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NJ Energy Resilience Bank Funds Distributed Energy Resources

Last week, the New Jersey Board of Public Utilities (BPU) approved an agreement with the New Jersey Economic Development Authority (EDA) to establish and operate an Energy Resilience Bank in the state.  The BPU approved a plan to direct over $200 million in federal aid to the bank.  The Energy Resilience Bank (ERB) will focus on the development of distributed energy resources at critical facilities throughout the state, aiming to minimize the impacts of widespread power outages like the one Hurricane Sandy caused.

The ERB will be focused on providing capital, both low-interest loans and grants, to critical facilities that offer the greatest resilience benefits, including water and wastewater treatment plants and hospitals.  Subsequent funding will be directed toward other critical facilities, such as transportation, emergency response and schools that can function as shelters in case of emergency.  While other states, including New York and Connecticut, have recently launched green banks, the ERB will be the first to focus on resiliency.

The launch of the ERB followed a National Renewable Energy Laboratory study that found that distributed generation and microgrids are integral to energy resiliency.  Distributed generation and microgrids have the potential to ‘island’ electricity at critical facilities with on-site generation, retaining power during bulk-power system blackouts.  These technologies provide additional benefits such as increasing efficiency by cutting transmission losses and incentivizing clean energy deployment.

New York launched its Green Bank in December with an initial capitalization of $210 million.  The New York model focuses on private-sector investment proposals and aims to support financing for local energy efficiency and clean-energy projects that larger financial institutions typically overlook.  New York’s Green Bank envisions support such as credit enhancements, co-investing with the private sector in a loan fund for clean energy, loan warehousing/short-term project aggregation and similar arrangements.  Connecticut launched the first green bank in the country in 2012, and, according to their 2013 report, roughly ten dollars was invested by private sources for every one dollar of ratepayer funds invested.  It remains to be seen whether New Jersey will similarly leverage private investment in its model.




Following Recent Maryland Ruling, Federal Court Declares New Jersey Scheme to Promote Investment in In-State Generation Unconstitutional

by Ari Peskoe

A Federal District Court Judge for New Jersey struck down the state’s incentive program to encourage construction of in-state generation capacity.  New Jersey’s scheme was similar to Maryland’s scheme that was the subject of a District Court ruling last month.  The Judges in both cases found that the state intruded on Federal ratemaking authority in violation of the Supremacy Clause of the Constitution.

New Jersey regulators concluded that insufficient transmission and increasing demand could lead to reliability problems in the state.  Working with state legislators, the Board of Public Utilities (BPU) developed the Long-Term Capacity Agreement Pilot Program (LCAPP), an incentive scheme designed to encourage gas-fired generation in or near New Jersey.  Like the Maryland incentive, New Jersey’s program guaranteed developers of new generation payments from the state’s incumbent utilities if PJM’s capacity auction resulted in a price lower than a set price that reflected development costs of new in-state generation.

The Judge found that state’s LCAPP occupies the same field of regulation and intrudes upon FERC’s authority to set wholesale rates through its approved PJM capacity auction.  Because LCAPP requires generators to clear the PJM capacity auction and the LCAPP rules incorporate PJM’s auction rules, the Judge determined that the state’s LCAPP is “not separate from, and to the contrary, occup[ies] the same field” as PJM’s auction.  The Judge rejected the state’s argument that LCAPP contracts are merely financial arrangements and therefore not subject to FERC jurisdiction.  According to testimony presented by a plaintiff witness and cited by the Judge, a purely financial contract does not “involve any real performance.”  New Jersey, on the other hand, required developers to build a plant, make capacity available, and clear that capacity in the PJM auction.  The Judge therefore found that payments under the state’s LCAPP contracts were in exchange for performance.

The Judge also found that plaintiffs had not met their burden of proof that LCAPP violated the Commerce Clause of the Constitution.  Plaintiffs argued that in-state generators had advantages in securing LCAPP contracts, which effectively prohibited out-of-state generators from competing.  According to the Judge, the BPU has authority to incentivize construction in New Jersey, and it “appears reasonable that the [BPU] would incentivize construction in areas where reliability concerns are in flux.”  The Judge therefore found that the in-state benefit is reasonable in light of New Jersey’s interest in ensuring reliable electric service.

The decisions in this case and in the Maryland case both struck down state incentive schemes that required utilities to pay the difference between a set contract price and a price determined by a FERC-regulated wholesale auction market.  Such a scheme, according to these two judges, sets the price received by a generator and therefore impermissibly intrudes on federal ratemaking and is void under the Supremacy Clause.

The Judge in the New Jersey case suggested alternative incentives, including tax exempt financing, property tax relief and favorable leases on public lands.  However, rather than routing incentives through [...]

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