Details of LCAPP contracts provide fuel for opponents of power subsidy

May 30. 2012 2:19PM

By Joshua Burd

Contracts released by state energy regulators this week are providing fresh ammunition for opponents of a program to subsidize new power plant development in New Jersey.

The Board of Public Utilities on Tuesday night released details of its agreements with two generators that could receive payments under the Long-Term Capacity Agreement pilot program, or LCAPP, which was launched early last year. The contracts show the state could soon owe tens of millions of dollars to the two companies — Hess Corp. and Competitive Power Ventures — to make up the difference between price guarantees offered by the BPU and what utilities will pay the firms for electricity generation.

The price guarantees are meant to be incentives for the companies that build new power plants in the state, helping to lower electricity rates for residents. But critics of LCAPP are taking aim at the newly released contracts.

"It skews the marketplace significantly and will have lasting implications for decades," said Glen Thomas, president of PJM Power Providers Group. The organization aims to promote competitive wholesale electricity markets in the served PJM Interconnection Inc.'s 13-state regional power grid.

In 2015, when a 15-year contract with CPV would begin, the state would pay the company nearly $30 million as a result of the subsidy program. That could potentially pave the way for more payments in subsequent years, as long as the market price for capacity stays below the state's price guarantees.

For Hess, which has a contract starting in 2016, the first payout could be around $12 million, according to calculations based on data provided by the BPU. In the cases of both generators, Thomas said, "New Jersey ratepayers are now on the hook for the next 15 years to be paying what's likely to be a very substantial premium."

"It's unfathomable that something like this could happen," he said. "If this were in the form of a tax increase, there would be people protesting in Trenton every day."

But the book on LCAPP is far from closed, said Frank Felder, head of the Center for Energy, Economic and Environmental Policy at Rutgers University. The economic downturn has left the region with surplus capacity, pushing down the market value for electricity.

Several unresolved policy issues also could affect the region's network of power plants, he said, including proposed federal policy that would "adversely affect" a number of coal-powered plants. He also noted that the Oyster Creek nuclear power plant, in Lacey Township, is scheduled to close in 2019.

Such changes could potentially impact the market and raise utility rates, he said. Under LCAPP, if market prices exceed the state's price guarantees, the participating generators would then owe the state money.

"There are open questions about how much transmission will get built into New Jersey," Felder said. "So you can certainly imagine scenarios where this flips in the future, but I'm not saying that's necessarily the case, either."

CPV has proposed to build a natural gas-fueled power plant in Woodbridge under the incentive program, while Hess plans to build a facility in Newark. Earlier this month, both companies cleared a regional capacity auction operated by PJM that determines the purchase price for the plants' capacity generation — and the price ratepayers will pay beginning in 2015.


www.NJBIZ.com