N.J. Lawmakers Pass Bill for 2,000 MW of Long-Term Capacity Contracts

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January 11, 2011

New Jersey lawmakers overwhelmingly approved Monday evening a bill (S2381) which requires the Board of Public Utilities to acquire 2,000 MW of new capacity for the delivery year starting June 1, 2014 or June 1, 2015.

Gov. Chris Christie is expected to sign the bill, which passed the Assembly 57-15 (with five abstentions) and the Senate 21-6.

Costs of the long-term contracts would be recovered through a nonbypassable surcharge.  However, the bill does not call for any change in how capacity is priced for Basic Generation Service, and in a sense may be considered competitively neutral to the retail market.  The bill also does not preclude the Board from taking any action with respect to BGS pricing in implementing the bill, so retail suppliers will want to closely monitor any such proceedings, but the main point is that bill does not mandate any outcome which is not competitively neutral to retail suppliers.

While the bill contemplates that customers will be paying a premium above the PJM capacity price to support the generators under the long-term contracts, through the nonbypassable surcharge, the bill does provide that the utilities are to receive a payment from any selected generators if the PJM capacity price exceeds the long-term contract price, equal to the difference between the prices.  The bill is not explicit if, and if so how, such refunds would be returned to customers, and if refunds must flow on a nonbypassable basis to all customers who paid the nonbypassable charge.

The bill's passage is another indictment of centralized, forward capacity markets, which have failed to produce any significant new build capacity, while costing ratepayers billions of dollars.

Aside from upping total capacity purchased to 2,000 MW, the final version of the bill removes a restriction that eligible capacity for the long-term contract must be gas fired, though the capacity must be new baseload.  The contracts shall be from seven to 10 years in length, rather than 15 years as originally drafted.

No single eligible generator or its affiliate may enter into a long-term contract for more than 700 MW.

The bill directs the BPU to complete a proceeding to review offers for the new capacity by March 1, 2011, with contracts resulting from the proceeding to be awarded, executed and approved by the Board no later than April 15, 2011.

The bill also exempts from the gas societal benefits charge natural gas commodity that is used to generate electricity that is sold for resale.

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