Energy Master Plan Alert

Title:
Energy Master Plan Alert
Publication:
The July 2011 Riker Danzig Energy ALERT
Attorneys:

Energy Master Plan Hearings Commence July 26th

The New Jersey Board of Public Utilities ("BPU") will hold Public Hearings on New Jersey's draft 2011 Energy Master Plan ("EMP") on July 26, August 8 and August 11, 2011. The BPU will also accept written comments through August 25, 2011.

Summary of EMP

The EMP sets forth the Christie Administration's long-term plan to manage energy in a way that saves money, stimulates the economy and job creation, promotes renewable and other "clean" energy sources, and meets the State's environmental goals. The EMP sets forth five goals over the next ten years:

 

To advance these goals, the EMP sets forth policy options and recommendations in an action plan. This Alert identifies provisions of the EMP that may impact conventional electric generators, developers of renewable energy generation, gas and electric distribution companies, customers/ratepayers and green technology developers.

Conventional Electric Generators

The EMP promotes a diverse portfolio of new, clean, cost-effective in-state electric generation. (p. 78) The EMP suggests consideration of expanding the definition of "clean" energy beyond renewables to encompass existing and new natural gas and nuclear power. (pp. 74-75)

The EMP favors gas-fired generation. Combined Cycle ("CC") gas plant development is encouraged as an efficient, low cost source of energy with minimal climate impacts. (p. 77) The Long-Term Capacity Agreement Pilot Program ("LCAPP") was designed to induce new generation entry into New Jersey by ensuring adequate, stable capacity payments and has resulted in the award of 1,945 MW of new in-state CC capacity. (pp. 78-79) The LCAPP-induced capacity would displace incumbent generation with cleaner, more efficient gas-fired generation, thereby reducing mercury, NOx, SO2 and CO2 emissions. (p. 79) The siting of two LCAPP projects on brownfields may result in additional economic benefits beyond returning impaired properties to productive use. (p.79) Additionally, the EMP supports expanding the interstate gas pipeline system in the state including transporting lower cost gas from the Marcellus shale. (p. 81)

The EMP recognizes that new nuclear baseload generation must be considered along with other resources to replace lost nuclear capacity from the impending closing of Oyster Creek and to meet the 2050 greenhouse gas reduction goals in the State's Global Warming Response Act. (pp. 77, 79-80) The EMP supports construction of new nuclear baseload generation, but recognizes that many economic, safety and environmental questions must first be answered. (p. 80)

The EMP also states the Administration's commitment to expand Combined Heat and Power ("CHP") generation, also known as cogeneration, setting a goal of 1,400 MW from commercial and industrial ("C&I") applications and 100 MW from district energy systems. (p. 81) Among other things, the EMP suggests consideration of a State procurement process for third party providers who would build, own and operate CHP facilities on state-owned campus-type facilities. (p. 81)

In contrast to the foregoing favored "clean" generation sources, New Jersey will not accept new coal-fired generation in the state because it is a major source of CO2 emissions. (p. 77)

Developers of Renewable Energy Sources

The EMP commits to achievement of the statutory objective of obtaining 22.5% of electric supply from renewable sources by 2021 (pp. 1, 4, 73, 82), but rejects the prior administration's proposal to increase the renewable portfolio standard ("RPS") to 30% by 2021 as being unachievable. (Posting of Bob Jordan to http://blogs.app.com/capitolquickies /2011/06/07/christie-renewable-energy-vital-for-n-j-s-energy-needs/,Christie: Renewable Energy Vital for N.J.'s Energy Needs (June 7, 2011); see Mireya Navarro, Calling for 'Achievable' Target, Christie Plans Cut in State's Renewable Energy Goals, N.Y. Times, June 7, 2011, at A19, available at http://www.nytimes.com/2011/06/08/science/earth/08christie.html?wpisrc=nl_wonk) The EMP proposes to modify the methods for achieving solar goals and adds emphasis to other renewable sources.

The EMP expresses concern, given the current state of the economy, over the high cost of Solar Renewable Energy Certificates ("SRECs") (used by generators to satisfy their solar RPS requirements and ultimately charged to ratepayers) while photovoltaic ("PV") module prices were declining, and the future statutorily mandated escalation in the solar RPS. (pp. 86-94) Although solar is expected to continue to play a strong role in New Jersey's electric generation mix (p. 83), the EMP proposes changes meant to lower the cost, including: reducing the Solar Alternative Compliance Payment ("SACP") penalty (which sets a ceiling on SREC prices) by 20% in 2016 and by 2.54% for each year thereafter (p. 101); re-evaluating the reasonableness of the existing SACP price level authorized by the BPU through 2016 (p. 94); reevaluating strict compliance with the statutory solar RPS requirements through 2026 (p. 94); and subjecting solar incentive awards to a cost-benefit analysis (p. 102).

