Power Producers Challenge NJ Power Plant Law

PJM Power Providers, an advocacy group representing nine of New Jersey's biggest power producers, filed a complaint with federal regulators Tuesday that a new state subsidy to build plants undermines the U.S.'s largest electricity market.

The move is in response to the law signed by Gov. Chris Christie late Friday providing developers with up to 10 years of incentives to build 2,000 megawatts of natural-gas-fired generation. The legislation received strong support from legislators who see the program creating jobs and lowering power prices by adding local power supply.

But power companies already operating in the state are concerned that these new plants will distort market prices set through annual auctions held by PJM Interconnection LLC, the operator of the 13-state electricity market stretching from Pennsylvania to North Carolina and as far west as Ohio. The annual PJM capacity auction establishes how much a generator will be paid to keep plants ready to ensure grid reliability three years into the future. PJM allows new generators to lock in prices for up to three years, versus the one-year limit for existing capacity.

P3, as the advocacy group is known, is asking the Federal Energy Regulatory Commission to adopt rules to prevent plants from receiving subsidies from placing artificially low bids in their attempt to clear the auction. In the 2010 auction, capacity prices were set at $245 a megawatt hour a day for New Jersey, making it one of the highest rates in the country because of grid congestion.

Power companies have raised concerns that developers, armed with payments guaranteed by the new program, could place zero-dollar bids into the PJM auction, which would skew the market for all existing capacity. P3's members include Public Service Enterprise Group Inc. (PEG), Exelon Corp. (EXC), Constellation Energy Group Inc. (CEG), NextEra Energy Inc. (NEE), NRG Energy Inc. (NRG), Calpine Corp. (CPN), PPL Corp. (PPL) and GenOn Energy Inc. (GEN).

"If the units are actually needed, they will receive fair market payments just like other resources, such as energy efficiency and demand response, which are competing to meet New Jersey's needs," P3 President Glen Thomas said in a written statement.

Every year, PJM releases an estimate for the cost of adding new generation in the region, and that price is typically higher than the prices at which the capacity auctions clear. The advocacy group is asking FERC to revise the so-called minimum price offer rule so that subsidized generation has to place a bid equivalent to PJM's estimate for new generation. Otherwise, developers should be required to prove that their plants are more efficient at producing electricity to justify a lower bid, Thomas said.

FERC declined to comment per its policy on pending complaints.

-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com

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