Federal action sought after Christie signs power-plant subsidy bill

A coalition of electrical-power interests will ask federal regulators to come to their rescue after Gov. Christie signed a bill subsidizing power-plant construction that they say will undermine the region's energy markets.

Without fanfare, Christie late Friday signed a bill that guarantees New Jersey consumers will support electricity prices for several new power plants. The legislation was sponsored by supporters of LS Power Development L.L.C., which proposes to build a $1 billion natural-gas plant in West Deptford.

"This legislation is about building a reliable, affordable, and cleaner energy future for New Jersey and bringing fairness to ratepayers in the state," Michael Drewniak, the governor's spokesman, said Monday.

A coalition of big power generators, environmentalists, and large electrical customers including Wal-Mart and Genuardi's opposed the legislation as a sweetheart deal.

They say consumers might benefit in the short run from depressed wholesale prices, but in the long term, they say, the subsidies would discourage conservation, reward inefficiency, and hinder future power-plant construction unless it, too, were subsidized.

Jeff Tittel, director of the New Jersey chapter of the Sierra Club, called the legislation "one of the worst bills ever."

"The governor approved a more than $2 billion giveaway at the expense of the environment and consumers," Tittel said. "The governor chose to subsidize fossil fuels over promoting clean energy and the public health of New Jersey residents."

A coalition of big power users says it will petition the Federal Energy Regulatory Commission this week to intervene because, it says, the law will interfere with interstate commerce by undermining energy markets in several states, including Pennsylvania. The markets are managed by PJM Interconnection Inc., the regional grid operator.

"There's enough in this bill for everyone to hate if you're not getting a special deal out of it," said Glen Thomas, a spokesman for the coalition PJM Power Providers Group.

The controversy is drawing a spotlight on the esoteric world of wholesale electrical markets, which have been opened up to competition since the 1990s.

Under the old model, vertically integrated utilities generated power and delivered it to customers at regulated prices that made consumers bear the risk for efficient operations. In the new market model, investors assume the risk of operating power plants that can compete at the lowest cost.

Michael V. Jennings, a spokesman for the Public Service Enterprise Group, the big New Jersey energy company, said New Jersey customers were still paying for expensive long-term power-supply contracts that utilities were required to sign in the 1970s.

"New Jersey has tried to outsmart the markets before with terrible results," Jennings said.

In the market system, he said, PSEG has invested $1.5 billion in the last three years on new generation and energy-conservation measures that now would become less profitable if the subsidized market rates drive down wholesale prices.

Supporters of the bill say the competitive markets fail to provide the long-term guarantees to induce investors to build big new power plants.

"There's a substantial amount of apprehension on the part of state policymakers to rely solely on the PJM markets to incentivize new construction," said Paul Patterson, an energy analyst with Glenrock Associates, a New York investment firm.

So in New Jersey, a curious coalition of pro-union Democratic legislators, the state's consumer advocate, and the conservative Republican governor has aligned to intervene in the market by supporting subsidies.

The legislation was sponsored by State Senate President Stephen Sweeney (D., Gloucester), whose hometown of West Deptford would receive property-tax benefits from a new power plant.

Tom Hoatson, director of regulatory affairs for LS Power, said the 640-megawatt West Deptford plant would employ up to 500 people during construction and about 25 people to operate. He said the project "will bring a needed power supply to the region to help spark economic development and create jobs."

PJM says its market structure currently provides sufficient signals to generators to maintain a reliable electrical supply. "We believe our markets are working pretty well," said Terry Williamson, a spokesman for PJM.

The New Jersey legislation will depress regional prices for power by about $2 billion a year, undercutting conservation efforts, as well as existing generators, according to a report last month by Monitoring Analytics, the independent PJM market monitor.

The Sierra Club's Tittel said the bill would subsidize fossil-fuel power plants at the expense of renewable-power projects or energy-conservation measures.

"This bill is not about green energy," he said. "The only thing green about it is the money going to the polluters."