In addition, the EMP prioritizes "dual benefit" behind-the-meter commercial/industrial solar installations over residential or grid-connected solar, as a means of reducing the costs of doing business and promoting jobs. (p. 102) The EMP supports large grid-connected solar projects on brownfields and landfills, but states firmly that New Jersey will "not subsidize the loss of productive farmland." (p. 102)

The EMP maintains support for offshore wind development as an administration objective since it is renewable, has no carbon output, and has the potential to develop a manufacturing and support industry in New Jersey, producing long-term economic benefits. (pp. 96-97, 103)

The EMP acknowledges the potential of effective use of biomass and waste-to-energy ("WTE"), especially given the state's significant waste generation, existing waste collection infrastructure, the high cost of waste disposal and difficulties siting new landfills. (pp. 98 & 104) The EMP notes that the current classification of WTE as a Class 2 renewable energy has hindered its development. The EMP proposes that WTE facilities in full compliance with DEP requirements should receive comparable economic incentives to facilities producing electricity from landfill gas. (p. 104) In recognition of the economics of biomass and the available source materials in the state, the EMP takes an expansive view of biomass, utilizing a definition that goes beyond the statutory definition to include both energy derived from residential and industrial waste material and agriculturally-derived fuel. (pp. 98-99) Further investigation of the practicality and cost-effectiveness of biomass resource development and WTE is encouraged by the EMP.

The EMP encourages other cost-effective emerging renewables, such as wave, tidal power or biomass, as a source of new businesses and job creation. (pp. 81 & 104)

Gas and Electric Distribution Companies

The EMP contains many positives for regulated gas utilities' delivery business. The EMP supports additional in-state gas-fired generation that would provide additional throughput. Expansion of the gas distribution system generally and into un-served and under-served areas specifically - areas where either natural gas is unavailable or where oil-fired heat is prevalent - is presented as a means of reducing the wholesale cost of gas and power, fostering fuel substitution and innovation in the transportation sector and supporting initiatives centered around oil-to-gas conversions for home heating oil. (pp. 6 & 81) The EMP establishes expansion of the State's natural gas infrastructure as a priority item, critical to ensuring price reductions, fuel substitution, increased utilization of NGVs and oil-to-gas heating conversions in the residential sector. (p. 81)

Indeed, the administration, while supporting gas energy efficiency ("EE") programs and conservation, does not support the natural gas reduction goal set forth in the 2008 EMP. (p. 105) Instead, the EMP supports increased use and consumption of natural gas as a key part of achieving Administration goals, with emphasis placed upon increasing the penetration of gas-reliant appliances and vehicles and reduction of oil usage. (pp. 115, 122-124, 126)

For regulated electric distribution companies, the EMP recognizes that Smart Grid technology, impacting both distribution and transmission, will be an integral part of the State's energy program, as will smart meters and infrastructure that supports Electric Vehicles. (see pp. 120-122, 126) The EMP also notes that the BPU has evaluated additional incentives to electric (and gas) distribution companies to make system capital improvements, including surcharges providing recovery of and on investments without a base rate case (with later prudency review and cost reconciliation) and other surcharge mechanisms favorable to the companies.

Customers/Ratepayers

In order to assure that cost shifting from select program participants to nonparticipants throughout the state occurs only where nonparticipants reap sufficient benefits in the form of cleaner air or lower power prices, the EMP stresses the need for more rigorous cost-benefit analysis to assess the true cost-effectiveness of its energy policy options. (p.73) To this end, the EMP notes the need to focus remaining solar subsidies on commercial/industrial projects that create economic benefits and refuse subsidies that turn farmland into grid-supply solar facilities (p. 102) and recommends close monitoring of implementation of LCAPP projects to ensure ratepayers receive the expected benefits. (p. 79) The EMP recognizes that the cost to achieve the 22.5% RPS target by 2021 will fall on all ratepayers and thus advocates a change in renewables development to focus on net economic benefits. (p. 82)

Reducing customer usage during on-peak hours and overall energy is viewed as an important tool in reducing rates and providing benefits to all ratepayers. (p. 105) In order to achieve this goal the EMP suggests the expanded use of dynamic pricing and smart meters to encourage more mindful energy consumption and to reduce retail prices for all residents. (p. 10) Dynamic pricing ties energy rates to energy demand, resulting in higher prices during times of peak-demand or low supply. Smart meters enable consumers to monitor and adjust their energy consumption to respond to these prices, by either reducing use or participating in demand response ("DR") programs. (pp. 121-122) DR programs, like Pennsylvania-New Jersey-Maryland Interconnection, LLC's ("PJM's") Price Responsive Demand ("PRD"), involve curtailment of use or on-site generation during key times; PJM is in the process of implementing incentives and resources for the use of DR. (pp. 8 & 114) Customers must recognize, however, that PRD as a means of achieving customer DR participation will subject customers to market prices as a means of encouraging energy reductions. (p. 114)

Customers may achieve greater EE by insulating their roofs and replacing existing heating and lighting systems with more efficient systems. (p. 106). A variety of programs exist to help customers achieve greater EE, including but not limited to residential programs such as the Residential New Construction and Residential Low Income programs and the commercial and industrial C & I New Construction and C & I Retrofit programs and Direct Install. (pp. 107-108)

Green Technology Developers

The EMP encourages the development of innovative energy technologies, such as tidal energy generation (pp. 118-120), that take advantage of the state's resources and can generate new business and jobs within the state. The EMP also encourages monitoring of advances in energy storage technologies (pp. 118-120, 125) and improvements in transportation efficiency. (pp. 122-126)

Conclusion

The EMP is extensive and the foregoing list of items is not all inclusive. If you wish to discuss the substance of the EMP or the EMP process, please contact Edward DeHope, James Meyer, Marilynn Greenberg or Michele Julie Glass of Riker Danzig's Energy Group.