US federal court strikes down plant construction subsidy rule

• 11 years ago (2013-10-15)
• Junior Isles

North America 1021

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The US state of New Jersey will not be allowed to subsidise construction of new gas-fired power plants, a federal judge decided, ruling in favour competing generators who sued to stop the subsidies.

PPL Corp and the other companies in the suit claimed they would lose money on electricity they sell and capacity they invest in if New Jersey subsidised the construction of their competition’s plants.

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

This result invalidates 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 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).

The New Jersey decision was similar in structure to another decision this month by a federal judge in Maryland, overturning that state's attempt to subsidise capacity prices to incentivise the construction of new capacity.

"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.