The financial implications of a state program designed to spur new power plant construction became clearer Wednesday, as the Board of Public Utilities released new financial details about the program.
The new numbers lay out the prices the BPU guaranteed to NRG Energy in exchange for the company building a power plant in Old Bridge. The price guarantees are part of the controversial Long-Term Capacity Agreement pilot program, which sought to solve what the board sees as a dearth of new power plant construction in New Jersey by providing financial certainty to developers. In addition to NRG, Hess Corp. and Competitive Power Ventures also are participating in the program, which could bring a total of nearly 2,000 megawatts of new natural gas-fueled generation to the state.
The new power plants will sell capacity, serving as reserve generators at times of high demand. Capacity is sold three years ahead of time, at regional auctions held each May. If auction prices fall below the prices guaranteed to the developers, ratepayers will be on the hook for the difference. If they fall above the so-called SOCA, or standard offer capacity agreement, prices, the generators will owe the state the difference.
The prices guaranteed to Hess and CPV were made public this spring. They showed CPV was guaranteed a price of $286.03 per megawatt per day for the year beginning in June 2015. The clearing price determined at May's auction was $167.46, meaning taxpayers will be liable for the difference — about $30 million. Hess' contract doesn't take effect until the following year, so its exact first-year subsidy is unknown. NRG failed to clear in May's auction, and its contract won't kick in until it does.
Had it cleared the auction, NRG would have received $360.66 per megawatt per day in the 2015-16 energy year, but spokesman David Gaier said that number is rendered moot by the company's failure to clear the auction. He declined further comment on the numbers, except to confirm their authenticity.
If it clears at next May's auction, NRG would get a guaranteed price of $328.77 for the 2016-17 energy year.
All told, the terms of the three contracts guarantee CPV payments of $1.28 billion; Hess payments of $814 million; and NRG payments of $925 million. However, when the first-year payment is removed, NRG's deal is worth $838 million. How much, if any, of that money comes from ratepayer subsidies will depend on future auction prices.
State officials expect the new plants to drive down power prices in the state and offset any subsidies.
NRG had sought to keep the financial details confidential, citing the competitive nature of the auctions, but a judge said the public was entitled to the numbers, prompting the BPU's disclosure today.
Glen Thomas, president of the PJM Power Providers Group, a coalition of energy companies in the region, said the latest numbers underscore the idea that LCAPP is fatally flawed.
"My organization… has consistently and vociferously maintained that the LCAPP program is just a flawed energy policy that's going to lead to consumers paying for power plants that they don't need, and for power plants that are priced well above the current market price," he said.
LCAPP has been challenged in court by power companies alleging the program infringes on federal authority and unnecessarily interferes with the regional power market. A federal court judge last week denied three motions for summary judgment pertaining to the case, setting the stage for the matter to go to trial.