New Jersey’s largest utility is ready to add more power generation in the state under a program that provides a subsidy to the company, even though it’s party to a lawsuit against the state over the validity of the program.
Public Service Enterprise Group (PSEG) recently submitted a proposal to build 1,100 megawatts of generation at three of its existing plants in the state.
“We will participate in the process,” said Bill Levis, president and CEO of PSEG, even as he acknowledged that “once you go down that path, you are going to have a hard time backing out of it and subsidizing every new plant that is proposed.”
The announcement comes after N.J. lawmakers in January passed a measure that provides incentives for building up to 2,000 MW of natural gas-fired power generation there, electricity that could serve 2 million homes.
PSEG and other utilities have sued New Jersey in U.S. District Court and lodged a complaint with the Federal Energy Regulatory Commission (FERC) over the incentive program, which they claim works against competition.
New Jersey is part of the country’s largest competitive electricity market, a 13-state grid operated by PJM Interconnection. Utilities in the grid have historically looked at market pricing when determining whether to build new plants or invest money elsewhere, such as for plant upgrades, transmission lines or demand-response projects.
Legislators said the incentives program is designed to spur new construction and create jobs, lower prices for power and cut emissions as generation moves from coal to natural gas. Utilities say they’re opposed to the plan because it will skew market pricing by subsidizing generation and promoting new construction over other investments.
At issue is how the new program changes the current system in New Jersey, where “capacity payments” are made to power companies to ensure their plants can meet demand at least three years into the future. PJM holds a spring auction to set the payments for contracts of one to three years.
The new program guarantees capacity payments for new generation for up to 10 years and is based on prices outside the auction.
Utilities are concerned that new plants – knowing their payments are guaranteed – will simply put zero-dollar bids into the auction, which would depress market prices and in turn revenues.
Plant operators want FERC to require subsidized producers to make their bids based on their project costs and not discount for the subsidy. PSEG last week said FERC could make a ruling in April.
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