.S. Mid-Atlantic states to Illinois. There are ways for New Jersey to subsidize new plants without that requirement, Paul Clement, an attorney for the power companies, said yesterday.
“The bid-and-clear requirement is suspicious,” Clement told the panel. “It threatens to distort the market” by depressing prices.
The size of the subsidies is determined by the clearing price set at auction but doesn’t negatively affect FERC’s federal authority, Richard Zuckerman, an attorney for Hess Corp.’s Hess Newark LLC, said during the hearing.
Hess plans to build a 655-megawatt natural gas-fired power plant near Newark with its partner investment firm Energy Investors Funds.
Both Hess and Competitive Power Ventures LLC, which were granted subsidies, cleared PJM’s capacity auction. PSE&G served notice to Hess in November of its right to terminate its capacity contract in light of the district court’s ruling, Hess said in court papers arguing it would be irreparably harmed by that decision.
The case is PPL EnergyPlus LLC v. Solomon, 13-4330, U.S. Court of Appeals for the Third Circuit (Philadelphia)
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