U.S. court overrules New Jersey law subsidizing new power plants

Mon Oct 14, 2013 12:29pm EDT

Oct 14 (Reuters) - New Jersey cannot subsidize construction of new natural gas-fired electric plants in the state, a federal judge decided, ruling in favor of Pennsylvania power company PPL Corp and other generators who sued to stop the subsidies.

PPL and the other companies could lose money on electricity and capacity they sell from existing power plants if New Jersey subsidizes the construction of new plants.

U.S. District Judge Peter Sheridan said in a decision released late Friday that New Jersey's capacity law was unconstitutional because it violates the Supremacy Clause of the U.S. Constitution and infringed on the U.S. Federal Energy Regulatory Commission's (FERC) authority to regulate the sale of wholesale power in interstate commerce.

Sheridan heard the case in April and May of 2013.

The lawsuit challenged New Jersey's Long Term Capacity Agreement Pilot Program Act (LCAPP), passed in January 2011, requiring utilities to enter into long-term capacity contracts with generators chosen by the the New Jersey Board of Public Utilities (BPU).

In March 2011, the board selected three companies to build natural gas-fired plants in New Jersey: oil company Hess Corp , power company NRG Energy Inc and independent power producer Competitive Power Ventures (CPV).

Officials at New Jersey's BPU were not immediately available for comment. Some reports have said the capacity subsidies could cost New Jersey ratepayers up to $3 billion over the next 15 years.

The New Jersey decision was similar to another decision this month by a federal judge in Maryland that overturned that state's attempt to subsidize capacity prices to get new generation built.

"We're pleased with the U.S. District Court's decision, which upholds the integrity of competitive generation markets," Robert Grey, PPL executive vice president, general counsel and secretary, said in a statement.

"We are especially gratified that this New Jersey federal court decision comes less than two weeks after a Maryland federal court held in our favor that an order of that state's Public Service Commission requiring subsidized generation was unconstitutional on the same grounds," Grey said.

Power capacity markets provide revenue for generators to keep existing power plants available in future years for reliability reasons and incentives to build new units.

NEW JERSEY PLANTS

Hess had no comment on the court decision but said it and its joint venture partner, investment firm Energy Investors Funds, plan to finish the 655-megawatt Newark natural gas-fired power plant in 2015. The companies started building it in late 2012 at an estimated cost of $750 million.

Officials at CPV were not immediately available for comment.

CPV said in September it planned to start building the 700-MW Woodbridge plant in New Jersey soon and expected to complete the $842 million facility by early 2016.

CPV also had a contract with Maryland under that's state's now overturned capacity law to build a power plant there.

Unlike the Hess and CPV plants, NRG's proposed 660-MW Old Bridge plant failed to clear the capacity auction run by regional power grid operator PJM Interconnection, which was one of the requirements under new Jersey's capacity law that has now been overturned.

NRG cancelled its Old Bridge project in May after failing to clear the PJM capacity auction for a second time, a company spokesman said.

PJM operates the power grid in parts of 13 U.S. Mid-Atlantic and Midwest states, including New Jersey and Maryland, and the District of Columbia.