U.S. court overrules New Jersey law subsidizing new power plants

Reuters

By Scott DiSavino

Oct 14 (Reuters) - New Jersey cannot subsidize constructionof new natural gas-fired electric plants in the state, a federaljudge decided, ruling in favor of Pennsylvania power company PPLCorp and other generators who sued to stop thesubsidies.

PPL and the other companies could lose money on electricityand capacity they sell from existing power plants if New Jerseysubsidizes the construction of new plants.

U.S. District Judge Peter Sheridan said in a decisionreleased late Friday that New Jersey's capacity law wasunconstitutional because it violates the Supremacy Clause of theU.S. Constitution and infringed on the U.S. Federal EnergyRegulatory Commission's (FERC) authority to regulate the sale ofwholesale power in interstate commerce.

Sheridan heard the case in April and May of 2013.

The lawsuit challenged New Jersey's Long Term CapacityAgreement Pilot Program Act (LCAPP), passed in January 2011,requiring utilities to enter into long-term capacity contractswith generators chosen by the the New Jersey Board of PublicUtilities (BPU).

In March 2011, the board selected three companies to buildnatural gas-fired plants in New Jersey: oil company Hess Corp, power company NRG Energy Inc and independentpower producer Competitive Power Ventures (CPV).

Officials at New Jersey's BPU were not immediately availablefor comment. Some reports have said the capacity subsidies couldcost New Jersey ratepayers up to $3 billion over the next 15years.

The New Jersey decision was similar to another decision thismonth by a federal judge in Maryland that overturned thatstate's attempt to subsidize capacity prices to get newgeneration built.

"We're pleased with the U.S. District Court's decision,which upholds the integrity of competitive generation markets,"Robert Grey, PPL executive vice president, general counsel andsecretary, said in a statement.

"We are especially gratified that this New Jersey federalcourt decision comes less than two weeks after a Marylandfederal court held in our favor that an order of that state'sPublic Service Commission requiring subsidized generation wasunconstitutional on the same grounds," Grey said.

Power capacity markets provide revenue for generators tokeep existing power plants available in future years forreliability reasons and incentives to build new units.

NEW JERSEY PLANTS

Hess had no comment on the court decision but said it andits joint venture partner, investment firm Energy InvestorsFunds, plan to finish the 655-megawatt Newark natural gas-firedpower plant in 2015. The companies started building it in late2012 at an estimated cost of $750 million.

Officials at CPV were not immediately available for comment.

CPV said in September it planned to start building the700-MW Woodbridge plant in New Jersey soon and expected tocomplete the $842 million facility by early 2016.

CPV also had a contract with Maryland under that's state'snow overturned capacity law to build a power plant there.

Unlike the Hess and CPV plants, NRG's proposed 660-MW OldBridge plant failed to clear the capacity auction run byregional power grid operator PJM Interconnection, which was oneof the requirements under new Jersey's capacity law that has nowbeen overturned.

NRG cancelled its Old Bridge project in May after failing toclear the PJM capacity auction for a second time, a companyspokesman said.

PJM operates the power grid in parts of 13 U.S. Mid-Atlanticand Midwest states, including New Jersey and Maryland, and theDistrict of Columbia.

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