By Naureen S. Malik
NEW YORK--New Jersey Governor Chris Christie signed into law a
program of long-term incentives to build new power plants in the
state late Friday, against much opposition from the within the
U.S.'s largest electricity market.
The program would provide up to a decade of incentive payments
to developers for the construction of 2,000 megawatts of natural
gas-fired generation, enough to provide electricity for two million
typical homes. The move guarantees a minimum return to build plants
that may not be economic to build without the subsidy.
A spokesman for the governor confirmed the bill was signed.
Lawmakers say the program will reduce some of the highest power
prices in the country, curb greenhouse gas emissions and create
jobs.
Major power producers in the state disagree and are expected to
seek legal action against the bill.
"We believe that it will ultimately lead to higher energy bills
for New Jersey consumers, fewer jobs and make it unlikely future
power plants will be built in the state without government
subsidies," Public Service Enterprise Group Inc. (PEG) spokesman
Michael Jennings said in an email. The state's largest utility
company has said the program will cost consumers more than $1
billion.
Exelon Corp. (EXC), Constellation Energy Group Inc. (CEG),
Calpine Corp. (CPN), PPL Corp. (PPL) and GenOn Energy Inc. (GEN)
raised similar objections to the plan in a recent letter to Gov.
Christie, a Republican.
The proposed program concerns what are known as capacity
payments made regularly to power companies as a reward for keeping
power plants ready to meet peak demand load three years from now,
not for power produced. The payments are set through annual
auctions held by PJM Interconnection LLC, the operator of the
U.S.'s largest electricity market spanning 13 states. Capacity
payments are funded by consumers through electricity rates.
The new generation built under the New Jersey law will have to
bid into the PJM auction in May 2011 or 2012, and to win it they
are expected to place artificially low bids because their payments
are already guaranteed. New Jersey has some of highest capacity
payments in the country. Last May, it was set at $245 a megawatt a
day versus less than $30 a megawatt a day in western parts of the
PJM market where population centers are less congested.
-Naureen S. Malik, Dow Jones Newswires; 212-416-4210;
naureen.malik@dowjones.com