PPL Corp. (NYSE: PPL) is among the parties that have tried to stop or at least alter power supply programs in both New Jersey and Maryland that are encouraging the development of new gas-fired generation capacity, PPL said in its Nov. 8 Form 10-Q filing at the SEC.
In January 2011, New Jersey enacted a law that intervenes in the wholesale capacity market exclusively regulated by the Federal Energy Regulatory Commission, the company noted. To create incentives for the development of new, in-state electric generation facilities, the Act implements a “long-term capacity agreement pilot program (LCAPP).” The Act requires New Jersey utilities to pay a guaranteed fixed price for wholesale capacity, imposed by the New Jersey Board of Public Utilities (BPU), to certain new generators participating in PJM, with the ultimate costs of that guarantee to be borne by New Jersey ratepayers.
“PPL believes the intent and effect of the LCAPP is to encourage the construction of new generation in New Jersey even when, under the FERC-approved PJM economic model, such new generation would not be economic,” said the Form 10-Q. “The Act could depress capacity prices in PJM in the short term, impacting PPL Energy Supply’s revenues, and harm the long-term ability of the PJM capacity market to incent necessary generation investment throughout PJM. In February 2011, the PJM Power Providers Group (P3), an organization in which PPL is a member, filed a complaint before the FERC seeking changes in PJM’s capacity market rules designed to ensure that subsidized generation, such as the generation that may result from the implementation of the LCAPP, will not be able to set capacity prices artificially low as a result of their exercise of buyer market power.”
The Form 10-Q added: “In April 2011, the FERC issued an order granting in part and denying in part P3’s complaint and ordering changes in PJM’s capacity rules consistent with a significant portion of P3’s requested changes. Several parties have filed appeals of the FERC’s order. PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.”
In addition, in February 2011, PPL and several other generating companies and utilities filed a complaint in the U.S. District Court for the District of New Jersey challenging the Act on the grounds that it violates the Supremacy Clause and the Commerce Clause of the U.S. Constitution. The plaintiffs are requesting declaratory and injunctive relief barring implementation of the Act by the commissioners of the BPU. In October 2011, the court denied the BPU’s motion to dismiss the proceeding. In September, the court denied all summary judgment motions and the litigation is continuing. Trial has been scheduled for Jan. 17, 2013. Again, PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this proceeding.
New Jersey ‘leery’ of power supply security due to transmission limits
In the September federal court ruling that PPL mentioned, the judge wrote by way of background: “[T]he State of New Jersey and the BPU became leery about meeting energy demands of the future without relief from PJM or FERC due to the lack of transmission issues, and enacted the LCAPP Act in order to overcome that issue through the development of more local generation. On January 28, 2011, the New Jersey legislature enacted the LCAPP Act to foster new electric generation, and to provide New Jersey with new generation capacity. The LCAPP Act has several purposes. It requires a competitive selection process to foster the development of 2,000 MW of new base load or mid-merit electric power generation facilities in order to ‘ensure sufficient generation is available to the region, and thus to the users in the State in a timely and orderly manner.’ In addition, the statute authorized the ‘BPU to order New Jersey’s public utilities to enter into long-term financial agreements with new generators selected by the BPU from its competitive solicitation process.’ The law works as follows: First, the BPU selects a limited number of electric generation companies for entry into a pilot program. The BPU bases its selections on criteria included in the Act. Second, these electric generation companies enter into irrevocable, long-term contracts with each of New Jersey’s electric public utilities. These contracts, or standard offer capacity agreements (‘SOCAs’), guarantee the state-selected electric generation companies a fixed price for electric capacity.”
The ruling added: “In exchange for the price guarantee, the LCAPP Act requires the state-selected generation companies to sell their capacity at PJM auctions. The SOCA operates to insulate the state-selected generation companies from losses at the PJM auction who bid below the MOPR screen. Additionally, the utilities are also allegedly insulated from losses because any SOCA payment may be passed onto the New Jersey ratepayers through future rate increases.”
Competitive Power Ventures announced in March 2011 that its gas-fired CPV Woodbridge Energy Center project was selected by the New Jersey BPU to be one of three projects that will produce in-state power under this program. CPV Power Development is one of the parties to the court case on the side of the BPU. Plaintiff parties include PPL Energy Plus, Calpine Energy Services, PSEG Power LLC, GenOn Energy and Atlantic City Electric.
PPL disputes similar program in Maryland
In April of this year, the Maryland Public Service Commission (MD PSC) ordered three electric utilities in Maryland to enter into long-term contracts to support the construction of new electric generating facilities in Maryland, specifically a 661-MW natural gas-fired combined-cycle facility to be owned by CPV Maryland LLC.
“PPL believes the intent and effect of the action by the MD PSC is to encourage the construction of new generation in Maryland even when, under the FERC-approved PJM economic model, such new generation would not be economic,” said the Form 10-Q. “The MD PSC action could depress capacity prices in PJM in the short term, impacting PPL Energy Supply’s revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.”
In April, PPL and several other generating companies filed a complaint in U.S. District Court in Maryland challenging the MD PSC order on the grounds that it violates the Supremacy and Commerce clauses of the U.S. Constitution. Plaintiffs requested declaratory and injunctive relief barring implementation of the order by the commissioners of the MD PSC. In August, the court denied the MD PSC and CPV Maryland LLC motions to dismiss the proceeding and the litigation continues.
CPV Maryland is an intervenor in this lawsuit, and said in part in an Aug. 24 answer to the lawsuit: “CPV admits that the MdPSC directed three of Maryland’s EDCs – Baltimore Gas and Electric Company (‘BGE’), Delmarva Power and Light Company (‘Delmarva’), and Potomac Electric Power Company (‘Pepco’) – to enter into a long-term financial contract with CPV in the form of a contract for differences. CPV admits that it was selected through a competitive bidding process, open to all developers, including Plaintiffs, and per the recommendation of consultant Boston Pacific, as the best candidate to construct a new electric generating facility to be located in the Southwest Mid-Atlantic Area Council (‘SWMAAC’) sub-region of PJM. To the extent that this paragraph refers to the April 12 Order, that document speaks for itself. The remainder of this paragraph constitutes characterizations and legal conclusions, which, to the extent a response is required, CPV denies.”
Said the Maryland PSC commissioners in their similar Aug. 17 reply to the lawsuit about an accusation related to how they picked CPV: “Defendants deny that CPV was ‘hand-picked’ – the competitive procurement process was open to all generators, including Plaintiffs. The Maryland PSC admits that CPV’s winning proposal is to develop a generating facility in Charles County, Maryland. Defendants deny all other allegations in this paragraph.”